Today we have Yomesh Deliwala on the show! Do you want to become a successful real estate investor? Join Yomesh Deliwala as he dives deep into the world of value add real estate and how it can help build massive wealth. Discover the risk-adjusted returns of various real estate-related asset classes and gain knowledge on how to find an ideal business partner. Learn his strategies for operations that enable a “what we can do” or “what is our potential” mentality. Listen and learn.

Table of Contents:

• Where To Listen To The Podcast
• Yomesh Deliwala’s Venture Into Value Add Real Estate
• Forward Thinking in Value Add Real Estate
• Value Add Real Estate as a Business Plan
• Value Add Real Estate Has a Wide Range of Investments
• The New Trend in Value Add Real Estate Investments
• The Path of Progress Towards Value Add Real Estate
• Learning Lessons in Value Add Real Estate
• How To Reach Yomesh Deliwala

Yomesh Deliwala’s Venture Into Value Add Real Estate

Darin: Yomesh Deliwala lives and invests in the Charlotte MSA. He's been investing in real estate for the past 15 years, but just recently left his W2 to become a full-time real estate investor. His background is in technology with a large management consulting firm. His role in the real estate business is to focus on operations. He is continually learning and using that learning to help his company's investors gain access to various real estate-related asset classes.

So just a little bit on how we know each other and then we'll get into it. I actually just did a deal with Yomesh and his partner, Hemal Badiani. Hemal was on the show back Episode 115 and it was a nice little property in Spartanburg, South Carolina, 98 unit townhome deal built in 2022. So we're buying it from the developer and so interested to hear and have him share. We had Hemal on and want to hear his role and how he can help listeners understand the different facets of going into a multifamily deal. So with that, Yomesh, can you share with the listeners maybe a little bit about your background and how you got involved with multifamily?

Yomesh: Absolutely. Thanks for having me over here, Darin. Excited to be here and add some value to your listeners.

Darin: Absolutely.

Yomesh: I have been in real estate for I would say over 15 years. A fascinating story out there where I obviously started as a passive investor, like many of the listeners out there as well. Apparently, I was living in an apartment while I invested in passive real estate.

How Did Yomesh Get Into Value Add Real Estate

Yomesh: So that was one nugget that I tried to look back in history and I'm trying to find that out. But yes, I was living in an apartment. I did invest in a townhome where I invested in a townhome to start the passive income. So I was very forward-thinking in terms of getting my passive income to a point where it would replace my active income. That's where the journey started about 15 years ago.

I'm from Charlotte, North Carolina. I have been on and off investing in the Charlotte market in and around Charlotte market. Charlotte market has grown a significant growth over the last 15 years. And fortunately I was able to take advantage of some of that in the areas that were more popular from a job growth perspective, population coming in perspective. So built myself a good portfolio of rental properties, townhomes, single family in and around Charlotte area up until 2016.

Starting from 2006 all the way to 2016 is when I picked up a few units, townhomes, single family, all of that, built a nice portfolio out of it. And then from '16 onwards, the numbers stopped making sense in terms of where the market was going and anything that you can buy versus rent it out. And then the numbers, the cash on cash, the cash flow that you would get towards the end, it started in the opposite direction. So that's when I paused. That's between '16 and '19, I was just evaluating the market. And then '19 is when obviously Hemal and I know each other for a really long time.

Darin: How do you guys know each other?

The Beginning of a Partnership

Yomesh: We're common friends and we have some common friends across Charlotte area as well within the US, back home in India as well. So we had met over a few events. Hemal went to the local university as well where a few of my friends were also going. So we met through common friends and then clearly struck a chord over there from a friendship standpoint. So I think we go back as long as my time here in Charlotte, which is about 18 years.

Never had an opportunity to work together obviously. And then as a friend, I would always recommend, based on my background on real estate, what I would do was I would pick up those townhomes and single family. I would work directly with the developers. So these are all brand new townhomes that were coming up in the Charlotte area.

What I would go in and say strike a deal there to take up all investor-based units, meaning in Charlotte there was a typically builder by builder. And what they do is 50% residential, 50% investment.

What I will do is I will block all the investor units and then whatever I can consume, I would consume and then I would open it up for some of my closest friends. So Hemal was one of them. He and I have a few units up in North Charlotte where we bought individually of course, but we bought it directly through the builder. That's where we worked our way into me recommending him some deals.

Pursuing The Potential of Value Add Real Estate

Yomesh: And then in '19 is when a few of us were meeting over drinks and Hemal is like, "Hey, let me tell you guys about multifamily." This was back in '19, everybody was over a glass of scotch.

We were all talking through and Hemal walked us through on a piece of cardboard and we were just writing through brainstorming and a mini mastermind, you can call it out. But I saw right through it and I saw the value. I was working through the numbers all along and I saw the value that was coming out of from a multifamily standpoint. So right after that meeting, Hemal and I talked and I'm like, "What do we do next? And how can we get started?"

So from that point onwards to today. We have our brand, we have our team, we have our several lines of businesses putting all the work that we have been doing for over two decades into consulting and doing work for everybody else. We're just bringing it in-house, doing it for our own selves, for our own team, for our own projects.

Darin: That's fantastic. That's a great story. I didn't realize that you guys had that long history together. I mean, I hear that over and over again from people about getting into partnerships, really know your partners and the fact that you guys have an 18-year relationship says a lot that you guys came together. The other thing that you said, which I love, was forward-thinking. You were forward-thinking. You were actually living in an apartment when you did your first passive deal.

Forward Thinking in Value Add Real Estate

Darin: Talk about that because I think I don't see many people that are in that kind of mindset. I see the passive investors that get involved in deals that I'm involved in, and they're typically people that have excess capital. They're doing well in another industry and they kind of siphon off the money. They don't want to put all their money in the stock market, and so they want to diversify. But you were forward-thinking and you saw that both passive investments and rental properties were where it was at. So share your mindset that you've kind of went down that path.

Yomesh: Yes. The whole intent behind that was to create a stream of income that would at some point surpass my active nine-to-five and I would be able to comfortably retire, so to say, on this passive income. I'm sure all the listeners out there also have the same intention, but intention and action are two different things. Right?

Darin: Right. I was going to say everybody wants that passive income to be more than their daily lifestyle, but people keep buying stuff and that lifestyle creeps up.

Yomesh: Exactly.

Darin: You sacrificed early so that you could enjoy the rewards later.

Yomesh: Exactly. That's where it kind of helped out as well if you are in a growing market. For example, Charlotte here, 16 years ago was a different place altogether, right?

Darin: Sure.

Yomesh: So having that insight, staying local, I took that leap of faith. So in addition to all the stock market purchases and diversified portfolio, having passive income through rental real estate was also one of the areas I was exploring.

Complementary Skills

Yomesh: And then the way it happened was there was a lot of development happening in the area and that's where I entered into one of the development and then picked up one unit. One became three, three became five, five became ten over the period of years. That's where it helped me build my portfolio locally as well.

Darin: I got a number of questions that come out of your background, but the first, let's divide up what's your role versus Hemal's role within the company? Also, you mentioned you're building a brand. Share with the listeners what the name of the company is and the brand.

Yomesh: Absolutely. One of the things, and this is not my first rodeo from a partnership standpoint. So I have had several other small businesses that I used to own and I had my share of experience from a partnership standpoint. So number one thing, and as the listeners also look for some of the partners that they would venture out from a multifamily or commercial real estate standpoint. One of the things that I typically looked out, and Hemal would agree, is complementary skills.

Hemal and I possess complementary skills. When I say that, what does that mean? He's more from an investment standpoint, he has an extensive background from banking, financials, all of that. So he handles most of our loan conversations, debt conversations, investor conversations. He's more facing towards investors, handling those conversations, whereas my forte has been from a property management operations numbers perspective. So I handle most of the operations. That's how our roles are divided. He's more towards on investment, debt and I handle most of the operations.

Playing to Your Strengths

Yomesh: So if you talk about anything from our property standpoint, that's the portfolio I would manage. Obviously, we both are closely working together. So I know exactly what's happening on his area, he knows exactly what's happening on my area. But when it comes to responsibility, so a neck to choke or a responsible decision maker, which is very important. So that's where he and I separate our duties where say, hey, if there is an operational-related decision, my word is final. If there is a debt-related conversation, both of us doesn't need to be on the same call and talk about it, right?

He can make the decisions, he can make the calls, he can make the negotiations. I can do the same based on my realm of activities. That's how our roles are different. We actually worked for the same company. We worked for Accenture for the most part from a consulting standpoint.

Darin: Oh, you did? I didn't know that.

Yomesh: Never worked together on a project. Hemal was more on the management consulting side. I was more on the technology services and technology consulting side. We had our share of negotiations, our share of conversations with C-suite level people and dealing with that conversations. So that was a niche skill that both of us brought to the table. So having the right relationships, having the right terms brought out in whether you are negotiating a debt, whether you're negotiating a property management agreement.

The Different Types of Value Add Real Estate Investment

Yomesh: That's how we kind of tag team each other, have our own specialties. But the core theme, underlying core theme is complementary skills. That's what we brought to the table and that struck the chord right from the beginning. Where we had a clear understanding of we're not stepping on each other's toes in terms of responsibilities. We're not duplicating the work. We are utilizing our complementary skills to achieve success in each of those areas.

Darin: Yes, that's fantastic. The other piece that I want to talk about, which hearing your story, it makes sense now. When you think of value-add multifamily, right? Most people will consider value-add real estate to be all right. You're going to buy a property, you're going to rehab the interior units, you're going to paint the exterior, you're going to make it nicer, and then you're going to raise rents. But what I've seen in the deal that we are involved in together, is that there's also other types of value-add real estate opportunities. Where the deal that we bought in South Carolina was a new development deal, brand new, but the developer has a different MO.

Developer is looking to buy the land, get it entitled, build the property, lease it up, but they don't care if they're at market rents, so they just want to lease it up and sell it. That was a value add real estate opportunity, but it was a different type of value add opportunity. It was a value add real estate opportunity where there's not as much maintenance that you have to put into it and then over a period of time, over several years, you're going to raise rents. So share with the listeners your viewpoint on different sets of value add.

Value Add Real Estate as a Business Plan

Yomesh: Yes. I mean obviously the deal that we are involved in, that's a 2022 build like you mentioned. The intention from the builder was to lease it up as fast as possible. So there were several concessions that they made in the beginning when they launched the property like any other developer would. What they want to do is they want to speed up the lease up and they would take these routes where they would put a concession in place, discounted rents or free leases, and stuff like that.

So that's where when we step in. And from a developer standpoint, like you mentioned. What they are concerned or what they have a short-term goal is to fill the property up so that they can show the right NOI and then put it in the market and move on to their next property. They're not in the business of asset managing the property over a period of a five-year business plan. They're not in the business of that. They want to move on. They want to fill it up, move on to the next one.

When we come in in asset like this, when we come in, the number one thing that we do is market study. That's where we find out that there's a potential for the rent growth. In addition to the property being brand new, there are several things that can be brought to the property, which would then enhance the value of the property further. Whether it is some ancillary services that you bring from a valet trash or a pet services or provide them with privacy fences, make improvements within the property. You do all of that as part of your business plan.

Finding the Right Balance Within Value Add Real Estate

Yomesh: But at the same time, the number one thing that when you buy directly from the builder, you want to keep in mind is the renewal side of it. Since they have filled in the property with discounted rent, the number one challenge that would come up is, hey, now that you're stepping in and you're bringing in that renewals in place. And kind of go back to the same tenants and tell them that, "Hey, what you rented out in 1,200 is actually now 15, so would you like to continue? And if not, then these are the terms that we have set in stone."

So little bit of creative and by the time that we acquired that property and by the time we are in, markets are shifting. So we got to be cognizant of having a proforma number to hit versus maintaining that right balance of occupancy versus proforma numbers versus delinquency. There's a whole lot of things that go into place where depending on the type of asset that you have that you need to maintain that fine balance. You don't want everybody to mass exodus of the tenants, but at the same time, you need to maintain the right balance.

Darin: Absolutely. So the other thing that was interesting was when you talked about even what you were doing on a much smaller scale. But you were going into developers and the developer maybe was doing 50% residential and 50% investor properties, you were blocking out that investor piece. That's kind of similar to what you're doing with buying a new property from the developer.

The Importance of Establishing Connections in Value Add Real Estate

Darin: I don't know if you already had a relationship with this builder, but having that experience, I would imagine it helped in creating the relationship and assisting and winning the deal.

Yomesh: Absolutely. I think what we need to make sure is the track record, right? So what any seller, including us, we would like to know is what kind of track record the team has, whoever is coming in from a buying perspective. And we being developers by ourselves as well, I mean that adds to our advantage to talk in the terms of the developer. So that's where we were able to negotiate with them. We were able to get in good faith. We were able to get in an early engagement with them. And we were able to meet the team. We were able to see the property. So it sets us apart when you are talking in their own language and working with them in a way that it becomes a win-win situation from both parties.

Darin: So maybe explain that because most of the syndicators that I've had come on the show are focused on value-add multifamily and rinse and repeat, rinse and repeat, rinse and repeat. You guys are in a number of different asset classes. So maybe talk about what falls under your brand and what is your focus.

Yomesh: Absolutely. No. So thanks for bringing that up. Yes, I missed out on that one. But Exponential Equity is our brand and we're actually going through rebranding it in the next 15 days. I think we're finalizing our launch calendar, but we are relaunching as Sage Equity. So that rebranding is in the process right now.

Exploring the Opportunities of Value Add Real Estate

Yomesh: But in Exponential we're essentially looking at three lines of businesses and one of them, like I said, the value-add multifamily, which is what we talked about. We have about thousand units across eight properties that we are managing predominantly in the North and South Carolinas. There are a couple of properties, one in Louisiana, one in Tulsa, Oklahoma that we purchased during the COVID times. But that's predominantly from that point onwards. We are focusing very much in our backyard, which is the North and South Carolinas, and have been pretty successful in finding deals and able to work our business plan so far.

That's on the value add real estate side. The second line of business is we have new development. So where new development is highly focused and highly local. All of our projects, we have about four of them that are in the Charlotte MSA, in and around Charlotte MSA. Our philosophy is that we keep Charlotte at the center and draw a three-hour radius around it. And anything is fair game in that three-hour radius. Specifically for new development, about four projects, which are in the 30 to 45-minute driving distance on that from a Charlotte standpoint.

Darin: What type of new development? Is it multifamily new development? Is it other asset classes? What falls into that category?

Yomesh: Yes, so we have one climate control storage facility that we're building in Gastonia, North Carolina. We're almost about 80% there on that. And we're scheduled to put it under operation mostly first week of May.

Value Add Real Estate Has a Wide Range of Investments

Yomesh: So we're scheduled for our opening on May 2023. That's a hundred percent climate control facility. The second one that we're building is 144 garden-style apartments. This is close to the airport. We are in active construction phase for that one, and that's scheduled for closure in about 15 months from now. So sometime in the Q1, Q2 timeframe of 2024.

The third one is a luxury townhomes that we're building about seven minutes away from Charlotte uptown. That's a four-story rooftop terrace, very much in line with what's in demand in Charlotte market. We're catering to that demand in the up-and-coming area of West Boulevard. That's the third one. We're in active permitting for a build-to-rent community that we are developing. It's 105 single family homes that we're developing in Gastonia as well. Those are the four projects that we have actively going on.

Darin: So you have value add real estate, you've got new development, you've got four different deals under the new development. Was there another component?

Yomesh: There is a third line of business, which is land development. Land development is where we acquire raw land and we take it through the entire rezoning, permitting, and entitlement process. So we do that and that's where we have about five pieces of land that we are actively working on and it's in various phases of entitlement, but that's the third line of business.

Darin: So if you were to break down the company focus-wise, how does it split between those three? What's the say percentage that, money, focus?

Yomesh: So from an effort perspective, yes, I mean we're pretty much working all day, 24 hours I would say.

Darin: Evenly amongst those three categories?

Investment-Based Visa Category

Yomesh: We've set ourselves objectives in terms of what we want to achieve. For example, land development, we want to be 2,000 lots in the next three years. That's our goal. When we say lots, as in when we take the land under entitlement and we go through the plotting of the land, we kind of identify how many sites can be built on top of it, whether it is a single family or townhomes, or multifamily. So we have a target of about 2,000 lots within the next three years. That's our target. So we march towards that target.

On the development side, I think for this particular year, we're good with those four projects. We want to make sure that we see them through and a value add perspective given the market. We're not really looking to explore any further until Q2 or end of Q2, Q3 timeframe until the market, the interest rate situation, we have a better understanding of the interest rate.

So as far as the effort is concerned, I would say that most of my effort goes on the value-add real estate side. There's a lot of moving pieces in there that my effort goes into. I would say about 40% of effort goes over there. The remaining 30 and 30, I would say goes into that new development side. And the land development is probably 20% with another 20% going in towards the fourth line of business that we recently are venturing into. We just ventured into that. I don't know if Hemal mentioned on his side or not.

Darin: I don't think so.

Yomesh: There's an investment-based visa category that is called EB5.

Darin: ED?

Yomesh: E as in Edward, B as in boy.

A Job Creation Mechanism

Yomesh: EB, number five. So EB5. It's basically a job creation mechanism. So you have an ultra-high net worth individual who would invest, who is a foreign investor basically. They would invest to create jobs within the United States and that would entail them to a permanent residential within the country. That's called EB5. So there is a concept of a regional center that basically acts as a fund in order to manage those funds and put them into the projects, various projects within the country. We recently purchased a regional center that we would be deploying for ourselves, for our own projects, but this was a niche that we identified that was not present in the current market.

So we purchased that regional center, and our goal is that we bring foreign capital across the world and then potentially invest that in our own projects. That way we have full transparency in the process where the investors, whether domestic or international. They know where their funds are and how they're being used utilized in our own projects. They get regular updates on the project, so on and so forth. That was something that we thought was missing and we're going to plug that gap by venturing into that business.

Darin: That's awesome. So these are very different kind of business lines. Do you bring investors into the deal in each of these categories? If you do, maybe you can share what is the difference between a value-add real estate passive investor versus a new development passive investor versus land development versus this new EB5. What are the return profile differences and then what's the mindset of the passive investor?

The Different Class of Investors

Yomesh: Yes, that's a great question, Darin. The primary difference is the risk appetite from the investor standpoint.

So value-add real estate multifamily, you can touch and feel the asset. You see the numbers, you see the performance. There is a past performance that you can rely on. There are market conditions that you can rely on and you know how the asset is performing based on the financials that you can watch. The returns are typically factored around 6, 7, 8 pref returns.

All of our deals are structured that way. And keeping in mind on certain reserves and all of that, we guarantee those returns. There is a fixed business plan in there, a three-year business plan, five year. We do refinance, we do repositioning of the asset, we do refinance or sell it. So there's a defined path for value-add real estate.

If I'm a passive investor and I look at a value add real estate deal, I would look at what's the exit strategy, how are they covering for the DSCR, all of that good stuff. My mind will be at ease and I'll be like, "Yes, this makes sense. They're giving me a return. A promised return also looks good. Let me put my money in there." That's something that you're investing based on the numbers that you see and the business plan that is plotted. On a new development, it's turning away from a cash flow play to a more equity play. So you don't see any money coming in, so you're not looking at any kind of pref returns.

The New Trend in Value Add Real Estate Investments

Yomesh: This is mainly towards equity play as to you park your money and you wait for at least two years, three years. That's a different class of investors and we get these investors every day and night where they would come in and say, "I don't care about cash."

Darin: Right. Let's talk about that. On the new development compared to the value add real estate. I'm just thinking out loud here that I would think that if you're looking at the equity play and if you're looking at parking capital that maybe you're getting one, investors that are a bit more seasoned.

Yomesh: Exactly.

Darin: They've already done passive deals, they understand that. And then two, they're maybe putting more capital. So instead of 50, 75, 100 grand, they maybe are putting in 250 or 500,000, or a million into a deal.

Yomesh: Yes, that's absolutely right. We're seeing that trend. And along with that trend, we are also seeing a trend where some of our value add investors are getting driven into new development. Because now the concept of for us developing these type of deals, what we are trying to do is we're providing diversification within the commercial real estate class. So we're saying, "Hey, what is your risk appetite? Are you more interested towards cash flow?" Then we have the value-add deal.

Are you looking at to park your capital and not to worry about it and wait for a decent return two years, three years, four years down the lane once the construction is complete? Because there are a lot of moving pieces from a new development standpoint. The permitting could work in six months, it could work in 18 months. So there's a lot of unknowns in that area.

A Risky Process

Yomesh: That's another piece of thing. And then the third, which is from a land standpoint, that's the most riskiest, which is where we're essentially taking over land and going through rezoning, doing all kinds of studies on the land. So right on the get-go, we don't know what that land entails, whether you are going to find some issue with the land, some topography issues, some geotech issues, we don't know all of that. The risk associated with the capital being invested increases significantly when you go from a value-add real estate to a new development to a land development.

Darin: Not shovel-ready land, land that doesn't have the entitlements, and so there's a lot of risk in that process.

Yomesh: There is a lot of risk. Yes. Once you perform all the studies, we have at least walked out of at least four deals where we performed the studies and it was all sunk cost. Because when we looked at all the studies, there's no point in moving forward beyond that. That's the highest level of risk that we can take with investors.

Darin: So when you're talking about risk-adjusted returns, I'm also assuming that. So in the typical value-add play, I mean I've seen a million different deals come across my desk and most deals are double your money in five years. It could be a little bit less, could be a little bit more, but let's just say double your money in five years for value-add play. The new development and then land development, if you're taking on additional risk, I'm assuming that the return profile is higher as well.

Yomesh: Absolutely.

High Risk, High Reward

Darin: What is the projected returns for development versus land?

Yomesh: Yes, so 2X is typical for new development, but in a shorter timeframe depending on what you're building. So it's not five-year.

Darin: So instead of five years, it may be two or three years?

Yomesh: Two or three years, absolutely. And land is more in terms of between five and 10X, but with a lot of risk attached to it. So we got to be ready to let go of that capital, but higher the risk, higher the rewards as well, right?

Darin: Sure. Let's see. If you do this, I'm just, again, I'm talking out loud, but if you do the studies on the land deals, I would think the bigger risk is just the timing getting extended. So you think that it's going to be, the path of progress is going to move over there in five years, but it ends up being seven or ten. Is that correct? Or is there a lot of risk that you actually lose everything?

Yomesh: Yes, that's why it is highly local. So all of our land deals are where we can put our eyes on where we have some credible intelligent data that we can rely on, and that's where our team come into play. Our director of land development, new development, and land entitlement is Brandon Maxwell. He is one of our team members. And then we have two veterans on our team who are in their past life utility directors and county directors and all. So then we bring that knowledge back to the team. We all sit together.

The Path of Progress Towards Value Add Real Estate

Yomesh: Whenever Brandon and his team brings a piece of land, those are some of the questions that we ask, "Hey, how is this in the path of progress? What are we looking at?" That's where we have identified some core markets, core counties in which we develop, or in which we go out and seek for acquisition. That's a very niche.

And Brandon, I would give it a hundred percent to him. He's a magician in that one. Right before we jumped on the call, we got ourselves into another piece of land, about 20 acres in the Bessemer City, Gastonia area. That's a very up-and-coming area. So it requires a lot of effort goes without saying, but looking through, one of the factors is, like you said, is the path of progress.

The second one is essentially availability of a lot of different things. One, of course, land needs to be the way it needs to be for anybody to come in and build on top of it. The only way we would know that is through the studies that we would perform. These are all upfront costs. So we're talking about tens and hundreds of thousands of dollars worth of study that needs to be performed. That's risk capital that we put from our own pocket and kind of evolve that project forward.

The second thing is to have really a pulse on the area to understand whether there are any kind of issues pertaining to utilities, pertaining to any kind of development that's happening in the area. That's where the local team, local knowledge experience comes into play.

The Things to Consider Before You Invest in Value Add Real Estate

Yomesh: In the vicinity of where I'm sitting right now, in the radius of five miles, you would probably find 40 track of land, amazingly prime land. But when you just go out and start negotiating, you would find out there are utility issues. There's no utility coming to the market, to the land out there. What that means is you have to wait, if it is a capacity issue at the county level or city level or whatever, we're looking at waiting at about seven, eight years until that opens up and that's very prevalent within the market. Those are some of the things that you would typically go in and consider.

Darin: Yes. That's huge. Let's go back to value-add multifamily. If you're talking to new passive investors, what do you see as the biggest risk in getting involved in value-add real estate deals?

Yomesh: It actually goes without saying market is the number one.

So market where you invest in is the number one criteria, and there are several statistics available to validate what you're doing. It could be as simple as making calls around in the property, looking at the news, looking at the consensus. There are several data points that are available, but market remains the number one criteria for passive investor. If I'm a passive investor, that's the first thing I would look at.

Second is the track record of the sponsored team, the GP team, everybody who's involved from a management standpoint. So what is the track record of that team? That's the second. And then weathering the storm. How are they weathering the storm? Currently, there is a storm going on with an increased interest rate. We're talking about cap rate insurances.

The Three Factors of Value Add Real Estate

Yomesh: We're talking about cash reserves, the lender reserves they will have, we have distribution reserves. All kinds of stuff is happening in the market. So asking those questions in terms of how the team is planning to weather the storm in the next 24 to 36 months, and it's cyclical. Everybody understands that it's a cycle that we're working through. So right now, you'll get different opinions from different operators. It's a good time to buy, or it is not a good time to buy, or good time is coming to buy. But you get that. So I would say those are the top three factors. Market, the track record and how they weather the storm.

Darin: That really matches up very well with what I tell people if they're looking to get in. I say, "You first look at the markets." When I talk about the markets, you're focused on North and South Carolina and around the Charlotte area. So you're very hyper-focused in your local area. I'm focused on high-growth markets. So like Arizona, Texas, Carolinas, Atlanta, Florida, Tennessee. Population growth, income growth, job growth, all of that is wind at your back. And so you want to try to be in those markets where there's wind at your back. Secondly is the people that are running the deal. Do they have a good track record, do you know them, do you like them? Do you trust them?

Starting With the Minimum Investment

Darin: One of the things I was thinking about with the way you guys have set up your business with these three or four different categories is that you could bring in a passive investor. And have them get into one or two of your deals on the value-add real estate side, which they learn. They get comfortable with it and then they say, "Hey look, I've got additional capital and I want to go up the risk profile" and you have another option. So they already have the checkbox on the market and the people. Now, they're just having to make a leap from one asset class to another. So that's very strategic on your guys' part.

Yomesh: Absolutely. That's the intention as we want to create a one-stop shop, so to say. For any new investor that we bring in as well we're very cognizant of providing them options as well, depending on their risk appetite. It's very important to learn what their objective is. So whether you're coming in from a cash flow perspective, whether you're coming in from an equity position perspective. And most of the investors that I talk to, I always tell them, "Hey, why don't you start with a minimum investment?"

That way you get an exposure to how we do our work. You get exposure to the deal, you get exposure to the team. And then once you're comfortable, and nine times out of ten, all of those investors are repeat investors for us. And they have come in with multiple fold of money in our next deal and next deal and next deal.

Darin: Yes. That's huge is the referrals and the rolling of capital from one deal to another.

Learning Lessons in Value Add Real Estate

Darin: Talk about some learning lessons, like some learning lessons. So on the show, the listeners are comprised of passive investors, people that are looking to passively invest for the first time, and also a lot of syndicators that are looking to scale. They're looking to learn from other syndicators. So talk about some lessons learned both from an operator standpoint and also from a passive investor standpoint.

Yomesh: Yes. I mean there are several lessons learned.

Darin: Well, you never stop learning, right?

Yomesh: Never stop learning. That's for sure.

Darin: Never stop learning. But each deal, some deals go a straight line up, but a lot of deals, they don't. They go up, and then they have a dip, they have a challenge, you got to solve that challenge, and then it goes back up. So talk about some of those challenges.

Yomesh: Yes, absolutely. One of the things that I would start with is the operations will make or break the deal. Asset management operations is the key where the money is made. We can talk about acquisitions, we can talk about capital raise, we can talk about all kinds of stuff that happens before you close the asset. But once you close the asset, your key focus needs to be operations. How are you making the money? How is that money used?

And how is that being optimized to a level where you are hitting the proforma numbers not just from a proforma numbers perspective. The objective is that you have a systematic plan to approach those numbers and you basically are shifting your plan as you go based on the market conditions.

Operations Makes or Breaks

Yomesh: What you underwrote on an ideal world perspective that I'm going to renovate 50% of the property next six months, once you go in, that may not be possible. You would find labor challenges, material challenges, eviction challenges, things not moving as smoothly as you wanted. So be cognizant of that.

That's the number one learning lesson is operations makes or breaks. And then when you are in the operations and when you have the business plan, be ready to make changes to that business plan to adapt to the on ground situations. The on ground situations could be completely opposite to what you had underwritten with.

That brings a variety of challenges. And when you are faced with challenges, always remember with every property that we close or that anybody would close, there would be challenges. The important piece to remember is how do you adapt to those challenges and make changes in order to march toward that end goal.

Darin: That's so important. I had another syndicator on, and he gave an example of being out in a tertiary market and the business plan was to upgrade the units to a certain level. After they did, they realized that people weren't willing to pay up for that, so they had to pivot. And then their upgrade schedule was, they weren't spending as much money per unit, they weren't getting the rent bump that they had put, but the return was still there. If they just went forward and just renovated all the units to the level that they had in their original business plan, they never would've met their targets. Because they would've been spending way too much money for the additional rent they were getting.

Always Have a Backup Plan

Yomesh: Absolutely. No, this is another deal that we had in Gaffney. We faced with a similar situation. We had budgeted between five and seven grand for each of those units. But then when we walked into those units and when we saw what's out there versus the tenant profile for some of those newer tenants that we got in. We were fine spending 2,000 bucks on the unit for a turn. So no need for a granite countertop, if whatever is in there, it's working.

I mean, I would say about seven times out of ten, we have adjusted our plans where you got to go in. So renovations or turning the units is one of the aspect. The other aspect is renewals, right? Renewals, when you go in, you underwrite saying that I'm going to have these 50% of the tenants who are renewing in the next six months, I'm going to bump up the rents by 400 bucks. Well, that's not practical. I mean not practical as in I would say gone are those days. There was a possibility when market was booming all across.

And it is also true for certain cities, still true for certain cities. But if you see a general trend of things going down what you have to do is you have to pivot and say, "Hey, if I'm not able to get a 400 bump, can I work with a 250?" So two things you're doing. One is you're still getting a bump, and number two is you're not spending a single dime on that unit. The tenant stays in there and still gives you a 250 versus a 400. So obviously you've not hit your numbers, but some numbers is obviously greater than zero.

How to Become an Ironman

Darin: Yes. You didn't have to make the capital turn on that.

Yomesh: Exactly. So in the long run, it kind of adds up to it.

Darin: Absolutely. What do you like to do for fun outside of work?

Yomesh: I do crazy things, Darin.

Darin: All right. Let me hear you. What's crazy to you?

Yomesh: Crazy is I do triathlon. I don't know if we talked about it or not, but I've done Ironman, if you've heard of them.

Darin: Have you really?

Yomesh: Yes.

Darin: Define what an Ironman is.

Yomesh: Yes, so it's a form of triathlon, much branded and got a lot of popularity and it's very well organized. It's a brand actually. Ironman is a brand. They organize races across, but it's a combination of swim, bike, and run. Typically, the swim is out in the open water somewhere and it's followed by the bike and followed by the run.

Darin: Is the run a full marathon?

Yomesh: Depends on the Ironman you run. If it is a full Ironman, it is 140.6. It's what it's called. What that means is it is a 2.6 miles swim. It is 112 miles of biking and a full marathon after that. And a half Ironman is a half of that.

Darin: The most I've done is I did the whatever, the Tough Mudder, that was 10 miles. But when I think of this, I think of not just the physical aspect, but the mental aspect of finishing one of these races. Especially the first time doing it because you don't know that you can do it is extreme. Got to be extremely challenging.

More Mental Than Physical

Yomesh: Yes, I would say that. I mean this was in 2019 is when I first ran the first race. This was out of the whim talking to a friend. This was my milestone year and I'm like, "Let me do something crazy out there on this milestone year." I called a friend of mine and he's like, he did a few marathons, full marathons. So I thought, let me do one of those prestigious ones like Chicago or New York or something, and that would be a great badge to have.

He talks me into it and he said, "Hey, you're better off doing a triathlon so that you would start loving one sport out of three. I'm preparing for it. Why don't you and I do it together and we sign up?" So January 1, 2019 is when I signed up for the race without even knowing what goes into that race. The race was 19th October, so little over nine months to prepare. This is when I was 39 and I did not know how to swim.

Darin: You didn't know how to swim?

Yomesh: I didn't know how to swim. Call me crazy. That's why I said I do crazy things. This was a swim in the open bay water right next to the ocean. So we're talking about Oceanside swimming, and I didn't swim in a pool as well. That was the first thing. First action was to take swim lessons. Like you correctly pointed, it's more mental than physical. So every time I was looking myself through that finish line.

Imagine and See Yourself at the Finish Line

Yomesh: Whenever I would go in that pool. I would just imagine what would I feel once I walk out of that pool or once I walk out of that swim and run through the shoot and I would finish my swim times.

So it's a really interesting way of training myself and it was mainly training my mind. But I was very disciplined in getting to the point to the pool every 4:30 in the morning, getting myself enough practice. I was traveling quite a bit and I would make it a point that I would find a pool everywhere I go, practice all the time. And then obviously my goal was not to have a competing standpoint, but I wanted to complete the race, which I did back in '19. Then in '20 I did one, obviously '20 was washed out, so we did virtual. And then in '22, which is last year, I finished the third one as well. I did three half Ironmans, but that was still crazy on my part to finish all that.

Darin: Well, I also think from a listener standpoint, listen to what he said in terms of imagine and see yourself finishing. That's what helped you get through the training. Early in the conversation. You said you were forward-thinking and you were looking to get the passive income that met your monthly needs so you could not have to work in a day-to-day job. I think that visualization, that imagining, that's a skill, that's a habit that if you want to be successful, yes, there's risk in doing it. Yes, there's challenges, but the fact that you're visualizing the end in mind is huge.

The Next Step Ahead

Darin: I think that that also differentiates a lot of times the syndicator from the passive investor. The passive investor has excess capital, they want to park it someplace and they want to get a return on it. The syndicator may look at that property and see, look, when this thing is all done. It's going to look like this and it's going to be generating this type of income and these types of returns, and they can visualize it maybe more than somebody else. So if somebody wants to reach out and get to know you, get to know the company better, what's the best way for them to do that?

Yomesh: Perfect. We got a few ways to do that. Obviously, we can reach out to our website, exponential-equity.com. In addition to all the unique things that I'm doing, my name is also quite unique. So if you put first and last name, I'm a hundred percent sure that I'm the only guy in the world with that first and last name.

Darin: Well, you know what, so say the name of the website and your full name again, because Exponential Equity does have a hyphen in between the two words. So you got to make sure that you include that exponential-equity.com and then it's Yomesh Deliwala. Last question I kind of have is like, where do you guys go from here? I mean you guys have already accomplished so much in a short period of time. What's the longer-term stretch goal for you guys?

Yomesh: Yes, I mean this is where our mindset, at least between Hemal and I. We talk through this. He kind of brings in some of that imagination and creative side of it.

The Potential of a Human Being

Yomesh: And I concur with him. That's why I'm quoting him right here. We just want to understand the potential of ours. As human being, what can we do? We have several plans in play and we are enhancing the lives of not only the team that we are working with, but also the families that we are touching. We have some plans in terms of creating a giving arm of it, creating a fitness arm of it for our own team, for our own families. But at the end of the day, it is the potential what we can do, a human potential to venture out and to contribute in various different ways. We just want to understand what our potential is, how far we can go.

Darin: I love that because you know what, in the beginning, I think people get into real estate investing and it is about let me create enough passive income to meet my lifestyle. And then it becomes, hey, other people start coming to you and asking you, "Well, how'd you do it?" You start educating other people, start helping people grow their wealth by bringing them into different deals. And then it gets to the point where it's not about the money as much anymore, it's about the impact. So I love that you guys have that thinking both about the potential of what each of you can contribute and how each of you can grow as people and also as business leaders. So with that Yomesh, I really appreciate you coming on. Listeners, I hope that you enjoyed that one. Until next week, signing off.

How To Reach Yomesh Deliwala

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