Are you ready to create massive wealth? Women are crushing it in the real estate market. In fact, Veena Jetti and her partner Ellie Perlman from episode 23 are two women who have teamed up and will share with you how they did it. If you’re ready to learn from the best, then this is the perfect opportunity for you. You could be on your way to financial freedom by learning from these successful women. They will teach you everything they know about real estate – so you can apply it to your own life and start seeing results.
Don’t miss out on this chance to change your future for the better. Veena has purchased over 4,000 units with an asset value of over $800 million. Listen to this episode and learn how Veena did it!
Table of Contents:
- Where To Listen To The Podcast
- Who Is Veena?
- Tax Strategists for Women in Real Estate
- Off-Market Deals
- How Women in Real Estate Protect Their Investors During COVID
- The Quality of a Good Operator
- Putting Money Where Our Mouth Is
- How to Reach Veena Jetti
Who Is Veena?
Darin: A little background on Veena Jetti before we start the show. Veena lives in the Dallas area, studied finance as an undergrad student and then became a corporate real estate attorney. She was raised by an entrepreneurial mom that gave her the confidence to go out on her own. Veena left her corporate career back in 2012 and started investing in real estate. Her first multifamily deal was over $15 million and now she is focused on much larger deals. Their current focus are deals north of $100 million.
So, just a little bit on how I know Veena. You probably remember the night, but Dan Handford had a dinner in Dallas. He basically went out on Facebook or somewhere and said, "I'm going to auction off. There's one spot left and you're going to be with all these heavy hitters." He named off all these names and you were one of them. That was the first time I was introduced to her. I was like, "Who is this Veena?"
Then I've seen her on social media and she's partners with Ellie Perlman. They're doing deals all over the place. I tried to get into that dinner and I think it was Nic Espanet (episode 72) who ended up getting it. And so I would've met you that night, but I didn't. But, here we are several years later.
Veena: That was pre-COVID, a whole lifetime ago, pretty much.
Darin: The first question I typically ask is, how many properties and how many units you're currently invested in. I know that it's been very active, if you want to talk at a high level, that's fine as well.
A Generation of Women in Real Estate
Veena: I have sold so many assets that I have almost nothing left in my portfolio now. But, as of the end of Q2 this year, we would've transacted on just over 800 million in assets. That's around 4,000 doors. I just added up the other day, because someone was like, "I'm going to ask you this question," and it was like, Okay. I better know the answer then."
Darin: So go back to, what were you doing before, how'd you get into the space, and why?
Veena: I came from a real estate family. My mom is actually a really successful real estate investor. She always made it a point to expose my sister and I to investments and business. She's the entrepreneur of my parents. Part of it, I think, was more by force.
Darin: By force? "You will be an investor!"
Veena: Pretty much. My dad traveled 45 weeks out of the year when we were little. I have a younger sister and it's just both of us. My mom was the default or the primary parent and she had to be available to pick us up from school and take care of us at night. She did all the childcare virtually. For her to go to a traditional job, would have been really tough, because my dad was traveling for work.
She was forced into an entrepreneurial lifestyle. Now, it suits her personality very well and she was obviously very successful at it. But, it is definitely something that laid a foundation for my sister and me to get invested in real estate.
A Choice to Be a Part of the Women in Real Estate
Veena: I graduated when I was 20 with a degree in finance. I was like, "Okay, well now I'm an adult, I have a degree. I'm going to do something totally different and radical," because my mom was like, "Come work for the family." I was like, "No." So, I went and worked in corporate real estate and worked for some of the best shops in the world.
Ultimately left Tishman Speyer in 2012 and started investing for ourselves. I realized very early on that you can't get to scale one door at a time. That's where the beauty of multifamily really came into play.
Darin: Was your mom an investor in multifamily or single family?
Veena: My mom did residential at scale. They've now completely divested from their portfolio. Both my parents retired early from their real estate portfolio and they are now completely invested in our projects. So, no pressure.
Darin: Over the last number of years, I'm sure you've done very well for them, so they're happy. They're playing with a lot of gains, I'm sure.
Veena: That's where the 1031 benefit is really coming in handy.
Darin: Is your sister in it too?
Veena: She's actually a partner at Vive.
Darin: It's Vive Funds. It's you and her or are there more partners as well?
Veena: Just us. I'm the one that really started the company and I do the vast majority. She is more on the back end and she is a partner in the company now.
Darin: I've definitely seen you as being the face out there.
Veena: My sister is very introverted.
Taxes: The Big Impetus
Darin: She's happy to be in the background doing the operations.
Veena: Yes. She deals with the important stuff.
Darin: When you were at corporate, you said Tishman Speyer. What was going through your head in terms of, "I should maybe consider going out on my own."
Veena: What really the catalyst was, my husband and I paid taxes as a married couple for the first time. It was like, "Wait! What just happened right now?" I actually called my mom and was like, "We just paid multiple six figures in taxes. What should we do?"
She was like, "You need to be a full-time real estate professional. You need to invest, and spend all of your time here. Forget your W2 job. The amount of tax efficiency you could have just from being a full-time real estate professional alone was worth it." So I said, "That makes sense." I talked to a lot of people smarter than I am and that know more about taxes than I do. That's how we ended up deciding to make that leap.
Darin: The taxes were the big impetus.
Veena: It was the driver.
Darin: My grandfather was an entrepreneur. He owned an aluminum company and did very well. And, he told me as a young kid, "Darin, you got to understand taxes and be able to manage taxes." I was like you when you said that you wanted to go into the corporate world. I'm like, "That sounds so boring. I'm going to go my own way."
But, it's true. It is the largest expense that you will have. For people that are in it, the syndicators, the full-time real estate investors, they get it, especially once they make the transition and you see the tax benefit.
The Tax Benefit of a Full-Time Real Estate Professional
Darin: For the listeners that don't fully understand, could you explain the tax benefit of being a full-time real estate professional? The thing is that you don't necessarily have to be a full-time real estate investor. There are a lot of couples out there where the wife or the husband is a residential realtor. Well, they're a full-time real estate professional and they may not be taking advantage of some of the tax benefits out there.
Veena: I know enough to be very dangerous about taxes and I am not a tax professional.
Darin: We are not tax professionals. We are not financial advisors. Whatever disclaimers you can say.
Veena: There is no kind of advice. You should not listen to us at all and you should seek your own professional advice. So, with that out of the way, the full-time real estate professional designation on your tax return is a very powerful tool because you can write off unlimited losses against active income. When you can flip the switch from passive income to active income, then you can start utilizing the benefits.
Like, I have a spouse who is a high-income earner, and I can actually offset his tax liability because we file jointly. Now, in today's day and age, we have like a tax strategist we work with. He's actually based here out of the Dallas area. We've been working with him for almost a decade now. And so, I really rely on him to know the latest and greatest tax rules and to understand the tax code and what we should be, or shouldn't be doing.
Tax Strategists for Women in Real Estate
Veena: He takes care of all that now, so I don't have to know that much about it. But, for anybody who isn't utilizing a tax, we use a tax strategist. For anyone who isn't, you absolutely should be, because a good tax strategist is worth their weight in gold.
Darin: What I just want the listeners to understand is, that Veena's husband makes a lot of money. He's a W2 guy?
Veena: He is also his own employer.
Darin: So, whether you have your own side business or you're W2, if your spouse can be claimed as a full-time real estate professional and has all these losses related to depreciation, those losses can be offset by the gain or the income from the other spouse. We're talking hundreds of thousands of dollars of savings.
Veena: Plus the time value of money, too.
Darin: You save that much money. I just got in this four years ago and I've written some pretty big checks to the government.
Veena: "Why did I do this?"
Darin: If I had covered that with some losses and then invested that money and then that compounded, it is just crazy, the wealth impact.
Veena: That's why the wealthy elite don't use the same tax code that the average person does. The wealthy elite in this country pay their lawyers, their tax advisors, and their attorneys very well. Those are three team members you will find on every single wealthy person's speed dial, and it's for a reason. I don't know if you know Larry West? He's based here in Dallas. Precision Business Strategies is his company. Phenomenal guy, I highly recommend him.
Buying a House Is a Financial Decision
Veena: We've been working with him for almost a decade now. It's been eight or nine years. An unintended benefit of having a tax strategist, who knows the ins and outs of our taxes is whenever we make a financial decision, I call him or I text him. I say, "Larry, we're buying a house for my cousin to live in." I'm making this up, but, "We're buying a house for my cousin to live in. How should we take the title? Should we buy it in the trust?"
"Are we buying it in our names or are we buying it in their name and then having them lease from us?" What's the best way to do this? He might say, "Let me loop in with the estate attorney and talk to them to see what they need from the asset protection side. We'll find out the most tax-efficient way to handle it and get back to you." Or, it might be as simple as, "I'm going to buy this car. Am I leasing it or am I financing it? Or am I paying cash?
Darin: Most people are not going to make that phone call. They're just going to do it and pay it out of their net income.
Veena: You can lead a horse to water.
Darin: That's the thing, some of it is just the knowledge that they don't know. Some of it is they've been told, but they're like, "That's for somebody else and I'm going to let other people deal with that." For me, I didn't know any better. I was putting my money in the stock market. Four years ago, somebody pointed me to the book by Tom Wheelwright, Tax-Free Wealth, and it opened my eyes.
Understanding the Benefit of Tax With Real Estate
Darin: It was like my grandfather from years ago. I should have listened to him. But, I don't want to digress too much on taxes. Listeners, you really should get somebody that understands the benefits of tax with real estate, because you can save yourself thousands of dollars. Then, if you reinvest that money, it can compound tremendously over time.
Veena: Definitely worth the phone call. A really good tax strategist too will tell you, "I'm sorry. I can't save you more than I'm going to charge you." But, if they can save you more than they're going to charge you, then it makes sense to bring him on board. Larry does that very clearly with referrals I've given. He's like, "I'm sorry, Veena. I can't do anything for them. They're not full-time real estate professionals."
Darin: All they can do is maybe plan for the following year. So 2012, how was it being a woman in the industry? Because now I mean you're still a minority. There are still not as many women in the industry as there are men. But, I'm thinking back to 2012. You must have been really sticking out.
Veena: Obviously, I'm a woman. I'm also a minority. So, it's a double whammy there. I think we've seen progress, but not enough progress. One thing I've been really excited to see, especially recently is, that a lot of companies are focusing on their ESG initiatives and really making sure that there's diversity and inclusion. I've seen a huge uptick in companies. Some of the big multi-billion dollar companies reaching out to us, wanting to partner with us because they want to support emerging fund managers.
A Massive Uptick of Women in Real Estate
Veena: Also, something interesting that I'm actually really excited about is, that I have seen a massive uptick in women passive investors. I see a lot more women passive investors. And I see a lot of men, especially men that have daughters, but just men in general, that really believe in diversity and equality at the top levels. They're very supportive and they're coming into our funds as, obviously, not just a way to make money, but also to be in alignment with wanting to have that.
I get a lot of, "Oh, you're a role model for my daughter," and I'm like, "That really touches me." I don't do this for the money, I do this for the legacy and because I want my twin daughters to know that they don't have to choose between having a family and having a career. They don't have to choose something that society tells them to, because they're women.
Darin: At one point, you probably were doing it for the money and for the wealth. I think that you're a listener that you haven't even done your first deal yet, you're just thinking about you getting your first deal done. But then, you can't see what happens a year, two, or three years down the road.
You start thinking bigger, you start surrounding yourself with different people that push you, and your network starts to come to you and ask you, "How'd you do it? I'm interested too." It's awesome that you're giving back. I know you and Ellie more from social media and from conferences and the multifamily world, but you guys didn't decide to go small.
A Different Mindset
Darin: You could have just dabbled in the space and made decent money, but you guys have gone big. You talked about it before at one point, over 800 million in assets. That takes a different mindset, a different belief system, that you can do it. So, how did you get there?
Veena: I don't think I'm there still. I think every deal we do even now, I'm like, "Can we really do this size of deal?" Literally, every time Ellie and I talk about putting in hard money or an LOI on a deal, if it's bigger than any deal we've done before, I'm like, "Ellie, do you think we can do this deal?" Then we both start laughing, because literally every single time we do a deal, we have the same conversation. She's like, "I'm just going to record this conversation so that you can listen to it. We don't have to have it, we know that we're going to."
It's a leap of faith. Again, it's having those partners that you can rely on because we come across problems and challenges all day long. We're in the business of solving problems. The really great thing about working with someone that shares your vision and your outlook is that, no matter what, we both have a dedication to integrity and excellence for our LPs.
That really helps guide us in what we should be doing or how we should be doing this. We focus on our LPs and obsess over them and that really is the lifeblood of what we do. Yes, we have done bigger and bigger deals and it's easier to scale.
Veena: Once you've done a $50-million deal, it's easier to do 80 million and then it's easier to do 110. It's a snowball effect and it compounds as you said earlier. So, go bigger and bigger.
Darin: When you first started, what was the first multifamily deal?
Veena: 15.9 million.
Darin: That's still a large deal from early on. That was probably a while away and unit costs were down, it’s a good size deal to start out with.
Veena: I didn’t think that I would start there. It's funny, because now when I think about it, it’s just my mindset has changed. It changed so much that, when someone gives me an exciting deal that they want to transact off-market, I'm like, "Great, how many units is it? How much are you asking for it? What's the whisper?" They'll be like, "It's 200 units and it's $50 million." I'm like, "We can't do that deal." They're like, "Really? It's a big deal." I'm like, "It's not big enough for us to even look at anymore."
I would say this to anybody, even starting operators, to really narrow down what your focus is. You cannot underwrite deals that are 10 million or two million and then 40 million and then 80 million and be efficient in any kind of way. For us, we're very strict about our buy criteria. We say no to anything that does not fit this teeny, little box. So, if it's under 200 units, no. If it’s older than 1980s vintage, no. And if it's not in one of our core or target markets, no.
Veena: We really stay strict with our buy criteria, so much so that I have a whole brochure on what our buying criteria is. When I have someone who comes to me and says, "I know a lot of people with off-market deals." "Great. Feel free to send them to us. Here are our buy criteria. If they don't fit those, you don't need to send it to us."
Darin: That buying criteria has changed over time, obviously, based on your expertise and your objectives. I talked about fear. You actually don't even come across as fearful at all. You seem very confident. I've had people that have thousands of units and they said in that first deal or two, "Yes, I was scared." I'm like, "How'd you push past it?"
They're like, "Well, I thought what's the worst thing that could happen? What's the worst-case scenario? Then, can I live with that? What's the upside, and what's the probability? The upside is so much bigger and more probable. Yes, the downside could happen." But I think that's human nature and that most people are more afraid to lose than they are willing to take a chance to win.
Veena: That's actually true. There are studies that show people will go much more out of their way to prevent losing $100 than they will to gain that same $100.
Darin: Or gain 10,000 or 100,000. It's like, you just don't want to lose anything.
Veena: I know that it's easy for me to talk about it now because it's so far behind me. But, the first raise I ever did was so hard. I cried myself to sleep for six weeks because I thought we weren't going to close the deal.
How It's Like to Be Women in Real Estate
Veena: It's easy now because it's so far in the rear-view mirror. But, there was a point when I woke my husband up in the middle of the night and I was in tears. I was like, "Honey, we have to sell everything we own. I need to liquidate all of our 401ks and we have to sell our house and I have to sell your Porsche."
The Porsche got him awake right away. He's like, "What?" I was like, "Listen. I just have to sell everything. I'm sorry that I put our family in this position, but this is where I'm at now. He was like, "Okay, you're obviously sleep-talking. Go back to sleep and we'll figure it out in the morning."
I was like, "This is the situation," and I told him what was happening. "I'm short of money to close and we need to liquidate so that I can afford to close this deal." I actually didn't care about losing the money. What I really cared about was the reputation with the brokers and the reputation with our investors. Even if we had left hard money in the deal or whatever, that was fine. But, not closing that deal, I knew was going to put me on the wrong path with the broker, with the lender, with title, with our investors.
That reputational hit so early on was way too expensive for me. I was willing to lose everything we had in order to make sure that I didn't lose the reputation. Now, it's different because we are well-funded. We know our investors. Our investors have invested in multiple projects with us.
Why KPIs Are Worth Tracking
Veena: About 80 to 90% of my investors are in two or more projects with me. That's a KPI I track very closely, by the way. For anybody new, I highly recommend tracking this KPI. But, I know how they're going to act. I know what they like, what they're going to invest in, and what they're not going to invest in. We try to stay true to that criteria.
Darin: You said earlier that your focus on the LPs is so important to you. I think that there can be a disconnect between the way LPs think that syndicators think about them and the way they do think about them. Some passives, especially the ones that are just getting started and they're in just one or two or three deals. The ones that have been doing it for a long time, understand that there are ups and downs.
They think, "They just want my money." That's not it. Especially on the first deal or two, the reputation and actually delivering and over-delivering is so important to the syndicator that they're going to do everything possible to try to make that deal a success, otherwise, you get blackballed in the industry, from all the different avenues.
Veena: That's what a sponsor worth their salt should do, in my opinion. Does that mean every one of them does it? No. But they should, because communication is important. This is a relationship business. People don't invest with me because they like 123 Main Street as an asset. They might like the overall proforma, they might like the idea of it, but they invest because they trust me to execute what I say I'm going to deliver.
Investors Women in Real Estate Don't Want to Work With
Veena: That is something I don't take lightly. I take that responsibility very seriously. I'm going to make sure that they're comfortable along the way. Now, we're also at a point where I have more money than I have deals. So, I don't need to work with any one investor. I actually will not work with investors that I think are a bad fit for us at this point.
But, in the beginning, you don't necessarily have that same leverage. When you first start, you're basically like, "Please, just actually follow through. You said you're going to invest. Please actually invest this time with me. I don't know if this deal is going to work." But, as time goes on, as you prove out the track record, as you build that relationship with your investors, you focus on your current investors, because they're the ones that actually trusted you.
Once you start building that relationship, what happens is they'll start to reinvest. They'll start to refer their friends and family. Then you build up a larger database and it snowballs. You get to this point where, the scales tip and then now, I don't have to work with any LP I don't want to work with. Sometimes there are family offices that'll approach us and ask us to write a five, six, $10-million check, which is great.
But then, they want special terms that we're just not willing to agree to. We've turned down quarter-of-a-billion-dollar checks before because they just want too much control over our company and our process. That's not really what we want to do. So, it's a powerful thing to be able to say no comfortably.
Know, Like, Trust
Darin: You talked about know, like, and trust, and that gets bantered about a lot. There's a lot of truth to that. But, I think that you also said something that needs to be tied into that, and it's know, like, and trust. So, "I know Veena, I know Ellie." But, not, in addition, to know, like, and trust. You have to think that they're actually going to give you the return that you want.
It's not just know, like, and trust and these guys don't know what they're doing. It's know, like, and trust and believe that, "They're telling me that I could get this return and we're going to get there, or get close. They're going to go down fighting to get there."
Veena: Yes. Darin, I thought that part was implied?
Darin: A lot of people talk about know, like, and trust when you get those referrals to mom, dad, aunt, uncle, brother, sister, and friends are coming because "I invested 100 grand and she made me a lot of money. You should talk to her."
Earlier, you talked about problem-solving, and then, you have all these assets and you're always fighting fires and solving problems. Talk about one of those problems and how you guys solved it.
Veena: There's a new, massive one every single day. Let's see. I'll actually give you one that's a very tangible problem that we had during COVID. We didn't know how to conduct due diligence in the fall or summer-fall of 2020. We're very risk-averse investors in general. Our LPs are like that too. We're very sensitive to the amount of risk we take on in any asset and we try to mitigate it wherever we can.
One of the Big Risks
Veena: One of the big risks that we had was we were under contract on an asset. We had to do due diligence and I'm like, "How are we going to walk all of these units?" Because we walk 100% of the units that we put under contract during the due diligence phase. I was like, "Maybe we can send drones in so that we can see the condition and we can figure it out." Because, at that time, we still didn't really know a whole lot about COVID.
We didn't know if you could transfer it on surfaces. Like, I was microwaving my mail at one point. We just didn't know how easily you could transmit it. Ultimately, the mechanism that we ended up coming up with was, and, we can't send property management in either. It violates the OSHA standards because of what the CDC guidelines were at the time. We actually went to the property ourselves and there were a few of the property management team that was willing to go in, despite there being COVID. So, we had everyone in head-to-toe PPE.
We were very strict about it. Everyone was in PPE. We'd ask the resident to step out. We would go in and would be in there for less than two or three minutes. We'd just basically video everything and then if there was an issue we would go back in. But, the challenge that happened was, that some of the residents just don't want to open the door. We'd be like, "Okay. Maintenance," knocking on the door. Then they're like, "Oh, I have COVID."
How Women in Real Estate Protect Their Investors During COVID
Veena: I'm like, "Really? Because we asked you if you had any symptoms yesterday. "Okay, fine." If they tell you they have COVID, you can't take the risk and go in there. So, we're like, "That's fine."
The way we ultimately solved that was, we negotiated with the seller to have a hold back in Escrow for every unit we couldn't get into, because of COVID. That way, we protected our investors. Maybe there was a unit that was completely dilapidated, that we couldn't get into, that would cost us 20 grand. This way, we really hedged our exposure to risk from not being able to walk. It was only 4% of units we ultimately couldn't get into. But, that 4% we needed to make sure that we were protected.
The end of the story was that everything ended up fine and we've exited it since then. But, it's one of the concerns we had and it's a problem. It was a big problem we had to solve and it wasn't as simple as calling someone we know who's done this before and been through a pandemic before. It took a little bit of creativity.
Darin: That was a good solution. You held in Escrow. How long did you have to release that Escrow?
Veena: I think it was 60 or 90 days. We didn't need much longer than that, because once they had COVID, we knew that they had some amount of immunity for 30 or 60 days at that time. Shortly after we closed, the vaccine ended up coming out. Once a vaccine came out, then it was much easier for us to enter into units.
Your Network Is Your Net Worth
Darin: People say that your net worth is the average of the five people that you hang around with. There's a lot of talk about the benefits of hanging out with people that are further along than you are. Do you attend any mastermind-type of functions? Or anything that puts you in a room with people that are further along, that you're trying to learn from?
Veena: I don't actually do masterminds mainly because I'm so scared of the time commitment that I need to join these that I haven't pulled the trigger yet. I probably will in the near future, but I have a few text groups that I'm in with other real estate investors or entrepreneurs. I'm easily the small fish in that group. We actually interact almost daily on those. It might just be celebrating a win or solving a problem, or someone might say, "I need help. I need someone to jump on a social media video with me," and one of us will offer ourselves up.
Or, some of them have large communities that they lead and they'll say, "I need someone to come and help talk about multifamily. Veena, can you just hop on for an hour?" So, we all help each other. It's just a really great community that we have inadvertently created, without intentionally meaning to.
Darin: I've seen it time and time again with different people that have been successful, they continually push the boundaries in terms of what they can do. They also surround themselves with other people that are doing big things that give them ideas, encouragement, inspiration, and sometimes, just a kick in the butt. Like "You shouldn't be focusing on something that small. You should be focusing on something bigger."
There's No Overnight Success in Real Estate
Darin: For the listeners' benefit, so many people in real estate will tell you, "If you're surrounded by people that are not in real estate, and you want to invest in real estate, then get out there and start networking. Surround yourself with like-minded people, because the other people are going to tell you, you're crazy." But then you talk to Veena and she's like, "$50-million deals too small for me." She didn't get there overnight.
I'm not trying to say that that way. The point is, I was scared to do a duplex and that wouldn't scare me anymore. But, until you do it, you don't know. Then you hit the next boundary and the next line in the sand, and you keep pushing the boundaries. I was not trying to say that you were too good for this. The thing is, people think if somebody just meets Veena now, they hear you had 800 million in assets at one point. You think that you're an overnight success.
Veena: It only took 10 years to be an overnight success.
Darin: It's one step after the other and then one growth after the other. Listeners, Veena, myself, every other person that's been on this show, and every other real estate investor started with none. Everybody started with zero. At some point, you got to get off the fence and actually buy something. Talk about we're in a weird time. The fed just raised rates by 75 basis points. I was at a multifamily event two nights ago and a ton of syndicators and everybody's talking about the debt on these deals.
Veena: It's not working.
An Interesting Time for Women in Real Estate
Darin: It's very difficult. Interest rates are going up, proceeds are going down. On floating-rate loans, the caps are becoming extremely unaffordable. The only really lever is potentially to pay less. Sellers aren't there yet, so, it's an interesting time. Talk about what you're seeing and where you think we go from here.
Veena: It's very painful to see. The problem is, I want to buy anything 75 million and up. Nothing is pricing out for where we are comfortable transacting on the deal. That's because the interest rates are decreasing our sales proceeds. Actually, it's not even the IRR that's hurting us. It's the cash flow during the hold period that's really tough. It'll be interesting to see if LP investors will tolerate a lower cash-on-cash, to be more IRR-driven. I will say our family offices, they don't care about cash-on-cash. They care about IRR.
They’re like, "Pay me, don't pay me. I don't care about that. But, make me a boatload of cash in the shortest amount of time possible." That's really their goal. It'll be interesting to see if retail investors shift more into that mindset or not. I do think that this year and next year, there's still going to be a lot of demand for multifamily assets because bonus depreciation is going from 100% down to 80% next year.
Even through Q1, and Q2, we'll probably see a lot of activity. There's still a lot of capital that's sidelined from 2020. With inflation reports coming out at these crazy numbers, income-producing real estate is a phenomenal hedge against inflation risk.
The Demand for Affordable Housing
Veena: And so, we're still going to see demand. As less people are able to buy single family homes, I think we're going to just see more renters. I've been saying this for years. Affordable housing is the next housing crisis that this country is going to face.
Darin: Everybody says that there's a huge shortage.
Veena: Well, practically. If we look at the economics of it, hedge funds and PE groups are buying single family homes at higher rates than they've ever bought before. But, it's not that they're buying those homes. It's, which homes are they buying? They are buying the zero to 500 price range. They're not buying the $5 million mansion, the $10 million mansion.
They are buying the homes that Middle America has historically used to build their wealth. The vast majority of Americans have historically held the majority of their net worth in their primary home. Now that's not a tool available to them, where do they go to build that wealth? What does the landscape look like? I think that's what people aren't talking about.
Darin: People in the multifamily space will say and talk about how your home is not an asset, because it's hard to say that now, with all the appreciation we've had over the last several years. You should be investing in cash-flowing assets. But, there are still a lot of people that aren't going to do that. That's interesting to think about. If you take a segment of that population out and don't give them the opportunity, because it's just too expensive to buy a home. Now then, where are they going to build that wealth? That's a very interesting question. I don't know the answer.
The Way to Look at Multifamily
Darin: But, I do want to get your take on this. They say that real estate is a great hedge for inflation. The way I look at multifamily is, "If you have wage inflation, then people have more money and should be able to pay higher rent. The top line in multifamily deals should go up." Now, the debt service, expenses is less than half of the rent.
Let's talk about debt service. If it's fixed, then that's great, because you've locked in your debt service and your top line is increasing. Profitability should increase over time. But, here is the question. The $1-million question for me is, "Well, interest rates going up, cap rates should follow?"
Veena: They will.
Darin: Everything is relative value. If you can buy a 10-year treasury at same yield as a multifamily deal, that doesn't make sense. Cap rates should go up. Now, that's a negative impact to valuations.
Veena: Only if you don't plan for it, though.
Darin: I know people are planning for it, but it's a little dart board in terms of what percentage each year? Let's say that you budgeted in 10 basis points a year of increased cap rate.
Veena: They go up 12.
Darin: They go up 20 basis points. There's a negative impact to valuation but then you have the increased profitability from the wage inflation. So, which one will have a bigger impact?
Veena: Cap rates are going to expand one way or the other. We know that interest rates and caps have a 60 to 70% correlation. So we know they're growing up.
The Quality of a Good Operator
Veena: A good operator should be taking all of this into consideration and not really counting on an increase from wage inflation in their trends for their proforma. They should be keeping those numbers as minimal as possible, while trending up your interest rates by looking at how much of a cap you're buying down on floating debt.
I almost wonder if this is the point in the market where shifting to more permanent or fixed-rate debt makes more sense. For the last few years, it hasn't made sense because of the pre-pay penalty.
Darin: People got stuck.
Veena: We had some assets, we paid several million dollars to exit them because it was the right time. That was money that could have gone to investors had it not been that specific type of debt. But, we didn't know we were going to exit at that, if you know what I mean? Who knew that COVID would not slow down the market and actually would heat it up even more?
You can take all of these things into consideration in your underwriting on acquisition. Like cap rate's expanding. I'm not upset about it. I want them to expand, so we can buy things. We can't buy anything right now, because cap rates are so low. If we can find deals that now pencil out and make sense, great. I'm happy about that. We'll underwrite to a cap-rate expansion to hedge against the risk.
Darin: That's a great way of looking at it, for sure. I've also heard other people talk, and part of it is due to the lenders forcing it.
Why Women in Real Estate Want to Be Conservative
Darin: Part of it is also to act as a cushion, that people are taking on less leverage. Instead of doing 75, 80 LTV loans, they're doing 65 or 70 and they're bringing in more equity.
Veena: That's what we're doing. Our equity requirements are shifting. We've been educating our investors for months now saying, "We are not in a seven or 8% cash-on-cash environment anymore. We're hardly in a 6% cash-on-cash environment."
Darin: They've been okay with that?
Veena: I don't know what other options there are. I can tell you 8% sure, I can put garbage in to get garbage out and I can show you 8% on a spreadsheet. But, the reality is it doesn't matter what I do. I can't operate it at an 8%. I’m not going to be able to pay you 8%, so I'm going to raise money from you one time. However, when you go to them and you say, "This is why we're not in this environment. Here are the assumptions we made because we wanted to be more conservative. We think we can, realistically, hit these numbers. We're going to try to under-promise and over-deliver for you."
Our investors know that we're going to try to do that. At a bare minimum, we're going to aim for those proforma numbers. I'm not going to put something in front of you, just because it'll make you write me a check. If I tell you 6%, and I pay you 7% and the next person tells you 8%, and you pay them 7%, they are going to think that the person who said 8% underperformed, even though we gave you the return." That's what's happening.
Setting a Benchmark
Darin: People appreciate that. I'm in a lot of passive deals and they were all 7-8% cash-on-cash. I have some that are no distributions, some that are delayed distributions, and some that are exceeding distributions. It's like all over the map. To have an operator that really is focused on hitting that and setting a benchmark where people can trust that, "I'm in five of their deals and four of them they've hit every time."
Veena: Actually all of ours are hitting.
Darin: Even on the cash-on-cash?
Veena: Actually, we're over-performing on two of our assets. Both assets we closed last year were over-performing by 30% on cash-on-cash.
Darin: I want to get on your investor database.
Veena: Come on in. The water's warm. But, I'm not going to tell you 8% out of the gate. So, you're going to have to decide if that's okay for you.
Darin: It's funny because when you're in this world, the passive start getting a little greedy in terms of, "It's not 8%!" They want to have 6% or whatever. But, the average return in the stock market is what, seven?
Veena: Nothing right now.
Darin: Well, no. It's negative right now but, over time, that's a total return.
Veena: That's not tax-efficient either.
Darin: It's not tax-efficient, either. So, talk to the listeners who are trying to get into the space. It can take nine months, a year, a year-and-a-half to get that first deal. Talk about perseverance, determination, grit, staying power, all of that, to give some inspiration to somebody that's just trying to break in now.
Veena: Well, if it makes you feel better, it's hard for all of us.
A Tough Market for Women in Real Estate to Compete In
Veena: I'm doing my first deal in July of 2022 for this year. For seven months, I have not had a single deal that makes sense. It's not for lack of effort. We're trying. Last year, we did two. The year before that I did one. It is just a tough market to compete in.
Our competitors are really the institutional funds and large family offices, generally. But, if you're transacting on the smaller-scale assets, the competition there is even higher than the competition at the 80 million and up price point.
Darin: When she says smaller scale, I'm thinking she's like, "That's 60 units, 100 units, 150 units. If you're in the small scale and then listeners are like, "I haven't even done a fourplex."
Veena: No. But, even a fourplex, that's the most competitive. The smaller the deal, the more competitive it is because more people can buy it. I'll tell you, even at the 75 million and up mark, we've been competing against 50 offers, 40 offers, 35 offers. It's just crazy up and down the board, no matter how you slice it. I actually bought a single family home recently in my neighborhood. It was an emotional purchase because it's for my in-laws to live there. It's across the street from my parents' house, so all three of us will be in the same neighborhood.
Darin: How old are your kids?
Veena: They'll be three in July.
Darin: It'd be great to have both grandparents right there?
Veena: Like free childcare is very important. I'm just kidding.
Darin: Parents, you're not listening to this one.
Women in Real Estate Are Winning on Terms
Veena: I hope not, although my mom is one of three people that follows all my podcasts. But, I bought that house and I competed like I've never competed on a deal before. I wasn't the highest offer. Usually, we're not the highest offer. We're winning on terms. I bought my parents' house just five years ago, directly across the street and I paid triple the price for that house I just closed this year.
Darin: It's a crazy market. You said you're winning on terms. Let's talk about multifamily. What terms help you win a deal?
Veena: Hard money upfront with minimal carve outs. We do 90%, 95% of our due diligence before we even go to the LOI stage and put significant, hard money up.
Darin: Significant? 1%? 2%? Higher?
Veena: A little bit more. It depends on the deal.
Darin: I've got listeners that are syndicators and they're trying to sneak out some bonus points on what they can do. I don't always get the person to say something, but if they do, great. It's north of 2%, listeners.
Veena: It depends on the deal. It depends on the timing and the market of the deal. There are some deals where we'll go in with more than 2% and some deals where we'll go in with less than 2%. It really depends on what the total transaction looks like. We'll compete on hard money, we’ll limit our carve-outs to almost none. We have four or five standard carve-outs that we make, no matter what. Even those, if we can overcome the question marks on those before LOI, we'll remove them before we go to contract.
Days of Due Diligence and Financing
Veena: We've been competing on due diligence and closing periods, too. The last two deals we closed, we closed in 42 days. 21 days of due diligence and 21 days of financing.
Darin: So, 42 days? When was that deal done?
Veena: In December.
Darin: At least in this year, I was hearing that everybody's backed up whether it be appraisers and closing in 42 days is pretty impressive.
Veena: It was definitely tough, but we had no extensions. Said, we can do it, we've done it before. The first time we did it, we said the same thing, I'm pretty sure, even though we hadn't done it before. But now, we've done it a bunch of times, so it's easier to say that with truth in our eyes. But, no. The more competitive you can be on those things, the better shot you have.
Even the single family home I closed on, I paid triple the price of what I paid for another house five years ago. But, in today's market, I paid a very reasonable asking price, and then even more so, because I was willing to pay a premium for the emotional factor. But, I wasn't the highest bid on that house. There were investors that were bidding higher on that house, but I went in with better terms.
I offered all cash and gave them an opportunity to lease back for as long as they wanted. Then I told them, "I’ll close any day you want with 48 hours of notice. If I can get a clean title, I'll close within 48 hours. You pick any day you want."
Putting Money Where Our Mouth Is
Veena: So, I made it very easy for them. I went in with so much hard money that they probably thought I was ridiculous. But I was like, "I'm going to put this down one way or the other. So let's put our money where our mouth is," and I put it down right out of the gate.
Those are things that you can do to make sure that you are being competitive because hard money tells sellers that you are a serious buyer. I waved all contingencies. I was like, I don't need an inspection, an appraisal, or any of these contingencies. They loved it, they were happy with it and they obviously chose us. It didn't hurt that they are my parents' neighbors, so that helped. But, they chose a lower offer. We didn't go up in pricing to match the other offers.
Darin: You guys have done so much. What's your next big, stretch goal?
Veena: We're underwriting some larger portfolios now.
Darin: How do you define larger?
Veena: We are looking in the 110 to 150 range now. I'm sure I'll be making a call to Ellie to ask her, "Can we really like raise $100 million or 70 million or whatever we'll need to raise?" Have the same conversation we were having when we were raising for much smaller deals, just that there are more zeros at the end.
Darin: You are the first person that has told me that every deal that they've done, they've not only hit the IRR number, the total return number, but also the cash-on-cash.
Women in Real Estate Have Control and Decision-Making Power
Darin: I haven't heard that before and I have people that say, "Look, in some of our deals, the cash flow wasn't there, but we got it on the back end and everybody was happy."
Veena: That's what I love about Vive, my sister and I being the only two partners. We have a lot of control and decision-making power. It’s not just which deals we go into out of the gate, but the strategy and the execution behind them. We have the ability to pivot quicker. People ask me all the time. They're like, " I've actually had people offer to buy an equity piece of Vive.
I'm unwilling to give it up because I don't want to give up that control because of how important it is for my investors to know that we're making decisions. Not everybody's track record is going to always stay at 100%, especially as we go into this next market cycle. But, I want to keep it that way for as long as I can.
Darin: That brings confidence to the investors, for sure. So what do you like to do outside of work for fun?
Veena: I hang out with my family whenever I get a chance. My kids are at a fun age now where they have opinions and ideas and they say the funniest thing. The other day, we were asking one of my daughters, because we were filling out my first-day-of-school board. It's like, what's your favorite color? What's your favorite song? Then it said, "What do you want to be when you grow up?" My one daughter was like, "I want to be an astronaut." I'm like, "Great! We'll watch some videos of astronauts."
A Pair of Women Astronauts
Veena: There's a pair of sisters that were astronauts that did an interview in the space station. I was like, "We'll watch those.” My other daughter is like, "I want to be an adult so I can drink beer." Like, "Okay. What else?" She's like, "When I'm six years old, I'm going to be an adult and I'm going to drink beer." I'm like, "No. You will not be an adult when you are six years old." She goes, "When I’m six and a half." I was like, "No. When you're 30, you can drink beer."
Darin: It's funny how you could have two kids being brought up by the same mom and dad, in the same house, with the same conversations, and they could be so different.
Veena: I am basically winning with one daughter and miserably failing on the other.
Darin: Listeners, I'm not just making that up. I don't know anybody that has told me that they have hit both cash-on-cash and the total return number on every deal that they've done so far. Definitely, look these women up.
Veena: You can go to my website vivefunds.com. I have an investor portal there, so you can always poke around if we have any offerings, what they look like. We do release a quarterly performance report. We'll be putting out our Q2 report here in the next couple of weeks. You guys can check that out too and see what we've been up to.
Darin: I really appreciate you coming to the show. I learned a lot. You're a neighbor. I'm in Prosper, you're in Frisco, so we will definitely have to get together. Listeners, I hope you enjoyed that one. Until next week, signing off.