Category: Investments
Air Date: 03.09.2021

The more advanced your passive investing understanding gets, the smarter your decisions become, leading to higher returns and success in achieving your investing goals. Today we speak with James Kandasamy about how you can become a more sophisticated passive investor. An award-winning multi-family syndicator in his own right, James is also the author of Passive Investing in Commercial Real Estate, a guide to passive real estate investing. Early in the episode, he shares how investing in real estate can help you unlock more wealth than can be provided by other asset classes. We then dive into an important theme in this episode: ensuring your deals align with your investment goals. After hearing his insight on setting investment goals, James unpacks the idea of risk-adjusted returns. Following this, we discuss how James builds relationships with sponsors and other investors before we look at the role that hard work, vertical integration, and doing things differently played in scaling James’ business. Later, we touch on finding off-market deals, with James wrapping up our conversation by sharing his keys to success. Tune in to hear James’ insider tips on growing your business and becoming an advanced passive investor. 

 

Key Points From This Episode:

  • James shares details about his successful real estate career.
  • How James discovered real estate and why it appealed to him.
  • We break down the contents of James’s book on passive investing.
  • The challenge of aligning your investment goals with syndication deals. 
  • Insights into setting your investment goals. 
  • The power of becoming an increasingly sophisticated investor.
  • How you determine your risk-adjusted returns.
  • Using risk-adjusted returns to assess how good a deal is.
  • Hear top advice on communicating with sponsors and other investors.
  • How passive investors can vet sponsors. 
  • What James did to so quickly scale his business.
  • The value of having a vertically integrated investing business. 
  • Unpacking the different types of ‘off-market’ deals. 
  • Why you’re overpaying for your on-market deals. 
  • What it means to be a conservative versus an aggressive investor. 
  • Hear James’ keys to success.

 

Tweetables:

“My goal has always been to make the passive investor more advanced than the active investor. Once you know what questions to ask and you look closely at how you invest, you start making smarter decisions.” — James Kandasamy [0:10:21]

“Passive investors are the passengers in the flight, whereas the active investors are the pilot. You didn’t want to go and ask the pilot if they know how to fly the plane.” — James Kandasamy [0:24:42]

“Not many people are willing to do the property management side. It’s a thankless job but you need control to get the maximum return of your investment.” — James Kandasamy [0:29:22]

“The best question to ask your sponsor is — how are you different from everyone else?” — James Kandasamy [0:42:48]

 

Links Mentioned in Today’s Episode:

Kent Ritter 

James Kandasamy on LinkedIn

Achieve Investment Group

Passive Investing in Commercial Real Estate

Jim Cramer

The Street

LoopNet

Think and Grow Rich on Amazon

Magic of Thinking Big on Amazon

 

If you enjoy the guests and content please subscribe and leave a review.  Your reviews matter and each one has a major impact on the success of the show!

Interested in Investing Alongside me in our next multifamily deal?

Contact me at kritter@birgeandheld.com.

My operating partner, Birge and Held Asset Management have a twelve-year track record creating sustainable wealth for over 2000 investors through high-quality multifamily investments.

https://birgeandheld.com

Thanks for listening!

—Full Transcript Below—

JK: My goal has always been to make the passive investor more advanced than the active investor. Because once you are more advanced and asking questions and looking at certain aspect of investing passively, you can make a lot more smarter decisions. End-goal is create more smarter passive investors.” 

[INTRO]

[00:00:19] KR: Welcome to Ritter on Real Estate, the show about how to passively invest like a pro. On each episode, I interview real estate experts who give their top investing advice, strategies and tools, and I break down the insights and the practical steps to avoid the pitfalls and make better investments. I want to help you passively invest like a pro. This is Ritter on Real Estate, and I’m your host, Kent Ritter. 

[INTERVIEW]

[00:00:41] KR: Hello, fellow investors. Welcome to Ritter on Real Estate, where we teach you how to passively invest like a pro. Today, my guest is James Kandasamy. He is the CEO of Achieve Investment Group. He’s also an award-winning multifamily syndicator with over 2,000 doors and a 160 million on assets under management. Even better than that, he’s a best-selling author of the book Passive Investing in Commercial Real Estate. Thank you so much for joining, James. We’ve got the expert in the house today, for sure.

[00:01:15] JK: Hey, Kent. Happy to be at your show.

[00:01:17] KR: Yeah, thank you. Start with telling us a little bit about yourself. Help our listeners get to know you.

[00:01:24] JK: Well, I used to be an electrical engineer with an MBA. I’ve been doing real estate for past what, six, seven years maybe. Multifamily, past five years. We own more than 2,000 units right now, focusing a lot in Austin and San Antonio, Texas. We also vertically integrated a company, which we can go to what that means in a short while. As you mentioned, author of a best-selling book, Passive Investing in Commercial Real Estate, which was released almost two years ago, and we have sold 2,000 copies of it. Probably more, because 2,000 was after one year. After that, I stopped counting.

These are all paid copies. It’s not a free book, or 99 cents. This is paid copy full price on amazon.com. People definitely are reading the book, paying for it, which means I do give some value and I’m happy for that and happy to share any passive investing knowledge with the audience as well.

[00:02:22] KR: Very cool. Yeah. No, we’ll definitely dig into all that today. Why did you start investing in real estate?

[00:02:29] JK: Why? It was the big aha moment when I was in a W2 job. When my boss came, and tell me that I have to work in their company for another 16 years. I didn’t understand why, because when I came to the US, I thought I’d know how the cost of living here is. Little did I know about the cost of education, and I would have three kids. When he told me that, and I told him that I have three kids. He said, “Oh, okay. You’re going to look for another 16 years.” I say, “Why?” “Oh, every kid is going to be a 100 to 200,000 for education.” Oh, that’s crazy. If you go for better school, it’s 300,000 and all that.

It was an aha moment for me, because my education as an engineer only cost — not total, maximum $5,000, US dollars for a four years degree. It was a shocking moment for me. That’s the time I realized that, “Hey, you know, I can’t be just doing a W2 job. I have to do some business to do another source of income.” I was looking at different asset classes, like stocks, or bonds. I mean, I didn’t look at bonds. Not many people know about buying, investing in bonds. Stocks and trying to do some website business.

End of the day, we settled on real estate. I mean, we did try all that. I did try all that and I failed. Real estate was the one that is slow and steady. I can really control the asset, using my sweat equity. That attracted me a lot. We can use a lot of business skills to find deals in real estate. Also, the realization that real estate is the only asset class that you can buy in a below market value, like I say, a 100,000 house, if it’s a distress, it drops in value and you can buy below the market value.

Sometimes, you go off market, you can buy a lot more below market value. You can put a mortgage on it too. You can put 80%, or 75% mortgage on it. Somebody’s giving you a loan to buy that asset. I mean, you don’t get that in stocks, not in a true sense, not in a mortgage. Basically, after you improve, you can sell it above market value, which is crazy, right? I mean, there’s three different areas where you’re buying below market value, somebody’s giving you a mortgage to buy it at the same time. You can push it above market value. There’s no other investment asset class, which can give you that.

For example, stock doesn’t give you. You’re buying on that value on that day. You basically got no control as well. That’s the reason why I selected real estate and was very encouraging for me to do this asset class as my preferred way of investing.

[00:05:06] KR: Got you. You’ve obviously had a ton of success. Now you’re giving back by educating other investors through your book and through other sources. Let’s dig into some of the topics in the book for a little bit, because a lot of the listeners out there are passive investors. Or folks that are looking to invest in real estate. I mean, walk us through how the book is outlined a little bit and help us understand some of what are the main things that passive investors need to know?

[00:05:40] JK: Sure, sure. Absolutely. The book is written in a very simple language. It has complex topic, because I’m a very technical guy. I’m a very numbers guy, but I try not to put too much mathematical equations and to make it too complex. I wrote it in a very simple language. People can spend four to five hours and finish reading the whole book. Yet, you’re going to find a lot more details that you don’t find in a lot of other avenues.

I mean, a lot of times if you go to a conference, or meetup, I mean, people are just going to talk about — how do you buy apartments? I want to focus on — how does a passive investor choose their investment? It has seven chapters with introduction of SEC regulations, how syndication works, and how does LLC being structured. Then we go into more, how do you select your investment? What considerations should you do?

The biggest thing that people forget is not all syndications are created the same. Every deal is different. A lot of times, what passive investors forget is how do they match their own objective in life to that deal? Then people just look at the return, “Oh, the return looks good. I like the sponsor. I like the market. I want to go invest.” Within that paradigm, there’s a deal where it’s a lot more heavy on cash flow. There’s a lot more heavy on equity, less on cash flow, and how do they match this different spectrum of deals to what their investment goal is?

The matching of the investment goal is, we go very deep into it, because I think that’s very important. A lot of passive investors just blindly throwing in money into every deal that they see. Whichever content they like, they’re going to invest in that deal. Sometimes, when a lot of people find the real estate syndication, they start, “Wow, this is a big thing. I like it so much. I’m going to use all my 1 million dollars in the next three months.” They see 10 deals, they put a 100,000 into each, but without them thinking on, A, these deals have their own characteristics.

How do I match my investment goal to this deal? How do I look at this as an investment that I’m going to be using for the next 20 years? How am I going to achieve my financial independence? You’re looking at the characteristics of this deal and investing differently, so that I can achieve my goal at the end.

There’s a lot of things that we discuss in that book, which I think will be very interesting for your passive investors. After that, we go into more into indicators, when people talk about cash and cash, when people talk about IRR. It could be multiple. What does it means? In a very simple language, explain a lot of, I would say, complex topic into – so that people can understand and grasp it right. I didn’t want to write too long of a book, because then, it doesn’t serve the purpose of a passive investor.

I mean, some people really like going into every single detail, but the primary objective of that book is to introduce people to syndication and go into concepts on — how can they optimize any deals that they’re going to invest to their personal goal? Then third is to explain the concepts on — how does it work? How does the process work? How do you communicate with an operator, or with a sponsor?

When you go for a meetup, how do you introduce yourself to the sponsor? When you talk to a sponsor, what are the questions you’re going to be asking them? There’s a lot of things that, as a passive investor, you can be a very advanced passive investor by reading this book. That’s what I put in. Also, the other topic I did look at is what are the capital sources that they can use out there? Sometimes, people say IRA. Sometimes, people talk about cash. Sometimes, people talk about solo 401k. Then suddenly, like yesterday, I met an investor that said, “Hey, I invested a few 100,000, but nobody talked about UBIT tax using IRA.” Because a lot of people just do not know about it. I did talk about in my book, hey, you have to watch out for this UBIT tax.

How are you able to avoid UBIT tax? You can still use your IRA money, but how do we avoid it? These are things that I mean, as I said, Passive Investing Commercial Real Estate is the title, but the subtitle is ‘Insider Secrets to Achieving Financial Independence.’ Yeah, we covered so many topics. Some of the things that I mentioned is — some of the favorite things that people always mentioned to me. Say, that this is aha moment for them. When you read the book, even active investors are going to be learning a lot of things too, because sometimes, there are some concepts, which are explained very well in the book, that even an active investor will be thinking that, “Oh, okay. I didn’t even know that.” My goal has always been to make the passive investor more advanced than the active investor, because once you are more advanced in asking questions and looking at certain aspects of investing passively, you can make a lot more smarter decisions.

End-goal is to create more smarter passive investors, so people don’t keep asking you questions, fundamental questions, and people don’t get surprised when they invest. No one says that, “I didn’t know about this before I invest.” That is the goal of the book.

[00:10:52] KR: Awesome. That sounds like a great read. I’ll definitely have to check it out. It sounds, yeah, like you said, right up the alley for our listeners here.

[00:10:59] JK: Yeah. I mean, as I said, sold 2,000 books on full price. Top 15 book by Jim Cramer, the street — if you go to the street.com and type top 15 real estate book, my book will be number six.

[00:11:12] KR: Awesome. One topic that you mentioned was around just, understanding your goals as an investor. I love that you started there. That’s extremely important. Can you go a little deeper into that, of how as a passive investor do you go about defining, understanding what your needs are and what your goals should be, so that you can make that informed decision?

[00:11:38] JK: Absolutely, absolutely. That’s a really good question. I would have loved to go deep, but I don’t know how deep you want to go. For example, let’s say you are on a later part of your investment cycle. Your focus is a lot more like, “I want low risk, I want higher cash flow. I want more predictable income, because I’m no longer working, or I’m at the age of retiring.” You do not want to take a lot of risk, but you want more cash flow, because you want that consistent money to be coming in.

You can retire without worrying that you’re going to lose your money, or that money’s not coming in. You want to focus a lot more on a yield type of deals, or core asset class, where it’s very, very predictable in terms of giving me that cash on cash return every month. But if you are a young guy, and you have your W2. Not say young, but you have your W2 job. Let’s say for a doctor, you’re going to be earning a lot of money and you’re not going to retire in the next 20, 30 years, if you’re a younger doctor.

What they want to do is they want to basically multiply their capital, so that they are ready in the next 30 years when they want to be ready to retire. They want to focus more on value add and deep value add deals. Deep value add and value add doesn’t pay a lot of cash flow, but it’s a lot more equity multiple.

Looking at what you are earning right now and how much is the risk. Also, as I mentioned on a value and deep value add, the people who are focusing a lot more on capital, equity appreciation, or equity multiplication, they can take a lot more risk, because they have their own full-time job. They want to target which deal is being presented. You’ll be surprised that some sponsors are very focused on core asset classes. Some sponsors are very focused on value add and deep value add. You want to align more towards which sponsor you are doing.

There’s something called hybrid, where it comes to the middle where you get cash flow a little bit, but later on, you get normal cash flow, but you also get a lot of equity appreciation. You can focus on that as well. That’s what I mean. How can each investor look at their risk and reward on where they are in their life, whether they get some other source of income. Whereas they can take on a higher risk real estate investment and multiply that equity, so that credit 30 years down the road, they have a lot more money, and they can put it into a cash flow investment.

[00:13:58] KR: Right. It sounds like, one of the main considerations is there’s some investments that will put off more cash flow, may have lower overall upside, but higher cash flow and more immediate cash flow. It sounds like what you’re saying is those pair more, which makes sense with folks that are nearing, or in retirement, as it’s supplemental income. Versus other deals that have lower cash flow and have a higher ability to multiply your equity though. Higher equity multiple.

Those fit with folks that typically, like you said, are still working, and maybe on the younger side and are still trying to grow their wealth. Still need to gain more wealth. Okay, so really important for people to understand. There’s a lot of different types of investments, but even just breaking it down from cash flow focused, or wealth, or equity multiple focus, I think, is a good place to start and align your goals and where you are in life with that strategy.

[00:15:04] JK: Absolutely, absolutely. Yeah, as I said, there’s a lot more sophisticated passive investors out there who are using all the strategies, but it is not very well taught to the normal investors, or especially people who are jumping into syndication. Because sometimes for them, everything looks the same. Unless, we go into this deep conversation. There’s a lot more deeper conversation, which is not covered in the book, but it’s covered in my video series, where we talk about, like, how do you look at risk-adjusted return? That’s a lot more advanced concept.

If you are already a normal passive investor, you can go and read that, because then it makes more sense, but it’s a lot more technical, but it’s very, very powerful. Because now, you can earn a lot more than even an active investor by becoming a more advanced passive investor. If you know risk-adjusted concept and if you know deal risk profiling. How do you profile a deal? Because when sometimes when someone shows you a deal, you do not know whether this is a core deal, or is it a value add, or is it a deep value add? How do you know it?

We teach in that video series on — how do you categorize them? How do you measure them? How do you measure whether this deal is more of a cash flow deal, or more of heavy towards back-end, by using calculation. That’s a little bit more advanced. If someone who wants to be that advanced, wants to be that super passive investor, then you go to that level. Introduction level, my book is good.

[00:16:36] KR: Yeah. No, that’s awesome. No, that’s awesome. Personally, I love getting into that level. I mean, that’s what I’m passionate about is helping people get more educated, like you said. I think it aligns perfectly. Not to go into all the weeds, but just a little bit, this idea of risk-adjusted return is so important. It’s something that I consistently through the conversations I have, gets missed by most people. This idea, if you’re just looking at the upside, and the potential, or just looking at the return number, and not considering the likelihood of that retirement. 

[00:17:18] JK: Absolutely. Absolutely.

[00:17:20] KR: Tell us a little more about that. What is risk-adjusted mean? Elaborate a little for us.

[00:17:25] JK: Sure, sure. I love it that you like to go pretty technical, because I think in that terms and just how deep you want to go. Let me explain about risk-adjusted return. What is the risk of getting that return? When someone says, “I’m going to give you 15% return,” but what is the likelihood of that you getting? Because you and I know that usually when we predict syndication return, we are predicting three to five years down the road.

If you have 1 million dollars, you probably put all that money 1 million dollars in the next six months, and you’re done. For the next five years, you’ll be waiting for that. What is the result of my 1 million dollars? Where did I put in?

The concept of risk-adjusted return, basically, is being able to tell you, where is the return in the spectrum of the risk. For example, when you look at operation, and also, disposition. Acquisition, operation, and disposition in a full investment lifecycle. Other than acquisition, there’s operation, and you have in operation, the biggest indicator is cash on cash. On the back-end, the biggest indicator is — what is your equity multiple when you sell? You’re hoping that you’re going to make big money on the back-end, but cash on cash is 8%, 10%.

Then people talk about overall return. There’s a lot of times people say, “Oh, my IRR is 15%.” How do you split this IRR into two topic, into two segments where, which part of it is cash flow and which part of it is back-end? It’s called a deal risk profiling. This is the method that we used to split that into two, reside into two different parts of it.

When we talk about cash flow, the Wall Street and everyone who knows about investing, lower risk, you’re willing to pay higher. You want to pay a higher amount of money, because the risk is lower. Whereas higher risk, you want to pay a low amount of money. It means cash flow is always predictable, because it’s happening in one year down the road. The risk of getting the cash flow is high.

To get a certain cash on cash, let’s say someone said, “I’m going to give you 10% cash.” The risk of you achieving that is pretty low, because that’s happening next one year, and that’s operation. Whereas the risk of you getting an exit equity multiple five years down the road is high, because it’s five years down the road. Nobody knows what’s going to happen. The risk, or the back-end is always high. Whereas the risk on cash flow is always low. What we do in this risk profiling of a deal is we split into this cash flow and back-end, and we say that, “Oh, this is 70% cash flow. This is 20%, 25%, or 30% back-end.” It’s a good deal, because now it’s more predictable.

[00:20:23] KR: You’re saying that that deal being that, let’s say your total return to the deal is $50,000. What you’re saying is, let’s, just for easier numbers, so $40,000 of that total return is going to come out of the cash flow in the deal, right? You’re saying that that is a lower risk deal, because the predictability of that cash flow, it’s easier to predict. It’s more likely that cash flow will come. Then on the alternative, the other amount, I think I only had 10,000 left. The other amount that was going to come from the appreciation of the deal, it’s a farther time horizon as time goes out, just increases uncertainty and it’s really hard to predict what you’re actually going to be able to sell the property for in five years.

Much harder than to predict the cash flow, because likely in the deals, at least the deals that you and I are buying from what I understand, I mean, many of these properties have been in business 20, 30, 40 years. That’s how I think about it is, these have been operating businesses for decades that have been making cash. We’re just going to help them make a little more money. The cash flow is there. There’s a history of it. What you’re saying is that — it’s the lower risk profile, because it’s more, not guaranteed, but a higher probability that that’s going to happen.

[00:21:44] JK: Higher probability. Yeah. Which means, you’re okay to pay a bit more money for it. We are looking at absolute numbers. Let’s say, deal A is 15% IRR, deal B is 15% IRR. Absolute number. Where is the IRR mostly coming from? Is it from the back-end, or is it from the front-end cash flow? That’s where you have to determine. You can compare with the 15% IRR deal and a 20% IRR deal. Let’s say, a 20% IRR deal is a lot more on the back-end. That’s okay, because it’s paying you more.

In general, you’re basically comparing a deal A and deal B, which has almost similar total return. You have to see where it executes, because that’s going to control your risk and that’s going to control your probability, which means you’re willing to pay more money for it, or you’re willing to invest more on it. Or you can match it to your own personal profile as well.

[00:22:37] KR: Yeah. Well, thank you for taking us down the rabbit hole for a second.

[00:22:42] JK: That’s very interesting.

[00:22:44] KR: Yeah. I think it’s an important topic that we don’t get to speak on much and probably, a level that is deeper than most people understand as they look and evaluate deals. Just the concept of a risk-adjusted return is something you can’t dig enough into at the thing.

[00:22:59] JK: Yeah. Well, I mean, if you look at stocks, I mean, there’s so many books you can go and get stocks, and there’s growth stocks, there’s value stocks. So many people write about stocks, but not many people write about investing into real estate. I mean, there’s a lot of people writing about how to buy real estate, but 95% of the investors out there, do not want to be an active investor. They want to be passive. This book was written for that 95% of the real estate people.

[00:23:22] KR: Got you. Now it makes total sense. Something else that you hit on is around just, I guess, communicating as a passive investor, approaching sponsors, building that network out. I mean, what are things that passive investors, or any investors can do to, I guess, show up in the right way, communicate in the right way, give off an education and just come off in the right way to sponsors, or to other investors, or whoever they’re communicating with?

[00:23:57] JK: Yeah. I think, just be open about it, if you want it. If you’re looking for sponsors, justm “Hey, I’m looking for active sponsors of deals, and this is the type of deals I’m looking for.” Just be open about it. Open about it and talk to sponsors. One thing I would caution is basically, do not go — I mean, a lot of sponsors are hardworking people. That’s why I mean, everybody wants to make money. Sponsors want to make money. Passive want to make money. Keep in mind, sponsors are the one who are running the entire show, I mean, especially operators, who are buying deals, sourcing deals. That’s a lot of work. Operating a deal and trying to turn around, it’s a lot of work.

You want to have certain trust in them in their capabilities. That’s why they’re active and you are passive, right? I mean, and I always put this analogy, the passive investors are the passengers in the flight, whereas the active investors are the pilot. You didn’t want to go and ask the pilot, if you know how to fly this plane. Do you know what happened next? I mean, do you know where’s the engine? I mean, they are trained to do that. Whereas, so there’s certain trust that passive investors need to put on the active investors.

[00:25:03] KR: How do you build that trust? Yeah, how do you build that trust? Say, you’re trying to develop a new relationship? Or let’s say an investor is building a new relationship with you. You need a new investor. What can they do to start to gain trust in that sponsor?

[00:25:17] JK: I mean, of course, build a relationship, get on the phone and get to know them and all that. At the same time, follow them, what they’re doing and what content they’re putting out. I mean, look for sponsors who are putting a lot of free content, adding value to people, rather than some sponsor, which you do not know where they come from, what knowledge do they have.

You just build. If they send a mail out, if they send a newsletter out, say “Thank you for the newsletter.” It’s a lot more back and forth responses can be done with the sponsors, rather than waiting for a deal. I mean, everybody wants a deal, a really good deal they want to invest. Just build that relationship. That’s something even I see in my investor base. Whenever we put up a deal, it gets oversubscribed. An a lot of times, people we’ll put in the deal are people we already know. Because I can imagine them and imagine my conversation with them. We know their investment goal. They understand me.

Rather than taking somebody completely new, which we do not know, because a five-year, it’s a three to five year of marriage, right? You didn’t want to get someone, which is not a good fit with your personality. Just build that relationship with them. Just keep communicating, there’s emails and tags and say thank you. Just build that relationship.

[00:26:34] KR: What about from the actual passive investor side? Are there things that investors should be doing to vet their sponsors before they invest in a deal?

[00:26:42] JK: That’s a big topic. I would say, let me summarize to one, the best way to vet a sponsor, especially the sponsor who is new, is talk to the current passive investors. Build relationships. Okay, how is that person doing? Are they communicating? Because investments go — it goes up and down, especially in real estate. I mean, any investment goes up and down. A lot of it is private. The best way to get to know how investors and how an active investor is performing, or going to be communicating is just to talk to their current passive investors.

[00:27:18] KR: Got you. Don’t waste the time speaking with the sponsor, because the sponsor is going to tell you all the good stuff. Speak to the other people that are actually investing like that.

[00:27:28] JK: Correct, correct, correct. Yeah. You have to do some homework. I mean, you’re investing 50 to 100,000. Sometimes, people expect everything to be given to them on a phone call. You have to go to meetups. You have to go to conferences. You have to be in Facebook groups.

Just talk to people who have invested with us. Just, “Hey, how’s that person?” I mean, sometimes it’s pretty easy to identify a good operator and authentic people. Sometimes you want to — you see these deals really good. You don’t know the guy. Try to see whether you can connect with some of the previous investors.

[00:28:02] KR: Yeah. No, great tip. Let’s switch gears a little bit, because I want to hear more about your business. Obviously, you’ve grown to over 2,000 doors. You’ve got a vertically integrated business. You’ve obviously grown fairly quickly, relatively speaking, right? You said it’s been what? About six years, six or seven years.

[00:28:25] JK: 2016 is when we started. I would say, four to five years is when we started. I mean, we bought our first building at the end of 2015, is when we closed. I would say, 2015 to 2016.

[00:28:37] KR: What is it that’s allowed you to scale up your business so much so quickly?

[00:28:43] JK: Three things. One is hard work. Second is being persistent. The third is just to try — and we always try to do something different from everybody else. For example, when we started, we sourced all our deals by going directly to the sellers. We’re doing marketing and all that, where everybody is going to brokers. We tried a little different. It’s a lot more hard work, but that’s where you get the best deals out there.

Also, vertically integrated company, where we own our own property management, asset management, raised money ourselves as well. Not many people are willing to do the property management side. People say that’s a very thankless job. Which is true, but you need control to get the maximum return of your investment. These are few things that we do and we do a lot of other things as well. A few things that we do, maybe the third one is I put out a lot of free content for people. Sometimes people ask me, even my podcast people say, “James, why are you telling them all the secrets?”

There’s no secret. This is hard work, is far more important. I can tell you every single secret, but whether the person is willing to do the steps that I’m telling you, that’s a completely different story. Not many people will do it. Probably 0.1. 

[00:30:00] KR: Yeah. No, I think that’s a great perspective. I mean, just like anything else. Most things, except rocket science, are not rocket science. You can figure them out. The thing I found in just my life and career is, once you get into something, it’s usually not as difficult as you think it’s going to be. I mean, at least from a complication standpoint, but what it comes down to is the willingness to work hard, and put in the time. I think that’s really what separates folks. You say, you’re giving away all the secrets. Well, it’s fine to hear it, but are you actually going to turn around and go do it? That’s a totally different story.

[00:30:41] JK: Absolutely. Yeah. It’s true. I mean, it’s not surprising. It’s just that, sometimes people ask, what’s your secret? Well, I can tell you all the secret, but how many — are you going to do it or not?

[00:30:52] KR: You show up every day. I mean, you’re at a property right now, right?

[00:30:54] JK: Yeah. I’m in a property right now. We have a lot of pipe bursts right now due to the Texas storm and I’m here looking at and I’m trying to solve this problem, because this — and not many sponsors are willing to do that. They just want to be an asset manager behind a computer, and they make calls and try to find out how to solve it. Sometimes, when owners are on the side, things get resolved much quicker. End of the day, the residents are going to be much more happy, and they’re going to be staying longer.

That’s how you make much, much better returns, which is equal to a much, much better track record, which is equal to much, much better repeatability of passive investors. We have raised almost 60 million dollars with probably 300 investors. The average investment is 150, and that’s unheard of, because our track record is so good, and people are willing to put in. That just comes from things like what I’m doing right now. I’m being at the property. I’m an operator and trying to solve the problem, so that we can get our residents to be happy.

[00:31:56] KR: Yeah, absolutely. You mentioned a couple other things I thought were really interesting. One is just the idea of vertical integration. In my own business, I mean, we’re vertically integrated. You take a lot of pride in that and see the benefits there. I’m curious from your perspective, how does that add value to your deals?

[00:32:19] JK: It’s just a control and fluctuation of control as well. For example, when COVID hit, of course, our delinquency went up. We can also reduce our staff to compensate for that. Whereas, if it’s a third party, if you have a third-party property management, which is not vertically integrated, then you got no control, is whatever they want to say. We do a lot of difficult deals. We do a lot of deep value add and value add deals, and we just need that control to turn around property very quickly. So vertical integration gives you the control. It may not give you the profit, but it gives you the control and that ends up to becoming a much better return another day.

[00:32:57] KR: Got you. Then you mentioned some of the markets that you’re in. You said Austin.

[00:33:02] JK: San Antonio, Texas.

[00:33:04] KR: Austin, San Antonio, okay. I mean, those are two hot markets. Those are competitive markets. Yet, you said that you find deals off market. It seems like there is a disconnect there, or at least something that you’re doing differently, like you said. Can you tell us a little bit about first of all, maybe just, what is an off-market deal? Then, what is the value of finding off-market deals?

[00:33:29] JK: Yeah, correct, correct. I’m sure, you see everybody offering deals out there and everybody says off-market deal. Off-market can be categorized into probably three types. One is where you are — a broker brings you a deal and tells you these deal are off-market, but actually, the broker what he does is, he also tells 10 other people, this is all off-market. They create this —

[00:33:51] KR: They’re always off-market.

[00:33:54] JK: Yeah. I mean, off-market sounds cool. Of course, it’s gone easy to raise money if you say, “This deal is off-market.” What’s the real definition of off-market? Brokers do that a lot. They bring a deal. They don’t really publish it on market, but they create that cool factor of having 10 people looking at it, and they create internal competition. They still do some best and final off-market.

[00:34:16] KR: Yeah. I call that pre-market.

[00:34:18] JK: Oh, really? That’s a good way.

[00:34:20] KR: It’s a very real thing that brokers have a shortlist. They have a list of people who they know can deliver and who they build a relationship with. That’s the group that they send it out to, before the full marketing package is done, because if they can get it done there, you don’t have to spend all the time and effort going through the full marketing cycles. Those are the pre–markets.

[00:34:45] JK: Yeah. Well, that is a different category for me. The first category I mentioned is that they’re just looking for some guy out there to overpay. The reason why they didn’t bring it on market, is because they’re too shy to bring it on market. This must be a really bad deal.

[00:35:00] KR: Or, those are the LoopNet deals.

[00:35:02] JK: The LoopNet, it doesn’t even get to — I mean, the bad deal, which they don’t have — sometimes they don’t even have a listing on it. They don’t have an assigned agreement from the seller. They just throw it out there. Then sometimes, they all promise to the seller, “I’m going to get you 20% more than what everybody else. Just tell me, give me financials.” Then they can throw it to the market and see, “Is there a newbie who’s trying to bite on this bullet or not?”

[00:35:27] KR: Got you. Okay. Okay.

[00:35:28] JK: Just off-market, I’m talking about. Yeah. The next level is, of course, that’s a better off-market than what you described, where it’s a really good deal, but they just didn’t want to market it, because the seller could have said that, “Hey, I do not want my staff to get spooked.” Just bring in three or four good closers. That’s a good off-market deal. You have to really see which category does it fall.

The last category is where there’s a handshake between the seller — I mean, well, maybe there’s a fourth category. The third category is where a broker brings a deal and tells you, “This deal is something that you can close, because you are the perfect person, because you know these types of deals.” Like, is there big foundation issue? Is there a big claim? Is that a loan penalty issues? If you have a property in front of this property. That’s the third category, because they think that you are the best buyer, they are just going to give you a shot.

The first, all the top three is involving a broker. The last, the best, and the hardest and the best for newbies to start is where they’re able to — they have a direct handshake with the seller. You and the seller talking directly and he gives you a prize and that becomes a true off-market deal.

[00:36:38] KR: Which one of those categories are the deals that you’re doing? Which one do they fall in?

[00:36:42] JK: The first, the last two is where I look for. When I started, I started direct off-market to sellers. And we’re buying — handshake me, hand-shaking with the seller and we’re buying a deal, which no broker is involved. Nobody knows about it, me and the seller. After the first two deals, everything else is through brokers. Well, let me think. There’s one which is a unique case, which came through a Facebook group. I’m going to talk about that in a short while.

Most of the deals after the first direct to seller, it comes from the third category, where the seller brings to me directly and says, “You can execute this the best,” kind of thing, because they know we are local operators. We can turn around the property and we are good closers as well. Good track record.

As I said, there’s one odd case, where I got it through my Facebook group. I said, in fact, that is the biggest, largest acquisition that we have done. It’s almost 32 million in deal and it came through my Facebook group. Tips for your listeners, join my Facebook group. It’s called Multifamily Investors Group.

[00:37:41] KR: Sounds like it. There’s deals to be done in there.

[00:37:43] JK: Absolutely. We just did a 30 million deal through that group. That’s a unique one.

[00:37:48] KR: That’s awesome. Just going back to why would you want to do an off-market deal? Sounds like a lot of work.

[00:37:55] JK: It’s a lot of work, but if you look at your time span, versus effort, versus results, is much better than underwriting 20 on-market deals and going through best and final and buying, or paying for the deal. I mean, any deals that you go through best and final, you’ve fundamentally overpaid. Out of 10 people who came for the best and final, you can say, “I want the deal,” but you’re also the highest paying guy.

In real estate, the fundamental law of real estate is you always have to buy right, which means you always have to buy at a lower value. You make money when you buy, when you sell is where you take the profit. Any deal that you — I mean most of the deals, I mean, I would say 99% of the deal that go through best and final, especially in the hot market, like where I am in Dallas, Austin, Texas, where there’s day one hot money and multiple people coming from time to buy in the cities. I mean, you basically overpaid. You have to pray, so that it goes up from that point, because you already overpaid. Now you’re to hope the market continues to appreciate it.

I don’t like that. I’m a risk averse guy. I always look at risk. I always look for deals, which has lower risk. The way to find that deal is off-market. Rather than doing 20 on-market best and final deals, I’d rather go and do — I take my time and the stress level and go look for off-market deals and work with some brokers on a very exclusive, certain deal level, or even go in direct to sell it. Because the time versus effort, versus result is much better on the off-market side.

[00:39:34] KR: Got you. Yeah. You’re buying ultimately, at a better value, which allows you to create a better return for the investor.

[00:39:43] JK: Yeah. If you look at it, you build that relationship with the brokers. You build that relationship with the seller. Most of the time, apartment owners, they don’t own that one apartment. They own multiple. They get to know you personally. They may be selling you more. It’s just a feeling of winning. When you feel and you get a really off-market deal, it feels so good. Nobody else knows about the deal and I feel so good. Versus, I go and compete, and I paid the most and I won and how do I turn around to my investors and say that I handled this deal conservatively? You can never say that right, on a bidding war, right? Because hey, you are the guy who paid the most. How can you say you’re conservative? You’re the worst conservative guy.

[00:40:27] KR: Yeah. I mean, I guess relative to the other people, you’ve definitely taken the most —

[00:40:33] JK: Aggressive, right?

[00:40:35] KR: Aggressive assumptions, or I’d be able to return —

[00:40:38] JK: Yeah. How do you go into syndication on your webinar? Can you say that, “I’m the most aggressive guy.” Of course, nobody’s going to say that.

[00:40:48] KR: Every deal I’ve ever seen has concerns on that.

[00:40:51] JK: Everybody says, “I’m conservative,” which is not true.

[00:40:53] KR: I’ve never seen a deal that starts out and says, “Our underwriting is really aggressive and we may not achieve it.”

[00:41:02] JK: Yeah. Unless, you’re doing a 1031 money, where your goal is completely different, or in a family office, model wealth preservation thing, then it’s different.

[00:41:09] KR: Yeah, that was the only other caveat I was going to say, is there are examples where the investors just have a different return profile that they’re trying to achieve. Maybe able to pay a higher price. Yeah, for the most part where you’re going, yeah. Especially if you’re in those hotter markets and there’s 30 people bidding. Yeah. You’ve got to hope that it continues to appreciate. 

Awesome, James. I mean, I’ve appreciated all the info. I mean, heck, you wrote the book on it. You obviously know your stuff, and a great level of detail. I appreciate you sharing some insights with us, going deep on some of those topics. The last segment of the show is called keys to success. I’d love to ask you four questions. Promise, there’s no brain teasers in here. The very first question is, what is the question that every investor should be asking their deal sponsor, if they only got one question?

[00:42:07] JK: That’s a really good question. Just get a track record, I guess. I say, it’s very hard to get a track record, and direct from the sponsor. It’s better to get from the investors where we invested with them. It’s also hard to ask them directly, can you give me a reference, right? You just have to network and find someone. Have you invested with this person, kind of thing? It’s an investment.

[00:42:32] KR: Yeah. It sounds like, the answer might be, don’t ask the sponsor question. Ask their investors the question.

[00:42:37] JK: Correct. That’d be the best question you can ask. The most beneficial question. If you want to talk to a sponsor, you can ask them about, what kind of deal do you focus?

[00:42:47] KR: What kind would you focus? Yeah.

[00:42:48] JK: Yeah. How are you different from everybody else?

[00:42:51] KR: Yeah, I like that one. How are you different? I mean, I think, you talked about what you guys have done to differentiate. There’s a clear value prop there. Yeah, it definitely helps separate opposition.

[00:43:02] JK: Because everybody’s trying to be an active investor right now. People go for bootcamp. The next day, they say, “I’m an active investor.” People invested in passive deals. Let’s say, they invest in 0.01% into a 500 units and they claim that 500 units is yes, they go around and tell that, “We own 5,000 units.” But actually, you have not been an active investor. It’s sometimes a bit misleading. Be careful with that.

[00:43:29] KR: Yeah. The track record is really important. And digging in to understand — “What was your role and what were you really involved in?”

[00:43:36] JK: Yeah. What’s your role? Absolutely. That what I talk in my book. Are you an operator? Because operators are the backbone of the deal. They know the business plan. They can execute. They control the whole deal. You want to invest with the operators.

[00:43:50] KR: Yeah. To me, that’s the fun part.

[00:43:51] JK: Yeah, that’s the fun, right? But not many people are willing to do the hard work of being an operator.

[00:43:58] KR: Yeah, that’s true. That is true. What are you most proud of in your career?

[00:44:03] JK: I mean, I think how I make impact for others. I mean, when I started this, I never really thought on how quickly we can grow, but we were so passionate. The biggest thing is we can make impact in many ways; impact our residents, impact our own life, personal life, impact our own wealth creation. We also give back a lot. Our mission has been always been to educate orphans, and in a third-world country. Right now, we are 330 orphans being educated on a monthly basis, where we sponsor the education. We are proud of doing all that. Yeah. That’s our unit count.

[00:44:45] KR: Yeah. That’s awesome. That’s your unit count.

[00:44:48] JK: Yeah. We don’t care about the number of units, because number of units can be nebulous. 330 kids and we’re going to go grow that bigger.

[00:44:56] KR: That’s great. That’s a true impact. What books should everybody be reading?

[00:45:00] JK: At least, Think and Grow Rich. The other book is Magic of Thinking Big.

[00:45:06] KR: Okay. Very good. Last but not least, what is your number one key to success?

[00:45:13] JK: Do things differently from everybody else.

[00:45:15] JK: Do things differently. I like it. Very good. Well, James, thank you so much, man. Appreciate all your time. If folks want to learn more from you, how can they reach you?

[00:45:25] JK: Achieve Investment Group is my company. Achieve is achieving, like achieving a goal. A-C-H-I-E-V-E, achieveinvestmentgroup.com. My email is james@achieveinvestmentgroup.com. I recently launched a free book, plus shipping. Shipping is $4 something for my book. You can go to passiveinvestinginrealestate.com to get the book. Passiveinvestinginrealestate.com to get the book for free.

[00:45:50] KR: Great. You check the book out and check James out at Achieve Investment Group. Well, thanks again for being on the show. Appreciate all the knowledge you share with us and have a great rest of the day.

[00:46:00] JK: Absolutely. Happy to add value to you and your audience.

[00:46:03] KR: Thank you.

[END OF INTERVIEW]

[00:46:04] KR: Thanks for listening to another great episode of Ritter on Real Estate. Hit the subscribe button and make sure you don’t miss out on the content that will make you a better investor. Also, visit kentritter.com for articles, videos, and tools curated just for passive investors. Until next time, this is Kent Ritter with Ritter on Real Estate. Now, go out and invest like a pro. 

[END]

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