Multi-Family Deal Lab Podcast Episode 015
David discusses doing deals during COVID and Tiered financing with Vikram Raya on the Deal Lab.
Speaker 1: Welcome to the multifamily deal lab podcast, where we dissect a deal before your eyes and ears. So you can discover the strategies and tactics that got each deal to the finish line strategies and tactics that you can put in your own toolbox to get you to the closing table from sourcing the deal, raising due diligence to the property takeover. Multi-family deal lab shows how you too can get the deal done. And now here’s your host. David Lindahl,
Speaker 2: Everybody welcome to multi-family deal lab. I’m your host, Dave Lindahl. In this edition, I’ve got a special guest. His name is Vik Raya. And on today’s podcast, we’re going to talk about two things. We’re going to talk about how he got a deal done during COVID. And we’re also going to talk about a certain type of financing he’s doing to get more investors into his deals. So Vic, tell everybody who you are and where you’re from. Yeah, absolutely. as Vic Raya
and sorry, Vic
Raja means King in India in the Hindi. So I’ll take that too. Yeah. I am a, a student of RE mentor, student of Dave’s, but, really, I should have no business being here, man. I should be in like an operating room somewhere doing some stents and being in the hospital. But, what I’ve done is over the years, as I transitioned out of just internal medicine and cardiology, I started falling in love with real estate, started doing single family homes, heard an amazing speech about multifamily and how to invest in apartments and syndications got into it full force in 2015.
Speaker 2: And then now, five, five years later today, we bought our 14th multi-family acquisition, $53 billion deal, 368 units in the middle of COVID and we overgrazed we’re supposed to read a $19.3 million raise. We did $21 million. We have to give 500, almost $700,000 of investor money back, yesterday and the day before. That’s always a nice thing to do because you know, that’s the first money to go into the next deal, right We’ve already created the, VIP investor list and, people lining up our companies, Viking capital, liking capital. Yeah. You know, one of the things we, you know, as a, as a syndicator yourself, as you know, when you’re first starting out, it’s difficult to raise money and you don’t know the money’s actually going to come in on time. You always trying to create that sense of urgency. So whenever you oversubscribe a deal and you tell people, I’m sorry, you know, the deal is full like Jojo, you know, first come first serve.
Speaker 2: Those is always the first people going into the next deal. You know, they get their money up the fastest cause they lost out on the last one. But yes. So you’re into your 40 deal. what’s the, what’s your portfolio size in terms of dollars How much do you manage Right. $350 million of, transactions we’ve done so far. We’ve sold, you know, the 14 we’ve sold our first five off, but we were holding onto the remaining ones and yeah, we look forward to grow aggressively. We have big goals for 2021. our goal is to take down eight, so we have one down seven to go next.
Speaker 3: Good. So let’s talk about that deal you did during the middle of COVID is actually a near the front end of COVID. And you want to talk about that deal, the size, where it was,
Speaker 2: How much you pay. So the deal we just did just now was, was in Atlanta. It’s a 360 unit, but the one before that,
Speaker 3: Oh, actually, you know what Yeah. You know what pick, I’d rather talk about this one now that you just closed one today. I didn’t realize you just closed one today, but the one that you did just as a, COVID was happening, it was probably most of that was done prior to COVID but you did one in the middle of COVID.
Speaker 2: I just talk about that one. Yeah. I’ll tell, I’ll just do a brief sound bite on the one before, because, so as Dave mentioned, the markets we’re in right now is Atlanta, Dallas, Austin, and Washington DC. And this deal was our first deal in Washington, DC. I live in Northern Virginia DC with my partner and, we invest in Atlanta because that’s where I grew up and we know Atlanta very well. It’s a good, obviously emerging market and a good sort of established market too. But, that deal was a mid-rise A-class deal. Yeah, we just happened to get it for a really good discount. And it was a HUD loan that we were assuming a 49 units with the exit being a condo conversion. And the pro the, the main part of the story I want to emphasize is COVID happened right in the middle of the race.
Speaker 2: And we were like, Oh my God, what the heck do we do And, you know, we were like sweating bullets. And luckily, you know, we were able to sort of pivot and, and, and still move forward. Now, mind you, before this 14th deal, all our deal we’ve done has been five or six, three be friends and family, you know, kind of raises. And this was that too. And, you know, normally a $7 million raise is not that a big deal for us, but we struggled to actually get that deal done. And, but then near the second half of when, when people realize that the world’s not falling apart, the people who do have money, do it have money and the people who don’t don’t. And since we’re raising, essentially mainly from our current investors, there was not really a lack of, it was just, people are scared and that we just have to reassure them.
Speaker 2: And so we did double the kind of marketing, double the webinars, double the, investor communications. And we were able to close that deal and we still overgraze on that deal. And again, all 14 deals we’ve ever done. We will raise on every single one of them. So now going fast forward, knowing that COVID is not at the end of the world and potentially it’s actually the best of things that could have ever happened to multi-family in terms of, look, there’s a Delta between the treasuries and then the kind of interest rates we’re getting. And the cap rates, even though the cap rates are compressed, and I know we’re all not liking that they’re in the fives and the fours or whatever, give rates are so low, that it still makes sense. There’s still that cashflow that can be generated and then that, you know, the equity that can be created.
Speaker 2: So, that’s why we’re still doing deals, but we’re very cautious. We’re building in like all these, you know, I’m a cardiologist, so I stress test the portfolio. So one of the things I do is no, no, no rank growth year one, Dave, that’s what somebody that you taught me to be, you and Bob Bowman, and be very conservative, other things aren’t looking, if I’m not hitting my cash and cash on your one to pay my investors, I don’t do the deal. So these are kind of things. We, we built it into our deals to make sure that they still make sense.
Speaker 3: Let me ask you a question. So how did you protect yourself, from, because a concern that a lot of people have is the fact that, people can’t evict, you know, at this particular time. So if you’ve got a tenant in there that is not paying and you’re stuck with them until the pressure’s off. So how’d you protect yourself against
Speaker 2: In our previous portfolios we we’ve been, we have really good property management companies. We’ve come with some, a lot of different strategies to do that. But moving forward, when we look at deals, we actually look at, Hey, how many people are, what’s the bad debt situation look like if it’s above a certain amount, we don’t do the deal. It doesn’t make sense because we don’t want to deal with that problem. So a lot of the places where we’re dealing with, the jobs there, these are people who work in the industrial sector. They have jobs, they haven’t been affected by the COVID, they’re not retail oriented. And so, there are a lot of pockets in the country where people have jobs and they’re doing fine. So that’s one thing to look at. Number two, what’s, what’s your property manager company’s response to handling
Speaker 3: No, not for one second. I just want to reiterate what you said, because it’s so important when you, when you’re buying properties in the middle of this pandemic is you need to know, you need to go when you do your, your lease audit, you need to go through the rent rolls and you need to actually, you need to go through those files. You need to look at the applications and see what they’re doing, what their job descriptions are, you know, what type of jobs they have, because you’re right. There are some jobs that haven’t been affected by COVID and the service sector jobs have been affected by COVID a lot. So if you’re taking on a property that has a lot of service sector jobs, even if, you know, the economic occupancy is higher, you know, or high, it still doesn’t matter. That’s a higher risk property, and you’ve really got to be conservative with the numbers there. So I just wanted to point that out to anybody that’s listening and investing at this particular time point number two.
Speaker 2: yeah, so, you know, like the deal we were looking at, it’s called Maribel place. That it’s the deal in Atlanta. We’ve done lease audit, and we actually had another deal under contract before this, but we pulled out of that deal and we actually said, Hey, we, we w we’re not going to do the deal. And to be honest with you, there’s some languaging I want to talk about in terms of, off-market deals. Sometimes off-market deals are the worst deals ever do, because if, if it’s not been fully vetted, if the brokers haven’t really done a proper BOV or created a memorandum, if it’s not been seen by the market, sometimes you can get fed a lot of BS from the, these sort of individual sellers who just want to float it out and see what they can get. So the reason we didn’t do that deal was due to the COVID problem.
Speaker 2: He had hidden all the, he had said, Oh yeah, I have a 96% occupancy. I’m doing so good. When we did the lease audit, the truth came out his app. He had put in all these, like, you know, section eight folks. And he put all these like, programs in there. And essentially it was $22,000 average median income for his property in Atlanta, that’s way below normal. And so once on the surface, the deal looked amazing. We thought we’re going to getting a deal, but that’s, that’s so important to at least caught it. And again, if you don’t know how to do it and pay a property management company or pay somebody as a consultant to go do it for you, but be there right now, they’re right next to them. So you can understand what’s going on. It can save you millions of dollars when it can save you from doing a bad deal, but moving forward on this deal, when we did the lease audit here, the average median income was close to about $60,000, which is about $10,000 higher than most places in Atlanta. So that’s why we liked the number two, the jobs we made. We looked at all the jobs and they’re working in, in these, in the industrial corridor, they were working in, you know, these higher paying jobs and they were not really being affected and total, bad debt on the, on the deal was about 15 units out of 368. And so we felt comfortable with that risk.
Speaker 3: Yeah. Good. So the, the purchase price was how much
Speaker 2: A purchase price was 52.7,
Speaker 3: 2.7, really 17. And we raised, about 1919. And you over-subscribed it. So let’s talk about, I just recently heard from Bob that you guys are, are doing a different kind of an offer for your investors. Want to talk about that
Speaker 2: Yeah. Yeah. You know, as you sort of go up that ladder in this sort of the syndication sort of mastery, you know, we learn, we first learned friends and family. That’s where the money comes from. And that’s what we first, you know, our initial raise was I think the first ever raids ever did in 2015 was $700,000, right I just, a bunch of friends and family come together raised some money and that’s five Oh six, three B, which is great. Now that’s just a self accreditation by the investor and they have to fill out their own paperwork and just say, Hey, there are a credit, but there’s no proof or verification that needs to be done, and I’m not allowed to market it generally or broadly. I have to just market it to people. I already know. I already have a previous relationship with what we’ve done is as these bigger deals come across our plate, it’s harder to raise the capital from just that limited group.
Speaker 2: And so we moved on to what we call five or six, three C, which is more sort of not, it’s a form, I guess, a form of crowdfunding, but it’s, it’s basically, I’m allowed to advertise. I’m allowed to broadcast it out there. However, I have to independently, third-party verify every single investor as a credit. I’m not allowed to take sophisticated. I’m not allowed to take anybody who doesn’t meet the strict definition of accredited. And what we’ve done is we’ve actually upped our marketing game. I have, we have a, in the agency that works with us, I’ve created a ton of content. We w we really sort of target niche groups out there. And one of the biggest groups, we targeted physicians all over the country. And so that has helped us grow our investor base. Now, have I lost investors because now my investor has today, not only do they have to do the paperwork, why are the funds look into the deal and make sure it makes sense. But now after all that they have to do at third-party verification, where they submit their tax returns through an online portal and actually get verified. Now that’s sort of a paid the button, another annoying thing, but that trade-off was for every one investor I lost that probably gained about five to seven investors.
Speaker 3: Wow. That’s pretty great. You got a two tier offer on your, your deals. I understand absolutely that.
Speaker 2: Yeah. you know, investors love choice guys. So when you’re out there, not all investors are the same flavor, right You can have some investors who are younger and they want to grow the portfolio, or they want to create wealth. And they don’t mind taking a little bit of less cashflow. And as long as they get equity and appreciation on the backend, then there are older investors sort of, you know, they’ve sort of been there, done that. Now they’re just looking for mailbox money, we call it. So they are looking for maybe a higher cashflow. And if, even if they don’t participate in backend equity, profits, they’re fine with that backend splits. And so what we’ve done is created a two tier offer, and created two classes of investors, class, same class B class a, it gets a straight 10%. It’s a 10% IRR at 10% return paid monthly, for an annual 10%.
Speaker 2: And then they enjoy that for the life of the deal. And when we sell them, they’re done, class B gets 7%, but then they get all the back-end participation as well. So it seems to work well because some people do, Hey, you know, I like them all black and the Chardonnay. I want the blend. I want a little bit of class, a class B or they’re like, no, I’m a younger guy. I just want class B because I want to grow my wealth. I want it to X my money. And then the class A’s or look, I just want, I just want a straight 10%. That’s amazing. I’ll take that better than the market.
Speaker 3: So, just to clarify the, those that get 10%, they get no equity on the back end, the 7%, or if they get equity on the back end. Absolutely. So are you taking all of the equity now since the 10% or is the class A’s are not getting any of the back end It’s the, is the, all the equity split between you, the general partners and the limited partners, at a, at a what’s your typical split 70, 30, so 70 30. So all of that goes into the, the 10% that might’ve gone to an, a partner that’s not set in an aside for the general partners.
Speaker 2: Yes. I mean, it split pro rata between the two groups left and the managers. Yeah.
Speaker 3: That makes sense. Have you thought of, going into deals, maybe a good micro repositioning that you might have and then going into, a buyout of your investors. I know another, investor out there right now, that’s doing a guaranteed 10%, but then they’re buying them out and they’re giving him a, an additional bump of 12%, but no equity because on the buyout or the refinance, they get the deal back. So now they own the deal with just the bank in themselves.
Speaker 2: Yeah. I love that. And, you know, deals like, for example, this deal in DC, that may be something interesting. And I may have to declare that upfront. So the investors know, but this deal in DC is a HUD loan. and it’s 35 year term. And then we just refinanced a 2.6%. I mean, that’s the kind of legacy of deal you want to just hold on to, for forever, that deal in DC had a lot next to it or something, there was something different about that particular deal. It was boarded up. It was, it was built by a developer. It was built as condos zoned as condos. But when he did it, when he went ready to sell his condo, as he did, it was not a great condo market. So he ran his apartments, but not very well. And so our exit strategy is, I mean, we can always sell it as an multi-site, but it may, it makes more money if we sell it as a condo conversion.
Speaker 2: Yeah. Okay. So what would you say is the biggest, what has been your biggest challenge to the last five years Staying motivated to stay hungry learning to reinvest into the company, you know, because a lot of people just, Oh, they, they get a big payday and then they’re like, all right, I’m done. Or I’m going to start partying on the slow down. It’s also learning, what are the, what’s the next five moves I need to do to get to the next level. And it’s also, emulating the best out there. Right. I look at what Dave does. I look at what a guy named Joe Fairless does. I looked at a guy named rod cliff. I look at whoever’s doing the best of the best out there and learning to emulate those things. I hire mentors left and right. I hired the best, like the marketing guy I can brought on.
Speaker 2: He’s amazing. and we just keep reinvesting and then like the book called traction, right. Which, you know, we’re hiring a professional us implementer to come in and build restructure our company. So we’re, we’re going to be a ten-year company, a 20 year company, a 50 year company. Right. The goal is not to just be good for two years or three years, but how do we replicate success year after year. Excellent. All right, Vic, do you want to give any contact information Yeah, absolutely. If you guys want to get ahold of me guys, my email is VRaya@vikingcaapllc.com. I’m also on Instagram and Facebook and my website is Viking cap, llc.com. So in fact, I could be, have helped you guys, please, please reach out.
Awesome. And that has another edition of thanks.
Speaker 1: You’ve been listening to the multifamily deal lab podcast, where the deals get done. If you’d like to learn more visit Dave’s free book.com and don’t forget to leave a five-star rating and review and hit that subscribe button. So you don’t miss an episode. Thanks for listening.