Bikran Sandhu 00:02
Knowing your partners that you’re going to work with, it’s really key to identify your competitive advantage that you’re bringing to the partnership. Multifamily is not a single person game, you need to have partners that you need to work with. And identifying your competitive advantage is very important.
Greg Lyons 00:16
Welcome to the passive income brothers podcast.
Tim Lyons 00:18
Here we take the fear out of real estate investing using real life stories of everyday successful investors. Let’s go. Welcome to another episode of the passive income bros podcast. My name is Tim Lyons and today I’m joined by two rock stars, one of which being my brother Greg, how you doing today, buddy? Tim? Great
Greg Lyons 00:34
day to be Alliance. I will tell you that much right now. And boy, are we lucky with today’s guests. Let’s call it the brains of the operation. We have cityside capital, we work with a lot of different operators in multifamily and self storage and rise. 48 is one of our favorites not only because of their operational prowess, but just great people are smart and really do things the right way. So we are in for a great treat today as having the CFO of rise 48 on it’s going to be fantastic.
Tim Lyons 01:04
That’s right. Today we have Bikran Sandhu, who is the Chief Financial Officer, and co founder of rise 48 equity. So Big Ron, welcome to the passive income brothers podcast.
Bikran Sandhu 01:14
And thanks to him. Thanks, Greg. Happy to be here and appreciate the kind words they’re really appreciate working with you guys on all these deals?
Tim Lyons 01:20
Absolutely. So for the listeners out there, Greg and I are registered reps of a broker dealer that is focused on commercial real estate assets, specifically multifamily that we also have some self storage. And we also have some industrial triple net lease properties that we invest in. But the bread and butter of our operations are really multifamily. And specifically in the Sunbelt. And this is where Rhys 48 really comes up. And Greg, and I think I’ve done eight or nine deals probably shouldn’t have that, Greg. But it’s either eight or nine deals with rise 48. And they have been a power player in the space. And the reason why I say that the grind is because of as a limited partner. This is not your everyday investment. This is not something you get from your financial advisor. And recognize job is complicated sometimes by explaining to investors how this really works. But when we work with a company like yours, the operations, the reporting, the onboarding, the investing your webinars, everything is really, really robust. So I really want to congratulate and celebrate that for you and Zack and the whole rise 48 team. With that being said, Vic, Ron is not every day you have somebody that goes and gets their economics degree, goes to work for PwC and then actually exit stage left to get into real estate. So can you take the listeners back on that journey? And let them kind of know what brought you all the way to where you are today?
Bikran Sandhu 02:48
Yeah, no, of course. So yeah, back in 2012. When I graduated, UCI want to introduce you actually back in 2008. If you want to get into med school, my entire family’s in med school, or went through the medical school programs. And you know, everyone in my family is in either a nurse practitioner or doctor or some sort. So that was my natural ascension and into my w two, career. But halfway through, I kind of figured as much as I liked biology, I don’t really like all the med school stuff that comes along with it. And I think the tipping point was really organic chemistry where I was just like, Yeah, this is not for me, I can’t do this.
Greg Lyons 03:24
It loses the best of us. Exactly. Yeah.
Bikran Sandhu 03:27
At that time, I was always kind of interested in finance. And I didn’t really look into it too much in elementary school all the way to high school and stuff. You learn about math and all that the jargon that comes with like calculus and stuff that never really teach you about personal finance, or budgeting or taxes and stuff. I was always kind of interested in it. So in college, and I took some electives and ended up really liking the economics and finance side of things. So I went in with my econ degree, wanted to be pre med dropped that I wanted to becoming an accounting minor at that time. So if you want to get a career in economics, you essentially have to stay in school for about a dozen years before you have a PhD. And then you go teach econ to other kids didn’t really like the sound of that wanted to kind of actually go to the workforce. So I got my accounting minor, graduated from UCI and then started at Grant Thornton, which is another accounting firm out there. So did that for about a year. And then I really wanted to kind of get the experience of being in a big four accounting firm that did fortune 100 companies and moved into PwC spent about three and a half years there where I really kind of cut my teeth with understanding how companies work. And as an auditor, you really get a good understanding of the ins and outs of how money comes into the company, how it kind of gets flushed out through the different operations and different departments out there. And then how does the wheel actually turn? How does the flywheel turn at the companies so really, you know, the past of the three years that I was at PWC and for the year at Grant Thornton, we got to kind of like a behind the scenes look of how companies operate. But my issue at these big four companies was always kind of saw like the back of the mirror of what happened. And my job now was to kind of make sure everything happened appropriately, and that everything going out to the investors was being reported completely inaccurately. So I liked that I understood the back office side and making sure the numbers were being reported appropriately. But I always wanted to be on the management side where I wanted to kind of help impact those numbers. So after about three and a half years at PwC, I left to join a local management consulting company called CNM. And you know, at that company, I really kind of learned how companies value other companies sell off divisions, how do you integrate a company you just acquired? How do you make sure that if you’re starting to launch a new product line, how do you make sure the systems that you had for the current product line, move over to the new product line and make sure that all the controls are there, so you can limit fraud, limit any incompleteness or inaccuracies that are happening and reporting. So really kind of put myself along with management on the same kind of lane, as opposed to waiting for the auditors to come in and making sure all the information was reported accurately. So I spent about four years at CNM. And honestly, like, I wouldn’t change anything in my pathway that I’ve done in the past, I think all of it from spending 100 hour weeks, PwC, during the closing seasons, all the way to working at CNN, various different companies, everything from a fortune 100, all the way down to growth or early startup companies, it’s all been kind of building up that financial modeling experience that I’ve always kind of wanted to grow on. So along the lines, when I was at these companies, I had a couple of clients that were real estate clients, and they weren’t the bulk of my bread and butter. But I did participate in some of their reporting functions that they had. So you know, kind of saw little peaks on the back office on seeing how they functioned. And I always had that real estate bug my family, we weren’t landlords by any means. But I always liked the fact that you could own assets, real hard assets, and then you know, rent them out and generate cash flow. So my girlfriend at the time now my wife and I, we started looking into real estate in 2018 2017, I started doing some financial modeling. My theory was, how do I get out of my w two job so that tomorrow if I was to get laid off, for some reason, one way or another, how can I make sure my income is completely replaced. So started looking at single family homes, duplexes, triplexes. And at the time I was living in California and owning homes for rent was not the play. That’s never the play in California, the whole play is always fixing flips. So we went to a couple meetups in California and kind of quickly learned that in order to actually make any money in real estate, you essentially had to be an active investor, you had to be there on site, managing contractors fixing and flipping a property. And then hopefully, the markets still good. And so you can get out of it after 60 to 90 days or even six months if you have to a significant flip. I didn’t like that, because I had my w two job. I couldn’t just give that up and go do this full time I wanted passive income. So beginning of 2018, I started learning about multifamily 1012 20 unit buildings. And my wife and I were talking we were like, Okay, well, we can do single family homes for five to seven years build up to like 1020 units or 1020 buildings or homes. And ultimately, what’s going to happen is we’re going to have to get into multifamily, like it’s going to have to happen because we can’t scale with single family homes at the level that we want it to. So we just said hey, why not just go into multifamily right away. So we started attending meetups, we started listening to podcasts and started looking into multifamily in general, and in 2018. That’s when I met Dallas Group. And that’s where I joined the group and met Zack and Zack Council and Robert, Chef Jake, who are the co founders at Rice, 14 equity, and 2019 at the very beginning is when we bought our first deal together, Zach and Robert had already gotten the deal under contract, they were looking for extra capital I came in it was just all our money. Essentially, it was Zack Robert and we had a tick member that essentially putting all my money into this 36 unit deal in Phoenix, we closed in February of 2019. And I think the one thing that really helped me out at the time was I immersed myself in in the operations of that property. Like I didn’t know anything about real estate before this. And the best way to learn is just roll up your sleeves and get your hands dirty and get into the operations right away. So that’s where I really kind of cut my teeth with all the real estate operations already had all the financial modeling experience and I was underwriting deals at the time. But operations and asset management are a completely different beast. It’s not just an Excel sheet anymore. It’s like real people. It’s real expenses, you have to pay you have to manage a bank account, make sure you actually have money to pay contractors. So that was a good learning experience. And then you know, since then we just kind of took off from experiences we’ve gained from that building and from all my prior financial money experience going forward into where we’re at today. Yeah,
Greg Lyons 09:58
this is what I, we have done so many deals with Rhys 48. Because the depth of your experience pick Ron and just all listeners out there, I’ve been to Phoenix before to check on some of our investments. Big Ron and Zack, the CEO opened up their office to me, we sat down for an hour, they didn’t have to do that. And, you know, to really get, you know, gain an understanding, because we’re gonna put a lot of money with these guys, but then really to hear what Bitcoin has been through in his kind of professional journey, to not only get financial modeling and all that stuff, but when you buy your first property to actually operate it. So instead of just sitting up in the big Ivory Tower, their background, you know, everything that goes on right now, throughout the organization, and that is just so important. That’s so comforting to investors, and you will build just a wonderful, wonderful business. Maybe for the listeners that don’t know much about rise 48, you’ve grown from that first deal in 2019. To in Phoenix, you’ve grown out of two markets, and over a billion of assets. Can you just kind of take us through a little bit more of the journey from 2019 to present day. Yeah,
Bikran Sandhu 11:09
of course. Yeah. So we, you know, the first thing we bought was obviously in February of 19, it was a 36 unit building. And at the time, Zack Robert and I really didn’t have any dreams of building any sort of a company around this. A lot of this indicators at the time where they’ll essentially hop partner from partner try to find deals together to do deals together. And that’s not something I wanted to do. At the time, I was still a W two worker, I had my normal day job. And Zach Robert and I would get on the phone calls at night from like 6pm to 10pm every single day. And talk about real estate, we talked about asset management talked about new deals coming on the horizon talked about underwriting assumptions that we would use. Zack and Robert were local in Phoenix at the time, and my wife and I really liked the Phoenix market. We like property taxes can’t be reassessed. Every single year, other insurance costs are pretty reasonable. And you can get two and $50 a unit in terms of insurance costs, and that was in high end. So from a metrics perspective, the MSA itself was a very nice MSA to be in. So it was good to know good to have Zack and Robert with their background on the properties and background on the geographic location of the Phoenix as well. And Zach, he was really good at building out his relationships with brokers. So as you were getting more and more deals, and I was underwriting them, we were providing feedback. And Zach was kind of building those relationships, touring the sites. And we started getting a little bit of deal flow of off market deals, which we started getting putting under contract and then started acquiring. So at the time, like Zach had his own companies ah, multifamily. I had my own bright investors. And we were just going to do like partnering up and doing deals together. Or you could say we’re kind of dating in that space. So we weren’t really partners at the time. And towards the tail end of 2019. We decided, okay, well, I want to do this long term. I don’t want to have a W two and do this as a side hobby. Zack was on the same page, Robert was on the same page. And we decided, okay, well, beginning of 2020, we’re gonna start this new company. And we’re gonna come into every single deal together and build a company out of it. So unfortunately, at the time COVID started to come in. So in 2020 was supposed to be our banner year, and we ended up only buying two deals because of COVID. We closed our first deal district flats in March of 2020. And then literally the next month, everything shut down. And September of 2020 was our second deal that we acquired after 2019. And that one turned out to be one of the best deals that we were in. And the entire time we were still thinking okay, well, we’re gonna quit our day jobs and go into multifamily full time. But because of what happened in 2020, we weren’t able to kind of do that. So at the end of 2020, beginning 2021, at the time had around five or six deals under contract at the time, Zach had built out great relationships with the brokerage community, we had so much off market deals, we had put out earnest money for all these deals that we were acquiring. And until through June 2021, we had acquired pretty much one deal a month or scale. And in April or March of 2021, Zach ended up quitting his day job, I ended up quitting my day job and moving to Phoenix. And the rationale behind that was, we’re going to build this company. And if we fail, at least we’re young, we can restart. I’m a CPA, I can go into a job as an accountant in California or in Arizona, it’s not a big deal for me. So why not take the risk. So March, I quit my day job moved to Phoenix. And ever since then, we’ve just been on a roll and buying deals every single month, essentially and in Phoenix. So 2021 2022 We bought 16 deals each year. And in 2023. So far, we bought four and during this downturn, and the whole reason is we’re devoted 100% into this company and devoting it to essentially the biggest real estate company in the world. And we can’t do that if we have a day job. We’re doing this as an active passive activity on the side. So we’ve put our blood sweat and tears into building this out. And that’s how we’ve been able to go from just one deal into February of 2019. To finish closing off about 41 deals as of today for that we required in Phoenix, I’m in Dallas. All
Tim Lyons 15:17
right, good talking to you guys. I’ll see you next week. I feel terrible about myself. I mean, this is crazy. Right? This is a great story. And I love how Big Ron is like just so soft spoken about it. Yeah. Couple of deals couple of deals do this is from 2019. It’s May of 2023. And according to the website that I’m looking at right now, 1.9 3 billion in total transaction volume 42 assets acquired nearly 7500 multifamily units. I mean, that is astounding. And I remember watching this in real time. It’s unfolding for me in real time, because we’ve been with you our first deal was rice desert West, I think. Yeah, yeah. That was the Preserve, I think, yeah, whatever it was June, it was June 2021. And I’m watching you guys roll out like a new deal. And then we’re not talking like 20 units at a time. We’re talking 100 200, almost 300 units at a time. And I was just like, Wow, these guys are cooking. And at the same time, they have full time staff, they went from 40 to 50 to 90, like full time salaried employee benefits, everything. And it was just really impressive to watch you guys grow. So I love that story. I could probably watch that story all day. So with that being said, right, so now you what I love about what you said, just to pick on one thing is you started this with your wife, and Robert and Zack were the other co founders, their boots on the ground, you’re still in California, right? And it’s all about building out a team. And we talked about that at nauseam on this channel, building out your team, it’s getting your people in place. And that’s brokers and accountants and attorneys, and just advisors, mentors, whoever it might be, whether you’re going to be active or passive, there’s a whole team to get into place before you really dive in. And I love how you really to stack on top of your education, right? Like you went to the meetups, you listened to the podcast, you read the books, and you had some financial modeling and finance and economic background, your CPAs you understand some of the plumbing, better than your average Joe. So I love all that. So just so the listeners now I was gonna say investors, but hopefully their investors. But anyway, just so the listeners know, you guys have now basically owned the Phoenix sub market, right? And now you guys made a big move this year into a new market. Can you jump into that real quick?
Bikran Sandhu 17:40
Yeah, of course. And to touch on your point tam on knowing your partners that you’re going to work with, you know, it’s really key to identify your competitive advantage that you’re bringing to the partnership. Multifamily is not a single person game as much as maybe in the 80s or 90s, you could have gotten away with it. But today, with the amount of competition in play, there’s definitely not a single person game, you need to have partners that you need to work with, and find your competitive advantage is very important. So going into Phoenix in general, what we wanted to do was we wanted to establish the infrastructure in place in order to make sure that we were buying the deals, managing them, completing our renovations and executing our business plan, and then selling the deals before we decided to take that blueprint and move into a different market. So Phoenix was a great kind of launching strategy for us where as we were buying the deals, we were building out a property management arm, we were building out our construction management arm and understanding, as we are executing our business plan, we can replicate this strategy in different markets. So we didn’t go out of Phoenix enough the first couple of years, because we wanted to make sure that we were able to execute the business plans we were promising to investors. And that’s the biggest thing, right? You don’t want to end up in a situation where you tell the investors one thing, and then all of a sudden, six months, 12 months down the road, you didn’t think about things correctly, or didn’t think about what type of, for example, rent seeking get. And you have to go back to the investors and say, Hey, I know we say we can get you an X return, but it’s actually going to be x minus y. So we wanted to make sure that we were going to essentially take the blueprint that we established in Phoenix and then apply it to different markets. And we didn’t really start looking into a different market until middle of 2022, I would say. And back before we ever chose Phoenix, my wife and I always wanted to get into either Phoenix, Dallas or Tampa. And those were the three kinds of markets who are looking into and there was really simple reasons you had job growth and you had population growth. And as a supply for your multifamily buildings, those two items are very important. So if you don’t have job growth, or not going to have rental growth, if you don’t have population growth, you’re gonna have increased vacancy, which is going to drive down the pricing. So as long as those two metrics were mad, we were looking at the different markets that we wanted to get into. And Phoenix was a great market. So that’s where we started with Phoenix. And then in middle of 2022 we started looking at the different Other markets get into. And Dallas and Tampa obviously kind of stood out. They you know, Dallas itself has been on a consistent roll of slow but steady increased rent growth. They have great job growth, great population growth, the only limiting factor there is you have unlimited supply of units coming out every single year. But we focus on value add workforce housing, and based on where the pricing is at today, people are not building workforce housing, they need the highest rents possible just to make their numbers work. And you’re not going to build workforce housing, even if you get the land at really low basis, you’re not going to build workforce housing is not going to happen. So our supply is constrained from the area that we operate in. And Dallas itself just kind of stood out. So in second half of 2022, Zack Robert and I started flying out to Dallas, sorry, understanding the different sub markets and started talking to brokers started building their relationships there. And what was really important was the same brokers that were feeding us deals in Phoenix, they had counterparts in Dallas. So we just asked the brokers in Phoenix saying, Hey, can you introduce us to your counterparts in Dallas, get us meeting setup. So we started going out there meeting with these brokers, we essentially had instant credibility with the brokers in the Dallas market, because we’ve done what we’ve done in Phoenix. So they started feeding us off market deals. And we started cranking underwriting we made sure we adjusted for Dallas metrics, like taxes and insurance heralds a little bit higher. So we started adjusting for that as well. And we just started going through underwriting and did well we did in Phoenix, we started looking at deals, underwriting them, and then provide a feedback to the brokers, we essentially said, you know, hey, this deal works, or it doesn’t work at this price because of XYZ. And nine out of 10 times it was, hey, we spend X amount, our CapEx per budget, and we cannot get the rents that we need on this specific deal. But please send us something else. So we can provide you additional feedback on these other deals. So today, we wander in over 120 130 deals in Dallas. And we’ve only found four that essentially worked. And those were we worked very hard to get under contract. So it’s almost like finding a needle in the haystack. But it’s like finding a golden needle in a haystack full of needles to find those deals. And that’s tough. It’s not easy. We spent about 2425 hours per deal and underwriting phase before we can even send out an offer because we want to be as thorough as possible. And we tell the broker like hey, this is the max price, we’re not going to retrain you, we’re not going to go back and say, Hey, because of this coming up in DD, we can’t buy the deal or can buy the deal. This is our max price that we can offer. And then if there’s any adjustments we need to make, we’ll make that internally and still make the deal work for our investors. But ya know, it’s we’re essentially taking the same blueprint and Phoenix and the same underwriting methodology, adjusted it for Dallas, and have started just taking the same approach in Dallas. So that’s how we’ve kind of grown up in Dallas. And our goal this year, is to essentially buy up to 3000 units in Dallas before we start looking elsewhere or decide to refocus again on Dallas and Phoenix are just focused on Dallas for now. So that’s our strategy in a new market.
Greg Lyons 23:06
Well, background I I think I speak for Tim, when I say we wish you were just a little bit more thorough. Yeah, right. Just a little bit more thorough. But I think you went about this right? I know you went about this re building your systems and processes, becoming vertically integrated with a construction team or property management team to go along with acquisitions. And you kept mentioning that you were trying to build a blueprint. And that blueprint, what a blueprint it has been if you could just dive into a little bit of your business plan. And I wouldn’t call it super unique, but you will have dialed it in. I think it goes to the details that you guys cover with everything you do, whether it’s your presentations, your acquisitions, anything, you dial in the details, and your business plan has supply chain elements using the same materials. And you really, really made this a scalable business. If you could just dive into your business plan a little bit, I think that’d be very helpful for our listeners. Yeah,
Bikran Sandhu 24:06
it’s a three step plan. It’s very simple. As you mentioned, Greg, and it’s not unique, anyone can essentially do it on their end, it’s just devoting the time and framework to it. So step one is taking care of any deferred maintenance on the site. So when we identify an 80s or 90s value add, the main thing that we look at is how is the property performing compared to market if it’s 20 30%, below, on what you know, you can get on market rate rents, primarily, that deal is going to make sense in our model. So first step is we’ll go out do due diligence and make sure that we’ve identified and bid out all the work that we need to for that asset, and then we put that into our CapEx budget. Now, the one thing that kind of makes us unique is in addition to unit renovations and exterior renovations, we also build in deferred maintenance into our CapEx budgets. And these are not line items that just a lender requires. This is all the stuff that kind of comes up during due diligence that we will see He has Okay, two years down the road, this is going to come up as a major item. So we’re gonna put that into our budget today. And then when we underwrite the deal, we’re making sure we are covering all the renovations and the deferred maintenance into our plan today, as opposed to hoping that nothing happens over the next two years, or next three years. And then we have to go out to investors and ask for more money. So we don’t do that we always budget for everything up front. And so step one is identify what you need to for your capex side. Step two is you know, after you’ve acquired the asset, hit the ground running, we don’t want to sit here spend three months trying to understand what the property is doing. Don’t do any capex plan, don’t do any exterior amenity renovations or interior renovations. We don’t do that when we take over an asset. If there’s 10 units vacant, we get our contractors on site and get them starting to renovate right away. Our goal is to renovate all 100% of the units in the first two years, you’re not going to do that if you’re taking a slow pace throughout the entire project plan. And 2021 We bought deals, we were renovating at a pace around 20 to 30% of the units per deal per year. And you know, that was working out great. And after a year we around 30 40% completed and the market was doing really well. And we essentially sell the deal after 12 to 18 months, which was great for everybody. But we don’t think that market exists today. It definitely doesn’t exist today. And it’s not going to exist for the next two to three years at the very least. So what we’ve done is, you know, we’ve just kind of ramped up our renovations instead of renovating 20% of the units in a year, we’re renovating 40% of the units in a year. So in about two, two and a half years, we’ll be 100% complete, we’ll be able to refinance and put more stabilized loan product and hold the deal for next two, three years before we sell. So we’ve really kind of ramped up our renovations. But the key is the day after you close escrow, get your contractors out there, start doing the renovations as fast as possible. And as soon as possible. For example, we get exterior paint done on every single one of our assets, within two months of acquisition, we get it rebranded get the new signage out within three to six months of the acquisition. And then we’re just cranking through interior renovations as fast as possible on all these deals. And the third step is obviously to take care of the deferred maintenance. So as things come up, and we want to make sure that we’re being prevented, were putting in dollars to prevent additional deferred maintenance, as opposed to just detecting it and fixing or putting bandages on. So in as a great example, in Phoenix. Typically, we have to recode the roofs every single time you buy a deal because the roofs have been neglected for so long. But when you have neglected roofing, you have if there’s a rainy or if the storms coming in, you have water problems, you have leakages and roofs, and then you have upset tenants. And then you can see that it kind of just drives this whole neglected property seat in that social media. So your ratings go down and you have less new tenants that are coming in. So it’s kind of just taking the whole property down? Well, when we identify these issues, for our properties, we start taking care of them right away, like within the first three months are taking over an asset, we will essentially recode all the roofs, make sure that we don’t have any of those issues coming up. And then we have warranties for five to 10 years on these things so that if something were to happen, the contract would come out and take care of those issues, no problem. So budgeting for these items on the front end, hitting the ground running after we take over the acquisition. And then step three, of making sure that we stay on plan and take care of any deferred maintenance as it comes up. So that we’re well capitalized and well taken care of from an asset perspective. So the investors are not worried about something breaking down. And I can add that value add or a 90s value add, which you know, today are like 3040 years old. So you need to be careful and cognizant of the situations.
Tim Lyons 28:42
So now you’re in Dallas, right? And you just didn’t go into Dallas, willy nilly, you had a team right approach to it. So you had introductions to properties, you had introductions to some of the players in Dallas. But you guys also leased out the top four of like one of the biggest buildings in downtown Dallas, you guys bought properties for your wives, right and the stay there quite a bit of time, you started immediately building out your property management and asset management assets on the ground. So that’s what I’m talking about when we say we work with best in class operators. Those are the types of folks that we are looking at. And just from one of the reports that we had when you were doing one of the Dallas deals that you just closed on. Dave was saying that you guys flew out like I don’t know, 10 or 12 people, you had three people going through the rent roll, you had multiple people walk in units, you had all sorts of like almost like a like an army spreading out over the property. And really kind of like a SWAT team. Like that’s what I envisioned. And that’s really, it’s powerful. It’s powerful. It makes me as a capital raiser that works with you feel great, right? It’s a great way to kind of do your business. So I just love how you guys did that. One thing I also love about rice 48 for the listeners is the same supplier that was supplying their materials in Phoenix They do this great scope of work where they do the same renovation on each of the units bigger. Can you comment on that? And just and have that tied into Dallas? Yeah,
Bikran Sandhu 30:09
of course. Yeah. So no, Greg mentioned as well, we have one scope of our Platinum finish, essentially, for all our deals, we don’t change that scope for deal by deal. And you can make the argument that Sure, and like a Class C location, you can probably do a lower level scope, and then Class B location into a higher level scope, and maybe buy more deals and make more deals cancel. But our thinking is, if we have a consistent supply chain and a consistent renovation finish, we make it easier from a logistical perspective, to be able to renovate these units, we don’t have to worry about, hey, we’re going to put black appliances or stainless steel appliances in one location versus the other. We have stainless steel appliances, that’s where we’re going to budget and that’s where we’re going to put in. So you know, from a logistical side, it does make sense, we have just one level of finish. And so that’s what we tried to do across all our Phoenix deals. And that was also part of the blueprint I was mentioning, where we identified the scope that works for us, and that we can get from a wholesale pricing perspective from our supply chain providers, we can take that blueprint and apply it in Dallas as well. And that’s because the supplier that we work with, they have warehouses in Phoenix and in Dallas. So when we moved to Dallas, as Tim, you were mentioning, kind of building out your team. Well, before we ever had a deal under contract, we had hired a regional VP, we had hired a regional property director, regional maintenance director and asset management associate, we had gotten an office lease in place. And all of the money that we’re spending there is coming out of our pockets. Like we’re not allocating this to the any deals, when I allocating any reimbursable expenses, so to speak, across any of the Dallas assets, this is money that were putting up upfront, to build out that infrastructure, which is really critical, because we don’t want to get the perception that, hey, we’re gonna try this out with this couple properties, see how it goes, we’re gonna put your money at risk. And if it doesn’t work out, oh, well, we’ll stay in Phoenix, we devoted and wanted to make sure that we were there in Dallas long term. And even the offices that we got, we didn’t pay top to your dollar for it. We were very budget conscious. And I told Zack this from the very beginning, we’re not going to spend 20 $50,000 a month on Office lease if we don’t need it. So we got a great deal on a sublease space from a vacant tenant that needed to get out and we got you know, I think pricing per square foot right now in Dallas is around 50 $60 A foot for office space, we got to $20 a foot. So even though it’s in a great location, the tenant just wanted to get out and we got in at a really great basis. So we’re leasing out that space. And we bought our marketing team out there as well. So that now the chess pieces are there in place so that when we buy the next eight to 12 deals, we don’t have to worry about something breaking in the background. So the same asset management team that oversees all the Phoenix renovations, they have their subordinates in Dallas to make sure that the renovations that we do in Phoenix are mirrored in Dallas, the finishes that we have in Phoenix are mirrored in Dallas, there is no breakage in terms of the different type of location. And that’s one of the reasons we don’t win a lot of deals is because of the skill that we have. It’s a very high end scope. And you know, we’re spending close to around 15 to $16,000 a door in renovations. But that’s a discounted price. If you were to go out and get the same products and Home Depot or AC supply, you’d be spending close to 20,000 a door and renovating the same unit. But we’re getting a discounted price. And even though some of our financials may be overdone for a specific location, you don’t have to worry about that as long as the as you’re hitting your pro forma rents. And I can tell you that the deals that we’ve acquired, it’s so much easier to get a tenant in place, when you have that high end finish compared to your local competition, that it makes these units way easier to pre lease and get them essentially occupied. Much easier than your competitor word who’s just resurfacing countertops as opposed to installing quartz countertops. So makes the operational side very easy. What after these units are renovated to get a good tenant in place, get him at the market rate and then keep them in place. Because the finish and the quality of the finish is so much better than your competition. So we will quote unquote over renovate a little bit here and there just to get that extra quality control in place. But because we do that it makes the rest of the operations were easier. We don’t have to slow down renovations we don’t have to slow down any sort of business plan execution because our uptake on the least trade outs is not happening at the same pace as our renovations is happening.
Tim Lyons 34:43
I love that. Well background I mean, I have about a page for notes. I have maybe 15 questions I haven’t even gotten to yet so we’re gonna have to have you back on if you’ll be nice enough to do that. Maybe in a few months. Come on back and we can give it a good report on rice 48 But we’re gonna have to jump at two or three questions now. Now the question I really want to ask Greg, it’s usually your question, but I’m going to take it today, buddy. If you are at a backyard barbecue, and somebody knows what you are up to with the price 48 And they say to you, I’ve been seeing the mainstream media. I’ve been watching the Wall Street Journal, CNBC, and what have you, commercial real estate’s all over the place? It’s going down the tubes. Isn’t investing in commercial real estate, multifamily isn’t a too risky, what would you say to them?
Bikran Sandhu 35:32
I think every single asset class that you’re looking at has its own risks. Right? Right. Now, if you look at the very short term, sure, commercial, real estate’s going through a little bit of a downturn, which makes sense, you know, interest rates have gone up pretty significantly, rental growth has come down pretty significantly. So you need to be cognizant of those factors when you’re looking at these deals. Well as an underwriter who still underwrites all the deals that rice 48 does, we need to be careful about your assumptions that you’re utilizing, he can’t assume rents are gonna go up 10% In the first year, or even 20% of the first year, because the market grew 20%. Last year, we’ve never done that. We never planned to do that. That’s not how you are supposed to underwrite. But when you look at real estate in general, it’s not about when you get in, it’s about essentially getting in and staying in for the long term. So in 2022, we bought deals, you know, the market went through a downturn, and we still bought deals, because we bought them a good basis, we bought them because they’re quality assets. And when if you look at a five or 10 year horizon, say we had to hold the deal for five years directly, those deals are going to be homeruns. In five years, I have no questions in my mind about that. The only thing that you can foresee right now is everything’s a little bit volatile. And but as long as you underwrite appropriately, as long as you can explain the volatility and how you took care of the volatility, in your calculations, it’s a good deal to get into if you can get a good basis, obviously, you don’t want to pay a two cap on a deal today. But if you can pay a four cap on a deal, because it has great upside, then you explain that and you can get into that deal. You 100% I would get into that deal. But you have to just be careful and understand the metrics that are going into these deals, as opposed to just throwing your money out there and hoping you’re going to x in 12 months or something.
Greg Lyons 37:20
That’s great. That’s fantastic. Question number two is from a de facto mentor of ours, Jim Rohn. And he said that formal education will make you a living self education will make you a fortune. What does that mean to you?
Bikran Sandhu 37:35
Yeah, I think it’s the experience to me, honestly, I think having going through again, as I mentioned, I wouldn’t change anything about my past, every single step that I’ve taken, has led me to where I am today. But having that education from UCI, and from all my college and my high school experience, that has gotten me to being good at what I do. But it has not helped me taking the steps and, and taking the risks that I needed to take to get to the next level, the experience that I gained at GT PwC at CNM, that the experience that I was able to translate into real estate. And that’s what helped me kind of take that next leap of faith into real estate and into building my own company. Having that formal education was great. I can apply that to processes. But it would only help me apply to processes as a W two worker for somebody else in order to take that leap of faith and be able to do it myself. That’s where that experience came in, that I was able to educate myself on, for example, the financial modeling or the five year forecasts that we do. Getting that experience and applying it to real estate was that self education of making sure that even if I do take a leap of faith, I know what I’m doing. I’m not just quoting a textbook, for instance
Tim Lyons 38:46
of it. Alright, Bikran, you’re almost done, buddy. Hang in there with us. But the final question is from Robert Kiyosaki, right author of Rich Dad Poor Dad the Cashflow Quadrant, and he says something that can turn people off sometimes if they don’t know what he’s talking about. And he says that savers are losers and debtors are winners. What does that mean to you when you hear? Yeah, I
Bikran Sandhu 39:11
think to me, what that means is you’re essentially, if you’re putting your money away every single month or your paycheck to 20 30% into a savings bank account and not investing it at all, you’re losing money inflation is going to eat out at you, your bank is not going to give you a 5% rate of return on your money, especially if you’re one of the big four banks. And essentially, if you’re putting your money away and not investing it, you’re not setting yourself up for success in your future. From a debt perspective, if you’re taking on good debt, which is to buy assets that are income producing, I think that’s a great way to increase your wealth and increase your ability to grow your wealth. So taking that money that you’re putting in your savings account, that’s excess of the emergency reserves that you have. That is great way to lose your money over time. But if you’re taking that money and investing it into An income producing asset that is backed up by debt. I think that’s a great way to increase your wealth. By taking on bad type of debt like credit card debt or auto loan debt that you should not be taking in the first place, that’s a great way to lose money as well. So you have to be careful in the terms of debt you take on. And you have to be careful in terms of savings that you have, you don’t want to put every single dime into an investment. Obviously, you want to save your emergency reserves and save your cushion. And everything access to that you should be putting into income producing assets backed by hard assets that are backed by debt, and backed by good equity, and good sponsors that are running those deals. I
Tim Lyons 40:36
mean, I couldn’t have said it any better myself. That was awesome, Bikran . Thank you so much. Greg, and I, we love coming to you every week. And last week, we were able to highlight another one of our sponsors. This week, we’re bringing to you rise 48. And we’ve already had Zach happen stolen, I’ll put that in the show notes. He’s the one of the other of the three co founders of rice 48. Because we think it’s really important, right? We think it’s really important that people who want to get involved in passive investing, they kind of get to know who are these people? Where did they come from? How did they get to be where they are today? Right? And what are they doing what makes them special. So thank you for being our partner, thank you for making the time to come on our show today. Like I said, I definitely have more questions to get to so love to have you back on. And for our listeners, I hope you get a lot of value out of this. The only payment that we Greg and I would ask you is that you could just share this episode with a friend. That’s how we really grow on the show. And you can leave us an honest rating and review. That’d be awesome. It helps us to attract good guests. And it just helps us to really get out there and touch other people. So
Greg Lyons 41:40
it’s really it’s just a gentleman’s agreement.
Tim Lyons 41:43
It’s a gentlemen’s agreement that we call it us. So that’s going to do it for us here at the passive income brothers podcast and we look forward to serving you again next week. Thanks, Tim. Thanks, Greg. Thank you. Thank you for listening to another episode of the passive income brothers podcast. We would be grateful for your support of our podcast by giving our show a five star rating and review and subscribing to our show on your favorite podcast platform. Don’t forget to take inspired action after listening to this show, so that you can start building out your passive income streams. Finally, head on over to cityside cap.com to connect with us and find out more information about how to get started passively investing in real estate