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Global Investors Podcast
GI9: Mother of Two, Engineer and $4 Million in Real Estate with Palak Shah
September 16, 2019
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GI9: Mother of Two, Engineer and $4 Million in Real Estate with Palak Shah

Palak Shah is the owner and founder of Open Spaces Capital and Open Spaces Women. Palak is originally form India and after the birth of her two kids Palak knew she needed to create a life with financial independence that allowed more time for her family and quit her six figure Engineering job while moving to real estate investing.

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Announcer: Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carrillo combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carrillo.

Charles: Welcome to another episode of the Global Investors Podcast. I’m your host Charles Carrillo. Today we have Palak Shah and Palak is the owner and founder of Open Spaces Capital and Open Spaces Women. And after the birth of her two kids, she needed to create a life with financial independence that allowed more time for her family and she quit her six figure engineering job. And then while moving into investing, within three years, she purchased, renovated, rented, refinance properties and built a business with close to $1 million in revenue and was honored several times. But one time she was honored as Philadelphia’s most dynamic real estate housing development professional under 40. And she’s kind of spread her wings a little bit. She does a lot of writing and she has a coaching program as well. So how are you doing?

Palak: Good. Thank you for having me Charles. It’s great to be here.

Charles: Yeah. It’s great. Thank you very much for being on. And I wanted to, you have an interesting background and it’s always interesting when someone leaves a high paying job as well so we can get to that and goes into real estate because it’s quite the, it’s quite the jump I think. What is your background on yourself and your and your journey from switching from a six figure engineering job to a full time real estate investor?

Palak: Yes. So I had been working, I think towards my engineering career since I was five years old. Like that was my something that I wanted to do. All I remember throughout my childhood is studying. Like that’s all. And so I worked as 17 as an engineer for 17 years and then my husband and I decided to have kids. And then once we had kids we realized how stressful it is for a professional couple to have a corporate job and have young children. And especially like as women, if you’ve worked hard and if you have performed really well in a corporate environment after kids, they expectation is you would just keep putting on the same amount of time in your job, which is impossible as a woman with a newborn. And so I remember like pumping breast milk during conference calls, like putting newspapers on, you know, the, the glass doors so that nobody could see. And I’m like, is this what I worked for? You know, since I was five years old, is this what it had to come down to? And we had a couple of rentals by then we had just invested in and we rented out. And so when I quit my job, I just decided to take that and turn it into my next career moves. I wanted to do something impactful but still be able to spend time with my kids and not kill myself trying to do all of that. So, so that was the goal. And so we, we decided to make that move, become a single income family until I got my real estate portfolio going. And so now I think my portfolio is worth 3.5 million and yeah, so this year we are almost at a million in revenue.

Charles: Okay, and you’re based in Philadelphia? What, before are you been in Philadelphia your whole life?

Palak: So I was born and grew up in India. I came here to pursue a master’s in mechanical engineering in 2001 and that’s what I was working towards. After that I was in Chicago. I’ve been in Philadelphia for 10 years now.

Charles: Okay, that’s great. How do you like the marketing in Philadelphia?

Palak: Philadelphia is a great place to be right now there’s so much going on. There is a lot of new developments and new businesses coming in. There’s of course hospitals and universities that bring a lot of good tenant base to the city. Lots of people from New York and moving to Philadelphia. When they get priced out of New York, they decide to let you know that Philadelphia is a good place to come to.

Charles: Yeah, it’s actually easily accessible as well by train, so it makes it so we can go back pretty quickly. So your real estate business is a little different compared to some of the other people that we have on the show that are syndicators. How do you, now you’re doing the whole thing where you’re finding the properties, financing, renovating and you’re renting. So if you can explain your business of how you do it and the whole process.

Palak: Sure. So, so we followed the BRRRR strategy, which is Buy, Rehab, Rent, Refinance, Repeat. We buy distressed properties, we do smaller multi-families, we do scattered cycle folios, we buy distressed properties, and then we’ll rehab them. We have the construction growth eight that we retain full time. So we’ll rehab them and then we vet them out and refund.

Charles: Okay. And with, with the three and a half million dollars in a portfolio, I mean, where do you spend most of your time? Well, is it finding the properties? Is it setting up financing? Is it,

Palak: So I see myself as someone who kind of is like was running like an orchestra. And my job is to make sure that everybody knows what instrument they’re supposed to play and how they’re supposed to play. So what I do is we have somebody who helps us acquire the properties. So we have a system set up with her and a process and she knows exactly what to do when she goes into a property. I’m able to buy property sight unseen. So we were visiting family in India earlier this year and I bought two properties while I was there because process that has been set up that the contractor, again, we have some processes in place and some templates that we have come up with. So he kinda knows exactly what he needs to do. We rely heavily on facetime or whatsapp video calls and then again with the Property Management, we have leveraged technology teams and processes to be able to do, do it without me having to spend a lot of time on, on any of these steps.

Charles: So where do you spend more time on the rehab process? I imagine the property management portion is something you can kind of, it’s easier to put into a system because you can just have someone that handles it. It’s much easier. I would imagine rehab things, probably not as by the book. Every rehabs different.

Palak: Yeah. So what, what happened is the first couple of rehabs, I spent a lot of time add the rehab, learning exactly what their decision making points are, and then we sat down, me and my contractor, we sat down and we came up with a template. So basically at any given point in time, he knows what I’m expecting and what needs to get done. So that allows me to spend about seven hours or less per week on the construction side. In terms of the template, like, he knows that I like a certain, I use certain type of granted, certain appliances, certain finishes. He knows we always bring 200 amps whenever it’s a smaller Maldives. So all these decisions have been made upfront and then he can just go off and do his thing.

Charles: Yeah. So he has actually kind of a scheduled, that’s the only way. Yeah. You have to document everything. If you’re going to go into systemizing anything,

Palak: we use the exact same thing in every rehab. No changes. Same paint color.

Charles: Yeah. Well, it’s the easiest way to scale too, and there’s no questions. So you can be abroad or just unavailable on the far side of town and you’re able to have that kind of work. What kind of technology? I’m always interested in that. So what kind of technology do you have in place where that assists with your systems?

Palak: In terms of with my contractor?

Charles: Contractor or property management, anything else that you guys use on a daily basis?

Palak: So with my contractor, as I was saying, we do that heavily on video calls, so we’re using facetime or whatsapp, which with him we also with with construction, what I realized is as much as I would like for them to start using technology a lot, it’s much easier if we have something on paper so they can kind of take it from site to site. So with him it’s a little less technology friendly than I would like it to be. But the decision points are so few at this point that it’s not difficult to manage that we with him. The one thing we’ve done is we have let the contractor buy all of the material. So a lot of investors, what they do is they’ll buy the material themselves because it’s cheaper to do it that way and just pay the contractor for labor. I’m happy to pay the surcharge or whatever I’m missing out on to him and he doesn’t have to wait around for me to get them a out to him. So we worked it all out in the initial budget and that that’s been really helpful. In terms of property management, that’s where we do rely heavily on technology. So we’ve started using, of course, you know property management software we use Buildium, but we also use tenant turnover or showings and that has been a complete game changer in terms of coordinating. So we only show by open houses. We have somebody who does open houses for me, but those are scheduled using 10 and Turner. Some of the single family houses that we have. We also use self showing lock boxes for them. Okay. And that has been a complete game changer as well. We used to spend about a month renting out apartments on properties and now the turnaround time is between three and four days.

Charles: Wow.

Palak: So it’s been like a complete game changer. And then the other thing we use is we, we have somebody else to walk through was when tenants move in and I use, there is a Happy Inspector software so it’s all then uploaded onto our system so I can see exactly what’s going on. We also do, every six months we have a maintenance walkthrough that someone, it’s an outside company that does it, but I have access to all of the information because it’s all done through one app.

Charles: So that’s when the make ready, when you’re, when you’re turning in apartment that goes, they use that software. It’s kind of like one of our checklists and they can.

New Speaker: Yeah

Charles: okay.

Palak: Then as that’s one of the, the other steps where we use that, we also use a VA to help with some of the documentation. She’s based in Philippines, so, so it’s been, property management has been a very interesting thing to take on and learn to employ all of these different things. Yeah.

Charles: Yeah. That’s crazy that you’ve, with technology, you’ve been able to decrease your vacancy by 85%. I mean the time that goes right to the bottom line, that’s, that’s crazy. Cause normally with the property manager, traditional property managers, it’s two weeks. If you’re lucky, three weeks, maybe one week to make ready, maybe one week to try to rent it, two weeks if you’re lucky. And going to three to five days is, I mean that’s quite the system in place. So you’re invested in Philadelphia currently, are you, are you only invested in Philadelphia? Are there other markets in Pennsylvania or surrounding states or areas that interests you or you’re invested in or looking into?

Palak: Yes. So far because there’s so much going on in Philadelphia and it’s growing so rapidly. We have stuck around just looking into Philadelphia at this point. But eventually we’ll probably look outside.

Charles: Yeah. And what type of properties are, are mainly the ones that you are, you’re rehabbing.

Palak: So we, we do, single family homes and then we moved over about a year ago. We moved over to doing smaller multi-families. So we’ll, we’ll buy like a little, so recently we bought a portfolio of three duplexes, something like that. That’s what we’ll pick up. Okay. I try to do multiple of those at a time.

Charles: Are you normally buying these, I imagine a single family maybe or you’re buying them cash or with hard money?

Palak: So yeah, we relied primarily on hard money lenders to do our short term financing and I really like working with the lenders that we have, because they are also a really good sanity check on the numbers. So it really helps to, there we actually partner with them as opposed to using them as just lenders. It feels like a partnership. So yeah, we’ve been relying primarily on hardware,

Charles: Other than in the beginning. Have you had it lately where you’ve looked at a deal and it’s, it’s not cross, it’s not checking off their boxes, but you think it’s a good deal. Have you had that lately happen? I imagine the beginning. Maybe it’s happened, but,

Palak: No. You know, I don’t know if it’s being an engineer or what, but I’m very conservative with my numbers. So when I take a deal to a lender, it’s also, I think it’s also a learning process. Understanding what deal is a good deal to a lender. So that’s, that’s something that I have figured out I had to figure out early on. But no, I think I’m waiting two minutes over to hoop myself with my numbers.

Charles: Well that’s good. I mean that’s a fantastic thing to have. Specially we’ll where we are in this, this market cycle. So how many, how many products do you guys usually work on at one point? So like currently right now, how many projects are you rehabbing?

Palak: So right now we’re finishing up with a nine unit project and we just started on two duplexes and then we’ll, we did one single while we were editing.

Charles: And you use just use the same crew for all your projects?

Palak: Yeah, we use the same crew. It’s a, it’s a GC as a construction crew of eight people and we keep moving them around from one project to another.

Charles: Yeah. One of the things I want to say is, it’s a great idea because a lot of people want flipping houses. They want to save every dollar or earn every dollar and they’ll have, there’ll be picking up the materials, which is just a headache. Cause a lot of times you’ll pick up materials and the contractor doesn’t want to use them. They’re inferior or they’ve had issues with them. Yeah. So it’s great that they pick it out. They know exactly what’s worked for them previously, which is the quality that they know cause you’re obviously going to be calling them if a faucet goes, there’s a problem with the faucet on a year or month,

Palak: Ecaxtly, you get a good, a good check for that. You know, to make sure that your contractor is using good material is when the hard money lenders send out their inspectors for bank draws. I follow up with the inspector. I’m usually there for the inspection, but if I’m not there I’ll follow up and talk to them about their feel for what the construction quality was and what they saw. And that’s a really good check on, you know, from an outside unbiased party on the construction work that’s going on.

Charles: Hmm. Yeah. Very interesting. Yeah. These, so what do you see for the future of your real estate business? If you’re already, you’re working with a nine unit right now, you have duplexes in the doing. I imagine you’re still focusing as well on single families when they come up.

Palak: Yeah, we really like these scattered site type smaller portfolios and we pick them up as, as we see them and smaller multi-units. That’s my new favorite thing. That’s where I’m planning to grow next.

Charles: How are you getting your permanent financing when you’re refinancing them out? So

Palak: yeah, so I spent early on I spent two weeks calling, I think 90 different banks and creating a massive spreadsheet for longterm financing lenders. And so with that I hadn’t narrowed down to my, you know, feels my favorite lenders and established a relationship with them and I know what they need. But the one we really like to use a lot is a vendor who does hard money department and financing. So once we are done with the construction, they’ll roll it right in department financing, which to us, to me it feels like a really good option given the market cycle because then we are sure it’s going to get refinanced and the before and after appraisal is done up front.

Charles: Oh Oh up front. So you don’t do it after they’ll just do a walk through or

Palak: yeah, they’ll do they, they’re sending inspectors out and they are documenting it and making sure that we are doing what we promised to do for that particular appraisal.

Charles: But just one appraisal up front.

Palak: Just one appraisal up front. Yeah,

Charles: That’s great. Cause appraisals are thousands. I mean as you get larger, I mean there, I mean it could be several thousand dollars as you start going. Um, when, when they do that with the permanent financing. So you have a list, but you’re usually, I mean that’s great that you can go to hard money to the permanent I people ask me about getting permanent financing. I always tell them to work with their local or local credit unions or local banks and like doing the spreadsheet. Obviously you’re an engineer so you do a spreadsheet, but for someone else we would just call a bunch of people and have it on just yellow pads of all the people that you work with. But it’s different. It’s amazing how different every bank will have it for what they want, what their appetite is and what kind of deals that they have because it’s usually hard to get long term financing on smaller multifamily, but some banks and credit unions will do it while, while a lot of them will only say five to 10 years or something.

Palak: Yeah, so initially I was working a lot with credit unions, but now we really like the low doc loans and the lender that does hard money department if you’re not going with that particular lender, if you’ve done short term financing with somebody else. I really liked some of these banks that do the load off loans because they, their process is much faster and smoother compared to the credit unions. The interest rates are a little bit higher, but the low doc loans also sometimes have higher, longer amortizations. So what that does is your monthly payment kind of still stays the same and this is much smoother process.

Charles: Yeah, you can get no doc loans on commercial properties that go as long as a regular or traditional residential mortgage fixed as well. So that’s great. So it’s great to have when you have your hard money lender because then your processes in place, you have the lender you’ve worked with for dozens of properties, dozens of units, and then you can kind of just um, as a property comes in, you do it and you work with one broker. Is that correct for all your properties?

Palak: You mean for

Charles: Acquiring the properties? Oh No, no one, I’m sorry. One real estate broker. One agent.

Palak: Yeah. So I primary primarily use one broker because she’s hard at night. We’ve come up with a system to acquire properties too. And I can by them sight unseen because of she, she knows exactly what I’m looking for. She’ll document it a certain way, send it off to me, and then I’ll narrow the ones she sends off to me. I narrowed them down to the ones that she would take my contractor too. And that’s how we, we work out the site and seen process of acquiring properties.

Charles: Yeah, that’s great because when you, especially with a new relationship with some of the real estate agents, they’ll send you a lot of stuff maybe just to test you, but a lot of stuff and you spend most of your time just going through and you know, this is, this is no good, this is no good, this is no good. So it’s great that they, if you give them the criteria they go through and hopefully it just hones they’re searching for you and also it just saves you time. So yeah, that’s great.

Palak: We have done deals with somebody before, they already know them. So when something else from that person who we’ve done deals with before comes up, they’ll reach out to our agent because they know that we’re looking for that kind of deal. So having that person one point of contact really helps.

Charles: Do you ever sell any of your properties?

Palak: We sold a few properties this year. We don’t slip. I’m a big believer in buying home, so we don’t slip vbuying homes are the best way to have income and build wealth so we don’t flip. But we did sell some of few properties this year that had a lot of equity. So you know, there is such a thing as a return on equity and realize that we could use that equity to grow our business even farther. So we sold a few that had very high.

Charles: What do you see for the future? One, three, five years down the road for your real estate business?

Palak: So two things. One is growing the business from like the scattered side portfolios and the smaller multi-units and then the other arm of our business, which is the coaching side, growing that side and helping other women do the same thing that I’m doing.

Charles: Nice. Yeah, that’ll keep you pretty busy. Um, so I was here, it was interesting, you’re an advocate for balancing social impact and profitability for your business, which is something I don’t think many many investors really bring up or it’s something that’s spoken about too much. It’s mainly just profits when you’re getting into any type of business. So how do you give back to your community through your real estate investing business?

Palak: Yeah, so it’s a balancing social impact on profitability. Something that’s very close to my heart. And we do that in two ways. So first one is with our partners, we make sure that we give diversity of preference, whether it’s people of color or sexual orientation, women nationality, uh, things like that. And we make sure we give preference to diversity. And then at the same time, we make sure that everybody, even the contractors who pay their employees, we make sure that everybody is paid well. And everybody knows now who works with us, that we’re very big on that. And we feel like what happens is that really builds trust and loyalty within the team. And then you’re a part of the community and you grow together. So that’s in terms of partners. And then the second part is in terms of tenants. So what I found out was that there is a huge affordable housing crisis right now where two thirds of the landlords don’t accept section eight vouchers. So we’ve started accepting section eight vouchers and at the same time there are a lot of predatory landlords in the market who will accept the voucher. So we try to stand out and provide, you know, the same high end finishes that we put in our private market rentals. They provide high, you know, we provide customer service that’s almost treated like a hospitality business. And what I found is actually is also profitable because tenants tend to stay longer, they take care of the property better, they feel valued and so the turnaround time is lower and the vacancies is lower. So overall it’s also profitable.

Charles: For taking section eight vouchers?

Palak: Taking section eight vouchers and then providing good rental and great customer service.

Charles: How was it working with the section eight department in Philadelphia? Does it take a long time to get approvals on the apartments? Are they,

Palak: Yeah, we’ve started using somebody who is an expert at dealing with section eight who has done it for awhile. So we use him to help us get through the process quickly and then, yeah, that sweets it up and doesn’t, I don’t have to sit there for hours trying to figure it out.

Charles: Yeah. That’s the best way whenever dealing with the government, bring in an advisor of someone that specializes in weather, whatever it might be. So you have a, you have a series your rating on BiggerPockets and tell us a little bit about your writing with them and with your other writing as well.

Palak: Yeah. So I for, you know, I think for a decade I wanted to write about this and we finally started doing that. So I’m writing a series with BiggerPockets that, that’s primarily focused on women in real estate because I found that when I was trying to get into this and, and really needed motivation and encouragement in the beginning there was nothing that was focused for me and solving my needs and my issues. So that’s what I started writing. And it certainly hasn’t been easy, you know, running two businesses and being in a house with two toddlers trying to find time for writing. But it has been the most fulfilling and it’s necessary. Somebody has to do it.

Charles: So do you have any other plans for writing above and beyond your series there on BP or,

Palak: I would love to write a book. I think next year I’m probably gonna get to get to it when I finish the series. That would be the next step.

Charles: That’s great. And You have you launched a coaching program for women, which I, I’ve heard a couple of them starting with different when real estate and you know, some Facebook groups as well for it, but well how does your coaching program work and kind of what is it, how does it operate? How does it,

Palak: Yeah, so w I was um, I was doing one on one mentoring for the past few years. I’ve mentored over 20 women, you know, just just with one-on-ones. And what I found was that we all face the same questions and we all want passive income, random portfolio so that we are able to spend time with our families or whatever makes our soul sing, I guess. So we, so what, what I did was I came up with, it’s three months, it’s an immersive program where you go, you get into it, you know, in the beginning you learn how to find a property that would make a good candidate for the BRRRR strategy, learn about construction, financing, and then end with property management and scaling because scaling part was a steep learning curve for me too. You know, figure it out, how to, how to do multiple rehabs at the same time multiple finance, financing and refinancing all at the same time with the course, kind of takes them from start to finish.

Charles: And it’s a three month course you said. Is that correct?

Palak: It’s three month course. It’s a small group course with, well, I think we’re going to be around between four and eight women. So it will be a small group course.

Charles: And this is women based in Philadelphia or do you have other women based around the US or,

Palak: Yeah, so it’s all over, all over the US and we’re going to do it through Zoom calls and we’ll have a private whatsapp group. And then in the end we’ll have a one day full day meeting.

Charles: Oh, that’s great. Have you had women successfully go through that have or you’re just starting it right now.

New Speaker: This is the first one,

New Speaker: Okay. All right. So we’ll have to have you, we’ll have to have you back on to let us know how that goes. But that’s, that’s, that’s an awesome, I mean that’s, that’s an awesome program to be part of and to launch, I mean,

Palak: Yeah, I’m very excited. I think that the women that are in the group are all very motivated and they’re ready to jump in. So very excited about that.

Charles: Are they mostly professionals and homemakers or a little bit of both or,

Palak: Yeah, so what I saw initially, my idea was to help women who are in corporate who would want to transition over to real estate. But what I’m finding is the BRRRR strategy is actually more appealing to women who are already in the industry. So we have wholesalers, realtors, and someone who had like one rental already. So they kind of already know about real estate and about having rentals, but they want to figure out how to do, how to take finite amount of money and then grow it into a large portfolio.

Charles: Yeah, it’s that it’s transitioning from a paycheck every, you know, a paycheck every Friday to kind of that mindset of building a business with residual income, which is a whole different mindset from wholesaling or from being an agent or something like that. So, well that’s awesome. So how can people learn more about your a you, your real estate, your coaching business?

Palak: So we have two websites for our investment side and development side. We have openspacescapital.com and then for the coaching side, we have openspaceswomen.com so they can go onto the website and book a call with me, talk it over, see what their goals are and see if we’re a good fit.

Charles: I guess you’re just start as you’re, as you’re going now, you’re going to figure out exactly how many times you’re going to do it and you know, then the next step for the program after you’ve gone through it. So it’s just, that’ll be very exciting. So that’s great. And what I’ll do is I’ll put all the links, all your contact information to those two websites and the other information in the notes section for both podcasts and youtube. And uh, I wanna I want to really thank you for being on the call today and hopefully we can, uh, we’ll keep in touch and we’ll do a followup call and see how your coaching program and your real estate has grown over the next year or two.

Palak: Sounds great. It was great to connect with you. Thank you for having me.

Charles: Well, thank you very much and have a great rest of your day.

Palak: Yeah, you too. Thanks.

Charles: Bye. Bye.

Palak: Bye.

Announcer: Thank you for listening to the Global Investor Podcast. If you’d like to show, be sure to subscribe on iTunes or Google play to get new weekly episodes. For more resources and to receive our newsletter, please visit globalinvestorpodcast.com and don’t forget to join us next week for another episode.

Announcer: Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation and are subject to all applicable laws. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Harborside partners incorporated exclusively.

Links and Contact Information Mentioned In The Episode:

About Palak Shah

Palak is the owner and founder of Open Spaces Capital and Open Spaces Women. Palak is originally form India and after the birth of her two kids Palak knew she needed to create a life with financial independence that allowed more time for her family and quit her six figure Engineering job while moving to real estate investing. In her first 3 years of investing full-time, she purchased, renovated, rented, and refinanced properties creating a business with close to $1M in revenue. She was honored as one of Philadelphia’s most dynamic real estate, housing, and development professionals under the age of 40. She’s passionate about inspiring other women to pursue entrepreneurship through passive rentals and runs a women’s coaching program.

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