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Global Investors Podcast
GI83: Sourcing Off-Market Multifamily Properties with James Kandasamy
January 21, 2021
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James Kandasamy is a bestselling author and award-winning multifamily syndicator. Since establishing Achieve Investment Group, LLC in 2015 James has syndicated 9 large apartment complexes, totaling 1700 units, and grown his portfolio to $130M+.

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Transcript:

Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, 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 Carillo.

Charles:
Welcome to another episode of the Global Investors Podcast. I’m your host Charles Carrillo. Today we have James Kandasamy. James has syndicated over 2000 units over 10 apartment complexes worth over $160 million. So thanks so much for being on the show, James.

James :
Hey Charles. Nice to be on your show and happy to add value wherever I can.

Charles:
So James is out of Austin, Texas, and James, give us a little of your background prior to starting your current business achieve.

James :
I was I’m an engineer with an MBA and now I have a CCA MSR, which is a commercial, a certified commercial investment member. And you know, just from an engineer, moved on to a real estate business full-time right now, you know, we you know, general partners and we raise money from private investors for apartment complexes.

Charles:
Okay, awesome. So how did you why did you choose real estate as your investment vehicle when you started?

James :
So I started doing businesses trying to do business because no that’s a lot of ways to make money in the U S right? So we started doing startup business and we failed on that. And then after that I tried the stock market, right. I thought [inaudible] well known all around the world. Now, how smart would it be at the biggest puzzle in the world? And I tried to solve that and I also failed miserably because no matter what the numbers I put in, I mean, I’m a numbers guy. I like to put in numbers and try to play the charts and try to buy and sell and signal the stock market really play with the emotion and emotion is something you can never put in numbers. Right. And with the technology nowadays, you can look at the stock fluctuation every second. Right. And, and that never gives me peace. Right? So my emotion of grief. Now people say fear and greed is what controls the stock market for people who are like swing traders, I’m trying to do swing trading. And I failed miserably on that. Then I realized, then I met someone you know, who is doing rentals, like single family rentals, maybe, you know, that’s a bit slow and all that. So and I talked about it further, you know, I found out that, Hey, it’s pretty good in a slow and steady game. And it suits my personality very well because, you know, we want a slower investment, but we want to be in control, like stock market. There’s no control. Right. You buy something and that’s it. You pray, right. You pray, it goes up. Right. So and my wife likes it too. She likes to remodel houses. He like to make the, you know, things that rehab the houses and to make it look nice. So it’s a very well matched business with our personality, right? So having said that, no, no investment is bad. Every investment is good, as long as you master it. And it matches your personality, right? Obviously there’s a certain advantage in real estate that doesn’t exist anywhere else. Like the tax benefit the, you know, the leverage that you can put in, they can take a mortgage, you know, it can also buy below value like stock market. You can never buy below valued at whatever value that show you right now. That’s the value buying, right? But real estate is not like that real estate. You can always buy below market value. If you buy a distressed asset, you’re buying below market value, you can go and buy directly from the silo. So it’s a, one-to-one no middle man transaction in real estate. But as stock market, you have to go to TD Ameritrade, E-Trade all kinds of middlemen. And you pay a lot of fees. I mean, of course the fees sounds very small, but it’s lot of fees or billions of dollars when so many people are doing it and you’ve got no control the stock market. Right. Whereas real estate, you can control, you can decide on what kind of kitchen countertop. You want to put it. Yeah. You can decide which house to buy. So you can, there’s a lot of stations that is all owned by us owned by the business owner. And that makes a lot of difference for us. Right. So, and real estate is everywhere, right. If you can look around and there’s houses everywhere. Right. And, and you know, so that’s why we chose real estate is it’s very matching to our personality. It’s a lot of benefits in terms of investment and, and we want to be in control of our investment. Right. So that’s why we chose real estate. So tell us a little bit about your first couple of real estate deals. Let’s couple we bought house houses on rentals and, you know let me think. Yeah, house rentals. We had like 13 houses in the beginning for two years, and then we buy all distress and we remodel them and we rented out a strategy called BRR right. Buy rehab refinance, and rent as well by rent, sorry, buy rehab, rent and refinance. Right. So I need to make sure all the hours are correct. So, so we did that. And then we pulled out a lot of equity when really finance but that’s where we got started enough that our first multi-family is basically the 45 units that we have. Okay. Awesome. So with your current company right now, achieve investment group, what is your investment strategy and your criteria? When you’re looking at deals, we like to buy things at a discount, go for every deal. We do not go for cash and cash on day one because I mean, there’s a lot of people who buys that, right? So we like to go for a deal with a story, right? What is the story? Is that distressed? Or is there, you know, some hair on the deal that I can buy it at a good price? Because for me it’s all about risk management, right? Buying another deal, which is cash flowing and day one, and we’d speeding with 10, 15 people or 20, 30 people. We don’t do that because that’s a normal process. Right. I like to really go buy deals, which other people don’t get. And that gives me a lot of satisfaction. Right. The last deal we recently closed three weeks ago, it was a forbearance deal, right? So that’s the only four business deal that I known that someone has closed. So that feels good for me because I got it at a really good price, really good basis. And not many people can do that. Right. People don’t touch this kind of deal because it’s in a distress situation or you’re buying it, how you’re turning it around and all that, that makes a lot of difference in terms of your long-term vision and what gives you satisfaction. So, so that’s why I like to buy that kind of deals, which has a lot of meat on the bone and a lot of value add, and it just reduces your risk and investment. Right. So, yeah. So there are the types of deals that I like to look for.

Charles:
Yeah. It’s definitely an imperfect market. And that’s the thing I love about real estate too, is that when you’re buying stocks, it’s a set it’s perfect market. Right. So what the value is, and that’s a problem when you’re trying to get a discount on it. So the thing is that when buying real estate, you talk a lot about the off market deal sourcing. And it’s something that I agree with fully. Every time I speak to Cindy hears and mentioned this, they always say, it’s a waste of time on larger deals. Even though we have found multifamily deals, 40 plus through just the direct mail, right? Can you give us an overview of how you source off market deals, maybe with that previous property that you were last talking about how you found it

James :
It’s an off market to a broker, but there was many brokers looking at it, right? But this was an off market, real broker, but they own, they need to find the right buyer. Who’s willing to do a loan assumption is willing to buy it very quickly where there’s so many people looking at it. And we put that dealer under contract in three days from the day I got the news, the next three, I got the news tomorrow. I drove it the next day we put it under contract, that’s it? And they need people like that who people can assess very quickly and move on it. Right. I mean, there are a lot of other people looking at it, but they were like I want to do this. I want to underwrite. I want to look at this. I want to look at that. I do not know. I’m not sure kind of thing. Right. So it’s just people who knows exactly. What’s their plan and who are local operators who can estimate a rehab cost just by driving around, who can close, who can, and yeah. Who can close to. And we close that deal. That’s a loan assumption deal in 50 days, which is crazy. Right? So during assumption takes a lot of time. And that is just one example of deals, which has, you know, which is not everyone can do it at the same time. You’re the right buyer and move on it quickly. Right. We, upon a lot of off-market deals as what you said, 40 plus units, you know, you found two direct marketing and it’s for the people who you know, who are aggressive and active who want to buy really good deals, right? I mean, if you want to be the normal guys, you can go and do bidding and buy it. Right. So we found a lot of deals to our direct marketing as well. Like the first 45 units we found through our text blasting and yellow letter marketing. And after that, we bought another 174 units through the same method. And you know, we basically bought that a really good basis. I mean, of course it’s a lot of work, but that’s where you make the money, right. It’s imperfect market, right. That’s where you make the money. Right.

Charles:
Well, that’s why you have, you have a, you know, you have your limited partners, your passive investors that are coming to you, they want to buy properties. They want to invest in properties that are at our discount, right? Yeah.

James :
Anybody, They want, they want to, they want to invest with someone special. Right? If you claim you are a syndicator and you know, all the skills, what is special with you compared to them buying themselves, right? I mean, they can go to a bidding war and buy themselves too. Right. If they want. Right. But if you are a special guy, especially syndicator who can turn it on properties and you can, you are the only one let’s say you are the only one you are. One of the very few can find this kind of deals. They know they got no choice of, you know, investing with you. Right. So go ahead.

Charles:
So what marketing channels do you utilize? You said text blasting. What other ones do you like

James :
Testing a yellow letter marketing you know cold calling as well. We try all methods. It becomes harder as you go bigger 200 plus units, but, you know I would say it still works. You know, you just have to do a lot more of it. Right. And, and I think time invested versus R I mean, return of investment or ton of time doing that method is much, much higher compared to you go and looking at a hundred deals, which is email blasted to everyone. And you go to a text, I mean, you go to a bidding war and then you win the war, but you probably the most opaque, obeying guy there. Right? Yeah. I won, I got a deal. I tell everyone, but Hey, you know what? I paid the most. So I think the return of investment or looking for off market deals is much, much, much higher.

Charles:
Yeah. I find that all the time too with, I just find that it’s a much longer timeframe, the larger the property, the usually the longer the timeframe I have from the time that I initiate contact to the time that I’m actually getting into contract getting initiate contact to the time you’re getting to a contract. Do you outsource any part of the process? You mentioned cold calling, which can be pretty time intensive, right?

James :
No. I have some VAs doing it. You know in the beginning I was doing it myself. Even though I’m still doing all that, it’s just like, maybe like 10, 20% of my overall effort. I usually wait for deals to come to me because usually brokers knows me and they know some deals not everyone can do. Right. So, you know, I’m not really rushing to buy deals every month, every two months. Right. I know there’s so much capital out there. So many people doing deals, but I’d rather do deals, which I really, really like, which I think is low risk difficult compared to, you know, just doing, keep on doing deals just because people are willing to throw money to you.

Charles:
Yeah. And you’re generating just acquisition fees that the syndicators are living off of.

James :
So many of them out there. Right. I mean, I mean, we had the peak of the market. I mean, of course with COVID everything calmed down, but multi-family, didn’t really, really didn’t crash. So people think multi-family is still a very good investment. It is a very good investment, but they also distress in the market, which people are not talking about. Right. So we are in a recession period right now. No doubt about that. And I think it’s, it’s a, it’s a wrong strategy to buy aggressively at this stage. And if you buy, you should buy a recession priced asset, not the normal beating asset. Right. So

Charles:
25 bids on it and you want it right.

James :
And they do a best and final and they do best and best and final. And then they say day one hard money. And then there’s $500,001 million day, one hard money. I mean, it’s all, I mean, I mean, it’s nothing wrong with that. It’s just that I think it’s very high risk.

Charles:
Yeah. It’s extremely high risk. And it’s one of the things is that when you’re doing that, one of the best things about getting w when you’re doing an off market, even if you’re not getting a huge discount on price, you’re in the situation where possible you’re the only person that’s putting in an LOI with that seller at that moment. So it’s not the push where, Oh, you gotta go hard like this weekend and you’ve got to do this and you’ve gotta do that and all this kind of stuff. And you give it, I think, you know, you, you, you have to know quick, like you said, you got that deal because you were able to go in contract in three days and the brokers knew that, but it’s also one of the things too, as you, you hopefully are avoiding any type of bidding war so that you can, you can, you really have the seller and the seller’s agent to yourself.

James :
I mean, beating war, and the other thing is you are awarding like day one hot money, right? I mean, there’s a lot of people who found issues on the property after day one had money and they cannot do anything. They have to just keep on closing, like hoping that whatever they found can be forgiven by the market later on. Right. It’s very hard to know everything about the property when you’re under time pressure and you’re already locked in because of day, one hard money.

Charles:
Yeah. I mean, you, you have to be able to, you’re, you’re doing very, very in-depth underwriting be in due diligence prior to even putting in, you know, putting it in. So I don’t know, that’s not what normal people do. I think they’re just writing in some percentage that they know that something’s gonna go wrong and they just have to do it just so they can generate some acquisition fees, which is not the best way I feel for investing in real estate.

James :
Yeah. There’s so much of hype on a syndication and multi-family and all that people, you know, spend a lot of money going mentoring program and, you know, telling everyone the whole world they’re doing this, and now they’re under the gun of doing a deal. And then I would every day pass by without doing a deal, they feel like they’re missing out. Right. So sometimes they, you know, they take the jump off the cliff to take some, you know, deal. Even though it’s risky, you know, their mind’s already set, this is a deal. I already got it. I don’t want to lose this. Right. Because I already waited one year. Right. And I told her the whole world that I’m doing multi-family right. So it’s a very tricky situation. I always advise, I mean, I have some of my students as well, I’ve advised them, you know, don’t worry about, you know, looking at other people, closing deals. I mean, take your time, the first deal you do. If you do a really, really good deal, that’s going to launch your career into a very high level. Yeah. Right. Just be careful. I mean, as I say, this is a recession period, don’t be aggressive, you know, stay patient.

Charles:
Yeah. State patient. That’s definitely. What is when you’re doing all your text messaging, so what is the usual timeframe? Like I said, it was, it’s a pretty long process. Some of them going over a year well, to the, when you begin contacting and speaking, and someone’s actually interested in listening to you, or they’re returning your text message or your call to the time that you’re going under contract. I mean, for these larger assets, because I think most people are used to doing it on smaller assets. So it’s a much quicker, like, you know, if you’re you’re wholesaling properties, your direct mailing, you’re getting someone that’s very motivated. Because you, you targeted them on the list. What about for the multifamily? So if someone’s doing this, what they, what can they expect month wise, years wise?

James :
I think every three months, three months, six months once is good. The key thing is to at least build that rapport, right? So, you know, sometimes people have smaller deals, but they also have smaller deals and bigger deals, but then you might be just targeted them to that smaller deal. So, so the key is to find someone who likes you, who want to help you. And a lot of people who they’re out there, they see someone, you know, when you, when you build that rapport, they really want to help you out. Right? So they don’t mind sending a small deal, which is small, as long as you know, what you’re talking about. Right. They didn’t want to deal with someone multimillion dollar deal. And this guy is like, you know, out of the bootcamp and doesn’t know what he’s talking about. I still knew. Right. So you have to do your due diligence. You have to be really ready to take down even a small 50 unit deal. Right? So once you know the lingo, once you know what you’re talking about, then you do a 50 unit deal. And the seller might say, Hey, you know, actually I have a 200 unit deal too. Right? Do you want to do it? And the first experience can make a lot of difference if they really see that you’re making the whole thing small, as I said, the person who are doing even for a small dealer to be really, really ready, you have to know your financing, have to know your team. You have to know how to underwrite. You have to say, what is yes for what and what is no for what? Right. In terms of negotiation with the seller. So he knows, I mean, the salad will know that, you know what you’re talking about at least to a certain level. Right. And and that’s where you get into the bigger deals, right. You know, for the larger ones it’s a bit more tricky, but as I said, that’s what brokers do, right? Brokers do look for bigger deals for them to sell through marketing. Right? The brokers doesn’t pop up from somewhere and they start doing, you know, millions of deals, but they also do the hard work of connecting to sellers. They have that luxury of being a, third-party saying that I’m going to, I’m going to be on your side rather than just like, I want to buy your deal. Right. Which is which is a more, you know something that the sales meeting that, you know, you’re trying to undercut the price. Right. So yeah, I, it takes like six months once, and it’s a slow, slow, slow downs.

Charles:
It’s a slow thing, but like anything, if you’re, if you’re consistent with it, it will pay off. But normally if you’re dealing with larger multifamily, there’s usually less of it than if you’re dealing with like, you know multi-family starting at two units and up, so it’s one of those things where it just takes time. What mistakes have you made with this form of direct to owner marketing that you eventually create corrected,

James :
Huh? Mistakes? I have cases where I’m thinking mistakes. I mean, probably not being consistent is a mistake. I mean I have done a few and the problem is once I do one deal, we are stuck on it for six months. We don’t, we don’t go and do any more marketing until we went to restabilize the first deal and we’d go and do marketing again. Right. So that’s a mistake. If I’ve done it more consistently, I would have get, you know, a pipeline full of deals, but it’s also, it’s also situational, right? When you’re new, you want to focus on your first deal. You want to get it right? No, and you are small, right? You can’t be like hiring, like, you know, assistance after assistant which is, may not be possible when you’re new. Right. So I don’t know if there’s a mistake or not, but that is something that if I’ve done a more professionally consistently, you know, I would have got a lot more deals in the beginning. But I said I was new. And you know, I’m not a guy coming in with you know, hundreds of thousands of dollars into this, into this business. When I started on multi-family, I mean, I started with single family and I was so happy getting a 45 units under contract. So I forgot everything I said is going to focus on one. And it took us another one more year to find another 174 units.

Charles:
Okay, awesome. So you, and achieve are proponents of being vertically integrated. What other complementary businesses do you own or run and how does that help you to minimize hassles and increase returns?

James :
I wouldn’t say whether they be a proponent of vertically integrated, we are vertically integrated because we want to do it. We are just so much value at guys. We want to have control on our assets and it’s just so much cheaper for us to do investors, get another payback for that. That’s why we are working integrated. What are the things we also have constructions. We also have a small med mentoring program, education program for people to come and learn from us. And I, it’s a method for me to help others at the same time to deflect time wasters. Right. So many people want to pick my brain, right. So I just, when I tell them, Hey, this is what you’re, you know, if you want to take my time, which is a fair thing, right? I, you know, you want to separate people who are serious versus people who are just in a kicking the tires and wasting time and not taking action. We also have our own achieve cares foundation, which is our foundation to help you know orphans to get education. We have like 300 kids right now that we are helping on a monthly basis. And that’s it right? Yeah, that’s the, that’s the, what they call integration of all our companies. And we are so busy right now. We wouldn’t with that. But our asset management property management is the two biggest component of it.

Charles:
Yeah. The property management is definitely something. When you have that many units, when did you take that in house? Did you, was that a set number of units that you did it, was it because you had issues with other third-party managers? What was the, we did it from day one. Okay.

James :
They went from first 45 minutes of multifamily. We started asset managing because, you know, 49 is a bit hard to find a property management company because they charge you very high or they charge you less, but they put your part-time manager, which was not what we want. So we want you to want a full-time manager. We just manage it ourselves. It’s a bit harder work in the beginning, but we just continue build on building on from, from there.

Charles:
Yeah, that’s right in the space where you don’t really need a full-time manager, but you have one and it’s not big enough yet. So kind of forces you to find another deal right away to get that right.

James :
It took us another one more year to find deal, but it all paid off.

Charles:
So you work with a lot of new investors. What mistakes do you commonly see new or experienced real estate investors make?

James :
Oh, and even new and experienced investors. They look at numbers, they look at return and they decide what the deal is good or not. So that’s the biggest mistake I see, Oh, this, this deal is this problem. That deal. Well, the biggest for me, it’s all about the sponsor, Ryan. So I can put whatever I want in an Excel spreadsheet. It’s an Excel spreadsheet, right? Investors doesn’t know what is the assumptions going behind the Excel spreadsheet and most sponsors wouldn’t they probably like to clear it, but invest is very hard for them to really understand what are the assumptions, right? I mean, we can put whatever we want to like sell, but I think the sponsor has a good track record has been very communicative. You know, you can align well with the sponsor and you can see they have a business experience. That’s the sponsor I want to go for. Cause they they have much better accuracy in their prediction compared to a sponsor who doesn’t know what they’re doing. And you know, so and you can tweak the numbers, whatever you want just to raise the money. Right. So, so that’s the biggest mistake I see, you know investors the second biggest mistake would be, you know, investing with people who are not operators. I mean, there’s a lot of people who are, you know, in the general partnerships, some are operators, some are probably defined some, a property management company. Some, a lot of them are equity raises, right? So sometimes we have been investing money with equity raises and, you know, after sometimes they realize equity are not really the patient make us, right. So at least you are, it’s okay to invest with equities equity raises just because they have the biggest channel, but you have to really know who is the operator behind the deal, who is the business plan owner who is going to execute this? Who’s the real guy behind it. Right. So at least you find him, I’ll find her and make sure that he’s the best guy that you really looking for to safeguard your investment.

Charles:
Yeah. That makes sense. The other thing too, about the sponsorship just on top of that is I find with the wealthiest investors I work with, it’s more of investing into the sponsor and not into the deal. Yeah, absolutely. And that’s with I, I I’ve changed my thinking over, over the past decade into thinking that way as well, when I have passively invested into different asset classes within real estate or other assets. So it’s, it’s definitely a huge mind shift because people, you’ll, some people that like tear apart your Excel spreadsheet about stuff, and you’re saying, okay, well, but it’s really, who’s the person that, like you said, executing the, and what’s their track record. And what’s their experience with what you’re actually doing in that, in that in that class. So what factors have you and your team implement it in your life in business to have led to your success?

James :
Ha, that’s a very tough question because I still think that I’m busy too busy doing a lot of things. So we are trying to put in a lot of processes and systems. It’s just finding good deals and working hard to turn around the deals, right? So we have, my wife is running the property management part of it. I’m running the asset. I’m very passionate about finding really good deals below market value deals that we don’t find. And it’s once I buy it, you know, her job is to turn it around. So, so she’s really good at turning around the property. So I think these two combination works very well. But we are like 2000 units, 10 properties. So we are trying to build out our corporate team well enough so that, you know, we can, you know, we can reduce our, you know trivial task time-wasters at the same time we want to grow as well. We want to grow elegantly. Yeah.

Charles:
Awesome. So how can our listeners learn more about you and your company, James?

James :
My company is achieve investment group.com. Right? So H I E V E like achieving a goal achieve investment group.com. My [email protected] If anyone want to come and you know, just come to our website, if anyone want to look at how to invest as a invest with us or register with us button, you can click and fill out a form. I also have my own book, which is called a passive investing in commercial real estate. If you can see, this is the a best-selling book. We have sold more than 2000 copies, a top 15 book by Jim Cramer. Jim Cramer the street for real estate book in investing. And it’s an Amazon 20 bucks for a physical book and there’s an audible book as well. But for your audience, you can get my book for free. If you go to this website called passive investing in real estate.com, okay. Passive investingrealestate.com. You go there and get the book for free.

Charles:
Awesome. Well, thank you so much, James, for being on today and looking forward to connecting with you in the future. And I’ll put all the links into the show in YouTube notes.

James :
Absolutely. Charles, thanks for having me. Hopefully I really add value to your audience.

Charles:
You definitely did have a great rest of your day.

James :
Thank you.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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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 Syndication Superstar incorporated exclusively.

Links and Contact Information Mentioned In The Episode:

About James Kandasamy

James Kandasamy is a bestselling author and award-winning multifamily syndicator. Since establishing Achieve Investment Group, LLC in 2015 James has syndicated 9 large apartment complexes, totaling 1700 units and grown his portfolio to $130M+. With over 6 years of experience in real estate and more than 4 years in multifamily acquisitions and asset management, James harnesses his experience and drive to offer clients firsthand, vertically integrated services in multifamily investment, finding off-market deals, asset, construction, and property management.

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