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Global Investors Podcast
GI87: Market Selection, Opportunity Zones and Utilizing Data with Neal Bawa
February 18, 2021
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Neal Bawa is a technologist and entrepreneur in love with the power of numbers to create profit for his real estate investors. He is CEO / Founder at Grocapitus, a commercial real estate investment company. Neal acquires Commercial properties across the U.S., for over 800+ investors. Current portfolio over 3000 units/beds, over $345 Million value. The portfolio includes Multifamily and student housing properties in 9 U.S. states.

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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 Carillo. Today we have Neal Bawa. Neal co-owns with over 400 investors a $345 million multifamily portfolio across 9 states. He also runs an apartment investing education company called Multifamily U. Thank you so much for being on the show, Neal.

Neal:
Thanks for having me on Charles. Delighted to be here.

Charles:
So can you tell us a little bit more about your background professionally and before getting involved in real estate investing?

Neal:
Sure. you know, you can call me a geek or a dork or a nerd. I mean, I’m a technologist, a data scientist very driven by numbers, completely steeped, ridiculously steeped in Silicon Valley culture, which is why sometimes I find find the syndication’s not the right thing for me because there’s no exit in syndication companies. So we’ll talk about that later, but you know, the fact that there’s no exit here is something that bothered me because I’m, I come from that culture and yeah, have had a successful technology career you know, worked for a company that I had a part ownership in from 1993 to 2013. You know, did all of the presentations to prepare the company for sale and sold it at class leading multiples to a venture capital company based out of Chicago you know, was doing real estate all along, you know, for tax benefits. I had the big fat tech salary. So, you know, when you have the big five tech salary, you really need something to get, you know, your taxes down plus also for financial freedom so that, you know, with those goals in mind my journey in technology started from 2003, but my full-time journey in technology started after that sale in 2013.

Charles:
Okay. So what did you start with your, the current focus right now on acquiring multi-family and other commercial assets? Or did you start like a lot of people do with smaller, maybe single family or smaller multi-family properties?

Neal:
So most people do big Ben bigger this small than bigger than big, right. Well, for me it was big, small, big, all right. So I started in 2003 by building a custom campus from scratch or the technology company that I was working for. So I started with a new construction project as my first project. So it’s like before I did the $10,000 kitchen rehab, I did the $6 million new construction project. Right. Can you imagine just how ridiculously not under prepared. I was to do this sucker and, you know, we’ve made a bunch of mistakes, but it was that company’s money. There were no investors, there was no pressure. We didn’t have a bank, it was all cash. And so one could afford to make a bunch of mistakes and still win. And we won big time with that campus and ended up building five more. So now some of these were partial builds. Our CEO was phenomenal. He was a great mentor. He did, you know, such an incredible amount of the work and guided me. So if I had somebody watching over what I was doing and correcting every mistake that I made, so it was phenomenal. And so six campuses of between 2003 and 2013, you construction. That’s really where I got get my new construction shops. And then I went into single family starting 2008 because the data science was telling me that this was the greatest time ever to buy real estate. My family was telling me that I was the greatest idiot in the world. So I had to pick between greatest time and greatest idiot. Luckily I decided I’m stubborn. So I decided greatest time. And my family came around after a while. So it worked out well. I ended up buying 10 single family homes in a in a market carbon Madera, California, which is 144 miles from where I live. And I picked that using data science was incredibly successful, you know, invested a million, turned into 3 million plus plus the cashflow from the last 12 years. And so I became fixated by this one idea, one central idea, which was, is it possible to use data science to drive everything that you do in real estate, regardless of size and regardless of vertical or asset class. And that idea turned into me creating a course, which is now one of the best known courses in real estate. Currently there are 8,000 students taking that course on udemy.com. And the course was a course that basically used data science in a very simplified way, in a very streamlined way to pick the best cities, the best neighborhoods in the United States to invest in. And that’s how kind of the passion started. And I think that was 2009, 2010, that I started working on that and eventually published in very raw form and and ended up refining it over the years,

Charles:
Checking on your website. And as you said, multiple asset classes, can you give us like a flavor you’re in a ton of different things, whereas some people might focus in one or two asset classes within commercial real estate. Can you give us an idea of the different asset classes that you’re involved with currently?

Neal:
Sure. Multifamily and student housing, our kind of bread and butter for us value add multi-families we currently have six value add multi-families we sold one last quarter. So, so there were seven, but currently we’re at six. And then we have about six or seven new builds and these new builds are multi-family student housing and industrial. I love the industrial asset class. It’s better than multi-family. It’s just, it’s, it’s something that’s very hard to get into from a purchase perspective, because if you’re buying an industrial, what value are you adding? I mean, it’s just, you know, a big building with walls, right? So you’re not really adding any value. So you always end up buying at a very low cap rate with very low cash flow if you’re buying it. So you really have to build it. And so it took me a while to get into industrial. The rest are, you know, multi-family, I build them in 10 States and but the most interesting part of my portfolio is neither my new construction multi-family slash student housing or my value add multifamily. So I have three divisions of the business and the third division actually is the most unique in that I build large fourplex communities for my investors and I sell it to them and they ended up making way more money than they’ve ever made in either of my, either my, my value-add syndications or my new constructions indication. So that third division is kind of the greatest value that we’ve ever produced for our investors.

Charles:
Awesome. Yeah. I saw that being advertised on, on your website, the how did your, I mean the industrial and the coal, I mean, industrial cold storage or something that I’ve been following for about a year now, because it’s something that’s, it’s huge, especially with everything, especially just to accelerate it by COVID, but how did your student assets student housing assets performed during COVID?

Neal:
So we got very lucky one, you know, one of our assets was actually in construction, so there was really no impact, right? I mean, construction had no impact. Obviously there weren’t any students there. We had another project with students and it did quite well. I mean, nationwide. So, you know, my data point is small. So let me give you kind of the nationwide number. And most people don’t know this, right? There’s this feeling that student housing was like, hotels, it got butchered or student housing was like retail. It was a bloodbath. Actually, there was no such evidence, firstly, because students pay for an entire year, right? So they were still, they still had to pay and their parents are all signing on the leases. So the parents ended up paying, even though the student was back at home. So very, very few private student housing facilities had significant cashflow issues. So overall occupancy for the first part of COVID, you know, not, not this school year, but the previous school year was only down about one and a half percent. Revenue was only down about 2% in, in private properties. Now some of them saw very large increases and I’ll explain why that is. So the government dorms, they either shut them down or they cut them down to 25% occupancy. So the students in red States where the colleges were open, right, still couldn’t go and live in the dorms because they were saying, we’re going to open the colleges. You can come here in person, but we’re shutting down our dorms or we’re cutting them to 25%. So all of the off campus, private student property is filled up right now. And that sort of compensated for the fact that some students simply didn’t return to college. They just took a year off. So it wasn’t better student housing didn’t do as well in 2020, as it did in 2019. It did, you know, several worse in terms of occupancy and delinquency, but it was not like hotels which have lost 90% of their profit or retail, which lost 60% of their profit. It was a decline in profit, a troublesome year, especially if you had an older student housing property, but the newer stock actually did fairly well. And this, this year that started in August, right. You might think, okay, so this is a full COVID year. What happened there? And the answer is it, once again, it came in about 2% behind 2019 and they’re projecting an absolute Bonanza 2021, which starts in August this year because they believe that almost a hundred percent of the student population in the U S will be back and students are really fed up living in their parents. And so everybody wants to come back. There’s a, an enormous amount of excitement. So the Mark let’s just say it came through fairly unscaved compared to retail hotel. Those sec, those are the sectors that really got slaughtered.

Charles:
So you have a very data-driven approach to locating markets and selecting specific properties. Are you able to explain your process and the factors you consider when investing?

Neal:
Absolutely. Because that was obsessed with the idea of taking the concept of data science and applying it to people. So I started with a rule which became very painful for me. I said, I need to invent a system, which is very powerful, but it needs to be a system that a common person can use after in 10 minutes. So you can pick basically a city anywhere in the United States. You’ve never heard of it, like, you know, Killeen, Texas, or, you know, Dalton, Georgia, and you’d be able to pick the city. And then you have, you have basically at that 0.9 minutes and 59 seconds left to figure out if it’s an awesome city to invest in. So I was obsessed with this idea of it has to be 10 minutes because if it’s not, then it’s not for the common man. And my whole purpose was to create like a Vicky pedia of real estate data science. I wanted simplicity, but I knew that it couldn’t actually be simple. So I took care of all the complexities on my side, right. And I created a system. So it’s it’s and, and there’s two components, one component public, and one components only for, for our students. So best cities in the neighborhood, there’s five rules. And here’s the short version of the rules. Obviously this is a free system. So I encourage you to go and actually take the hour worth of training. You need to kind of get to that 10 minute point, but here’s a short version. I think it’ll immediately make sense. So I found that when you take 3,300 cities and you take 20 years of data, of all the different demographic factors and all the different rental factors, and you, you ask the software and boy I’m really oversimplifying here. You ask the software a question with all these different factors in cities, which ones or magic mirror matter the most when it comes to my profit, is it education? Is it population is the job growth? Is it home price growth is a crime. Is it the schools? Which one matters the most, right? And which one matters so much that you can get rid of the other factors and still end up with the same list of cities. Because what I didn’t want was here’s 67 different things. You have to go research. I wanted like the top five that give me the 98% result and then be able to ignore the other 20, which obviously are important. But these top five kind of took care of are those others? Right? For example, I found that if I went for crime, then schools, I didn’t have to go for because schools were inversely proportional to the crime by putting crime into my dataset. I was taking care of schools, right? Doesn’t that obviously that’s not true in every single city. But what I found was it was true for at least 95% of the time. And because I wanted a simple system, I left schools out. So the system basically measures the growth in five areas. And I, and it gives you specific Goldilocks zones to be in for those five parameters because sometimes too much of a good thing can be bad. Right? What you don’t want is, is a, is a city that has so much home price growth that it’s, you know, everything is bubbly or the last man in, you know, you paid, everybody else made money that was exiting by selling to you. Right. That sort of thing. So Goldilocks zones are very important. So, and, and our minimum benchmark is important because, you know, the, you think about the benchmarks, right? The first one is population growth. And so you’re like, well, okay. So go into a city that where the population is growing, that makes sense. No, go into a city that has a certain percentage of population growth, because you want the population growth to be above a certain benchmark for things to get a little crazy in the city. Too many people chasing too little land, too little real estate. That’s what you want. You want to cheat and to cheat, you want the conditions in the city to be too many people, too little ends. So I provided people with a certain threshold of population growth, and I gave them a specific way of figuring out the road. Cause you’re like somebody told me Killeen, Texas is a great city to invest in because it’s 67 miles from Austin. But I don’t know the first thing about Killeen, where do I go and get all this stuff? So the hour training tells you, not just why it’s important, but where to go get it, write it on the web for free. There’s no cost that the system isn’t designed for you to incur any costs. So rule number one, population growth, a certain amount rule. Number two, home price growth, a certain amount rule. Number three is income growth rule. Number four is crime reduction, not growth reduction. And rule number five is a certain percentage, certain growth in jobs, which really I had to rebuild that system for a COVID year. Cause there weren’t, there was only one city in the United States, Idaho falls that actually had job growth out of 3000. So I had to actually rebuild that system for COVID year. Next year, it goes back to where it was, right? So there’s like this Lich in the matrix that know I’m going to deal with for a year when it comes to jobs. But everything else still made sense even during a COVID year. So those five matrices, you pick them for a city, my Excel spreadsheet, which is, you know, available for free. There’s about 50,000 people using it. It gives you kind of an indicator. Are you doing well? Are you not doing so well? And then that gives you a sense for where you are now, for those that want to look at neighborhoods within cities, that’s something that we covered in our bootcamp because it’s more complicated and takes a little bit longer.

Charles:
Yeah. That makes perfect sense about the crime. I wasn’t thinking about that. Cause you’d look at crime, healthcare and education, but looking at crime, if crimes decreasing consistently, you most likely, like you said, have an increase in education and healthcare are strong.

Neal:
Usually education, either education or healthcare tends to be responsible for reduction in crime, right? So there are two, two drivers. There’s a third one now, which is tech, but obviously tech doesn’t drive entire cities. It drives portions of cities. But healthcare, if a city becomes like, like for example, Columbus, Ohio is now a healthcare hub. Well the entire city is crime has dropped because back in the nineties they did like multi-billion dollar healthcare bonds. And they brought in so much healthcare into the city that the entire city is crime drop, every single neighborhood, the crime drop. The same thing happens with education. You put in a very large university, you put in two or three campuses. The entire city is you know, prime level drops, which leads to an increase in home prices. And which leads to an increase in rents, right? Obviously I’m a multi-family guy. So a lot of people tell me, why is your system based on single family? My answer is simply this. You need to see an increase, a large increase in single family for there to be a large increase in rent. Nobody really wants to live in apartments. We like to say that it’s fashionable. People want to live in St. Louis family homes. It’s when single-family homes become unavailable for rental, that they move to apartments. So if you have a lot of single family stock, if it’s really available, you’re not going to hit your 3% rental.

Charles:
Right. The other thing too is you can keep your turnover much lower when that increase in in households or in in the homes like single family homes is increasing out of the reach. Like you were saying

Neal:
Exactly. I mean, they have nowhere to go, right? There’s no, they know that there’s no next step up. So then they’re probably living in your property for three years instead of one and a half, one and a half. You’re not making any money in three years. You’re making lots of money.

Charles:
Yeah, exactly. So another thing you do which I’ve never worked on before, but opportunity zones are a great way of reducing an investor’s capital gains and something that you focus on. Can you explain what opportunity zones are and why someone would invest in them?

Neal:
Sure. So back in 2017 or 18, I think for ones, this is a bipartisan proposal to a Republican Senator and a Congressman that was a Democrat wrote a proposal. And under this proposal, they said, we want the areas in the United States that are weaker from the perspective of job growth, population, growth, home, price, growth, all of those things that I just talked about, they basically said, these are the standard indicators. These are weaker places. We want to be able to go in there and build real estate or build certain kinds of businesses. And the profits that come from that should be tax free. This is not like 10 31, which is never tax free. It’s always tax deferred. You end up paying the taxes. At some point you can push the taxes back, but with opportunity zones, those are tax free. And the initial investment that you make into that opportunity zone, not the profits that come out of it, but the initial investment, they also give you a tax deferral. So just like 10 31 gets a tax deferral. They’re pushing your taxes on that initial investment back seven years. So you have seven years to refinance, get that money back, pay your taxes. But, but the profits that come out of it are tax free, which is very rare for the word free to, to occur with real estate. Everything we do is just deferral of taxation. Those sorts of things, depreciation that there’s always a recapture there, but this was unique. So they, they, we ended up with 8,751 census tracks in the U S think of a census tract as something that’s the size of a large neighborhood that were designated by governors of all 50 States. And and basically released to the public and said, you go here and you build now, there are certain scenarios in which you can actually do value add. And that scenario mostly is you have a 50 unit value at building. It’s already set up, it has tenants in it, but there’s a piece of land next to it. That’s three or four acres, and now you can build another 15 or building and you can qualify that way, right? Or there’s a value art building, which really needs a full gut rehab. Like, like rip out the electrical, rip out the plumbing, you know, just leave the, the brick standing and got everything out. Then, then it works for rehab. So most of the value add world hasn’t gotten into it because I can tell you, we get about 50 properties a week from brokers that are value added. And actually, I would say, not even one out of 50 qualifies now they’re in opportunity zones. So the broker says, this is in an opportunity zone, but because you have to increase, you have to put an enormous amount of money into it to actually qualify. They don’t really qualify it. So I’d say we get one property in six months, that’s a value add that actually could qualify. And most of the time it’s because it has empty land next to it that you have to build on. So, so when it comes to opportunities zones, this is designed for developers. It’s really a 90% of opportunities on zone dollars in the U S so far have gone to investors, investing with developers somewhere in the U S but it is a very dangerous methodology. And, and I’m saying that even though I’m involved in it, so I have two opportunities on projects. One’s in Provo, Utah, my favorite market in the U S to invest in the second one is in Houston. But even though I’ve done two opportunities to build projects, I’m Jen genuinely, scared of opportunity zones, because here’s the thing w look at what the government is saying to you, right? This is one of those, you know, give handing you candy sort of thing. This is, there’s something wrong here. So you check it out. What they’re saying is there’s all these areas that are so depressed. They don’t have any population growth. They don’t have any rental increases. There’s kind of poor people living there, 20, 30% poverty levels. We want you to go in there and spend your money on building beautiful brand new class, a buildings, which, which to function, and the profit will need thousands of dollars of rinse. And then hope that by the time you built them, the areas improved enough so that other people will come in and the poor people will leave. Right? And that’s actually the premise of opportunity zones. And, and when I say it, I say it with very little sarcasm, because that’s what has to happen for it to work. Because the people that are living in there, if they had the money to invest, to, to give you for these class a buildings, and they were already big class, a buildings there and there aren’t right. So these are places where there’s like storage, there’s industrial, there’s all these kinds of low end things. There’s, you know, spillage where people have spilled chemicals. Those are the sort of places you’re going into. So I’d say 90% of opportunities zones in the U S are truly awful places. They’re really great for you. If you want to lose your money. So forget about saving taxes, your principal’s going to be lost in most of them. So what ti what tax saving are you talking about? If you lose your principal, there’s no profit, right? So for the most part, I find opportunity zones to be a, kind of a very oxymoron type of project where it’s like, why would you want to do this? But there was a trick. So the first time I started speaking about this in 2018, they would bring me to conferences as a guy who would just come in and trash opportunity zones. And then four guys would then defend it. So they bought me into Las Vegas. I’m standing at a stage, there’s a thousand people there, and I’m talking, talking, talking, and telling people this, this is the worst idea of all time. And, and so that the Congressman that voted, it was in the room, right? So the guy walks back to me when I’m done. And he kind of says, I think you missed my point there. Did you notice that 10% of these opportunity zones could be designated by governors? And I said, no, I didn’t know that he said, what do you think that, what do you think these governments were? The governors were stupid enough to put all of this old kind of land. That’s in a bad places on there. He handed me a list and list out of 87, 51 zones. They were 300. He said, these 300 opportunity zones. They’re demographics. There’s nothing wrong with him. But because we gave the governors the freedom to put in whatever stuff, they did want it for 10%. They’d probably put it in because their sister-in-law owned, know 10 acres of land there. And I started, I became fixated with that list. And now I only invest in those because there’s nothing

Charles:
Interesting. Yeah. You would think it was stagnant markets, but it’s really a, there’s another way of doing it. That’s awesome.

Neal:
The truth is that where there’s money, there’s always a way, right? This, this was basically a sneaky little way of having an out, right. Even though the goal was to invest in places where people really needed.

Charles:
Interesting. Interesting. So as the beginning of 2021, where we are now, what do you foresee for the next 12 to 24 months with commercial real estate? COVID the new administration and everything,

Neal:
Honestly, the, as you, as, as of today, today is the 10th of fab Biden. The Biden administration has already decided to use budget reconciliation to get their 1.5 or $1.9 trillion plan through. I believe they will be successful. If you come to my webinar on multi-family u.com about real estate trends, which I did a few weeks ago, it’s a very, it’s a fascinating webinar. It’s very fast paced, but I tell people that the 11th minute of the webinars, the most important, because it answers the one burning question that everybody has. Why is real estate and stock market doing so phenomenally? Well, when we’ve lost 30 million jobs, I won’t discuss it here because it takes a while to get to it. The bottom line is this America actually made money in, in COVID. They, we didn’t lose money. We ended up with one and a half trillion dollars, extra in our economy compared to 2019, and roughly 25% of that went into real estate and 28% of that wind into stocks. And that, that explains why these are extremely expensive. And I actually show you exactly where that money came from and exactly where it went. Unfortunately, didn’t go to the poor and the needy, right. But anyway, I think as a result, if Biden is successful in getting a $1.9 trillion program through, or even a one point, anything trillion 1.2, 1.6, expect the best real estate market for single family in history and the best market for multi-family in a long time, maybe not in history, but expect the best market for multi-family in a long time. You, it will feel crazy. It will feel like everyone in their mother are trying to bid on the same piece of property. You will see cap rates in the fours, right? And now I don’t expect to see cap rates in the fours in this quarter or next quarter. But I would say that one year from today, which is fab 2022, there it is possible that the average cap rate in the United States with stands at 5.1, it’s been at 5.1. Since the pandemic began, that average cap rate, I project will drop to 4.9 or below because of this insane amount of money that comes in, obviously printing a ridiculous number of trillions of dollars has massive long-term damage to the economy. I get that. What I’d like to point out to people is it takes a very long time for the consequences of money printing to catch up with us, right? The world economy is slowing because of 10 years of money printing. It’s going to continue to slow, but in the short run, if you asked me the question very specifically, what do you see in the next year? I see a phenomenal real estate market. We’re just going to pay for all of this later.

Charles:
Yeah. Yeah. So you coached thousands of students with multi-family new platform. What are your most common mistakes that you see investors make?

Neal:
I think that the biggest mistake that investors make is that once they get comfortable with an asset class, a city, a syndicator a certain type of investment, they make the assumption that that is going to be good, just because it was good to them once. Yeah. I have never found that to be true for anything. What I’ve found is there are cities that are great to invest in, and then they’re not, for example, I consider Dallas. If I w if I had a hundred million dollars today, I would at least invest $20 million of that in Dallas for the 10 year growth. Right. But if I was a syndicator, I wouldn’t invest in Dallas today because it’s so bubbly. It is so outrageously expensive. And you notice that rent growth in Dallas used to be at five or 6%. And you notice it before the pandemic, it had already slowed to two and a half percent, right? So bottom line is even superstar markets like Dallas, which are gaining fortune 500 companies by the truckload. They have waves, everything goes up and goes down. Now, if it’s a true superstar company, you know, you, you have an upward wave and then a smaller downward wave, and then another upward wave in a smaller downward wave. So the city is still moving up, but it’s not going to move up as much as a city where you, at the beginning of that upward wave and you’re selling at the peak, you’re obviously going to make a lot more money that way in a much shorter amount of time. So the same thing applies for syndicators syndicators that have done well in the last five years may not do well in the next five years, because they are doing the same thing that they were doing five years ago. If they don’t pivot, they don’t change. I think that that hurts them, that the same thing applies to, to multi-family multi-family is a phenomenal asset class. But I can tell you, in the last four years, in my real estate trends presentation, I have about 20,000 people that watch it. Not once has multi-family been ranked number one as an asset class in the U S but for successive times it was ranked number two, right? So, and during that time, the ones, the ones that were ranked number one were either self storage or industrial, right? So those are the asset classes that received the highest ranking and goes to show my point that obviously some asset classes are better than others. Clearly it’s obvious today that hotels and retail are not as good as an asset class, as, as multi-family, they’re now telling us that because of air travel, we’ll see a pandemic every five to 10 years may not be as bad as this one, but it could still hurt hotels. It could still hurt retail when the next one happens. Hopefully it will be shorter because we’ve gotten smarter at point is multi-family is a very strong asset class, but to believe that it’s the best asset class all the time is nonsensical right now, the best asset class in real estate is not, multi-family not cell, story’s not industrial. It’s single family for all the reasons that you can understand through the pandemic, right? People desire more space. They want a backyard. They want a lawn. Restaurants have become less important so that, you know, the flagship apartments that were next to downtowns rents have been falling and have been falling for the last 10 or nine, 10 or 11 months. Bottom line is people’s mindset changes, and sometimes no commercial asset classes, as good as single family. I’m not much of a single-family guy. I was, but I found a way to make my investors be in single family by designing fourplexes. So as far as I’m concerned, I’m making multi-family, it’s a hundred units. It has 25 fourplexes. As far as my investor is concerned, they’re buying a fourplex forever, right? No depreciation recapture, no tax sale, you know, capital gains after they finished selling the property. So for them, it’s single family. I think that’s a have your cake and eat it too. Situation.

Charles:
Yeah. The other thing too with that is they’re gonna have access to the financing for that is going to be a, especially if they’re a first-time investor, it’s going to be miserable for them because it’s a single field cheaper, right? Oh yeah. So, and fixed

Neal:
Points. We it’s going to be fixed for 30 years. We pay a lot of points. We pay a higher interest rate in multi-family and then after 10 years, you have to, you get to do it all over again, pay all those fees. Nobody does that puts that in a 30 year performance. If you actually compare multifamily and fourplexes and 30 or performer, the fourplex crushes the multifamily, especially because usually within the first six years you refinance all your equity out, right? So now you’re, you’re just benefiting from the depreciation and you’re never going to pay taxes on the gain because when you die, the basis will adjust for your family and nobody will ever have to pay up, pay any taxes on the millions of dollars again. So those kinds of asset classes are, are better designed for, for wealth building. It’s just, they’re not available. I mean, very few people in the U S make that available,

Charles:
Right? Yeah, no, for sure. And the one other thing too, about the asset class that you’re talking about you see what, like a real perf real private equity firms, not just a real estate syndicator or multifamily syndicators when they’re buying real estate, they’re in everything, they’re buying portfolios of single family everywhere they can make a return, right? And it’s funny when you listen to them and compare to just a multi-family syndicator, and that’s the only trick that they have. And when you’re dealing with a private equity firm, I talked to friends that are in there and they’re like, ah, we sold this portfolio. We’re buying a portfolio. We’re going in, you know, this is a 10 year we’re buying down in this area. That’s growing, but it’s not there yet. We’re buying industrial, we’re doing this, we’re there and everything that can make. So it’s like they see the trends. And I think that a multifamily syndicators are going to have to pivot a little bit into different asset because multifamily for the last few years has been like super, super competitive. And,

Neal:
And it’s about to become much more competitive. So as I said, you are going to see more money come into multi-family, you’re going to see cap rates go down and it’s going to be extremely difficult to offer cash to investors even in the second year, let alone the first year.

Charles:
So, Neil, what do you think are the main factors that have contributed to your success?

Neal:
I think humility I’ve, I’ve taken a lot of hits and I think some people, when they take those hits, they don’t internalize the fact that they sought that they did, they did something wrong. They simply didn’t pivot in time, or they just needed more experience. I think that understanding the things that we are doing wrong and implementing those are a big factor. We’ve already talked about the use of data science. So I won’t go into that. The third one is massive use of virtual assistance. So we have 12 employees full-time in the U S and we have 16 in the Philippines. We love our Filipino team. They, they enable us to do things that no syndicator, however, scaled in the U S does. I mean, our portfolio is still fairly small, 350 million. Lots of people have three times, four times our portfolio, and I’m invested with them. So I should know, well, how they’re doing things. We’re, we’re just destroying them when it comes to client service and to outreach, to investors, adding people to our database, because we have this army.

Charles:
Interesting. one last thing before I close it up, you it’s, it’s one thing that there’s not really an exit plan, obviously with the assets that your company has. You can sell that, and that’s kind of like your asset your exit. But when you were saying before, there’s not a true, like in tech. Can you just touch on that briefly and kind of why you still got involved with real estate syndication and investment, even though it’s not a clear, like you would see with you know, a VC firm that goes public with

Neal:
Yeah. I’m going to use your example, right? So behind you, I see Harborside partners. This is a company that has syndicates, right? So now the value though is in the properties that Harbor site is syndicating. Each one of them has an LLC. Maybe one makes a million, one makes half a million. That’s the money that you’re making, but Arbor site itself doesn’t have much value. And it’s very difficult to sell Harbor side, even though it’s a functioning profitable business, it’s very, very difficult to sell it. So for any reasonable amount of money, I mean, you, you end up selling or under selling it for an amount that doesn’t make sense. So most syndicators don’t have an exit. We’re talking to Silicon Valley. If you don’t have an exit, you shouldn’t be getting into it. So I came in and thought about the fact that I had no exit other than the individual properties and people are like, but that’s an exit. No, it’s not because you still need the next property, right? An exit of a business is where you make enough money. So that you’re done for 10 years. If you’d want to, you can go make a movie or do whatever you want next with your life. That’s an exit. And it’s a concept that it’s very difficult for me to explain to real estate syndicators, but I knew that there was a way to do an exit. So what I’ve done is I built three divisions of my business, the value add, which still doesn’t have an exit, the development multi-families and, and and and student housing where I’m developing new asset classes, which has a syndicated, but we has a better track record of people being able to exit because you build, you know, three or 4,000 step plans to build a building where value add is like 200 steps, right? So you’re building something with more value. And then the fourplex peach, which has the highest value and has the highest chance of exiting. When you combine these three together, I have an exit. So because I have sufficient revenue inside of my Harbor side partners, and it’s called grow cabinet. So you can see there, I have sufficient annualized revenue. Most of these places, their annualized revenue is like half a million dollars or a million dollars. Nobody wants to buy you for a million bucks. You got to have four or five, $6 million in annual revenue, right. And a substantially large organization and a path towards increasing that revenue. So we found a way to do that. We, we now charge large amounts of developer fees. We also charge commissions on fourplexes. So now we’ve got a very large amount of revenue that has nothing to do with backend profits. And that is unique as far as we know, nobody else has ever done this. Interesting.

Charles:
Well how can our listeners learn more about you and your business, Neil?

Neal:
So you know, I’d like to introduce you to my ideas and thoughts and concepts, and the best way to do that is to simply Google my name N E a L Bobby AWA. You’ll see my presentations on the web podcasts. My, my YouTube presentations you’ll see a lot. Now, if you like structured learning, then the best thing to do is to go to multifamily u.com, you’ll see six or seven of my presentations that are on demand. There you’ll also see one or two that are live, which means that they’re coming up in the next week or two weeks. So you can see that if you like live presentation, sign up for those. But I strongly suggest that you watch two on-demand presentations on my website. One is called location magic. It’s the one that allows you to pick the best cities in the U S and the second one is called real estate trends. My team, and I spend an absolutely gigantic amount of time putting these together. They are very powerful and very fun to watch. So try those two out. And if you like them, if you feel like you’re my sort of guy, you’re, data-driven you like the use of data to create profit, then there’s six or seven other presentations there that you can watch. And and I think that that’ll get you on your way. None of these costs you money, you know? And if you get to the point where you think that you want to use a technology driven way to become a syndicator, then you can look at our bootcamp. It’s about 10% of the price, all of our competitors. Okay. All right. Awesome. You don’t need that. You don’t need to the bootcamp to really get a great deal out of you know, our, our content.

Charles:
Okay. We’ll, I’ll put links to that in show notes and the YouTube notes. Thank you so much for being on Neil and have a great rest of your week.

Neal:
Thanks so much, Charles. Thanks for having me on.

Charles:
bye-bye.

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 Neal Bawa

Neal Bawa is a technologist and entrepreneur in love with the power of numbers to create profit for his real estate investors. He is CEO / Founder at Grocapitus, a commercial real estate investment company. Neal acquires Commercial properties across the U.S., for over 800+ investors. Current portfolio over 3000 units/beds, over $345 Million value. The portfolio includes Multifamily and student housing properties in 9 U.S. states.

Neal also serves as CEO at MultifamilyU, an apartment investing education company. He is a top-rated speaker at conferences & events across the country. Nearly 5,000 students attend his multifamily seminar series each year and many hundreds attend his Magic of Multifamily boot camps each year.

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