Cash Flow Champs Real Estate Podcast
Bikran holds a Bachelor of Science in Economics with an emphasis in Accounting and graduated Cum Laude from the University of California, Irvine.
What You’re Going to Learn:
- Challenges Faced During Transition from Single-Family to Multifamily Investments
- Exploring Equity from REITs and Family Offices
- Navigating Investor Confidence During Market Expansion
- Bikran’s Mindset and Reflections on Tremendous Growth
- A Piece of Advice by Bikran Sandhu
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Challenges Faced During Transition from Single-Family to Multifamily Investments
Challenges Faced During Transition from Single-Family to Multifamily Investments
Prashant Kumar- Why multifamily? Why not any other asset, based on what I have heard from you? If you would like to explore different options, why choose multifamily? Let’s discuss that.
Bikran Sandhu- Yeah, of course. We have looked at various asset classes such as retail, offices, industrial, self-storage, single-family, and multifamily. However, the recurring theme we found was that everyone needs a place to live. Providing shelter is a fundamental need, and we wanted to start there. Additionally, I had personal experience renting apartments when I was younger, so I understood the tenant’s perspective and the purpose these apartments served. Although we didn’t have the expertise as landlords, we were familiar with and comfortable with multifamily and single-family properties. Moreover, my mother used to rent out a home in Fresno, California, which gave me insight into running that type of business. We bought the house, moved out, and kept it for cash flow. While we didn’t make significant profits from that venture, it reinforced the idea that we could provide shelter to others in exchange for rent payments. That’s why we initially focused on multifamily and stuck with it, not because other sectors like industrial or retail are inferior, but because we were already comfortable with multifamily.
Paul Senior- Bikran, your resume is impressive, as Prashant mentioned. I must say it’s remarkable. We appreciate you joining us. I have a question regarding the lack of individuals in your life who were involved in single-family investments. What challenges did you face transitioning from your previous profession to multifamily? Could you share some of these challenges with our audience to help them prepare for a successful transition like yours?
Bikran Sandhu- Certainly. When we started, our first deal was Silver Oaks, a 36-unit property located in a somewhat rough area of Phoenix. In 2019, simply getting a deal under contract was a blessing. Instead of syndicating upfront, we invested our own capital. I personally contributed $150,000, and my partners also invested their own money. We then found a tenant in common (TIC) investor who was doing a 1031 exchange and needed a place to invest their capital. So we became co-owners. Until that point, I had saved a total of around $250,000. Investing such a significant amount was a considerable risk. At the time, I had no prior experience in multifamily operations, although I had underwritten deals from a numbers perspective. Therefore, I immersed myself in anything related to apartments. After closing the deal, I assisted the property manager with accounting, attended weekly calls to stay informed about operations, volunteered to handle reporting, monitored lease expirations, move-ins, and move-outs, and oversaw rent-ready renovations. I also handled capex invoices while my partners were physically present at the property. Despite being remote in California, I wanted to be as involved as possible to gain knowledge. There was no immediate financial gain or compensation driving me. My goal was to start a syndication company and acquire properties. I didn’t feel comfortable approaching investors and asking them to invest without any experience. So, in our first deal, I focused on finance, accounting, and operations to familiarize myself with how these apartments were managed. As we acquired more properties, the operations remained the same; only the scale changed. A 36-unit property operates similarly to a 150-unit property, except the latter has a full-time staff and larger numbers. The fundamentals remain constant, allowing you to scale from a single unit to thousands of units.
Paul Senior- That’s awesome.
Exploring Equity from REITs and Family Offices
Exploring Equity from REITs and Family Offices
Paul Senior- That’s great to know. In fact, I’ve heard some people say that running a 360-unit apartment complex is easier than a 36-unit apartment complex. It’s because of scalability, economies of scale, and everything that comes with it. However, it’s still a significant transition. Many individuals are used to single-family investments and find it challenging to move to larger multifamily deals like yours. How did you prepare for this transition? Did you create a database of potential equity investors? Could you share some insights on the steps you took to ensure a successful transition?
Bikran Sandhu- Yeah, absolutely. The initial syndication deals we embarked on involved partnering with experienced individuals in the syndication industry. We didn’t go from buying deals on our own to suddenly buying deals with a couple of investors. Throughout the process of searching for deals, we simultaneously built up our investor database. We attended conferences, met people, and discussed our future plans rather than showcasing what we had already accomplished. We would ask if they would be interested in receiving information about our deals once we had one under contract. We encouraged them to review the opportunity and consider investing, but we made it clear that it wasn’t a requirement. It took around 12 to 15 months before we secured our first syndication deal after I started my multifamily journey. During that time, attending meetups and networking events was incredibly beneficial. Initially, the conversion rate from meeting potential investors to actual investors was low, around 1%. Out of every 100 people we met, only one would invest with us. This was primarily due to the lack of a track record. However, my family and close friends from my previous workplaces were the first investors who took a chance on us and they continue to invest with us today. I’m truly grateful for their support as it has contributed to the growth of everyone involved.
Prashant Kumar- Bikran, I know that you raise equity from private investors, including your friends, family members, and referrals. Have you considered accepting larger investments from REITs or family offices? If you haven’t, why not? And if you have, what are your thoughts on it?
Bikran Sandhu- Yeah, it’s a great question, and I think that was the second part of Paul’s question here as well on preferred equity. So we’ve always been a syndication company. For every single deal that we buy, our median check size is always $50,000 across the spectrum. So the first few deals we bought, we had maybe 50 to 60 investors. And now we have close to 200 to 300 investors every single deal, essentially, just because the check sizes for the overall deal have gone a lot bigger. But we have kind of flirted with preferred equity. We have flirted with like, family offices and seeing how they work, right? And you guys probably already know this but as a check size kind of gets bigger and the equity share gets bigger, you have to start giving up on special member rights, you have to start giving up control of the deal to these preferred equity providers. And a perfect example is a deal that we bought in 2020, where we had a family office partner come in and essentially put in a check for about 40% of the total equity, and we brought in 60%. Well, in order to put in 40%, this person wanted to have special member rights where they decided when we could sell the deal, refinance, pay off the loan, or do any sort of capital transaction. If you wanted to fire the property manager or get a new a property manager, they needed to sign off on it. Every budget, every year, they needed to approve it. And then if we were over budget or under budget by 10% or more, they need explanations of what was happening. I mean, we do all that internally, right? So we follow these things in a very detailed manner. So we want to make sure we do right by the investors because we have a fiduciary responsibility for our investors to essentially help them increase their valuation of the property that they’re investing in. But what happens is, when you have somebody coming in with a large check size, when they start taking control over these little things, that’s when things can kind of go a little sideways, because your interests now are not 100% aligned. A case in point is when we try to sell a deal, that one deal did very well for this family office that had come in. They were essentially going to end up around forex their money in about 12 to 15 months, which is a phenomenal return for anyone right in that time period. And for us to sell the deal, they still wanted to sign off on it. They wanted to see all the details of whether to, whether to refinance or sell it right now. And they were actually leaning toward just refinancing and holding it for ten years. And we were just going crazy. We’re like, oh my God, where do you see forex your money in 15 months? I’ve never heard of that in my entire life. Like, sure, you can do that with like, the startup tech company, but you can’t do that in real estate that makes sense to sell. So we had to essentially pay them so we could sell the property. So that kind of left a little bit of a bad taste in our mouths. So we decided to, at that point, not take in any significant check sizes because we didn’t want to give up those special member rights. And then around that time, we had a deal under contract where we brought in a preferred equity provider just to kind of supplement the total equity that we needed. And that relationship was okay as well. It wasn’t too bad, but again, they had their own lockouts. They wanted to approve a sale before we could sell anything. And this was obviously in the heart of 2021 2022 when you could sell a deal, keep your eyes closed, and double people’s money. Really, if you bought at the right place or right time, you didn’t really have to do anything. So around the time that we sold that second deal, they wanted to be paid extra money as well, just so we can induce them to sell the deal. So we didn’t want to be in a situation where it was a good deal for our investors and a good transaction for our investors. And then some other party actually held the right to essentially stop us from doing something. So since then, we haven’t done any pref equity. We don’t work with family offices very often. We will once in a while, but we tell them, your maximum ownership is going to be 10%. We will not give you any special member rights because at the end of the day, even if you are coming into the deal, at the end of the day, we have a fiduciary responsibility to make sure that we don’t just take your money and run away. We’d get in trouble very quickly for that. So if you don’t feel comfortable investing money with us, that’s perfectly fine. We’re not forcing you. But if you do want to invest with us, know that we’re going to have to keep your best interests at heart because that’s the only way we’re going to grow and that’s the only way we’re going to bring everybody up to the next level.
Prashant Kumar- This is an awesome answer. It’s a very humble approach. I think that rather than trying to go high fly and try to get more deals into the belt in a shorter amount of time, which you did already anyway in the last couple of years, you were able to remain humble, and remain to keep interested in retail investors at your heart. You were able to produce the best results for them while not giving up. What you do best is control the deal. Right? So that’s super awesome.
Navigating Investor Confidence During Market Expansion
Navigating Investor Confidence During Market Expansion
Prashant Kumar- Let’s say, jumping from investors to the market. I know you guys are very hyper-focused on the Phoenix market. What are your thoughts on looking into other markets in Arizona or outside Arizona? What do you think about that?
Bikran Sandhu- Yeah, so since we started, we’ve always done Phoenix. That was our bread and butter. And our thinking is we want to establish a good blueprint for success in one market before we jump to a different market and try to replicate success in that market. So in Phoenix, what we did was we first started the equity company to buy the deals and we did third-party property management. Well, after we had about twelve to 15 deals, we decided, okay, well, let’s bring Property Management in-house. It can stay relatively profitable, meaning one, 2% gross margin and it’ll stay fine. But we want to bring that in-house so we can again, get that control from an operations perspective and not rely on somebody else. And then the second step we did was we started bringing construction management in-house. So as an equity company, we always manage the business plan and make sure the construction was happening on a timely basis. Well, after we bought property management in-house, we saw, okay, well, the natural next step is also bringing construction in-house where we can as we’re renovating the units, we are relying on these third parties to make sure that the renovations happen on time. And we were just seeing so many budget delays or timely delays that we were like, okay, well, let’s just bring that in-house as well. So as we started getting vertically integrated in-house, we started seeing this blueprint kind of form by itself where, hey, when we buy a deal now it goes through our process. And then at the end of the process, after two to five years, we get this great result. So now we can take this and now replicate it in different markets.
So we’ve always liked Phoenix for the job growth, employment growth, and all the companies that are moving here and the story that Phoenix has. So at the tail end of last year, we started looking at different markets. We’ve always wanted to go to a different market. It’s just, again, we wanted to get that blueprint in place. And the natural next step was we wanted to go to Texas. Texas is a big market. There are a lot of great pockets that you can kind of get into. And we really like Dallas Fort Worth area. So around October, or November last year, we started flying out to Dallas, started meeting with the brokers, started meeting with the lenders, and saw what type of deals they were seeing on the market. And that’s when we started underwriting Dallas deals. So in February of this year, we closed our first Dallas deal. And then just last month we closed our second Dallas deal and we’re closing a couple more in the next few months. But that was the market we had kind of focused on. And we told ourselves internally, we don’t feel comfortable going out to the market, hiring a third-party PM, or hiring another construction manager to go and do all the work, essentially starting from scratch that we did in Phoenix. So what we did was we essentially took our property management company out there, we took our construction management out there and we established the infrastructure before we ever got our first deal under contract. We had a regional VP, regional property director, construction manager, asset manager, and asset management associate, all hired out before we even saw the first deal that we had under contract. So a significant amount of payroll that we were just incurring waiting for the first deal. But we knew that if we had just played our cards right, continue doing what we did in Phoenix, just underwritten deals, and find the right deal in the right location, that is what’s going to get us to the next level. And learn to behold, we got four deals in a contract as of today and close two of them, we have two more to go. But that’s how we kind of approach that secondary market.
Paul Senior- Congratulations on that. Getting into a new market, building those broker relations and things like that ahead of time, and getting your infrastructure in place is just phenomenal. So how did your investors feel about that? Because most of them knew you in a certain market. In terms of Arizona, of course, you’re going into a new market now. Do you think they just ride based on the experience they had with you over the years and had confidence in you, the operator versus the area, how did that kind of transfer? I know that it’s even more challenging these days. Raising capital in this market has shifted over the past couple of years.
How was that experience for you?
Bikran Sandhu- Yeah, I’ll be honest, there was some hesitancy from our investors here and there. I mean, we’ve been hearing this for the past 12 to 18 months before 2022 that investors were kind of over-invested in Phoenix and they wanted to invest in different areas. They loved what we were doing in Phoenix. They just couldn’t find the same type of operator somewhere else. So when we decided to launch our first Dallas deal, a lot of our investors kind of approached it with a little bit of apprehension where they were like, well, we don’t want to be the guinea pig for your deal. So we laid it out in the investment summary saying like, hey, this is not just our kind of throwing a Hail Mary and seeing, hey, if it sticks, great, we’ll not do it again. We are invested in going full force in Dallas. We don’t take any market lightly. We’re not going to buy a deal in Dallas tomorrow, then get another deal under contract in North Carolina and then get one in Florida, and we don’t do that. We only go into markets where we’ve vetted completely and we have the infrastructure in place. So getting the first deal closed took a little bit of time because we wanted to educate our investors and kind of help them understand it wasn’t just a one-and-done thing. And we’ve told investors, like, we want to buy at least ten to twelve deals in Dallas before we even think about pivoting to a different market because it takes a lot of infrastructure and a lot of deals to make sure that infrastructure is good in that market before transitioning out. So there was some hesitancy here and there with us with some of the investors, but they knew how we operate. They know that our business plan is in and out because we’re not curing cancer. We’re renovating these apartment buildings. At the end of the day, it’s not rocket science. So we essentially took our business plan, applied in Dallas, and made sure that we have the infrastructure there to support that business plan. And now we’re seeing that renewed demand with our investors as we launch deals. We’re getting the same type of demand as we were getting to Phoenix.
Prashant Kumar- This is an awesome business.
Bikran's Mindset and Reflections on Tremendous Growth
Bikran's Mindset and Reflections on Tremendous Growth
Prashant Kumar- An awesome way of approaching the business. Make it scalable, have the infrastructure in place, and then make it scalable from one market to another market, and then probably from this market to another, the third market. So become, I’m going to take a step back. I will ask you a very fundamental question. I know you guys have grown. You have grown from 2018 to 2023, from $250,000 to a $1.93 billion company. So say, does it give you chills in the night when you see that kind of growth happening? Tell me your mindset. What’s going on there?
Bikran Sandhu- Yeah, no, we started to stay as humble as possible right on our end. We don’t toot our own horn. We don’t go out there and say, hey, we’re the biggest real estate syndication company in the world or anything like that. We take it one step at a time. And the whole thing that we’re doing, it’s not like Zach Robert and I think we did everything after the first few deals. We hired our very first employee in March of 2021, and she’s been instrumental in making sure that our deals are performing. And then in addition to her, we have our transactions associate that’s been making sure that we can close our deals on time. And since then, we’ve kind of just built out our entire company with employees in every aspect, from everything from finance, and accounting to marketing HR is instrumental in making sure that these deals perform and that we can continue growing the company. Yeah, we took the risk on the very front end, and we still do with all the earnest money. We’re putting our personal cash out on the line to close these deals, but we don’t want people to think that it’s only us. So every time I talk about Rise48, sure, I’m a co-founder, but if you look at me, what I did back then versus today, I do more oversight and make sure that things are running appropriately. But all our people are the ones the reason that these deals are performing and the reason we’re buying more deals. So we take it one step at a time and we don’t look at where we want to. We know where we want to go. We want to be the biggest company, the biggest real estate company in the world when it comes to real estate. And it’s not going to happen if we just look at the goal and not put the infrastructure there to get us there. So we don’t think about how much we’ve grown. It’s more of, okay, well, how do we get to the next step and the next step and the next step?
Prashant Kumar- Bikram, this conversation has been very informative to me. It has been very humbling to me that the more important part is talking to you, coming from a very humble person. You sound like a very humble person. You have given very good advice. I don’t have anything to ask. Paul, do you have anything more to ask?
Paul Senior- Yeah, you speak highly about your investors, right? And obviously at the end of the day want to make sure those guys are satisfied. They help us to take these deals down because bottom line, most of the money comes from them. If you raise equity from them. Give us a story of how you think you’ve impacted one of these the lives of one of your investors. A good story so far where you think, okay, yeah, I did buy this investor. This investor is happy with what we do. Share one of those stories. I’m pretty sure you have quite a few.
Bikran Sandhu- Yeah, definitely we have over I just remember like March of last year. We just sent out six thousand K ones. So we have over 4000 investors in our database, and we have more than half of them are recurring investors. But we talk to investors a lot. And right now what you’re seeing in the market is obviously interest rates have skyrocketed in just over 12 to 18 months. You’ve seen rent growth essentially get decimated in the same amount of time period. So you have almost like a two-punch on multifamily valuations where it’s kind of driving it down. And now you have a lot of syndicators, including us, that have bridge loans, that have gone up in interest expense. So the natural thing to do for some individuals is to try to hide, and not be as transparent with investors because they might not like what they see. Right? So we have taken the approach of making sure that we are as transparent as possible with investors. So that’s been the approach we’ve taken since day one. We’ve never shied away from sharing any details of the deals because when you’re coming in as an equity investor, you deserve to know what you’re investing in and what type of risks are associated with it. We’ve had investors literally ask us for debt, term sheets, and the PSA, to make sure they know what deal it is and what type of debt is being placed. And we’re happy to send it over. We want you to be comfortable investing with us, not just trusting us with our own analysis. I’ve sent over my underwriting analysis, like completely open. You can feel to change in numbers in there and see what type of numbers you think are appropriate so you can vet the deal yourself. And the feedback that we’ve gotten over the years you guys are very transparent in your performance as well as your reporting. For every report that we send out on a monthly basis, we send out the entire property management package to every single investor. It’s like 120 pages of data, including mortgage statements, AP statements, AR statements, and everything that we could, and we send it out to them. We also send an executive summary that shows a ten-page executive summary, with details about the market, the property how the finance is running, and how the construction is running. So investors have all that data. So the feedback, it’s not just one investor. We have multiple investors come back and say, hey, a lot of the sponsors they work with, they’re just kind of hiding behind, hey, here’s the NOI. Here’s how much we’ve grown. See you next month. That’s all they kind of get. And that’s been my personal experience as well. With a couple of syndicators that I’ve invested with, I get maybe like, one or two executive summaries a year about how a deal is doing. And that’s not comforting as an investor. So when I put myself in an investor’s place, I want to know, as an investor what’s happening at the deal, almost too, like, a very minutiae of detail. And that’s where we’ve gotten a lot of feedback saying, like, hey, you guys do a great job with the reporting. Thank you for letting us know how these deals are doing. And then some investors that were with us from the very beginning, they’re very pleased with the results that they’ve gotten, that they’re continuing to invest with us. So we’ve helped increase some individuals’ net worth by almost three to four X because of the deals that they’ve done and how much they’ve kind of stuck by us. And they’re very grateful, and they continue to invest with us in our deals because they know we don’t just take the acquisition fee and chase after the next one and the next one and the next one.
Paul Senior- Bikran, thanks for sharing that. Those are definitely golden nuggets that give different operators an insight as to why you guys have probably grown so much. And this is a beautiful thing to hear, that you guys are so transparent.
A Piece of Advice by Bikran Sandhu
A Piece of Advice by Bikran Sandhu
Paul Senior- We’re going to transition now into the lightning round of our podcast, and I’m going to ask you what’s one piece of advice that impacts your life and that you receive from someone else and how you think it may help others.
Bikran Sandhu- Yeah, I think the biggest thing that kind of helped me transition my mindset over to real estate and being an entrepreneur was it was a book I read called Find Your Why by Simon Sinek. It’s a great little book. I think we all get sometimes, like, when we’re in the details of things, we’re always trying to figure out what we’re doing and how we’re going to do it. We never really take the time to figure out why we’re doing something. So as we kind of built up Rise 48 equity, the main thing that in my departments that I was helping hone out every single person that we hired. I told them, this is what we do currently. This is why we do it. So you understand the mission that we’re trying to accomplish. So what is not as important? I want to answer the why behind that problem. That way, when that new person is coming in and taking charge of the process, they can understand the underlying reason for the process and they can make it better because I only have so much knowledge in my head. If they’re coming in with a plethora of experience, they can take that why and take it to the next level.
Paul Senior- That’s awesome. Thanks for sharing that. And of course, we’re going to ask you about one book you recommend. You already did it. Finding you’re why? And I forget the author’s name. Simon Sinek.
Bikran Sandhu- Simon Snek.
Paul Senior- Now, share with us one of your personal habits that contribute to your success. What’s one habit that you have that contributes to your success?
Bikran Sandhu- Yeah. So I’m a decision-maker on a number of different aspects of the company and my personal life, obviously. So we’re in the midst of building a home that we want to live in. We have a construction, build general contractor that’s doing all the work. But whenever it comes to making decisions, I want to make sure I understand the entire in and out of that decision before I sign off on it. So one thing I’ve always kind of done on my end is making sure I have all the facts, whether it’s related to Rise 48 or personal stuff before I sign off on something or I say I want to do this or that. I feel like it’s very important because you’re going to be relying on that. You’re going to be standing by your decision. You never want to be in a situation where you say, well, I didn’t know what I was doing, so I said yes to this. You always want to make sure you have the complete facts before you make that decision.
Paul Senior- Cool. And now we’re going to end it in terms of the podcast here today. We appreciate you being here.