Passive multifamily investing provides wealth building opportunities for individuals in all lines of work. This includes doctors and healthcare professionals who often work well over 40 hours a week and may not have time to actively research multifamily deals.
Today’s guest, Dr. Pranay Parikh joined the show to discuss his multifamily investing strategy, and how he helps professionals find ideal multifamily deals with compelling returns.
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- Why passive multifamily investing is such a powerful wealth building vehicle for physicians and other professionals.
- What lessons Pranay has taken from his medical career and applied to multifamily real estate.
- The most important key to success in passive real estate investment.
- How rising interest rates and economic uncertainty are impacting multifamily deal flow.
- Which MSAs offer notable upside for multifamily.
- The long term outlook for the Sun Belt.
Featured On This Episode
- Join the Ascent Equity Group Investor Network
- Single-Family Prices Are Cooling And That’s Good For Multifamily (GlobeSt.com)
Today’s Guest: Dr. Pranay Parikh, Ascent Equity Group
About The Multifamily Investor Podcast
The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses passive investment offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.
Scott: Hello, and welcome to “The Multifamily Investor Podcast.” I’m your host, Scott Hawksworth. And today, we’re, of course, going to be talking about passive investment in multi-family, but we’re going to be doing it through, I think, a really interesting lens. And that’s talking about it for folks who are doctors or working in healthcare and the sort of wealth building power of passive multi-family investment.
And joining me to offer his perspective is Dr. Pranay Parikh, who is the co-founder and president of Ascent Equity Group. And yeah, welcome to the show. Thanks for being here, Pranay.
Dr. Parikh: Thanks, Scott. I really appreciate the opportunity.
Scott: Absolutely. Okay, to kick things off, I think, I always like to ask a sort of, you know, table-setting question. And you help doctors and others in healthcare build wealth by investing in commercial real estate. Why is commercial real estate, and specifically multi-family, so powerful for folks in healthcare who want to build wealth?
Dr. Parikh: Yeah, it’s a little bit easier right now to explain this given all the volatility in the market. But we like assets that are stable, right? People need a place to live. We go in, we renovate it, and they’re able to live in a practically new unit for a little bit extra money.
We get a good stable return and we create a lot of jobs. It’s just, everyone wins, right? And there’s an issue, and we’ll probably talk about this later, that we just don’t have enough housing. There’s a housing crisis. So, if we’re able to provide a place for people to live while giving a good stable return to doctors and really anyone that wants to invest with us, we look at it as a win-win.
And with all the volatility in the stock market, crypto, if you do that, my portfolio is down like 90%, we like the stability of housing.
Scott: And why for, you know, doctors and healthcare professionals specifically? Why is that such a powerful, I guess, vehicle?
Dr. Parikh: Yeah. And mostly other than, you know, just a great investment, there’s a lot of tax benefits. So, you know, I’m not going to tell you you’re going to reduce your tax burden because that’s the first thing people ask. It is possible, but it’s pretty difficult and most doctors don’t qualify for that. But you’re able to get this money in your pocket and use it tax-deferred.
And you can defer it and defer it and defer it for a long time. So, it’s almost like the government is giving you a free loan on those taxes, which is nice and it’s a lot different than, like, a dividend stock that also gives you money in your pocket, but it gets taxed at your marginal rate, so the highest rate that you’re getting taxed, right?
Or there’s other stocks that are getting…you have to sell it, you have to pay taxes on that. So, it’s nice to get money that you can use for your expenses to go on vacation, to reduce your clinical time, which is what a lot of doctors use that for, including myself. And it’s nice to do that and not necessarily have to worry about paying as much taxes at least immediately.
Scott: Right, no, I think that’s such a great point too. And, you know, I’m not a doctor, but I do know doctors and if you’re successful, you can certainly generate a lot of income and have a lot of success there, and then that does increase your tax burden. So, having those other ways to generate wealth and, you know, have some of those advantages, it just makes perfect sense to me, right?
Dr. Parikh: Yeah. And having money go into your pocket as opposed to just increasing in value in the stock market is nice because then you can really make changes in your life. A lot of times, we invest, and I do that as well, invest in our retirement accounts, but that’s something that you use after you’re 65 and it’s not something that’s going to affect your life immediately.
A lot of our investors have been able to cut down on their clinical time, but, you know, not a ton. I’m not going to say you’re going to make $100 grand in a year, but over time, you’re going to make enough where you cut down a shift a month or two shifts a month or three shifts a month. And, you know, it’ll really help with the kind of burnout epidemic that we’ve been all facing.
Scott: That’s a great point as well because, you know, you hear these stories of healthcare workers, you know, whether they be doctors or otherwise just having to work so much and just constantly seeing folks and constantly, you know, on the go. So, if there’s things that you can do to, you know, not continue to, you know, earn that income, but also, you know, protect yourself from burnout because that’s the worst thing, right?
Dr. Parikh: Yeah. And what I’ve seen is a lot of doctors, they make a binary decision. They either, “I’m going to work full time or I’m going to retire and leave medicine.” Fortunately, doctors, dentists, a lot of people have been pretty successful in other careers, but we need doctors.
All of us went into medicine because we love it and we want to work on it, but, you know, maybe full-time is a little bit too much. Maybe three days a week, maybe two days a week. I don’t know about you, but I’d rather be taking care of someone that really enjoys being there and is working two or three days a week and has time to read up about the newest diseases and newest treatments than someone who’s working six days a week because they have to pay a mortgage and they’re just really stressed.
Scott: Right, and I would even think kind of extrapolating further, you know, we need doctors, we need healthcare workers. And better to have one that stays around for decades, maybe working a little less than six days a week as opposed to one who burns themselves out and then we have, you know, one less doctor out there helping people, right?
Dr. Parikh: Yeah. And that’s an unfortunate thing where there’s a brain drain right now across a lot of industries, but especially in medicine where we’re losing a lot of these doctors that have been practicing for so long and they’re taking all their experience and education and really practical experience with them. And it’s unfortunate.
Scott: So, you know, I think we’ve definitely made the case for why it’s so powerful to invest passively in multi-family for healthcare workers, and I’m curious about your journey. You worked full-time as a medical doctor while getting into the real estate investing world. And I guess, could you tell us about that journey and maybe some of the challenges that you had and some learnings that you had when you started?
Dr. Parikh: Yeah, so, I graduated residency in 2017, so I became a full-fledged doctor then. And finally, I made a little money. I worked a lot. I worked about 1.5 times full-time.
Dr. Parikh: I was able to pay off my loans. It sounds like a lot, Scott, but in residency, I was working 26 12-hour shifts a month, 26. And it’s funny that when you get a full weekend off, they call it a golden weekend because you only get one of those a month. And the other weekends are gray where you get one-day off, so, Saturday or Sunday, and the last one is black. So, the black weekend, that means you’re working about 12 days straight before you get a day off.
So, it’s kind of intense.
Scott: So, that’s rough, yeah.
Dr. Parikh: Yeah, yeah. So I decided, you know, I would… I’m used to working 26, right? Let me cut down to 20 to 22 for a year or two, and it’ll just help my financial house get in order. I paid off my loans. And I bought my first multi-family property about 14 months out of residency. It was a four-unit.
It’s in Long Beach, California. And, you know, it’s doing well. After that, I spent hundreds of hours trying to find another one. And, you know, the market just got hot and it just bothered me that I was spending so much time trying to find this property. Then I’d have to negotiate and then I’d have to do all this stuff. And it just seemed like not a great use of my time. Really, it was a second job and I worked hard enough as a doctor.
So, that’s when I found passive real estate. And honestly, I didn’t know a ton about it in the beginning. And so I did a deep dive. I bought every book I could. And, you know, now we’re fortunate that there’s a couple good books on it, but in the past, there wasn’t. So, I would have to talk to people, I would talk to sponsors. I got together with my partner, Dr.
Peter Kim. And we created a course because I realized that there was nothing out there to help doctors figure out how to invest from an investor standpoint. There’s a lot of stuff out there for syndicators to learn how to be a general partner, but how do you assess a deal? How do you vet a deal? How do you find a deal?
And how do you know if a deal’s worth investing in? So, we created that course and we thought we were done where we, you know, teach a man to fish and they would go out and fish. And we realized that people were still getting into deals that we didn’t think were that great. And so people came to us and said, “Hey, you know, now we see what you guys think. We took the course.
We want to invest with you guys and we want you to do this for us because I’ve realized that…” And I’m the same way. I like the education, but I don’t want to do it myself. So, I took a copywriting course because I liked to know how to write copy, but I still will hire a copywriter because I don’t have the time to do it myself. So, a lot of doctors were in the same boat.
And so that’s where we started Ascent Equity Group that we’re able to bring together hundreds, if not thousands of doctors together, get a seat at the table and partner with really the best operator. So, we don’t do the real estate ourselves, but we have deep relationships and we work with operators and we kind of manage the manager.
Scott: Right, right. And then, again, provide that access to folks who, you know, they want to find those right deals. I’m curious because you mentioned the course that you put together. What were maybe some of the, I guess, big lessons? Now, obviously, it’s a whole course, but if you had to, like, boil it down to, you know, one or two pieces of advice that really seem to hit home and really help a lot of the folks that are either newer or they’re looking for, you know, that next passive investment and want to make better decisions, what maybe things should be considered there?
Dr. Parikh: Yeah, so number one, the operator or the sponsor, right? What is their track record? How have they done? What is their reputation? Try to get on the phone with them. And then here is some of the art that we teach. How difficult is it to get on the phone with them?
Are they trying to get you to invest right away or do they want to educate you on the process, right? Sometimes, you know, I pretend to be naive when I’m talking to people and see how they are. Are they just trying to get my money? A lot of times when you’re a doctor, you get a target on your back where they say, “Oh, you know, they’re not going to ask many questions or they’re going to just invest and they have a lot of money to do that.”
So, a lot of it is figure out what the performance of the sponsor is, but get on the phone with them.
Scott: Sure, have those conversations.
Dr. Parikh: And it’s funny. I’ve talked to people that are pharma surgeons, they’re critical care doctors, and they literally save people’s lives on a daily basis and bring them back from the brink of death and they’re just so scared to call.
Scott: To call and talk to someone?
Dr. Parikh: Yeah, yeah, but it’s different, right?
Dr. Parikh: It’s totally different and it’s something that’s outside of your wheelhouse. I used to teach at University of Southern California the med students on how to talk to patients and clinical exams and such stuff. And we spend 20 minutes half an hour on the very first one teaching them how to breathe, right, and how to calm their nerves because it is so scary talking to a real person about real medical stuff.
Scott: Right, and I can see too some of those challenges if, you know, you aren’t as familiar with passive multi-family investment. Maybe you don’t even know the right questions to ask and you’re like, “I don’t want to seem like I’m stupid or uninformed here.” And I think that’s a good point of kind of getting over that hump and having those conversations.
When you are talking with folks and, okay, they want to talk to sponsors, are there questions you think that are good ones to ask and, I guess, good ways to have that conversation so you get the most out of it when you are talking with a sponsor?
Dr. Parikh: Yeah. So, I would write these down and I would try to ask…kind of go down a similar vein, right? So, ask them what kind of investments do they do and why. Are they just trying to chase, you know, whatever is trendy? Are they doing self-storage all of a sudden?
Are they doing hotels? And how have they adjusted their business plan according to the market? So, I’m sure we’ll talk about this later. But the market is a little bit different than two months ago.
Scott: Right, markets do change.
Dr. Parikh: Yeah, yeah. So, what is the process of them and how they evaluate this? How big is their team? Are they vertically integrated, meaning, do they have everything in-house? And if not, why? A lot of these questions when I tell them to people, they’re like, “Okay. So, check mark, vertically integrated.”
But no, we work with people that aren’t vertically integrated, but they have a good reason to. So, a lot of times…
Scott: And I think that makes sense to jump in. There’s lots of debate on, for example, third-party management companies. Is it good? Is it bad? Should you do it all in-house or what have you? And I think that’s a great question just like, okay, are you doing this all in-house or are you outsourcing that?
Understanding that it doesn’t necessarily mean it could be, you know, wrong one way or the other, but understanding the logic behind it and what the sponsor is doing and I think that makes so much sense to me.
Dr. Parikh: Yeah, totally agree. And a lot of times, you want to just get in their head and try to think about what’s going on, but talk to other people. So, we have a large community of people that are our alumni, thousands now, and they’ll post up a deal and almost always, there’s someone that’s invested with them or decided not to invest.
Find a community of people, even if it’s you and your family, your siblings, or other people that are interested and kind of come together. When we look at a PPM, there’s no way you’re going to look at 100 pages yourself. So, you know, you can take the first 10 pages or the first 20 pages and really try to dial things in. So, you know, we consider investing a group sport.
Scott: I like that, we consider investing a group sport. I mean, it makes sense too, right, because everybody has a different perspective and maybe someone will look at an opportunity or an asset or a building and see something that you didn’t quite see. Right?
Dr. Parikh: Yeah. And, you know, just a word of advice. It’s very easy to be negative when you have a ton of people and really amplify things that may or may not be important to certain people. So, just remember that there’s different investing goals and to be very inclusive.
Scott: I like that. Now, I’ve got to ask this. What are maybe some of the skills or experiences that you had from being a doctor and your experiences working in healthcare that really helped you in your real estate career?
Dr. Parikh: Yeah. It’s interesting because we, as doctors, you know, many professionals, lawyers, dentists, they learn so many skills going through training and practicing. However, when you ask them, they’ll say, “I’m just a lawyer. I’m just a doctor.”
You’d be surprised how often I get that, “I’m just a doctor, I can’t do that.” But having been through that grueling training, you have crazy amounts of perseverance. Sorry.
Dr. Parikh: Perseverance, resilience, people skills, right? I have to convince people to take medication. And taking medication sucks every day, right?
Dr. Parikh: I have to have some of the hardest conversations with people on a daily basis, you know, tell them they have cancer or, you know, end-of-life conversations. And it’s these skills, these people skills that really help. So, a lot of times, I have to negotiate with sponsors to try to get the best terms for my investors. And I’m able to do that from a place of empathy because of all the skills that I’ve learned in medicine.
Scott: Right, right. The bedside manner, right?
Dr. Parikh: Yeah, yeah. And it’s not to say that every doctor has bedside manner, but this is something that I’ve really tried to hone because regardless of what happens in the hospital, what you remember are the words that the doctor or the nurse talked to you.
Scott: I mean, healthcare can be such a high-pressure situation. You’re saving lives, you are, you know, dealing with so many different things, certainly depending on, you know, your area of expertise in healthcare. Does that translate as well when, I guess, for example, you’ve got a project and something goes wrong or there’s bad news to be given to investors or, you know, something unexpected?
“Yep, that pipe burst and now we’ve got a huge problem.” Does that carry over as well?
Dr. Parikh: Yeah, yeah, no doubt. And it kind of boils down to practicing real estate the way we practice medicine with integrity, right? So, this is one of our kind of core philosophies that we try to be transparent and do things with integrity. So, let me give you a quick example.
As you know, the interest rates have gone up crazy in the last couple of months, and almost on a daily basis. It’s calmed down a little bit. But we were hard money, we had put a deposit down on our property and we had finished raising money. The day before closing, lender says, “Yeah. Your interest rate is 50 basis points or 0.5% higher,” which is ginormous
Scott: Right, that goes right into your whole model, like, okay, well…
Dr. Parikh: Yeah, so we had to negotiate with them and we were ready to tell our investors.
Fortunately, we were able to convince them not to do it, but other sponsors across the market had go up on 50 basis points, but we were going to do something called interest rate reserve where you get a little bit larger loan, I’m saying a couple hundred thousand dollars extra, but you keep that money in the bank just for a rainy day.
So, we had to tell our investors that our rainy day fund was not as big as we wanted. And we told them, “Hey, guys, you know, we told you that this is going to be X and it’s actually Y. It’s really important to us that, first, we’re honest and transparent with you.” But we gave people a chance to get out.
We were like, “Hey, if you think this is a different deal than you wanted to get into, you have a chance to…”
Scott: Right. Your own internal evaluation of the deal now has shifted because of these different numbers, you know, providing that opportunity. Yeah.
Dr. Parikh: Yeah. And I think that’s what a lot of people would do, but three, we told people that, “Hey, we’re going to actually keep our own money on the side for this interest rate reserve. So, it’s our own money. We’re not going to touch it and we’re going to make it right.” And I think that’s something that I haven’t really seen a ton in different operators, but it’s something that we felt compelled to do because we wanted people to have that sake of mind to rest easy, knowing that we had that reserve and rainy day fund in case things go wrong.
And this is on top of the one that was already held by the operator.
Scott: Interesting. And you’re saying you aren’t seeing a lot of folks kind of doing an interest rate reserve that way?
Dr. Parikh: So, usually, when someone works with us where they partner with the sponsors, they’ll just have the sponsor do it, but this is something that we are holding, so it’s almost double the reserve that a normal property would have because we’re holding our own and the sponsor is holding their own as well.
Scott: Right, so just more security there and a bit more of a conservative approach, right?
Dr. Parikh: Yeah, yeah. Because when you look at multi-family, it has a, even in 2008, default risk was less than 1%. But if there is ever a default risk, it’s always about the debt. The mortgage company doesn’t care what happened to your property, it doesn’t care there’s a fire or a leak on the roof.
Scott: You got to pay.
Dr. Parikh: Every month, you got to pay. So, yeah, we have this in our bank account, we’re just holding it. And it’s just practicing with integrity, giving people as much information as we have and letting them know that we think they’re educated and they’re able to make the right decision.
Scott: Beyond, you know, having this sort of approach and maybe being more, you know, judicious about it, are there other impacts you’re seeing as we look across the landscape, you know, lots of economic upheaval, you know, interest rates as you’d mentioned? Are there other impacts you’re seeing whether it’s on deal flow or the financing side?
Dr. Parikh: Yeah, we’re in a very good place, our business. So, we don’t have any debt. And a lot of people are having difficulty raising money. So, the institutions are kind of on the sidelines because a lot of them have portfolios that are very stock-heavy, right?
So, they potentially lost billions, so they’re… Even though real estate is a great asset class, they can’t invest because they’ve lost so much money. So, because we have, you know, Dr. Sentis and other people, we are able to get into pretty much any deal that we want to right now. So, it’s nice because not only do we get to cherry-pick the sponsors that we work with and the operators, but we’re able to cherry-pick the best of their deals.
So, quick example. Our last deal that closed, we picked a deal because it was a loan assumption, meaning, we picked up the loan that the seller had, which was awesome because the loan had originated, it got started 4 years ago and it was, like, 2.9% fixed at 9 years, which is insane, yeah.
Scott: That is great, yeah.
Dr. Parikh: And then four years of interest only. So, it’s in crazy loan, literally half of what the going rate is right now. And we were able to pick that deal because we have great relationships with sponsors that a lot of people are sitting on the sidelines and we’re able to get a lot of people together and there’s a lot of doctors that are ready to invest.
Scott: Right, right. So, in spite of maybe a lot of capital, you know, drying up and people saying, “Ooh, I don’t know,” you’re saying just because of your pool of investors, I guess there’s a bit of security there. There’s a lot of folks that are still eager to deploy capital into these opportunities.
Dr. Parikh: Yeah. Just a lot of opportunity that we’re able to take advantage of. A deal like this might have been taken up by an institution in the past, but what we’ve also seen… And so we’re actually sitting on the sidelines for a month or two, we think, because purchase prices are going down.
So, as your audience knows, the mortgage payment you pay monthly is determined by two things, the interest rate and the total purchase price, right? So, usually if one goes up, the other goes down to kind of compensate for that. So, as you guys know, mortgage rates have doubled, literally doubled in the past couple months. But I think sellers are being a little stubborn.
They don’t want to… They wish they would’ve sold a couple of months ago. And there has been kind of a haircut of 5% to 10%, but we think we’ll probably see a little bit more 15% to 20% in the fall. So, we’re kind of wait and see and that happens. But the nice thing is the purchase price are going down, but rents are going up. A lot of people are not able to buy a house that they wanted because mortgage rates are going up.
So, they’re going into apartments or maybe they lived in a really nice apartment, class A, you know, downtown, a ton of amenities, and they’re going to a class B, kind of middle of the ground. And that’s the type of investments that we do.
Scott: Right, and I’m so glad you bring up, you know, the market and what’s happening there because I think you’re 100% right. I talked to a lot of folks out there that are looking at deals and a lot of the sellers are in a bit of denial that, you know, “Well, this is not what the price is now.” We are seeing, you know, the signs of cap rate expansion, like, it’s just going to happen.
We’ve had, you know, months and months and really years of cap rate compression across so many different markets. So, you know, it’s things we’re bound to change and I think, you know, staying pat makes sense to me because the writing is on the wall, it seems.
Dr. Parikh: Yeah, definitely. And, you know, you bring up a good point about the cap rate. So, if you’re trying to do a quick screen, like, just it’s super quick, to see if you want to look up more information on this deal, just look at entry cap and exit cap, right? Are they expecting the market to stay the same or get worse? Even over the past couple of years, we always expect the market to get worse.
It hasn’t, but we always put in a ton of cap rate expansion, meaning that people are going to pay less for the same dollar in income. And, you know, finally, we’re right. And we have plenty of buffer to cover that. But over the past couple of years when people have been paying more for the same amount of income, we’ve been doing very well, but, you know, it’s really a good sign of being conservative.
I know that word gets thrown out a lot, but, you know, as a good general rule of thumb, just make sure that the cap rate on exit is higher than entry cap rate. And, you know, that’s the very minimum of looking at a property.
Scott: I mean, I couldn’t agree more. And that is one of those factors that can, you know, be…those assumptions have such a huge impact on what the returns are expected to be. And so as a potential investor, you have to look at that, and what are those assumptions? Why is their exit cap rate what they’re saying it is?
And then that’s where when you get on the phone, you have that conversation, right?
Dr. Parikh: Yeah, yeah, definitely. Definitely. And, you know, it’s small things like this that if you are able to educate yourself just briefly that people will be able to know that you have an idea of what you’re talking about. And, you know, a lot of times when people first take our course, they’re like, “Oh, I don’t know how to find any of these syndications,” but I promise with a little bit of effort, you’ll have way more than you could ever invest in.
So, it’s good to have…
Scott: And opportunities are out there.
Dr. Parikh: Yeah, yeah. So, it’s good to have a quick screening method because you should only be looking deeply at a couple of deals because most of them will be able to get weeded out pretty easily.
Scott: I want to speak to your guys’ specific portfolio I was looking through. And you have a number of funds, you know, and many of them are multi-asset and it looks like they were all multi-asset. Can you, I guess, speak to sort of the differences in some of the funds you’ve done and maybe the different strategies you employ there?
Dr. Parikh: Yeah. So, you know, we have experimented with different types of deals depending on what our investors want. So, our very first deal was a fund of funds where we were a much smaller piece of a larger deal and it was an opportunity for our investors to get into a big deal with sponsor, 30 years of experience, never lost money, never done capital calls.
So, just, you know, a great asset. Our next deal, we went from, you know, a $3 million piece to a $10 million multi-asset fund. So, that was interesting.
Scott: A big jump.
Dr. Parikh: Yeah, I know. I know. The diversification was great. We have a little development in there. We have a fund, so we invested in a fund ourselves. So, cash flow is great. After that, we did a small fund.
It was three assets, but it was co-GP. So, you know, we were part of the GP and the LP, so the large check was like Goldman Sachs and some big insurance companies. But after that, all of our deals have been joint ventures, meaning that instead of another institution, we’re the institution.
So, we bring in 95% to 97% of the capital, basically all the money other than the sponsor’s skin in the game. And we do that because that gives us something called major decision rights. So, we’re able to decide pretty much anything on the property. Of course, we usually don’t. We kind of work hand in hand with the operator, but we feel that gives us an extra level of access and protections in case things go wrong.
So, one quick example.
Scott: Yeah, I was going to ask you if you could extrapolate that because that’s fascinating.
Dr. Parikh: Yeah, yeah, yeah. So, for example, when to sell the property, what property manager to use, what leverage to use. Leverage is something we always want input in, right? Because we want to know how much risk are we taking, right? If you have 100% leverage, your returns are going to look amazing, but you also have a high risk while…
Scott: You have a tremendous amount of risk there, yeah.
Dr. Parikh: Yeah. If you have 50% leverage, the risk is going to go down, but then also your returns are going to go down as well. Right? So, we want to find a healthy mix. But one thing that we do, and this is rare for a group like ours, which are called allocators. So, we don’t do the day-to-day real estate. We have our own asset management team, meaning that we do weekly phone calls with property management.
We are looking through the financials every week. We do in-person visits every quarter minimum. And some of the properties, we go every couple of weeks. And that’s really to make sure that we’re maximizing profit and that the manage the manager, that the sponsor’s doing what they said they will. And some of the operators have had to set that up because they’re like, “We don’t talk to the property managements every week.”
But we’re like, “Yep, that’s what we want.” And this is part of the value that we add to the operators and the sponsors now that we’ve done this for a while. Our asset management team has almost 40 years of experience, so we’ve been around the block. And, you know, no one’s going to care about something as much as we will, right, so our profits. So, it’s really important.
And I think that really sets us apart because most of the other people that raise capital as an allocator, they get into a deal and they do a ton of vetting and all that stuff, and then they trust the operators to really do everything else.
Scott: Right, then they have the sort of hands-off approach.
Dr. Parikh: Yeah, yeah. And we’re very active when it comes to asset management. And, you know, we’ve saved hundreds of thousands of dollars just by finding a small thing because, you know, it’s kind of like medicine. Up to a certain point, having more eyes on a patient, looking at the labs, it’s complex, right? An apartment complex is similar to a patient. There’s a lot of things, a lot of moving parts, a lot of people.
And so having someone else that’s experienced, it’s like having that doctor that’s 60 that’s been around the block and having him in a very kind and caring way looking over your shoulder to help out.
Scott: Have you ever had maybe some difficult conversations with a sponsor where, you know, you guys are seeing something one way and they really are passionate about the other way and you almost have to pull ranks so to speak?
Dr. Parikh: We haven’t yet, but I’m sure we will at some point. But what we have had to do is set up these weekly property management calls and I think one sponsor was talking to them every two weeks or every month. And we said, “No, if it’s every month, it’s too late to find something.” So, for example…
Scott: Right, that month’s already passed
Dr. Parikh: Yeah, sorry?
Scott: I was saying, yeah, that makes sense to me. So, I guess, yeah, speak to that.
Dr. Parikh: Yeah, yeah. So, what is important to us is trends, right? And, obviously, if we talk to them every day, that’d probably be better, but that’s not a good use of anyone’s resources, right? We want them out there doing, right, instead of talking. But every week, we can look at occupancy, we can look at concessions, we can look at what is happening and what the trends are.
How much is getting renovated? And we can really give our assessment… We have a vendor list in most of the areas that we operate in. We have relationships with preferred equity. So, we have all these connections that we can provide. And that’s why it kind of goes back to why people let us cherry-pick the best of their deals because we provide a lot more value than just capital.
Scott: Right, right. I want to talk about markets for a bit here because I was looking through, you know, where many of your assets are located. Not surprising, many in the Sunbelt. There was Texas. I know there’s some Arizona in there. Can you speak to what you like about those markets? And I think there’s sometimes some pushback in the sense of there’s concern like, “Oh, is the Sunbelt, is it overbuilt? Is the party going to be over? Is the gold rush, you know, going to be too much?”
So, I’m just curious to hear your perspective on the markets that you like currently that you’re in and specifically in those Sunbelt areas.
Dr. Parikh: Yeah, Scott, I love that question. I saw this recent YouTube video talking about Tokyo. So if you think of Tokyo, you’re expecting, you know, New York, LA-type rents, but their dollar per square foot is a quarter up to a half of what these other places are. And the reason of that is that it has high-density apartments and the zoning is amazing.
You basically can build residential anywhere. Even if it’s zoned for something else, you could build residential on top of that. And that’s the big issue in the U.S. The zoning rights have not kept up with the population. And even if everything that was going to be built got built right away, we would have hundreds of thousands, if not millions of units that need to get built, especially in the Sunbelt.
So, you know, Phoenix has had, like, a 20% population growth. Over the past year, the rents have increased 24%. There’s a lot of people moving out there. And they just can’t build fast enough. So, we’re pretty confident, at least for the next 5 to 10 years, that it’s going to be okay because people are just not building.
And you hear all this stuff about supply chain, labor, like, that is amplified when it comes to building, right? Because you need a lot of materials to build from scratch, a lot less to renovate, and you need a lot more skill and tools and just the expertise to build from scratch. So, we feel pretty confident in that type of investments that we do.
So, I live in LA. I’m used to paying LA and California taxes, but we focus on low tax and no-tax states. So, Texas, we’ve done Florida, Arizona. Our last one was Oklahoma City. And we try to kind of keep an eye on taxes and state taxes because we find that doctors, especially, don’t want to pay state taxes.
Scott: Right, right, right. And that’s the pushback that some will get if, you know, they’re building in, you know, California, so to speak, or another area where there’s just higher taxes, right? So, you’ve got these current markets. Are there other markets that you’re looking at that maybe you don’t have, you know, a current asset in that you’ve got your eye on or is it just still keeping an eye out on everything as long as you’re in that sort of low-tax or no-tax type area?
Dr. Parikh: Yeah, we’re pretty open. We have been looking at… So, you know, kind of going back to when you were talking about markets. So, we are focused really on primary markets right now because we think if anything’s going to suffer, it’s going to be those secondary and tertiary markets. And we’re kind of seeing a bit softening on rents in those areas.
So, Corpus Christi in Texas was very hot, but now it’s seen a decrease in rents. But Dallas is still hot. Austin is still hot. Phoenix is still hot. But, you know, a little bit outside of Phoenix, maybe not. Orlando is still hot.
So, we’re focused on kind of the bigger cities. And one thing we’re looking at intently is the Carolinas. We don’t know a ton of great operators there yet, but that’s a potential, and then Austin. But a lot of times, we’re priced out of Austin.
Scott: Right, right. And I guess when you speak to, you know, knowing operators, is it just a matter of getting those conversations going and learning a bit more about the market when you’re potentially going into a new area and, I guess, discerning the good operators versus ones that maybe you wouldn’t necessarily want to partner with?
Dr. Parikh: Exactly. It’s, you know, getting to know someone. It’s not just getting connected to them. It’s a full process. And we have a pretty robust vetting system for sponsors. So, it takes a while for us to get to know. And we always meet them in person.
We go to their deals and we shake hands with them, we have lunch with them. And it’s really important for us to get the face-to-face, but really to get to know them, get to know their team. And we just haven’t had a chance to do that with that area yet, but that’s something we’ve had in the back of our minds. But there’s just so many opportunities in the states that we’re already in that we haven’t done it too seriously.
Scott: Right. When you’re vetting a sponsor, I mean, obviously, a track record is so critical, is there anything else that when you kind of have that first meeting or maybe you’re on down the road, you’re chatting, that you’re really looking for to see, to determine, is this something that’s really going to be a fit for us versus something that won’t be a fit?
Dr. Parikh: Yeah. Well, a big one is communication. How difficult are they to get a hold of, right? I should be able to get in touch with them, but, you know, I don’t want to have to call their phone or cell phone. How fast do they get back to emails? I mean, we’re writing checks of $8 million to $15 million, so we should get responded to fairly quickly. I’m not saying you need to get within an hour, but we have a concern.
Scott: It’s okay if it’s Christmas. You don’t necessarily need to.
Dr. Parikh: Yeah. If we have a concern, you know, it should be, I don’t know, 24 hours, 48 max. And so communication style is very important. And, you know, it’s not to say that there’s bad communication styles and good ones. It’s just you should find one that meshes with you, right? Just like your spouse. If you guys both like sitting quiet and you’re happy with that, that’s fine.
But for us, we like overcommunication, so we try to find sponsors that mesh with that.
Scott: Well, and that fits too, I think, with your philosophy with how you treat your investors because you want to be able to pass information onto them, right, and tell them what’s going on. And you need that communication. There’s kind of a chain there, right?
Dr. Parikh: Exactly, exactly. And, you know, a lot of times, investors are asking me, you know, what should I ask? And I tell our investors that, you know, I somehow found an active way to do passive real estate, right? Because there wasn’t a system like this built out, if someone I trusted did this, I’d be happy to just give them my money and forget about it, and that’s the service that we offer. You vet us and then we find you deals and we find you deals all over the place that you don’t even have to go elsewhere.
Scott: Right, that is powerful, absolutely powerful. I guess, you know, I’ve gone through my questions here. I think that the only one that I really didn’t touch on that I am curious, you know, you have all these multi-asset opportunities. What do you like, maybe beyond just pure diversification, about multi-asset versus just a single asset investment?
Because I know there’s, you know, many passive investors are looking and they might say, “Okay, well, this is a single asset opportunity and, well, this one has a lot of them.” What are the pros and cons there for you?
Dr. Parikh: Yeah, I think in the future, at least foreseeable future, we’ll stick to kind of the single assets. And I can tell you that’s because we’re able to do joint ventures, meaning, you know, we have the major decision rights. We could potentially do a joint venture fund, but that would have to be $40 million to $50 million to be able to get, you know, a nice 4 or 5.
I can tell you personally, state taxes is a big one, having a… So, there’s funds that are in 22 states. It kind of sucks. That’s a lot of work. K1s is always a top…
Scott: I mean, like, that’s some K1s right there.
Dr. Parikh: Yeah, yeah. So, state filing K1s kind of suck. And I found that doctors really hate anything that complicates their taxes. And especially for us that are 1099 and S corp and all that stuff, our taxes are pretty complicated and adding a layer of complications to that is pretty annoying.
So, it’s nice having, you know, especially no tax syndications, then you don’t have to worry about that at all, right? Just give your CPA your K1, yeah, you know, that’s it. And then there’s also additional overhead, right? Because you’re managing multiple assets, so you need a bigger team. So, it kind of dampens your returns a tad bit, but like you said, you know, especially in the down market, it is nice to have diversification.
Scott: Right. Pranay, I want to thank you so much for joining me on this show today offering so many great insights and such a compelling story not only for, you know, folks in healthcare or doctors who are looking at passive multi-family investment, but really anybody who is. There’s just so many opportunities there and you’ve clearly found a unique and powerful way to leverage your connections and really help folks find those great deals.
And if they want to find out more and connect with you, where can they do that? Where should they go?
Dr. Parikh: Yeah, so, if they want to connect to me directly, I’m very easy to get hold of, [email protected] That’s my personal email. Feel free to reach out if you have any questions about passive investing in general, happy to help out. Or if you’re a doctor and you want to learn more, just let me know. I’m happy to do that. We created a special landing page for your guests. We’re going to give out some free sponsor-vetting materials.
I also have a video on there. And there’s a link to my calendar. it’s going to be mip.ascentequitygroup.com. I’m sure that’ll be in the show notes, but yeah, we just love the opportunity to talk to your audience and provide as much value as we can.
Scott: Fantastic. And, of course, yes, we will put all of that in our show notes on multifamilyinvestor.com. Pranay, thanks again.
Dr. Parikh: Thank you, Scott.