PRANAY PARIKH 0:00
When I, when I was in med school, you know, I didn’t expect to be some real estate tycoon. But I just wanted to make sure that the hard work I was doing at in medicine paid off, you know, and paid off relatively soon because I was, you know, I’ve been in school for 20 years, right? So, I’ve had enough of that delayed gratification. So, you know, I wanted to see some of the fruits of my labors. And I saw real estate as a good path, you know, and initially, like, it was just a way to make a little money to on the side. And then eventually, I realized that there were so many people that wanted to do the same, but didn’t have the opportunity or the desire to do it. You know, I feel like any doctor could, if they spent the time and effort and went out made the connections, they could do this, you know, they’re all very intelligent, resourceful. But, you know, most people don’t and, you know, that’s kind of the thing in the world. A lot of people want to follow but don’t necessarily want to be the one to start, you know, someone has to do it. You know, honestly, if someone else said it, I would have, you know, I would have just invested in them, but no one else was I had to kind of step up.
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J Darrin Gross 1:29
Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
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Today, my guest is Dr. Pranay Parikh. He’s a medical doctor serial entrepreneur and a podcast host. His unconventional journey to medicine helped him learn the skills to excel in entrepreneurship and real estate. Over the past 16 months, he’s bought over 200 million in real estate and helped hundreds of others invest in real estate without being a landlord. And in just a minute we’re going to speak with Pranay about time management, real estate and entrepreneurship.
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PRANAY PARIKH 3:24
Hey, thanks for the opportunity. Super excited to chat.
J Darrin Gross 3:28
I’m looking forward to our conversation. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.
PRANAY PARIKH 3:36
So I’m a medical doctor still practicing in the US. And you know, when I graduated residency, so became a full fledged doctor, I knew that it was not as important how much I made, but what I did with my money, you know, and I didn’t want to wait, you know, 2030 years put all my money in retirement account to kind of enjoy the fruits of my labor. You know, as doctors have been doing delayed gratification for long enough. So I looked around and saw real estate. So bought my first property four units a year out of residency, and thought I’d just buy one a year, you know, and retire in 10 years. But I the market here in California, Los Angeles, pretty tough. And it took me a while to find my second property. And so I decided, you know, there has to be something better. And that’s when I found passive real estate syndications. And no one was really teaching much at the time. Now there’s some books, the hands off investor, a couple other books, but at the time, there wasn’t that many resources. So we created a course had 1000s of people take it than we thought we were done. You know, we taught everyone how to invest and they can go out and find great deals. But people realize that they still didn’t have the time to do it or maybe they were so too busy at work. And so they said hey, Pranay, you you guys are investing in you You guys are finding, vetting and investing in deals, why don’t you just let us come together? And maybe we’ll get better terms, we’ll find better deals. And that’s how we created a cent equity group. You know, first, we just did a small piece of a very large deal. But over time, we got enough people. And now we can take down hold deals by ourselves.
J Darrin Gross 5:19
Wow. So on that progression? Are you now the GP? Or are you coming in with just larger capital to where you’re able to more partner with a GP.
PRANAY PARIKH 5:30
So we’re in a pretty unique position. So what we do is JV equity. So that means we’ll bring in about 90% of the capital. But because we’re bringing pretty much all of that other than the skin in the game of the sponsored operator, we get major decision, right? So you know, we get decide when we buy, sell the property, even stuff like the name or what color stuff is. But it’s, it’s powerful to have that, because it’s really showing alignment of interests. And so what our, what our company has evolved to do is we do capital raising, we raised the money on one side, but we have actually a full Asset Management Operations team. So we go in and we help the sponsors. And that’s why, because we do both of those, and we don’t just disappear after bringing the money. Sponsors bring us deals that we think are great, like we closed in August of this year, a deal that had a fixed interest of 2.9% for nine years. Yeah, yeah. When everything else takes and now,
J Darrin Gross 6:33
Today, a 2.9%. That’s some
PRANAY PARIKH 6:35
Yeah, well, we’ll talk about risk mitigation, but a lot of risk mitigated right there.
J Darrin Gross 6:40
Wow. Well, that’s, that’s amazing. So I want to back up one second, you, you mentioned something, talking about your path. And you said a 108? I don’t know, I’m not familiar with the use of your physician. And then I thought I heard you say one away. And I didn’t know if there was a code word for that, or
PRANAY PARIKH 6:59
No. So when. So I’m a physician, I still practice. And when I graduated, I really took some time to figure out what to do with my money. Don’t
J Darrin Gross 7:13
the maybe saving went away? Maybe you went away? Maybe did you go away? Maybe that’s what I heard, because oh,
PRANAY PARIKH 7:19
Oh, I went away from active real estate. I said, you know, because the goal was just to buy one property a year, right? And retire in 10 years, right, and start paying them off and then just have, and, you know, 10 properties pretty manageable for a single person. But it wasn’t, it wasn’t, you know, and two, there’s just acquisitions is its own beast, you know, finding properties, working the sellers. That’s its own business. And, you know, we can kind of break down what I do. So commercial real estate, I think it’s really three businesses, its acquisitions, so finding the property, negotiating all that stuff, to asset management, making sure the property is doing what the business plan is, and three capital raising. And it’s really hard to find a company that does all three of them. Well, I find that most want to do to either acquisitions and asset management or just capital raising, and then we do you know, we’re kind of the unicorns that do Asset Management and capital raising.
J Darrin Gross 8:23
Yeah, no, that’s, that’s, that is unique. I’d say that the acquisition capital raising are probably the two that I’m most familiar with people do. Exactly. Just kind of because they, they do go hand in hand. Asset Management, I think is it’s, a lot of times it’s understood in that, but it’s not necessarily I mean, asset management is truly its separate thing. I think a lot of times people, you know, blurred the lines between just operations and property management, but to really manage the property and achieve the goals that you’ve set. Or to meet the investor goals that you’ve, you’ve essentially don’t say promised, but you’ve projected, paying attention, the asset management and how to get there is really kind of where all that happens. And it’s really, really critical that you have that, you know, no
PRANAY PARIKH 9:13
one’s gonna care about the property as much as you, you know, and investors. So, you know, for example, we’re on the phone with property management every week, right? And a lot of times, they’ll be like, oh, yeah, you know, there’ll be super happy that they hit pro forma, right, the rents that they wanted to hit, and we’re like, Okay, so let’s go above pro forma. They don’t necessarily want to do that. Because you’re making the life harder for them, right? If they hit their numbers, they get their bonus and all that stuff. But we’re talking about more like, Okay, let’s see how far we can push this because every small increase in noi ends up being a ton of value on the back end when we sell the property.
J Darrin Gross 9:51
Yeah, and even now, I mean, more. So. The importance of that is going to bear out tenfold based on just the capital markets and interest rates and all that autobackup here second, so you’re a physician. It’s not an easy path, lots of school lots of time. How did you go from, you know, the goal of being a physician to real estate. So, it,
PRANAY PARIKH 10:25
you know, it didn’t. When I, when I was in med school, you know, I didn’t expect to be some real estate tycoon. But I just wanted to make sure that the hard work I was doing at in medicine, paid off, you know, and paid off relatively soon, because I was, you know, I’ve been in school for 20 years, right. So, I’ve had enough of that delayed gratification. So, you know, I wanted to see some of the fruits of my labors. And I saw real estate as a good path, you know, and, initially, like, it was just a way to make a little money to on the side, and then eventually, I realized that there were so many people that wanted to do the same, but didn’t have the opportunity or the desire to do it, you know, I feel like any doctor could, if they spent the time and effort and went out made the connections, they could do this, you know, they’re all very intelligent, resourceful. But, you know, most people don’t, and, you know, that’s kind of the thing in the world, a lot of people want to follow, but don’t necessarily want to be the one to start, you know, someone has to do it, you know, honestly, if someone else said it, I would have, you know, I would have just invested in them, but no one else was, so I had to kind of step up.
J Darrin Gross 11:39
Now I get it, I get it, I, you know, interesting to me, I know, you know, just the the amount of time you put into become a physician through awards, or, you know, most most people look at his, uh, his, the, the income, from the position has kind of the reward. I mean, you know, being a piano specialist, being a doctor, clearly, you know, as revered in the, in the society and community and, and, you know, well paid. I think one of the things that’s been kind of opening for eye opening for me, is recognizing some of the debt, that a lot of a lot of physicians end up, you know, accruing. While they’re, you know, going to school and paying for that. I know, I was talking with one who basically recognized as, like another house payment, in order to pay off his debt. For me, it was just kind of built into his, his, you know, his plan, you know, work, make money, pay off, pay off the debt. And, you know, you mentioned that, you know, if somebody else had had been willing to go forward and do this, I’m kind of curious in, in the physician community, do you find there a lot of people that are asking you about what you’re doing? Or are they kind of, you know, more interested in wrestling with insurance companies to get paid more?
PRANAY PARIKH 13:18
Yeah, well, you know, every day, people are saying, hey, you know, how do I be a general partner? Or how do I raise money for you guys? You know, I think a lot of people see the opportunity, you know, and one take one step back, you know, really the reward in medicine is being able to take care of people, you know, and I think when you can detach that, from the money, right, where you can take care of people for free. That’s, I mean, that’s my goal, like, have, you mentioned, talking to insurance companies, you know, and I know you deal with that. But if I, if I could take care of people not worry about insurance companies, and be able to provide for my family, that would be that would be ideal, you know, and that’s kind of where I want a lot of people to be and help them where, you know, if someone comes in, they can’t pay, you’re like, oh, shoot, that’s fine. You know, I’m still going to take care of you. So and that’s actually how I trained so I trained at a county hospital. We didn’t didn’t care about anyone’s insurance, right? Coming door, we’re going to take care of you, you know, and that, that’s medicine, you know, that’s what I enjoy. That’s, that’s how I think we should take care of people. But you know, the real world is not like that. So we can provide for these physician families. And you’re right, this debt burden is ridiculous. I mean, think about coming out of school and having 345 $100,000. Right. And it’s not, it’s not at a 2% interest rate. It’s at a 7% interest rate, right. So you know, that’s a 35,000 you’re paying and just interest payments per year. Right. So, you know, that’s one of the issues. That’s why you hear that there’s an issue of Problem with finding primary care doctors because primary care doctors make, you know, 150 200,000, which is a lot of money. But if you come out with your debt of 500,000, how long are you going to take to pay off that right? So a lot of these people reasonably go to these high pain specialties cardiology, orthopedics, even though they love primary care, and they love taking care of people, seeing people watching them grow up, it’s just not financially viable. So, you know, our goal is to if we can provide some passive income, income that will help them you know, support themselves in their family, then they can perform medicine for the love, you know, and that’s, you know, I tell people like, do you want to be taken care of the person who’s working three days a week? Who loves their job has time to read stay up to date? Or do you want the person that’s just barely surviving working six days a week, 12 hours a day, you know?
J Darrin Gross 16:01
Yeah. Sad, sad reality of things. I think it is perplexing, and, and you know, just how it’s become such a money thing. I think that’s really the the, you know, boggles the mind on how one can incur so much debt, to get the education. And then, you know, the Forever pay back program to, you know, what, what’s, you know, like you said, Really, the ultimate goal is to be able to care for people. But I think that, you know, what gets blurred a lot of times is the money. And I still question how insurance companies have made health care better, and I don’t know, that’s the case. But but other topics, another conversation,
PRANAY PARIKH 16:47
you get a lot, a lot of money. And I can tell you, it’s not us, you know, when we do it, we’re not, you know, there’s very few doctors out there and Ferraris, and, you know, Rolls Royces. And even like the high end Mercedes, you know, I drive a Honda. So,
J Darrin Gross 17:03
well, I’m just always amused by you get the statement from the, you know, physicians talking about, hey, this is the bill and it’s, you know, 1000s of dollars and says we’ve applied to your insurance company for or kind of payment. And then you get the statement from the insurance company, and they say, this is not a bill, you were billed, you know, $3,000, or whatever it was, and we settled it for $89. And you’re nothing. So, anyway, how did you do that? And I think a lot of people in myself, I’m like, well, shoot, it was only $89, you know, whatever, that I could have paid that. Insurance to, you just helped inflate the cost and, and, you know, you work the physician down to a, you know, a prize winner. But anyway, that’s always been an equation, I have not understood how, how it’s gotten to be what it is, but, but we’re getting off track here. But so, you, you know, you’re trained as a physician, you look, you find real estate as an opportunity, you know, essentially financial freedom. So what I’m hearing you say is, you know, not being, you know, obligated to, you know, charge or like we said, Russell with insurance companies to determine the level of care you can provide for somebody. But you also, you know, sound like you have an entrepreneurial spirit in you. Are there other things, you’re doing entrepreneurial? Or is it you related to real estate? Or?
PRANAY PARIKH 18:38
Yeah, so, you know, we have the real estate company, we have a podcast, from MD to entrepreneur kind of Chronicles, my journey. And my partner, created a company called passive income MD, which is kind of an education media company. So you know, I help him with that. And, you know, just try to see, you know, a lot of times, and this is what I’ve realized, you know, the people, the serial entrepreneurs, Mark Cuban, all these other people, you know, a lot of times we’ll walk by, and we’ll be like, Oh, hey, here’s a problem. And then you think someone should do something about it, you know, but it’s the other people the entrepreneurs are like, Hmm, is this a viable business? Can I make money doing this? Right? Is there enough demand and you go and start it and you know, 90% chance of it failing but you only need one to really blow up and it’ll change your life forever?
J Darrin Gross 19:33
Yeah. Well, in just you know, being aware of that and and looking for those opportunities as opposed to just having to have your head down to the grindstone, you know, kind of thing I think that’s, that’s really a level of freedom that I don’t think most people are able to achieve. Just based on need, you know, there’s like a, if you’re working for the man, and you only get paid when Your work, you know, you gotta go to work. And the job is a job as a job, whether you’re, you know, going to Starbucks or or selling insurance or, you know, taking care of other people as a visit physician, if you’re not able to have a path that the that provides for you outside of that, that job that you’re so dependent on for your existence. It can be a, it can be very limiting mentors, you know, where do you find the time to look outside of that? So, let me ask you, I mean, based on all of your you know, all of the activities, you’re involved in health care, real estate. Sounds like you do some consulting, you get your podcast. What is it? I mean, time management is a piece of that. Do you are you? Do you have a routine? Do you? Do you selectively? I mean, do you say no more than you say? Yes. How was it? You manage that? And do you work with others on on that type of? Problem? Or
PRANAY PARIKH 21:25
it depends on where you are in your career. You know, so five years ago, when I was just starting to say yes to everything, everything, you know, and I think that’s the right way to go. You know, and over time, you can start saying no to stuff. You know, I still say no, still say, Yes, we’re gonna watch anyone’s podcast, I’ll jump on 20 episodes, you know, 30 episodes? Yeah, you know, I’m happy to help. Because I was offered help in the beginning. Right. But I think there’s a couple of things and you know, you hear about these often. And you’re like, yeah, yeah, yeah. Try them out. Right. So time blocking, this is something that I am starting to do. I don’t do that much. But I was doing and I was doing podcasts every day, you know, it’s, we spend so much time switching between tasks, and then I just record on one day, you know, and people will ask me to be on my podcast, and I’ll be like, Yeah, sure. I think it’s going in March. But that’s what happens, because I only record one day, you know, and then you can have other days. So you know, you have a full schedule. And remember to schedule time for family, you know, I put it on the calendar. It sounds kind of lame, but you know, if it’s on your calendar, it’s going to happen. Right? And so there’s, there’s time blocking. And you know, Derek Severs says, when you’re looking at something, it has to be either hell yes. Or hell no, you know, or no. So, look at, especially when you’re kind of mid to late career and entrepreneurship, like, do you really want to do this? Because it’s easy to say, yes, you know, and we all have that thing. We’re like, ah, still have to be on this podcast. Or, for me, it’s more travel, you know, I have a young son and another on the way it’s like having to leave them for a couple of days. sounds horrible. You know, traveling, I get sick. And so it’s easy to say yes. Now, but think about in the future like so, you know, an easy way to think about that. If this was tomorrow, would I say yes, if I was free? And they said, Hey, this is tomorrow, would you go? You know, and that takes some of that recency bias or future bias away? So time blocking Hell, yes or no. And then I just tried to really take some time and look at what your priorities are. Right? And not just money, but family time, right. And we do this for business, but I don’t think we necessarily do this for ourselves. And so what do you really want, you know, and a lot of times and you know, it’s a little woowoo with like, the manifestation stuff, but, you know, the quick story on that I had cooked some chicken last night at like, 9pm. And I heard the beep and I completely forgot about it. Woke up in the middle of night for 4am. I was like, oh, shoot, I gotta go put the chicken away. You know. And I think our subconscious mind works on that. Like, we have stuff that our brain is processing, and things that we want our subconscious is trying to figure out how to happen. I don’t know why it took six hours for my subconscious to remind me about the chicken. But it did you know, and a lot of times you get that epiphany, right where you’re like, Oh, this is how I solve this problem. So sit down, think about what you want and let your subconscious do his thing. You know, you have all the skills, and you’ll be surprised. And then a corollary to that is one You forgot what you want, start telling people, you know, we, we were looking for a very specific hire. And I told my partner, I was like, Hey, you start talking to people, literally in the next half an hour, he talked to someone, and that person was like, I have the perfect person for you. And we ended up hiring her. And it’s just, you know, figure out what you want, let your subconscious work and tell other people because they want to help you, they want to see you succeed.
J Darrin Gross 25:26
No, I hear that. And I know that, and I think the the challenge sometimes is, is doing it on regular basis. So that you do, you know, achieve the things you’re you’re you’re trying to achieve, I think it’s one thing to get all excited about something, you know, this is great, I’m gonna do it. And, you know, you start off and it’s like, the New Year’s resolution, I’m gonna go to the gym every day, you know. And, you know, about week two, it’s also high, I get it, you know, it’s easy to say no, to the thing that you want, you know, that you’ve identified and next thing, you know, you’re, you’re back to where you started. And, and you’re not getting the results you wanted? You know, it’s no secret as to why you’re not doing the work. Right.
PRANAY PARIKH 26:15
You know, one, one trick I’ve found against that, and I’ve been using this recently, you know, so a lot of people have heard the Seinfeld, you know, closed chain, kind of where you have a calendar and you X off and you, you know, you don’t want to break the chain of axis. That is that works great for some people, but I found it to be too, too strict for me. So I, I heard this rule about to you, You never let two days go without doing what you said you were gonna do. So for let’s take working out, for example, you know, I’m super tired, not going to work out today. Okay, not a big deal. I’m not going to beat myself up about it. But tomorrow, the rule is I just can’t go two days, you know, and that gives yourself a break, right? One day. And you’re like, and make it a rule. So you know, I don’t eat. I don’t eat past 7pm. You know, and that’s a rule because there’s nothing healthy, you can eat past 7pm. You know, it’s like, you go to dessert, and people bring fast food. And it’s just a rule. And once you have a rule, and it’s a rule, it’s not, oh, I’m trying to lose weight, it’s no, I have this rule. And I always do this, you know, I heard this other rule, like, I’ll need dessert, if it’s like super fancy. So it has to be from like a, you know, Michelin star restaurant, otherwise, he doesn’t eat dessert. And it’s not because he’s Gucci. But it’s because he’s trying to avoid 95% of the, you know, the bad stuff. And that rule just works. So, try to come up with a rule that fits you, you know, and most of the rules are very draconian, that’s why I like the two day rule. Because it gives yourself a break, you know, like, you’re exhausted, you deserve a day off, right? That’s fine. Don’t take two days off, and that I find works really well for me.
J Darrin Gross 28:09
No, that’s, that’s awesome. I appreciate that. Because it’s, I think the, I’m a routine person, if it’s something that I get in the routine, and it’s a good routine, it’s just my MO I’m like, uh, you know, time of the day and clock on or the calendar, you know, that’s, that’s his time in that routine, could be on a monthly basis, weekly basis, daily basis, however, but it’s just something that kind of, it’s helpful to have a routine and, and, you know, I know that some days are better than others. You know, sometimes as you’re going through the motions kind of thing could be, you’re just not feeling well, or whatever, but, but, you know, I think having that routine, because I think one of the things I’ve come to realize is that, in order to really get somewhere, you’ve got to be consistent, you know about it. And if, if on one day, I you know, do it all and like said, if you’re, you know, letting multiple days go by, and then I’m gonna do it all. And you don’t have any consistency there. So any kind of gains you may have, that you may have created on day one are lost by the time you get back to it again. Whereas if you go to steady, there’s just this incremental improvement, you know, and, and, you know, I think that’s, that’s one of things, it’s really hard to see that on the front end, the importance of that. I know, like, I had an injury in back in college and, and, you know, knew what I was supposed to do, but rarely did I do it until finally I got older and it became an issue. And then I started doing the exercise that I was prescribed back, you know, when the injury occurred. And when I do that every day, and it’s not a big time. You know, Ragu doesn’t work. Quite a lot of time doesn’t require a lot of space, I don’t have to go anywhere to do it, I can do it right where I am. But if I do that every day, the outcome is that all of the the negatives that I was facing for not doing that are gone. And, you know, it’s just, it’s amazing to me how simple something like that is, but but, you know, again, it’s, it’s the benefits of doing the work. Even though it’s it’s a little bit of work, but it pays off big dividends. And so, I like that, that the two day rule thing that that makes a lot of sense to me. Because you know, you do have the days when you’re traveling or, or, you know, you’ve got family commitments or something that can take you out of your, your deal there.
PRANAY PARIKH 30:46
Something for something like that, you know, that’s stretching or whatever. One, one trick that I have seen is attach it to something you’re already doing. You know, for me, it was putting on sunscreen, I’d always forget, you know, brown. So sunscreen wouldn’t be the first thing that came to mind. But it’s important, you know, and people of all colors still get skin cancer, right, and aging and all that stuff. So you know, find something that you’re already doing and attach it. So for me, it was brushing my teeth, right, I always brush my teeth, in the morning and at nighttime. So in the morning, put the sunscreen right there. So as soon as I brush my teeth, I put the sunscreen and you know, after a couple of weeks of doing that, I think most say about 21 days, then it becomes a ritual in itself. So, you know, a lot of people will do stretching in the morning. So you know, brush your teeth stretch, you know, or everyone goes to the bathroom first thing in the morning, so you know, attach it to something like that. Or taking medications, right? A lot of people forget to take medication, so attach it to, you know, going to the bathroom in the morning or brushing your teeth.
J Darrin Gross 31:55
Now, no, I definitely haven’t. I mean the Makita needs I guess kind of the you know, the sociation errs are already doing this, you know to answer that, that’s really easy. Hey, I want to talk to you a little bit more about the real estate and the syndications and stuff. So you mentioned the three things acquisition, asset management, and capital cabarets. And yeah. So in what you’re doing is you’re basically you’re raising the capital, and then your your JV and with with the general partner on these. Tell me about some of the properties and because you mentioned that, you know, you’re being approached as a source of capital, it sounds like because you’ve identified a big become recognized as a, as a potential partner and these things, tell me a little bit more about some of the properties that you guys are in and and some of the, you know, the the people that are investing, are these physicians that are investing with you, or where are you guys raising capital? Tell me a little bit more about that.
PRANAY PARIKH 33:08
So we have a pretty narrow lane, we do value add multifamily. So we’ve we identify properties where we know we can go in and we can renovate, we can increase rents, and you know, sell for a premium. So that’s kind of our lane, we buy properties in low tax to know tax states don’t Florida, we’ve done Texas, Arizona, Oklahoma, and our investors are all accredited investors. So you know, they have to make more than $200,000 per year for two years, or 300 as a couple, or have a net worth over a million dollars or less. See, there’s a couple of tests, you can pass the series seven series 65 A good portion of them are doctors, because that’s our kind of our audience, but we have a lot of dentists, lawyers, pharmacists, and you know, engineers, people of all types, but our story kind of resonates with doctors. So, you know, they, they like to get into our deals.
J Darrin Gross 34:08
Got it? Is there any kind of a minimum investment that you you seeking? Are you doing a fund or is it your is it
PRANAY PARIKH 34:19
individual deals, individual individual deals, and we try to try to keep our minimum very reasonable. So it’s somewhere between 35 to 50,000 per deal, because, you know, there’s people of all different types, and we want it to be pretty accessible.
J Darrin Gross 34:34
Got it. And you mentioned the various states there that the tax friendly. How many deals have you gotten fullcycle on?
PRANAY PARIKH 34:45
So we’re two years old. So we haven’t had any full cycles yet. We’ve done eight deals. We bought over a quarter billion in real estate. We’re hoping to get a couple of early ones, but the economy change so We will probably have our first exit either next year or 2024.
J Darrin Gross 35:05
And as far as the returns, are you hitting the projections that were were presented in the beginning?
PRANAY PARIKH 35:17
We are. So we are hitting all our pro forma, right. So the types of brands, you know, we plan on going in renovating, increasing rents and all that stuff. The interest rates have gone up, as you’ve heard. So the real estate markets a lot different than what we expect. So, you know, fortunately, we have, you know, the loan and all that stuff is long enough that we expect to hit what we projected and maybe even better, but it’s going to take a year or two, with interest rates.
J Darrin Gross 35:51
Yeah, no, that much time or somebody else just about the hope that the rents increase enough to, you know, outpace the interest rate and flexion and stuff. And, and, you know, I think that what’s interesting is how interest rates affect the market so dramatically. In that, and I don’t know, it’s kind of more of a, a reset, as we’re going from one point to the other point. Is that in between area that’s hard to figure out, I mean, our interest rates, is this where they’re going to be or they’re going to go higher, you know, is this Have we reached the the top is, uh, you know, because I think what that does is it, it throws off any development, any additional supply, which, you know, if you’re an investor and you’re holding something, having no more development, in the pipe, maybe is a good thing, because it doesn’t dilute your investment, because it hopefully the demand is still there and is growing. So, and then I suppose, as things kind of level out once that, that new equilibrium is understood, and the market can say, Okay, here’s, we can go forward from here, and build again, and, and, you know, great, more supply, but the demand hopefully, you know, stays, stays strong behind that. So it is an interesting time, and just kind of the, as we go from where we were to where we’re going, just kind of the, you know, are we there yet, kind of thing is, is the challenge we’re all facing. So we’ve got the the entrepreneurship, we’ve got the time management, we’ve got the real estate, what do you have any new deals in the pipeline that you’re looking at, or, you know, talked about not,
PRANAY PARIKH 37:54
we were looking at a couple, they’re pretty early to talk about, but what is happening is a lot of REITs Real Estate Investment Trusts, or other institutional people are having to rebalance their portfolio. And you know, they’re worth billions, so they’re willing to take a haircut of 10 20%. So there’s going to be a lot of assets that we’re going to be able to get at a, you know, big discount. So there’s two of them, that we’re looking at fairly large discounts, and we’re pretty excited about that.
J Darrin Gross 38:31
Now, that’s a that’s an interesting point. You know, I think a lot of times people forget, you know, the requirements of the law, not necessarily requirements, but just the business model, and kind of, it could be their their loans are coming due, and they’re gonna have to refinance if they, you know, keep the loan or, or, you know, maybe their original investment plan was to exit on a certain timeline for their and, and capitals, II or whatever. I mean, there’s still an exit that they need to they need to act on. And I would think being situated like you are with the capital stack and being able to go into syndications provide you an opportunity to take advantage of some of these deals where others have to exit. And that’s good. Are you seeing Is it is it based on just the the the sellers need to exit the property? Or is it or is there a kind of what what is it because I just, you know, as we’ve talked about the interest rates and stuff and the uncertainty in the market, it seems like either there would be fewer sellers because it’s like, they don’t want to sell at a reduced price. You know, if you just if you didn’t have to sell right.
PRANAY PARIKH 39:54
Yeah, so it’s distressed. So it’s people that have to sell so maybe this is the They have a fund. And they are, you know, they’ve been killing it for the past couple years, and maybe they own one or two more assets, and they’re willing to take a haircut or a loss on those to close off their fund. Because remember, as a real estate person, you get paid at the end, you know, you get paid when you have a successful closing. Or, say you’re a big Goldman Sachs or you’re a big company, and you, your investors, your paperwork, your legal structure requires you to have a certain asset portfolio, right, you’re a hedge fund. And because the stock markets down 25%, you’re over allocated, and it’s a real estate, you know, so and your bond market, so your stocks and bonds are down 25% over. So it looks like this, right? You have way more real estate, so then you have to get out of your real estate to, to balance that out. And that’s your charter, that you know, that’s a legal requirement for you to have to do. So now people are trying to figure out how do I get out of this? This real estate because they have too, right? They they’re not allowed to have that portfolio that’s out of balance for too long.
J Darrin Gross 41:14
To that you mentioned the one you got here a little while back with the 2.9% interest for for nine years going forward? Are you finding opportunities to take over the the debt obligation? Or are you
PRANAY PARIKH 41:27
so we are and you’re exactly correct. It was a loan assumption. So how do you get a loan in 2.9%? For nine years, it was created three years ago, right? So you assume the loan, you go in and you pick it up? And we are seeing that? And that is a premium right now? Were you able to take the loan that was originated or started a couple years ago, or even six months ago? That’s ideal right before interest rates or 567 percent. So that is something we’re looking at, we actually did two of them already this year, to loan assumptions. And we’re hoping to do a couple more.
J Darrin Gross 42:07
No, that’s great. I am thinking is that kind of more of your what you guys see is the opportunity as opposed to originating in a new loan?
PRANAY PARIKH 42:15
Yeah, definitely, definitely. Because people are, our rates right now are, you know, you can potentially get a fixed loan for high fives if not low sixes, a few can even get something in the fours are probably it’s it’d be hard to get a three but in a high, low fours that that would be, you know, killer.
J Darrin Gross 42:38
And when you when you’re able to get a property with the existing financing in place, is the the asset sale price, then is that prevented from being discounted substantially, or you heard me know who that is?
PRANAY PARIKH 42:54
It’s actually the opposite. So because the reason that loan assumptions actually normally aren’t very attractive, because there’s a prepayment penalty. So the seller wants to sell, but they’d have to pay a couple million dollars to get out of this loan. Because if you think about if you’re giving out a loan, right, if I give you $10, you underwrote me, you spend all this effort all this time you looked at the property, and tomorrow, I’ll give you $11 You’re gonna be like, What the heck, I was expecting, you know, $1 a year for the next 10 years. Right? Give me those $11 of interest that you want it right. And over time that prepayment penalty gets goes down. So they because what are they going to have to do take that money and put it out again, and that includes that involves a lot of risk, right for the same amount of money they already go to gotten. So as long as you’re able to qualify for the loan assumption, it’s a win for the seller, and a lot of times you will actually get a discount. So we got a $5 million discount on a loan assumption we did earlier this year, because we would have had to pay a prepayment penalty of $5 million.
J Darrin Gross 44:06
Wow. When when for the good guys, right?
PRANAY PARIKH 44:09
So that’s good. Now now that’s looking great. Because if interest rates go up, that prepayment penalty goes down, because, you know, the bank wants to take that money and give it out to someone else at a much higher interest rate.
J Darrin Gross 44:23
Yeah, now the bank’s calling you Hey, really? Yeah, exactly. Exactly. Yeah, well, you know, those counter loan No, no penalty. Yeah. Yeah, it’s funny how that works. That is interesting. And really thought through the both sides of that, but definitely I could see now the next call is coming from the bank. offer no point where your your penalty. So the the play then is basically the the existing loan. I mean, at least that’s that’s really where the the opportunity is. In a lot of these these opportunities. That’s, that’s, that’s really cool. I mean, kind of the creative, creative financing there. Calm.
Hey, Pranay, if we could, I’d like to shift gears for a second. My dad, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with the risk. There’s three strategies we typically look at, we first look to see if there’s a way we can avoid the risk. When that’s not an option, we look to see if there’s a way we can minimize the risk. And when we cannot avoid or minimize the risk, we look to see if there’s a way we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests, if they can look at their own situation could be their clients, investors, the market, political interest rates, whatever you see as the biggest risk, but identify it. And, you know, let us know what you think is the biggest risk and what you’re gonna do about it. And again, for for clarification, while I’m I’m an insurance broker, I’m not necessarily looking for an insurance related answer. But yeah, if you’re willing, I’d like to ask you, Pranay Parikh, what is the biggest risk?
PRANAY PARIKH 46:20
So for commercial real estate, it’s always debt, right? I mean, if you think about it, that’s your biggest obligation every month, right? Every month doesn’t matter. If there’s a fire, there’s a tornado, you have to pay the lender, right? Otherwise, they take the property back. So you can get that risk to zero by paying all cash. And that’s possible, but you’re gonna get a couple percent return. So you got to figure out where in the risk spectrum Am I comfortable, you know, and we, our last deal was about 60%. So we put a downpayment of about 40%, which you know, you and I would put down about 20% for our house, so this is much higher, but what that does is it decreases your loan payments, so your obligation is a lot less, right, you can get fixed debt, or adjustable debt, you know, within adjustable debt, you can get up by a rate cap means you pay money upfront, almost like points, so that the interest rate won’t go above a certain amount. And you could do that for two years, you can do that three years. So you could make that very tight. So you know, that you have an interest rate of three, and it can only go up to four, or you can get looser, where you get have started off at three and it could go up to six. So there’s a lot of ways to try to, to, one, get rid of it pay cash, pay as much cash as you can to, to mitigate it right? Doing a fixed interest rate. So the rate, the risk of interest rates going up is on someone else. Or you can transfer it to someone else by buying a rate cap where if it goes above a certain amount, someone else is going to pay that interest. So I think debt is super important. In 2008 multifamily commercial real estate actually did okay. But the people that did have problems were the ones that had bad debt, or they had debt that was coming due, and they couldn’t refinance or get out of it. I think we’ve learned a lot of lessons. And I don’t think that’s going to happen again. The debt markets are a lot better. 2008 was just we, we didn’t know what to expect, you know, and it was an issue with the debt because the debt was the biggest issue. No one else was giving out debt. Now we have supply chain war, all this other stuff, but it’s not the debt markets that are having issues. So if you’re looking at your own properties, if you’re looking for an investment, really dial in focus on the debt and ask them about it like what what about this, do you think is going to minimize our risk of the bank taking the property back?
J Darrin Gross 48:56
No, very, very true, especially in today’s changing interest rate environment. That’s, that’s great. Hey, Pranay, where can listeners go if they’d like to learn more or connect with you?
PRANAY PARIKH 49:12
So the our website you can sign up for our newsletter where we send out new deals is AscentEquityGroup.com. My podcast is From MD to Entrepreneur Podcast. It’s on Apple, Spotify, Google podcasts, I talk all about entrepreneurship and interview guests that are experts in their fields.
J Darrin Gross 49:38
Awesome. Well, Pranay, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed it. Learned a lot. And look forward to doing it again soon.
PRANAY PARIKH 49:48
Awesome. Thank you so much. All right.
J Darrin Gross 49:51
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