WS245: Multifamily Syndication with Venkat Avasarala

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Having a day job and getting a syndication business going at the same time is two full-time jobs. You’ve got to be willing to jump in and balance everything to make it happen. Venkat Avasarala, the Founder of Raven Multifamily and a corporate IT, shares how he’s been able to juggle two full-time jobs and make it work. Venkat worked fourteen years in corporate IT and transitioned to multifamily syndication in 2016. As he gives us a glimpse of how he was able to pursue syndication while maintaining a day job, he points out the importance of learning from different groups, building relationships with your investors, and growing organically.

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Multifamily Syndication with Venkat Avasarala

Our guest is Venkat Avasarala. Thanks for being here, Venkat.

Thanks for having me.

It’s my pleasure. I was looking right into your bio and it’s obvious you’re going to be a great guest. You’ve got tons of experience in this business in IT. You’ve worked fourteen years in corporate IT and transitioned to multifamily syndication in 2016. I can’t wait to hear about that as well. He founded Raven Multifamily in the Dallas, Fort Worth area with his business partner, Ramana Korada. Venkat has syndicated ten multifamily deals with 2,400 units in DFW and Phoenix markets. He even sold three of these properties with complete full cycles on them. Venkat, give the readers a little bit more about who you are and then we’ll start then.

I started out in the United States. I was born in India, so I came here at the age of 22. I went to the University of Alabama and got my Master’s degree in Electrical Engineering. I couldn’t land a job in electrical engineering, so I settled for IT. I worked for companies like ADP, T-Mobile, Pepsi Co. My last employment was with the Bank of America. I was with them for six years. For fourteen years, I worked in corporate IT. July 16th, 2018 was when I resigned from my IT job and started doing this full-time. I did start my real estate career back in 2007 with single-family homes. I bought about twenty single-family homes, all with my own money, over a period of three, four years. I still have about half of them and I’m the process of selling them as the tenants move out because my focus is 110% on multifamily. I’m no longer on single-family. I started single-families in 2007 all the way into 2015. 2016 was when I started multifamily. I am doing this all alongside my day job. 2016 is when I syndicated my first property along with my business partner, Ramana, and after that we did nine more. It finally brought us where we are now.

You were still working full-time when you started the multifamily.

Yes, I did. It was like working two jobs. After the 9 to 5, you’ve got to go come home and work from 8 to 2 or something like that. I have killed myself and the same thing with my partner. He was in IT too. We walked away from our jobs around the same time but we enslaved us. It was a lot of grind. It was not easy at all, but it was completely worth it. I will do it all over again if I have to.

[bctt tweet=”Be clear and be very specific about anything you want in life.” via=”no”]

I think a lot of readers can relate to that. I know I can. Having a day job and getting a syndication business going at the same time, it is two full-time jobs and you’ve got to be willing to jump in and just make it happen, whatever it takes. Take us back a little bit. You already had twenty single-family homes. What changed your mind about that? What was it to go from single-family now to just jump into multifamily?

Before the recession, there was no limit on the number of Fannie Mae loans they give out. It was infinite. After a session they said, “Only four per investor,” and then they raised it to ten and they left it there. I took full advantage of doing ten on my name and ten on my spouse’s name, so we hit the twenty ceiling. At which point in order to get the 21st loan, we have to sell one of them. We had to pay off one of these loans to get the lump. It just didn’t make any sense to scale from there. I never figured that I’d be able to do syndication and raise money and all that. I just didn’t trust myself enough, so that’s why we went the single-family route. It was just not enough. The twenty single-family properties, after PITI and maintenance was netting me about on average $400 per month per property. That’s $8,000. It’s not less or anything, but still I wanted more. It’s not something that would give me comfort to walk away from my day job.

I started looking at what else I can do. I looked everywhere. I looked at 7-Elevens, I looked at laundromats, I looked at everything but everything points like I’m buying myself out of the job, which is what I’m trying to get away from. Finally, I came back to real estate and then went into apartments because I figured that there would be much more. They will weather much more because you cannot get away from the experience we all went through in the 2008 great recession. It’s always on everybody’s mind, not just mine. Whatever we want to do, how will we fare during the next recession? I looked into the strip malls, hotels and things like that and finally landed on apartments because I figured that the weather well during the recession.

I appreciate you explaining that. I know a lot of people I’ve transitioned from seeing a family, they’ve gone through those steps. Tell me how did you know when it was time to leave your day job? I know a lot of readers can relate to that as well. You’re doing two full-time jobs. When was it like, “I know I can make this happen over here?”

I was doing very well doing both of them but on my day job side, there was a reorg and I accepted a different position. As soon as I joined the next position, it was very exciting. It was something brand new. That’s what we look for. Otherwise it becomes like a big chore if we just show up for the job every day. I was managing a huge team, I got processes in place, everything was going well and the reorg happened. I accept another job with the Bank of America. I quickly realized that this job, in order for me to do well, like deserve to be done, 40 hours is not enough, at least for the immediate future. Next three, four, five, six months, I got to spend more weekends and all that or whatever. That I put again, do the same thing all over again, my day job, which I don’t have. My weekends and my evenings are not mine anymore because I gave it to multifamily. I’ve got to take care of this. A lot of investors give me so much of their money. They trusted me and I cannot just give that time back to my day job. When I figured that I could not do that, I quickly made an assessment of how was my cashflow situation. I was doing fine. I figured I should have walked out with six months before or a year before. When I figured that on the cashflow side there wouldn’t be an issue, it was a very easy decision because that was the plan anyway. I might as well just go ahead and do it.

Tell me about your first syndication.

RES 245 | Multifamily Syndication — Multifamily Syndication: This is not a business where you can make a mistake and live to tell the tale more often than not.

The first indication was a 100-unit deal in Norman, Oklahoma. It was a small deal. Ramana and I were in that and we have another partner as well. We joined an investment club because I really believe in education. Not just university education, but this is not a business where you can make a mistake and live to tell the tale more often than not. Single-family, let’s say you pay $300,000 for a $250,000 house, it’s okay. You’re not going to lose your shirt. That’s fine. It just fixes itself. If you try to do a similar thing in multifamily, it’s going to be really tricky because it’s not even all your money. There’s a lot of responsibility on your shoulders. I figured that I’ve got to get some education. I joined an investment group, learned everything about multifamily and networked with so many people. What happens is when you’re in these groups, you get to hear so many stories from different people and learn from their mistakes collectively so that you don’t have to make all those mistakes in the book. That really helped me and gave me the confidence to make the first level. It was a 100-unit deal.

The raise was very small. I believe it’s $1.2 million. It gives an immense boost that we could raise money. As soon as we went into the deal, it was in Oklahoma and that’s in 2016. There was a nice college town and all that, but we really got into a quick trouble there with the occupancy and the quality of the tenants. What happened in that particular deal was we bought this right off the main street on Norman, Oklahoma and Panera Bread was there. It tells me that there’s some discretionary income there. The household median income in the one-mile radius is about $55,000. It’s as good as it gets for B and C kind product that we usually deal with. What happened is the oil can tank and Oklahoma, no matter what I would say, I still believe that it has a big reliance on oil. When oil tanked, it went to $40 or $30, there were a lot of job losses and I could feel it. What happened is all the A and B-classes properties, they dropped there significantly and owning a C-class, I quickly find myself competing with a B, a 1990 property, a 1998 property.

I figured that it was tough, but we still turned a good profit for our investors. We give them an overall 35% rate of return on their money in two years. It’s around 17.5% annualized. It was tough. We learned a lot. What happens is when the going gets tough, it puts you and your property management company talking to each other a lot more and try to brainstorm, figure out, try something if it doesn’t work quickly. Pivot from there and try to get it. It expedited my learning quite a bit. That small 100-unit property, I learned so much from that property than my 300, 400-unit properties because that was our first property in a challenging market.

Going into that deal, you didn’t see the oil tanking. You didn’t know that was going to happen or how that was going to affect your property. Looking back, how do you guard against something like that from happening in the future?

This is a valuable lesson I learned. There are a lot of markets where there is a feast or famine situation. Let’s say you look at Florida, you look at Las Vegas, you look at Phoenix. These are the top three hottest markets right now if you want to look at rent growth and all that. Coincidentally, these are the three markets which got crushed in the last 2008 recession. That makes me think that if you want to own something for five years, five years is a long time. A lot can happen in these five years. We can only look back at what happened in the last 50, 60 years in that metro. That’s why I’m attached to DFW not just because I live here, but because if you look at the stability ratio that the feds put out, the Bureau of Labor published this information, they look at the past performance, how the metropolis as itself did with the current employment, past unemployment and the stability is really important. That’s why the big thing that I learned is to invest in stable markets. We don’t want feast and famine markets. I still like Phoenix. We bought a property, we did really well but it’s just that you have to be extra careful with the markets which go up and down quite a bit than boring markets like Dallas.

It makes so much sense. It’s like the shiny object syndrome almost. It looks so good and it may be really good for a while, but then just take a dip and it hurts you a lot worse than if you were in a different market that maybe doesn’t seem as hard at the time, however stable. When you’re looking at markets now or maybe a market that you’re investing in now where you’re analyzing their market specifically and saying, “I feel very comfortable that this market’s going to say stable through the five-year,” or whatever your business plan is until exit.

[bctt tweet=”The easy way is not always the right way.” via=”no”]

We only have 24 hours in the day. There’s only so much. I don’t believe in being a Jack of all arts. I want to be an expert in a few markets. Dallas is different. We know Phoenix. Me and my partner are trying to learn more about the Atlanta market and a couple of markets in Florida. That’s it. There are so many other great places. Denver is a great place. Nashville, Tennessee is a great place. Charlotte is a great place. South Carolina has some few good markets. We don’t want to dilute what we can do in these markets. What we look for is definitely the market and that we don’t want this reliance on this one big source of employment. I heard the same thing about Houston. Houston has the story of reliance on oil. I keep hearing that they’re being diversified everywhere and all that. Being gotten into this hardcore situation with Norman, going into Oklahoma, now we’re really careful. We look at the diversity of the employment rate because employment is everything for us. We zero in on the locations.

Location is a deal breaker for us. It’s that one-mile household income. If it’s $1,000 income, $1,000 rent, if the performer is $1,000, usually property management companies go with two and half times the rent. We underwrite as if we are going to require income three times their income. People have to make $3,000 gross income times twelve, 36. Anything below 36, it’s not going to start. We don’t want to go into the D space like seizing where we want to stop. $1,000 is a good rent. It’s a good market to be in. That’s the thing. The higher, the better. We are doing a deal in Fort Worth, it’s called a Zander. The rents are about $980 on the performer end, but the income is $55,000. There’s so much room there for me to grow the rents. I don’t know if I’m putting a twelve-year debt on it. I’m underwriting as if I’ll own it for three to five years. Even if I want to own it all twelve years, it should still work if you have that margin between the rents in the median income. These are the two. The market, once we zero in on the market, the next thing is we look for the medium income. We look at the nearby employment opportunities. We have to be close to the highway, then all these other things come into the play.

You’ve done many deals just in a very short amount of time here. You have gained lots of experience. What was the key thing that allowed you to grow so fast? You learned a lot on that deal too, doing so many deals in a very short amount of time.

We averaged one deal every quarter. I have seen some big syndicators doing one every other month or one every month. I was just having a meeting with some of my investors from Austin who happened to be in Dallas. I just had coffee with them and they were like, “When is your next deal?” Here’s the thing. You can do all that. Organically, we have to grow. We need to have good people under us. As a matter of fact, we’re hiring somebody with about 30 years of property management experience to work on our side. Once that person comes in, we’ll be able to do a little faster, but we don’t believe in faster. Rather, we believe in bigger. If you look at our last four deals, the average size is about 350 units. We believe in doing at least one a quarter, but a quality asset. We don’t want to buy a headache. That’s another thing. We should be able to give attention. The first three months on every property is really critical. Managing the CapEx, putting right processes in place and corrections and all that.

Once you settle that, you don’t need to work so much hard on those assets no more. That’s the thing. What I personally did is definitely I made sure that I go to a deal broker’s office, meet them and shake their hand. Not on the phone, drive up there, we’ll meet people. Be clear about what you want, anything in life. Even if you want to see yourself, where do you want to see in five years, I always tell people, “Write it on paper.” Don’t leave it for imagination and be as specific and clear as possible. It just reveals itself what you need to do to get there. I started with the humble goal of syndicating two 100-unit deals in the first twelve months of my ownership. I think we ended up doing something like 800. It’s always good to exceed your goal. That’s how I started. I developed relationships with brokers. The second thing is the equity. Equity is something that you always have to not worry about but work towards, so go meet up so many people at the meet ups, conferences, build your database. All the deals that we have done have been 506 Regulation B, so you need to have pre-existing relationships. Luckily, being in a group, we’re exposed to so many people and that’s how we got started. You have to worry about how you impress them. How do you give them the confidence that you got it?

How do you stand out from other syndicators from other people that are trying to meet them as well?

Our investors don’t like our two to three-hour webinars on a weekday night. They absolutely hate it, but they don’t get off that webinar. After three hours, I still see 150 people on that. I’m not saying that you should do a three-hour webinar, but we are very thorough and we don’t accept the single dollar until they hear us. They have to hear us out because what we don’t want is a mismatched expectation. I see a lot of syndicators sending the email and start collecting funds with or without webinar afterwards. Even though we’re taking a bit of a risk on the money raise, we scheduled a webinar two weeks out so that people have plenty of time to plan. We only start taking wires after. We won’t even give them any paperwork or wires until the day after the webinar. We do a very thorough job in painting the picture and to articulate what the opportunity is. We improve that all the time.

I like that thought process though. You’re probably saving yourself a lot of time though because you know investors are going to be immediately asking you lots of questions if you send that email out. They may be anyway. However if they know, “Wait until after the webinar, we’ll give you some time to look at the information that I’ve already sent you. After this webinar, we’re probably going to answer most of your questions.” You know the most common questions investors have and so you’re going to answer them during that call or that webinar. I would imagine you’re saving yourself a lot of time in the long run from all the emails and the phone calls of answering the same question over and over.

Efficiency is definitely a big advantage of doing this way. The second thing is sometimes you hear investors saying, “I don’t care what’s the deal. I trust the sponsor and I’ll invest with you.” I’m flattered by that, don’t get me wrong but I’d rather want my investors to completely understand what the deal is before they send me that wire. That’s really important for me. That’s why I hold everybody off and say, “Let’s do the webinar and then let’s start the investing.” We oversubscribe every single time, all ten times. We usually do a webinar and we get our comments in about twelve to 24 hours, all of it and then some. It takes about two to three weeks to get money in the bank at that point. Me and my partner, we feel the weight on our shoulders when we syndicate these deals. These are the people we know. We know them from before and the accountability is high. What happens is we feed that weight on our shoulders. That’s what we go that extra mile in making sure that they understand what the opportunity is and make sure that they know what they’re getting into.

If you send something out, they want immediately to subscribe but you did want them to know what the deal is. You want them to understand what they’re getting into because six months down the road, when there’s something they didn’t expect, then they’re going to have questions and wonder what happened. You want to make sure that you’ve already explained that. I’m sure that’s a lot different from how you started. That first deal, you all changed this process, you’ve improved it greatly I would imagine since then. What are some other improvements that you’ve made to your business that would help all of us in our syndication business?

Definitely the underwriting. As you do more deals and operate more deals, there are two trains of thought. One train of thought says to work on your business, not in your business. What that means is give keys to the PM and just step back and manage by numbers and all that. That’s one. The other thing is to apply yourself as much as possible without stepping on anybody’s toes and not pissing off too many people. We’ve got to subscribe to the second end. Some of it is just our personality, at least you feel that we are in control and we are making a difference every time. I and my partner are well-educated folks. We have done much more complex things in our day jobs than what we’re doing here. We don’t try to make decisions for our property management company, but rather we bring things up for discussion. We create brainstorm sessions where we let the property management company make the final decision. We always tell them, “They think of us as free consultants for you. We are here to do the analysis, some analysis on our side bring problems, let them percolate up. Let’s brainstorm, make decisions and all that.”

We apply ourselves quite a bit in this business, not because our property management doesn’t know what they’re doing or anything like that. It’s just to add that extra layer of efficiency and good decision making into the mix. That definitely makes a lot of difference. A stitch in time saves nine. Previously, we don’t use to go to our property for at least a one to two weeks just to give them some breathing room. That is the crucial time. If you don’t do certain things in that first two weeks, the problem is getting bigger. It’s fine tuning. I would say most of the improvements that we did in our business has been on how we manage our properties and how well we get involved in our day-to-day business. We enjoy an excellent relationship with our property management company. The company that we are as of right now, they manage about 2,000 units and people love us. You don’t feel that we’re being interested or anything.

[bctt tweet=”Don’t take no for an answer. You have to visualize that it is there and that it’s going to happen.” via=”no”]

You meet somebody and they see your success in this business, you’ve got 30 seconds to a minute with them and they say, “How do I get started in this business? How do I experience the same success?” What do you tell them?

I only can tell them what worked for me. I can make some guesses but I’d rather not give advice to people based on a guess, rather what worked for me may not be the most efficient or most easy way, but this is what worked for me. Be in a group or somebody. I’m not saying that you have to stay there forever, but go join a group, get a mentor, learn everything that you need to in a short amount of time. The second stage of learning is the real-world experience, even the mentors themselves. We have a lot of mentors. It doesn’t mean that they all are doing active deals. Probably they’re not understanding what’s happening right now on the ground. This mentor usually accompanies with so many active sponsors, so you go talk to them.

It’s our AI thing. You get discreet pieces of information and you stitch it together in your head and that shows you the path on what’s the right path versus the wrong path. Every time, the easy way is not always the right way. This is what I would tell you. Go join a mentorship program or group or somewhere but mentor or not, associate yourself with people who are actively doing the deals. That’s the best education that you can ever get. Definitely do that. At the same time, it exposes you to a lot of passive investors and makes it much easier to raise money and have the command on your subject to not go run after every shiny thing. Be very focused, very specific, very specific market, very specific asset class. Master that and people will see through that when you talk to them. They’ll see that you completely have command and they’ll follow wherever you want to go.

Who you associate with is a big thing. By jumping in, you get some things rolling for you just by associating with those other people who are actively in this business. Venkat, what’s your buying criteria? You’re talking to a new broker and he says, “What’s your buying criteria?” What do you tell them?

We’re looking anything $15 million and above, so about 200 units and above is what we look for. We zeroed in these markets. We don’t look at any other market. I’m sure all those other markets are good. It’s just that I don’t have experience in those market. I don’t know what to do with the deal. We don’t partner a lot with a lot of people. We run a tight ship. Me and my partner enjoy this relationship where the all important things, we definitely run with each other, but we unilaterally sometimes make a decision because I know exactly that he would be making this decision as well. We enjoy that. That’s part of the efficiency. You don’t do that if you keep changing partners every single deal. That’s one of the things that we have seen.

A lot of investors care about it. If you think about it, some of the investors tell us, “That’s one of the things that we like because it’s the same thing that we can expect in a consistent fashion.” Going back to your question, so $15 million or 200 units and above is pretty much what we look at. B and C products, strictly no A-class. I don’t think we’re there yet with the A-class. We’ll start to see that rent growth. The inventory has to stop for us. We have a lot of inventory these days. What we look for is that the one-mile median income. As high as possible but no less than 35, 36 and assuming about $1,000 rent.

What’s been the hardest part of the syndication process or business for you?

After you do this for a while, the only thing right now is the time. Other than that, we’ve done these things so many times and we’ve perfected it, even financing. Financing is a whole different ball game. A lot many people don’t understand how financing works, but I invest a significant amount of time. I’m wired in such a way that I don’t accept things the way they are unless I understand how and why they are the way they are. I invested quite a bit of time in understanding this financing. Financing sometimes makes a mediocre deal be a home run and vice versa also. What I would say is every lender, I’m mostly speaking about the best lenders, Fannie and Freddie Mac, they are in the business of making these loans to maximize the income or the fees for the bank but minimizing the risk. No lender will just willy-nilly give you the proceeds that you want. You have to court them and you have to build a relationship. Meeting people is very important. If you have to fly out to let’s say your landlord in California just to shake his hand, I cannot tell you how important that is because that lender will then introduce to the credit officer who was the ultimate guy who’s making decisions on your loan. You need to meet with these people and build these relationships.

We’re going to have you back to just talk about financing. We’d love to pick your brain just about what you’ve learned about financing and let’s dig into that. What’s the number one thing that’s contributed to your success?

I would say persistency because you’ve got to be persistent. I’m telling you, the first two, three, four, five, six months, especially when you try to get into this mentorship programs, the initial price tag, it can be steep. It’s well-worth it. I wouldn’t advise anybody to do any other way especially if this is not something that you have done before. I was an IT guy. I came here to the United States to do this kind of work. This is what I was bred to do, not to do real estate but then I took a completely different turn and especially for me, the education is really important. I don’t have any of this education. Nobody taught how to do apartments in electrical engineering. You need to get that education and the first three to six months after paying that price tag, doing everything the program tells you to do, but still you don’t see any success. Don’t lose hope. This business is worth it. It will take care of you. You just have to be persistent. Don’t take no for an answer. You have to visualize that it is there. It is going to happen. You have to trick your mind that your break is just around the corner. Every single day you have to tell that to yourself. I see a lot of people just give up too soon.

I appreciate that very much, you explaining that. How do you like to give back?

Both with our investors and even with the general public also, we are very open door. We believe in sharing. You see that. We are not unique about it. In real estate, you see so many awesome people willingly share their success secrets and all that. I’m really blessed to be in this group. Let’s say if you go to this cryptocurrency or startups, you don’t see this sharing and the social behavior in those groups. In real estate, we enjoy learning from each other. The fact that we’re discussing what worked and what didn’t work, it’s just fun to talk about it. I’m more than willing to help out anybody who’s getting started. We are not very big but we’re a decent mid-sized company as of right now with about 2,400 units. If anybody’s getting started, I’m more than willing to talk to them.

On that note, tell the readers how they can learn more about your company and get in touch with you.

You all can reach me at my email, [email protected]. That’s the best way to get hold of me. Depending on what your need is, I can put you in touch with whoever can alleviate the current situation that you’re in or if it’s just something that you want to get started and wants some advice, I can definitely help you with that.

That sounds like a great opportunity, Venkat. I really appreciate your time and you sharing your expertise. I look forward to many conversations we’re going to have about many topics that you’re an expert in and that you can help our readers learn as well. You said this is not a business where you can make a mistake and live to tell the tale. You followed up about just the importance of coaching and getting into our mentoring program. I agree completely in surrounding yourself with people in the business that are doing this. I’ve been so surprised too in the industry, just like you mentioned about just people being so willing to help and share. You can usually find someone that can answer your question, whatever it may be. There’s somebody that has already experience that and you can find somebody if you just connect with a few people. Thank you again, Venkat. I appreciate the readers. I hope you all will go to Life Bridge Capital and connect with me and also go to our Facebook group, The Real Estate Syndication Show, so we can all learn from experts like Venkat and grow our businesses together.