WS213: Data Analytics In Real Estate with Raj Tekchandani

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Data analytics is vital in the gathering of information and in decision making. Raj Tekchandani, a high-tech entrepreneur and the Founder of Smart Capital LLC, talks about data analytics in this data-driven world, highlighting how combining all the data will lead to a better decision. Under this same premise, it is also data that led him to invest not only in his hometown but to different markets as well. Learn more about the importance of gathering information as Raj gets into data analytics and his passion for multifamily syndication.

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Data Analytics In Real Estate with Raj Tekchandani

Our guest is Raj Tekchandani. Raj was a high tech entrepreneur, but he quit his W-2 and started Smart Capital in 2018 to invest in real estate full-time. He has a portfolio of nine condos in Florida, twelve unit multifamily in Massachusetts, 151 unit deal in Dalton, Georgia, 152 unit in Thomas, Georgia, and 225 units in Amarillo, Texas. Raj, thank you for your time, being on the show, the experience and the value I know you’re going to provide to the audience. To get it started, tell the audience just who you are, what you’ve been doing and what your focus.

Thank you for having me on your show. It’s a pleasure to be here. I was a tech entrepreneur. I have worked with startups most of my life, doing big data analytics and mostly tech stuff. On the side, I’ve been investing in real estate since 2012. I got into it because a friend of mine said, “Look at the property values in Orlando, Florida. You won’t believe it.” I said, “Really?” I went down to Orlando, looked at the condo value, I was like, “This is not much of a risk.” We picked up one condo and then I bought another one, and I ended up having all those nine condos in Orlando, Florida. Also single-family condos, multiple condos, managing it was a little hard, but we have a good property manager. God bless her and she’s doing well, but I said, “I’ve been reading about all the benefits of multifamily. Let’s do that.” I bought my first multifamily, which is a twelve-unit here in Massachusetts. I said, “That’s great.” I started working on it. I got a property manager.

The way I do it is I want to make sure the dealer’s right, then find a good property manager and get that going. That’s working well. Years ago, I had finished my five years with the tech startup, my stocks are all rested and I’m looking to say, “What’s next?” I can do another tech startup or I pay attention to my passive income. I said, “This is interesting. My startup salary is less than my passive income per month,” so that tells you something. If I do one more of these things, 12, 20 units or 25 units, that should be good and that should cover at least my W-2 income and more. Fortunately, I have a spouse that is a full-time job doing well, so the benefits are covered. I’m not saying that’s the recipe to do it, but the timing was right. I took the plunge and I quit the startup to start Smart Capital. The idea was to buy another multifamily 25 to 50 units in Massachusetts or the other area we’re looking at was North Carolina.

I started looking but we didn’t find much. We didn’t do a lot of analysis and then somehow, somewhere I stumbled upon the world of multifamily syndication. That was an eyeopener. I said, “This is great.” I literally went to school on multifamily syndication. I joined a mastermind. I read every book there was heard. I heard every podcast there was on multifamily syndication. I zoomed in on just doing multifamily syndication from listening to everything on BiggerPockets. I said, “I’m going to filter on the multifamily podcast and learn as much as I could.” Meanwhile I had a friend who was a cosponsor in a deal in Georgia. He had offered me to invest in it, and I looked at the deal. I analyzed it and at that time I was not ready. I had not finished the so called my education part of it and I said, “Hold off on that. Maybe I’ll think about it.” Once I was ready, I understood what it means, understood the math behind it, understood the whole components of it, I said, “Let me take the plunge.”

I started investing passively. That was great, but I said, “No, I’m going to do this more involved,” and I started looking at deals. I bought the deal through Analyzer and started looking at deals left and right. The other interest I had was when I was leaving my tech startup was to see what is in this real estate world. Where is technology in real estate leading up to? I said, “If I get bored of just doing analysis, I’ll go look at what are the tools out there that are helping in the tech analysis.” Lo and behold, I started researching that. I met with a nice person, Jennifer Conway from MIT, who had done research on both machine learning and AI in real estate. I met Jennifer. I said, “This is a very passionate topic for me.” She said, “Yes, that’s great.” We talked about a lot. She told me about all the tools that are there, and I looked at a bunch of tools that she had researched on in all those and a bunch of tools there. There came an opportunity to invest passively in a deal. I did the whole analysis, took all the tools that I have access to, ran the analysis for that and put in my first passive investment. It was interesting, and that was good.

A few months down the road, the same thing. I had another opportunity to invest. I said, “No, this time I want to be more active.” They said, “What can you do?” I said, “I can do deal analysis or I can help raise money.” They said, “The deal is already here. How about you raise us money for this deal? How much can you raise?” I said, “I have no idea how much I can raise. This is my first raise.” My sponsor who is my same sponsor and not invested in it, he said, “That’s fine, Raj, go ahead with what you can do.” I did raise a decent amount of money for that. I became a GP on that, so this is good. That happened in November of 2018. The deal closed and alongside, we found another deal by the same sponsor. It was looking good and I had all the investors lined up and excited because they couldn’t participate in the first one because that has oversubscribed. I went down for due diligence on this deal to Georgia again and we were looking all excited about this deal. It was more than 200 units. I was like, “This would be great.”

We found some issues in the property. The structural engineer was onsite with us and they said there are some issues. The seller was not budging on the price point and taking care of that issue. We walked away from that deal. There was a lot of time and effort put into it, but it’s good learning and a good lesson that sometimes it’s best to walk away from this deal. It turned out to be a blog article that I wrote that said, “Sometimes the best deals are the ones that you walk away from.” Fast forward this deal, 225 units in Amarillo, Texas, came by from the people that I work within the mastermind group that I’m involved with and they said, “Raj, there’s a deal.” I said, “Show me the deal. I might look at investing in it, but let me look at the numbers. My interest is not just passive. It’s to be active.” This time, I knew the team members. I knew their strengths and skills. I said, “This deal has been analyzed,” and I did my own analysis on it and worked wonderfully well. I stuck into my investors and pitched it, raised the capital and we closed the deal.

[bctt tweet=”Sometimes the best deals are the ones that you walk away from.” via=”no”]

I want to get into that deal a little bit, but I want to back up and talk about your transition from your W-2 to jump into real estate full-time. I thought it was interesting too that you’d already been investing in real estate enough that you had replaced your income with passive income from the real estate before you ever got into syndication, correct?

That’s right.

That’s very successful right there. Not many people can get to that point.

It was 22 units and they were all doing well. At that point, I looked at the income that was coming in. I was like, “This is not bad.” I took a plunge thinking, “I’ll just find a couple of more like this and I should be all set.” I can play golf on Fridays. There’s nobody to ask me, “Why are you playing golf on Fridays?” That was the intent. It was financial freedom and the personal freedom itself to take the plunge.

You also took the skills that you had from a previous job, and that helped you in real estate. Was that data analytics? You talked about how the data analytics is a skill that you had in the tech job. Tell me about how that related and how that transitioned you into multifamily.

Everything is data at the end of the day. We simplify the T12s, which was basically the operational income expenses from the last twelve months, and you look at the rent roll. Everything at the bottom there is data. That is to analyze the deal. You can find out what the comparables are. That’s the data. You can find out what the standard expenses are on these things. That’s all the data. Even just market analysis, where are the jobs growing? What is the median income? There’s a whole set of data that is available to you.

You have to figure out how do you combine all this data into one piece and say, “This is a good deal. This is the right market.” All the data indicators are pointing to that. There are patterns that you can recognize and you say, “The patterns are there,” and that’s what you do. There are tools available. Like I said, “They’re not there yet, but they’re getting there.” At some point, you’ll do all the lease audits and everything because everything is data. You just suck it into your database, you do run your analytics algorithms to it and they spit out the answer, whether it’s a good thing or a bad thing.

RES 213 | Data Analytics — Data Analytics: There’s a whole set of data that is available; you just have to figure out how to combine all data into one piece.

Some people love data, love numbers and some people do not. It’s a good skill that you already had. Even though it wasn’t analyzing a deal, as soon as you understood what made sense and what doesn’t, it makes sense to you. Before we even got in syndication, how you’ve progressed has been impressive. I noticed you have so many units in so many different markets also. You’re not just sticking to your hometown.

No. That was the first thing that I found out based on data and cap rates. The growth is there, but the data to do the numbers were not working in my state of Massachusetts.

Tell me about that a little bit. Why were you comfortable going to so many different markets and not focusing on one?

There are some people that hesitate if you’re looking outside your backyard. For me, I had read enough, I had met and talked to a lot of sponsors who have been doing deals in California, Florida, Georgia and North Carolina. These guys are doing it, so there has to be a pattern to it. The other thing I did is I made some trips to these places. Every time we did the due diligence, I actually flew down there before even I had committed to joining the team. That made me comfortable. They look at feet on the ground. You see what’s around there. You look at the businesses around there, and it’s the people that are renting the space, the renter’s profile, you get a good feel and that gives you a lot of comfort that there are markets there that the numbers still work. The bottom line is the deal should work.

It makes sense or it doesn’t. I don’t mind to be in numerous markets, as long as you have your team there. Let’s talk about this last deal, the 225 units. Break that down for us a little bit and what that deal looked like and how it’s structured.

The deal is 225 units in Amarillo. The members in my mastermind group had found this deal and it took them time to get to their analysis. Another team member on this deal, my partner, is also in the mastermind as a construction management expert. I was talking to her, talking to the deal analysis and the lead sponsor who had done multiple deals in the past. It got me comfortable to do this deal and the pitch was ready. I did the analysis, I did my own version of the presentation. I took it to some friends first and they liked it. They said, “We are ready to invest,” and then opened it up to more people. It was a 506(b). I could not publish it out to the world. I’m assuming the audience know what that is. I had to go to my network of people to take it and people liked it.

The first investor in every deal of mine has been the same, and that’s me. If I’m ready to invest in myself, only then I would take the deal out to anybody else. It worked out well, the diligence came out fine and we closed that. We went down there to take a look at the property, it probably looks very good. There’s a lot of potential. The deals we look at are mostly in tertiary markets. The value add should be there and we recognize the value add in terms of the occupancy and what the market comps were. The rents were still below market, $100, $150 below the comps. We know what the number’s going to be in doing the renovations, and put it all of them through. We have a construction management expert on the team who knows every single dime and dollar to where we invest and what the terms would be, so that’s very comforting.

[bctt tweet=”Don’t invest in a deal blindly.” via=”no”]

If somebody presents a deal to you, what makes a deal an actual deal for you? What are some things you’re going to look at? Walk us through that process a little bit.

I wrote an article on LinkedIn which says, “What ten things you should look for as a passive investor?” I think the very first on that thing is a team. You’ve got to go be comfortable with the team. In all the deals that I’ve done, I have not done too many, four deals or three deals so far, but I have known the lead sponsor, their track record, what they have done in the past, how much involved they are in the deal itself, and talking to them. I’m having lunch with them or as somebody says, “Breaking bread with them,” get comfortable with that. It’s just not a transaction for me. It’s more of a partnership. Even if it’s investing passively, it’s a partnership and it’s not a blind investment. That’s number one.

What kind of track record must I have for you to feel comfortable investing? Everybody’s going to get started somewhere. What does that look like for you as you’re looking at deals?

Not everybody has done multiple exits, but you just see what their analysis has been if they have exited a deal. What are their terms were? In this case, both the lead sponsors had exited and had phenomenon returns to their investors. That was helpful, but when you meet somebody, you can tell how knowledgeable they are. Their relationship with brokers, the lenders, you sense how you can work as an individual with the person on that team. The other things that you look for are obviously the key metrics, numbers, the cash-on-cash returns. Some people look at IRR. Some people look at the average annual return. We have some minimums on that. We used to be much higher, but we have very strong measures when it comes to the measures on that.

Is that something you can share? Is it going to have this cash-on-cash or this IRR before we’re even going to consider looking at it?

We definitely look at cash-on-cash at 9% plus. It used to be 10% but I think we can enclose it to 9%. That pref rate is good, usually a 7% or 8% pref rate. The IRR has to be over 15% or 16% around that. The deals that we had were over 17%, so that was good. These are all projections. Those are the numbers, 17% IRR, 16% IRR or about 10% cash-on-cash.

Is there anything else that makes a deal for you? Maybe even things that immediately you could say, “I’m not looking at that deal.” What would that be?

The totally distressed property, totally stabilized property, class As. They’re not going to do much. There’s no value add for us and distressed, maybe a lot of value add or a lot of rewards in that, but the risk profile is too much on that. If you have to say, you have a gun down the whole thing, redo the whole thing and it would be a phenomenal class A property, it’s not for us or not for me.

I think it’s interesting that you said that you don’t want a totally distressed property, but you also don’t want a totally stabilized property. If everything’s already been done to it, it already has that market rents, what value is there?

What value can you add and what’s the yield? That’s something that’s giving no yield. The challenge and the fun of it are taking something that is not too distressed, still has the value add, getting in there and doing it alongside your partner team. Raising the rents, raising the value, due diligence expenses, that’s the fun.

What’s been the hardest part of the syndication business for you so far?

It’s hard but I think I’m getting comfortable in it. I’m enjoying it. It’s basically teaching people about syndication itself. I realized not too many people are aware of multifamily syndication in general, at least in my network of friends and family, but that gave me an opportunity. I actually started a meetup group. It’s a small size meetup group that talks about the basics of multifamily and what it is. It’s very simplified and the people at the introductory level had gone to the next level. That’s the fun part of it and remains fun part of it. I’m getting to challenge myself, but I also love the part of educating other investors. I tell that don’t invest in a deal blindly. Learn what you’re investing in. I’m here to guide you on that. People say, “I’ll trust you. Why don’t you put my $50,000 in the deal?” I’ll say, “No, I can’t do that.” You come to this meetup, it’s an introduction to multifamily, ask questions or you find people who are in a similar boat. That’s been interesting and challenging, but I love the whole education part of it.

I appreciate that too. Somebody wants to hand you a check, but do you want them to understand what they’re investing in. What about a way that you’ve improved your business that we can all apply to ours?

I’ve become so passionate about it, the education part of it. I’ve started talking, blogging, writing articles and putting it on Facebook. That’s what we do to make sure we’re aware of people that say, “I had no idea about this, but I read your blog, I read your article on LinkedIn. I’m curious.” That’s what I’ve been doing. I’m constantly blogging, writing articles, holding these meetups, going to other meetups and talking to people, networking as much as I can. I didn’t expect it, but I’m getting people to call me and say, “I saw what you wrote. What can I do to get involved? How can I enroll? How can I go to the next step like you did?” I’ll say, “Join the journey with me.” I’m glad that the first people that I’ve talked to who were doing wholesaling and flipping are now interested in the multifamily syndication. I’ll say, “Go read these books, go read these articles, go listen to these podcasts, and then come to my office. We’ll sit down and have a cup of tea or coffee. We’ll talk one-on-one.” I do that. I got meetings in my office and these are not investors. These are people who are wanting to do multifamily. They are real estate professionals but want to get into multifamily family syndication game.

[bctt tweet=”Live and breathe your passion day in and day out until it becomes part of you.” via=”no”]

What book do you tell them to read?

People are specifically interested in multifamily syndication. I gave them the idea of Joe Fairless’ Syndication Book.

You mentioned a few thought leadership platforms. You’ve got a meetup, you’ve got a blog, you’re writing articles, you’re on social media, and you’re speaking, all the great stuff. Which one would you say is allowing you to connect with the most investors?

I think my education meetup. It is the best one. I have people that I met for the first time there and I talked to them. I got them involved and they have invested in these deals as well. I was not expecting that, but they say, “Raj, we see what you do, we see your passion, we understand we are investing in based on what you’ve shown us.” I said, “That’s great.” I don’t know who reads my blogs, so I don’t have feedback on that, but the meetups, especially the smaller meetups that we have, it’s direct feedback.

What’s the one thing that’s contributed to your success?

Being passionate, it’s not a job but it’s a job. I’m working more hours than I was doing in my startup, but I don’t feel it. It’s living and breathing it day in, day out. It became part of me.

What’s a way that you like to give back?

If somebody says, “I retired. I am financially free because of Raj and what he showed me.” I would be very happy to do that. That’d be a good thing. I can already see some people getting there and at least feeling it that they’re getting there. Someday if somebody says, “I quit my job or I’m financially free because of what path Raj showed me,” I think that’d be very rewarding.

Raj, you’ve been just a great guest. Thank you so much for the value that you’ve provided to the audience. Tell them how they can get in touch with you.

I’m on LinkedIn, Facebook. Look up Raj Tekchandani. My email address is [email protected].

I appreciate your time again, Raj. Thanks to the audience. I appreciate you all being with us. I hope you will go to Life Bridge Capital and connect with me. Also go to our Facebook group, The Real Estate Syndication Show, so we can all ask questions and learn from experts like Raj together, to grow our business together. I would appreciate it if you would also share the show. I would be grateful for that.

Thank you.