Retire Wealthy and Happy

Ep17: An Investor's Blueprint to Successful RE Syndications with Sandhya Seshadri

• Sandhya Seshadri

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Get ready to maximize your property’s cash flow potential with Sandhya Seshadri’s expert investing advice in today’s episode as we detail the components of successful apartment syndication. From location evaluation to value-add upgrades, this is your guide to mastering the art of passive earning. Tune in now!


Key takeaways to listen for

  • Significant location criteria to review when hunting for good deals
  • Basic factors to consider to speed up your deal navigation and closing process
  • Deal red flags to look out for in protecting your investor’s capital fund
  • Practical tactics for conservative underwriting and analysis during deal closing
  • Cost-efficient strategies to maximize your asset’s income potential


Resources mentioned in this episode
Atomic Habits by James Clear | Kindle, Paperback, and Hardcover


About Sandhya Seshadri

Sandhya is one of the founders of Engineered Capital, an outstanding illustration of pursuing a dream with determination. Her aspiration to reside in the United States motivated her to work hard in high school and earn a full scholarship to study engineering in Texas. Sandhya didn't stop there, she continued her education with two graduate degrees. Sandhya gradually moved away from stocks to diversify her portfolio as she discovered syndication. Initially, she invested passively in real estate before transitioning to syndication, utilizing her remarkable skills.


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[00:00:00] Sandhya Seshadri
There's so much excitement built around closing a deal to make sure you manage these assets well. To execute the business plan, earn money to investors, and meet or exceed the initial projections. That's a lot of work. Look for ways that could be efficient by sourcing material, economies of scale, and ultimately leading to vertical integration at some point.

[00:00:18] Podcast Intro
You are working professional, but struggling to balance the workload of your career, family obligations, and preparing for your financial future. If so, this podcast is for you. You've spent years learning your craft, and now it's time to focus on your financial future. This podcast will teach you what you need to retire wealthy and happy. Let's dive in. 

[00:00:41] Earl Cline
What can you do to avoid mistakes when investing in your retirement? 

[00:00:44] Roger Jacobsen
Welcome to The Retire Wealthy and Happy podcast. Good morning, Earl. Today we have with us the incredible Sandhya Seshadri. Sandhya is an apartment syndicator from Texas. She helps people go from Wall Street to Main Street. Good morning, Sandy. How are you today? 

[00:00:59] Sandhya Seshadri
Doing great. Thank you so much for having me on your podcast, Roger and Earl, it's such a pleasure to be here.

[00:01:03] Earl Cline
Good morning. Hey, we're excited to have you. I'm really excited to hear about how you got started in the apartment investing. I don't think you started as a real estate investor. You started someplace else in the corporate world and we're, we're really excited to hear your story about how you got started. 

[00:01:17] Sandhya Seshadri
Yeah, like most Asian geeks, I have a strong math background. I was an engineer in the corporate world doing my engineering job, and realized very quickly that all the marketing, sales business types were making positions for us. So my company was kind enough to pay for me to get a part-time m MBA while I worked full-time for them, and that's where I understood numbers and financials, et cetera, and began truly investing in the stock market with investor clubs, et cetera, even to some extent day trading and so on. And. Many years later, once I had children, I went full-time into the stock market because I got to pick my schedule without the, you know, rush of 10, 12 hour days and travels of corporate America.

[00:01:57]
I always wanted to have something to do with real estate, but I did not have a handy person background. And I felt like, uh, you know, a handyman could come in pretty much tell me it's gonna cost me 1200 to get something fixed, when in fact it may only cost 200. So I was always afraid to do that, and when I analyzed the numbers for, you know, Single family rentals in Dallas, the margins were only in the range of two to $300, and I felt like I would easily lose that just from a tenant not paying rent for a month or you know, in between switching tenants felt like I could easily make that money with the stock market. So when a friend told me that I could do large scale multi-family, where I would be an asset manager and I could employ property management staff on site full-time. Maintenance, full-time leasing manager, et cetera. I could avoid all of the hassles of tenants, toilets, trash, and termites, the four Ts, and I would be a project manager, like an asset manager, which is what I've done in the corporate world.

[00:02:52]
So that made sense. And since I had quit my corporate job, I had all my retirement money still in a 401K type of funds that I was able to roll into a self reducted IRA. And start by investing passively. And the analogy I use is before you become the pilot of a plane, try being a passenger on a plane. And that's exactly what it is. To invest passively with retirement funds that I couldn't really put into my own deals. And that way I established relationship with sponsors. And then eventually I was able to be a general partner myself and be one of the three general partners on a deal in Dallas. And that's how I got started with being a syndicator.

[00:03:30] Earl Cline
Very, very cool. You said earlier that you could become active investor, but still avoid all of the toilets and the trash and all of that kind of stuff. Has that really actually been the case? Is that really true? 

[00:03:42] Sandhya Seshadri
Yeah. Property management company does most of the day-to-day hassles. I don't get called when a tenant has a leaky toilet, uh, that's handled by the onsite staff, et cetera. I do know that, you know, when we get involved in say, doing a water conservation schedule, then I do get to talk about toilets or. You know, take pictures with toilets, but it's a water conservation company that comes in and solves like 200 toilets across the apartment complex. Um, but I don't get involved in the day-to-day work orders, the maintenance orders that, uh, people would otherwise get called in a single family rental. Or you could employ even in a single family rental, a property management company, but you lose quite a bit of margin. 

[00:04:17] Earl Cline
My background is I started out of college with an internship with an Iram property management company, and I spent, I don't know, 15 plus years working my way up. Uh, at one point I was the VP of a, uh, publicly traded REIT. We do a lot of apartments today, and Roger and I both sit back and laugh that my goal from the time I got started in property management was to not have to chase criminals out of my apartments and to not have to change toilets. And I think a, as much as we have tried to distance ourselves from it, I don't actually get down and change the toilets myself, but I seem to get involved in a lot of that. And I think Roger probably, because most of everything we're doing is, uh, full rehab. On our apartments. And so we end up getting involved. We do insulate ourselves quite a bit from it. I don't get that, uh, call on, uh, Christmas Eve anymore that my toilet's plugged. But we do find ourselves very, very active in property management, so to speak, or at least talking to property managers.

[00:05:14] Sandhya Seshadri
So yeah, we have weekly calls. Go ahead. 

[00:05:17] Roger Jacobsen
So I'm dying here laughing because we talk about tenants, toilets, and trash a lot. And last night I have a duplex that I own, not part of the syndications at all, but last night around nine o'clock, one of my toilets blew up. I've got a duplex that has a oh, clog sewer. And so they ended up going through one side that was vacant in through the toilet hole. And rather than going down the sewer line to the street, they came up into the toilet and blew it up just last night. Like, you're not gonna get away from the tenant's toilets in trash, but you can definitely not get that call. So, yeah. Tell me, Sandy, how many years ago was your first passive investment?

[00:05:59] Sandhya Seshadri
Um, a little over four years ago, about four and a half years ago. It's when I did my first passive investment and about eight months after that I was, uh, you know, under contract for a syndication. And one of the ways I found my partners for that, you know, my first deal was 86 doors and I found partners who are located out of state. But who had the experience to run properties in the past, they had done small single family, small multi-family, and they wanted to get into the Texas market and so they knew what they were doing. They didn't really need my help, but I kind of chased after them and said, listen, I'm here. I'm local. You can just put me to work and I'll do all the work. You have to make fewer trips here and this way I'll learn all the ropes. And that's how I got my first deal as a general partner, is by offering to be the boots on the ground. What part of Texas are you in? I'm in Dallas. And, uh, I've lived here for 32 years, so all my deals, my general partnership deals where I'm in the asset management side are within a 30 minute drive of my house. So I really know my local market involved. 

[00:07:00] Earl Cline
Do you know, normally do, is it South Dallas that you're, uh, doing stuff in, or what part of Dallas are you finding your stuff in? 

[00:07:07] Sandhya Seshadri
I avoid South Dallas actually, but I know all my other places, so I do a lot of the suburbs. Irving is a popular area. I have two properties there. I have Carrollton Garland. Hearst, which is one of the mid cities between Dallas and Fort Worth. So I know all my sort of good places and the way I choose them is, do I feel safe getting down from my car and walking around that apartment complex when it's dark at night? And that's one of my criteria. I avoid areas with high crime, and I wanna make sure the median household income in those locations can support the rents that I'm planning. So if my rent is going to be $1,500 times 12, you're al already at 18,000. So 18,000 times three is 54 K. So I make sure the median income in that area can support my rent. Otherwise you're gonna end up with a lot of delinquency. So if a median income is 6k, that's gonna be too low.

[00:07:58] Earl Cline
Roger and I both speak at some uh, REIA Clubs, and that's one of the criteria that we use to teach people how to analyze a market is that specific thing. If you're looking at the average home price, And it doesn't correlate your, your, your median income needs to be, um, about 25% of the median home price. For every a hundred thousand, you're looking at 25,000 a year minimum. And if you don't have that, then the average person can't afford it. And it works the same way with apartments and rent. If your average person is not able to afford the rent, then you're gonna have a lot of delinquency and a lot of vacancy, that type of thing. So really, really solid advice. I'm curious. We use the 1% rule quite a bit also in going in, do. Use that also when you're first looking at your deals. 

[00:08:43] Sandhya Seshadri
Um, I don't specifically use a 1% rule, but I do make sure that their rents at the subject property are significantly below market of similar, comparable properties within a one mile radius. Meaning it's a B, you compare it to a B class, and that's by vintage. So BLO is something built in the eighties and newer, uh, C clause is, you know, seventies, and then a clause is more new. So you wanna make sure when you compare the rent of your subject property to another property nearby that it's apples to apples comparison, and the subject property has to have rents far below market so that we don't have to do a huge amount of platinum style of upgrades and fancy things to. You know, increase the rents by $7,500. There's a bare basic organic growth already built in of $7,500 at least per door.

[00:09:29] Earl Cline
My rule of thumb is most of the deals we do, if I can't raise the rent $200 a month, I'm probably not interested in looking at the deal. And so we spend a lot of time focusing on how far below market our Rens are. Then you have to figure on the back end, how much can I spend to bring that up there and make sure that the two work. It sounds like you do a lot of the underwriting for your team. Is that right? With your math background? 

[00:09:54] Sandhya Seshadri
Yeah, I love underwriting, but I also have engineers on my team. So sometimes my partner will underwrite a deal and then I'll independently underwrite it as well. And then I like to do my drive-by and the, you know, day as well as night and check it out. So once all the physical things check, then we actually deep dive into the deal. The first one is just basic address and zip code. Having here 32 years. If I have an address, I already know if I'm even lightly interested. And then the other thing is just from having so many deals that, you know, either I'm passive or active or I have a large network of people, I know my price per door for a property. Let's say it's an eighties vintage and it's in Plano versus South Dallas, I already know what I should be paying per door. So, um, a lot of initial screening criteria helped me weed out more than 90% of the deals that, you know, come by. And that helps a lot. But I do underwriting. I have to underwrite my own deals, even if a partner underwrites it.

[00:10:47] Earl Cline
I'm curious, by the way, I used to go into Dallas quite a bit. Couple of the companies that I've worked for, the REIT was headquartered there in Addison and, um, Fairfield Development had a, one of our two offices, I was in the San Diego office, but they used to take us in about every six months to uh, uh, usually to Fort Worth. We'd go over to the stockyards and uh, and have a company party over there at the Stockyards. But within the last three or four years, I used to fly in about once a month. I had a couple of partners that were there in Dallas. And I would fly in and speak to, uh, raise money for the group. I absolutely love Dallas. I think it is an absolute incredible market out there. I'm curious, are you finding deals in Dallas? Is it a little more difficult to find deals than it was four years ago when you got started? Or how are you seeing the market, uh, transition out there? 

[00:11:34] Sandhya Seshadri
I think just in general, we're now in April, 2023. The rising interest rates has definitely slowed it down. But as far as being awarded deals and finding deals, um, like let's say a year and a half ago, early, uh, 2022, if you will, there were plenty of deals flow. There were tons of deals coming through the pipeline, and I think you'll start seeing that again, especially with all the floating rate loans that are coming to maturity or needing an extension and may not get it from the lender. Uh, there's gonna, the gap between what a seller. Is hoping to get for their property versus what a buyer is able to afford because of the lending terms. That gap is narrowing more and more, so I think you're gonna have a lot more deals flow. But as far as getting awarded deals, once you've done a few deals, the brokers know you and being a very competitive and large market.

[00:12:21]
Um, it is controlled by a lot of the major brokers. So, I mean, I've done a deal with probably every major broker in the Dallas area. So in that sense, we have our name established to get these deals awarded. If you can come to that whisper price right, and if that whisper price is reasonable, and I love the deal and it's a great location. Like, you know, a broker told me about this deal in Garland that's about four and a half miles from where I live. And I was like, oh, I'm gonna go after that. I, I want that deal. Right? So you can do that once you have that connection. 

[00:12:48] Earl Cline
Very good. Yeah. 

[00:12:52] Roger Jacobsen
How many deals have you done in total in Houston? 

[00:12:56] Sandhya Seshadri
Um, all my deals are in Dallas and uh, as a general partner, I've been in nine deals so far, but as a limited partner or passive investors, like more than 20 deals cuz I put my retirement money. Into other people's deals, and it helps me network with other general partners. It also helps me to get to know those deals in case I wanna be the buyer when it comes up for sale. 

[00:13:17] Roger Jacobsen
That's awesome. 29 deals is huge.

[00:13:18] Earl Cline
So we met, we were at the, uh, the Best Ever Conference a couple weeks ago, six, eight weeks ago, something like that. And, uh, There was kind of a shock to the system out there when one of the speakers stood up and said, basically, the market is changing and probably 20% of you guys will not be here in the room next year because of, uh, you know, what you talked about those, uh, the changing interest rates, the, uh, variable rate loans, uh, syndicators that haven't been really careful about how they've underwritten their deal. And you, uh, were there and actually helped an investor to, uh, avoid getting involved in, in one of those, uh, um, marginal deals, so to speak. Tell, tell us a little bit about that. 

[00:14:01] Sandhya Seshadri
So actually it was, uh, about a year and a half ago. I'm part of a larger mentoring program in Dallas, and so we periodically have these, uh, bus tours and networking events and there was a relatively new student who had just joined the group and he had heard about one of these large deals in Houston, to the tune of 700, 800 plus doors. And I had also received my email about that deal because I know that sponsor, I have actually passively invested with that same sponsor on a different deal with several other co-sponsors. And that, that, that deal is located around the corner from my house. So I know at a great location, but this was a Houston deal.

[00:14:37]
It was, uh, more than 700 doors. And I had looked at the crime stats for that area and I said, Based on the crime stats and the median household income and just the general reviews of that property, I would stay away from it. So I didn't actually dig deep into the numbers. I just looked at the basic location stats for that property and said, this seems more risky. I wouldn't get into something that's in a bad area because. Syndicators tend to do short cycles, three to five years kind of cycles, and you can't really change the crime in a particular area. The most you could do is your own apartment. You could secure it with some security gates, arm patrol, et cetera.

[00:15:14]
But if that neighborhood itself is kind of having more of the crime issues, murders, stabbing, uh, drug lords and all of that, then it's gonna be hard to invite the right kind of residents into your property. So I generally stay away from high crime areas, and that's what I pointed out to this investor who then made the decision afterwards, after, you know, further deliberations to not put his hard-earned money into the field. And that was one of the four deals that just foreclosed two weeks ago in Houston. By Arbor, the lender, and it turns out that the reason those deals foreclosed, the primary reason is they were over leveraged, over 80%, leverage an additional 10% of private equity money, and there was no rate cap purchased.

[00:15:55]
When you buy a floating rate loan, you need that insurance, like a ceiling of the maximum interest rate you should be paying for it. And because of the high crime in those areas, they were hard to keep it occupied with paying residents. And then the property management company went out of business. So several things factored into it. The primary factor was highly leveraged bridge loan, floating rate loan without a cap. And that's why the deals folded and foreclosed. They couldn't pay the mortgage for several months and then they foreclosed. 

[00:16:25] Roger Jacobsen
And to add to the story, you not only saved that investor the initial cash investment, but there was also a IRS tax burden. You wanna explain that? 

[00:16:34] Sandhya Seshadri
The IRS tax burden?

[00:16:35] Roger Jacobsen
Yeah, you get a recapture tax when the I r S forecloses or when the property goes through a foreclosure. The I R S taxes you above and beyond that. 

[00:16:46] Sandhya Seshadri
I think it depends on how much money was lost in the deal. And accordingly, I think that's a specific accountant question, but depending on how much money is lost, if your a hundred thousand dollars investment, let's say in the deal, ended up as zero, I don't think you would have to pay any tax on that.

[00:17:04] Earl Cline
That's my understanding. I've had a little experience with this years ago. I, um, we were doing, um, I was an RTC contractor years ago, back in the early nineties, or worked for an RTC contractor out of college and I sat in, a guy had syndicated probably 15,000 apartment units. He was a CPA himself. He taught school in Berkeley actually. He taught accounting and I sat there with this man. He was almost in tears as he said. You know, that they had loans, that they were 10 year loans. The value of the building had come down to the point that they couldn't roll their loans over and they couldn't redo them. Um, he said, the recapture tax, when your apartment gets foreclosed on, they actually, the i r s says it's a forgiveness of loan.

[00:17:49]
So not only do you lose that 20 million asset and you don't have the income to pay the taxes on that going forward, they also say that 20 million is instant income, and you take that by. 15,000 apartment units. And the guy was like, you know, he's in, in his mid sixties, he was, you know, basically for all intense purposes, retired and he said, this'll wipe me out in my family. And, uh, I think people don't understand the gravity of letting one of these deals go bad. Once that, uh, foreclosure starts to happen, you lose complete control of, of your financial situation. That's just the, the IRS situation, and it doesn't even come close to, uh, I'm sure that the s e c, uh, these guys were all raising money.

[00:18:38]
I'm sure the SEC is gonna have something to say about, uh, being more careful about, uh, how you operate your deals. So, Roger and I had an experience just a little while ago, a very good friend of ours who just recently decided to get into syndicating and apartments. And they sent the first deal out. And because I'm on his list, I got a copy of it. Uh, and we gave it to, passed it around, looked at the deal to, uh, rate it, and I'm like, this checks, this looks good. It's got plenty of rent. Got this, it's got this, it's got, you know, all these things that checked off. And then I looked at the reversionary cap rate, you know, that, you know, that's gonna determine what you're going to sell this thing for.

[00:19:18]
And this was just at the beginning when interest rates were start. And, and we knew, I mean, e everybody knew that interest rates couldn't stay yet, three and a half or 4% when you've got, uh, 15 to 20% inflation. It's just impossible. But he had a, uh, three and a half or 4% reversionary cap rate on this thing two years out. And you've done enough of these, you're like, All these smokes there is, you know, people will be lucky to get any money back out of this thing, let alone, you know, after they spend, you know, 20,000 a unit to fix it up. But they can't sell it for anywhere near what they have into it. So it's very interesting that you spend a little time in the business and you start to see that, uh, people are cutting corners. And honestly, I think it's just getting started, not knowing enough in advance. To realize the full gravity of, of what they're doing. So it, it's really nice to talk to somebody that, that actually has that, uh, Hey, I've, I've done this enough. I know what I'm looking for. I'm really, really cautious because man, one bad deal can give the whole industry a bad black eye, so to speak.

[00:20:20] Sandhya Seshadri
Yeah, I think that was highly publicized at foreclosure and there were so many warning signs before you get to that stage. I mean, when you, when you're D S C R, debt service coverage ratio is less than one, meaning it's like you get paychecks at home and you need those paychecks to cover the mortgage payment. You don't have it. Your net operating income is not enough to pay the mortgage. That's the first sign of trouble. So you start right there to do something about it. You bring additional capital, you start working with a lender, et cetera, before you get to the point where, oh, I can't pay the mortgage, and you're gonna foreclose. There's warning signs before that. But yes, an exit cap or a reversion cap, which is going to be a prediction of the future. So what will the cap rates be in three to five years? When I'm getting ready to sell this project, you base it on first, the entry cap today. And then you conservatively assume anywhere from a third to a half additional cap rate for every year of hold.

[00:21:11]
So if today you're buying a deal at a five cap, five and a half cap, and you wanna sell it in five years, I would assume a seven, seven and a half cap. And that's a very conservative estimate. And if a deal is still penciled on that cap rate, assuming all the other assumptions are verified by a neutral third party, Then it might be a really good deal assuming it passes the location test, never miss the location test. Real estate is still all about location, but one of the most important things is. Sponsors, uh, general partners tend to favor certain numbers over others just to make the deal work. And it's very important to get these numbers from unbiased sources. So the lender gives you a term sheet that you would plug into the underwriting spreadsheet.

[00:21:53]
If you have a third party property management company to run this property for you, they have to agree to your business plan. Okay? You put a stainless steel fridge, you're gonna get $200 rent, pump, maybe not. So is it an amenity that the resident is willing to pay for and is that reasonable for that local market because the property management company you hire should have experience in that local market? That's super important to figure out. Another important assumption is, um, in Texas, your property tax can make or break a deal, so you need to have a tax for company. Look at that property and say, okay, this is in Dallas County, or this is in Johnson County or Denton County. This is what you should expect for your tax increases to be, and they should give you that projection for the next three, four years of your hold period.

[00:22:38]
And you put that in there. You also get an insurance quote. Plus from an experienced insurer who's insured in that particular area because there are so many nuances to, you know, coastal areas, parts of Florida, or Houston versus Dallas, et cetera. So you need to know an insurance carrier who's been serving that market for a while, cuz then they have a pretty good idea of what your increases are going to be like because your taxes and insurance are both your non-controllable side of expenses that still count towards your net operating income. Very important to get those two numbers from neutral third parties. In terms of the annual increases that you project in your analyzer, your rent increases your rents for those types of units per square foot, right? A one bedroom versus a three bedroom. What's more popular based on your demographic there?

[00:23:23]
Who are you really targeting? Are you near a lot of high employers, industrial areas? A lot of single guys, and wanting the one bedrooms versus families moving in together? You've got. Tools, et cetera. So you've gotta really analyze that and have a property management company give you those numbers. And then the big piece that's still remaining in that analyzer is your lender. So your lending terms in your term sheet. If you're going for a floating rate bridge loan, guess what? Your lender might give you a nice term sheet today, but 45 days from today when you're getting ready to that closing, the proceeds may be different. Your interest rate might be different because it's not something you can lock in today. Versus if it's a Freddie Mac loan, like the two last two deals we did in 2022, were both Freddie Mac loans we're allowed to lock in our rate six weeks ahead of time in what's called a good, good faith deposit. So by the time we get to a webinar stage where we present the deal to investors, we can say, Hey.

[00:24:15]
We've locked in 4.56, interest rate. It doesn't matter what the Fed does, this is our interest rate. I know exactly what my mortgage payment is, and you can say that with confidence. But if it's a floating rate loan deal, and we're talking, let's say a 20, 30 million kind of deal, and a week prior to closing, your lender says, oh, guess what?  Interest rates went up, so I'm gonna reduce your proceeds by about a million dollars. And so assuming that that sponsorship team can come up with that million dollars last minute, your leverage still has been reduced now on the deal. So your returns are accordingly reduced as a passive investor. So that's why there's a lot more risk and uncertainty when you deal with floating rate bridge loans, especially in today's market in April, 2023. You wanna make sure your returns are accordingly, better, they're higher the risk. Higher your returns need to be. So just by default, if everything else is equal, a floating rate loan deal versus a fixed rate loan deal, I'm expecting a better reward for taking all that additional risk. There's a ton of extra risk.

[00:25:12] Earl Cline
And Roger, you she talking about, uh, debt service coverage ratio, that's a term that's near and dear to us as we underwrite these things. Right. Tell her a little bit about the huge discount we got just a little bit ago. 

[00:25:24] Roger Jacobsen
Oh, sure. This was a while ago and what we did was, uh, we were purchasing a property. And although we had a cash, a cash purchase on the actual, it was a sixplex in Pocatello, Idaho. You probably know Emma Powell's deal. He has a deal that's like uh, 55 ish units and on Poplar Street in Pocatello and we bought a sixplex and okay, we went in and underwrote the deal. And because the debt service coverage ratio was off, we asked for a discount. Ended up getting, it was about a 15% discount on the purchase, which is only about a hundred thousand dollars cause it was a smaller deal. But because of the debt service coverage ratio we negotiated it saved a hundred thousand and ended up making really good money on the deal because of that. So it was a good negotiation and we knew this stuff and got it.

[00:26:19] Sandhya Seshadri
Nice. Congratulations on that. 

[00:26:21] Roger Jacobsen
So Sandy, what is your goal going forward? Doing the next few years?  

[00:26:25] Sandhya Seshadri
Continue to operate these deals efficiently because after the honeymoon is over, over, right, there's so much excitement built around closing a deal, but after acquisition, to make sure you manage these assets well. To execute the business plan and return money to investors and meet or exceed the initial projections. That's a lot of work. So continuing to get more efficient as an operator. Look for all the ways I could be efficient by sourcing materials, economies of scale, et cetera, and ultimately leading to vertical integration. At some point when I have the numbers to justify it. That would be my goal. Uh, one or two deals a year, that's it. But larger deals and fewer deals, so quality of time, getting more efficient, even with acquisitions. Uh, that's my plan in the next, uh, three to five years.

[00:27:11] Earl Cline
What are some of your favorite ways that you are using to increase operational efficiency today? What are some of the things that you're putting into? For an example, we just bought a small deal that we're gonna put solar on. We were paying the, uh, the electricity and because of the way they structured the loan, it was a really killer. Uh, 4.7 loan, but we had to do some, uh, energy efficiency, and we decided to put solar on because we're, we're gonna make the, uh, the electricity disappear on that project. So, but what kind of things are your favorite? 

[00:27:44] Sandhya Seshadri
So, increasing revenue in ways that residents want to pay for. So washer dryer connections is very popular and if your deal already has connections in the units, then supply the washer and dryer because, That's part of their monthly budget anyway, to spend money on coin laundry. So, or you know, app-based laundry. So instead of that, if you have it in their unit, they're happy to pay for it. Same with internet or wifi, if that's something that's necessary for them anyway, they'd rather pay for it through you, which if you can offer it at a cheaper rate. So find ways to add value to residents. Which, who are your customers in ways that are, they're willing to pay for, not just, oh, I'm gonna give you a stainless steel bridge, so you gotta pay me 200 more dollars. That doesn't really make sense. Same with reserve and covered parking. Is that really an amenity they appreciate or not? Certain properties, the layout, it lends itself to that, and certain others it doesn't.

[00:28:31]
So you always wanna look for ways to increase your revenue. In ways that are reasonable to the residents and they can still afford it. The expense reduction side? Yes. If we're paying the bills, especially the utility bills, I look for every way to c conserve on utilities, so L e d upgrades, water conservation, and older properties leak detection systems, because as soon as that leak is there and your water bill goes up, you know, it could be three weeks before you detect it unless it's visible or you can hear it right.

[00:28:57]
Versus if you put those sensors right at the water meter, then you can sense them faster. So do little, um, things like that to reduce your expenses. We're trying to outsource materials at in bulk. Like, you know, flooring, for example, my vital plank flooring, if I can buy it by the pallet and buy so much, uh, it's a lot cheaper. And if I can get it also installed by a contractor with whom I have a deal, then you know, I could get it installed for a fairly low price compared to just outsourcing the entire. Unit upgrade to a an outside company. So some of the make-ready work can be done in house. And then we are also working with our PM right now to see if we could have floating make-ready folks.

[00:29:35]
So let's say in June, I have 10 units coming vacant and I need those to be rehab quickly cause they're all kind of back to back. I try to make sure when we renew them, Or when we do new leases on them, they're staggered a little bit. So I don't have so many make readys all happening at one time. We also wanna make sure the leases don't expire at the winter, the off peak season as much as possible. So can we do a 13 month lease or 11 month lease, et cetera, as it makes sense. Another interesting thing you could do is, um, you could make your leases all expire on a Monday, because then when. Residents, they keep those units. You have weekday available to go and trash out the units and clean them up, et cetera.

[00:30:12]
So a lot of different little things you could do to increase your operational efficiency. But material costs always shop around for insurance about 50 days before your insurance expired. You wanna make sure you're shopping for it because. Those rates can go really high and, uh, sabotage your earnings because it counts towards your No, I, um, the same with taxes. We always protest them in Texas. Um, other efficiencies are, can you make do with fewer personnel by automating a few things and having rotating personnel to assist. Just like at the time that you take over a property, there's a lot more work going on. So the first three, four months, you might need extra pair of hands, or you might only need a porter kind of person rather than a highly maintenance, you know, AC certified tech.

[00:30:53]
You may have a lead maintenance if you have properties nearby who's AC certified as an example in Texas. That's very important. But you could have, you know, let's say lower pay, uh, maintenance staff to do some of the day-to-day work. You could also have your own machines in, in-house for, you know, uh, unplugging, plumbing, uh, issues that happen rather than always having to outsource it. So just little, little things. The suggestions, especially if you take it from your staff, they come up with the best ideas cuz they see the problems day to day. What can you do to reduce your turn time? That's always handy. So, Two weeks prior to someone's move out, someone's lease expiring. Have your people walk those units to make a list of items you need right away for the make ready, so those items are available, so you're not waiting on ordering an appliance and therefore delaying a move-in date.

[00:31:42] Earl Cline
I was trained by a guy that was just absolutely, he was a tyrant about controlling expenses. I worked for another company that could care less about expenses, and they were more concerned about raising the rent. But one of the things I learned really early on was find out what day the trash company's gonna come. I want you to there, and I want you to see how full the trash dumpsters are. And these were big projects, right? And so, you know, we'd have 10, 15 dumpsters throughout the, the project. And I'd go count every single one of them and see are they half full, are they three forceful? And then we'd dial back our trash service until we got it to a, uh, you know, a way to save some money.

[00:32:21]
Um, ultimately it ended up in, we bought a, uh, trash compactor for the project and, uh, it took a little bit more time to take care of it, but it saved us, you know, enough that we paid for the trash compactor in what was probably a year and a half that, uh, the savings. And we paid for that, uh, that trash compactor. So, It's very interesting. I apologize, I got a little bit of a cult going on, so, but it's very interesting when you start to dig into it, how much money you can start to save on these projects, not only for you and your investors, but they also have a green effect on the rest of the planet too. If we can find ways to, uh, reduce trash or reduce our power consumption, those types of things. So very cool. 

[00:33:07] Sandhya Seshadri
Absolutely. And every project I would say look at the roi. So if you have to spend $10,000 on an interior rehab and you're gonna only get a hundred dollars rent pump, that payback period is very long. So especially if you have a floating rate bridge loan and you need to conserve your capital, why don't you just see if you can org get an organic $50 rent pump and not do any of those fancy updates and just do a basic make ready for like 2011. Very cool. Little things like that make a difference. Take the can down the road on your spending. 

[00:33:36] Roger Jacobsen
We have a list of four questions. These are the final four, and then we're gonna ask you, the first one is, what is your favorite business book? 

[00:33:45] Sandhya Seshadri
I really like Atomic Habits by James Clear. It's the incremental effect of making tiny improvements every day and then stack good habits together. And if you keep doing that every day consistently, at the end of a year, it's gonna be huge payoff. 

[00:34:00] Roger Jacobsen
I love that book. I'm actually getting ready to re-listen to it on Audible. I've, I've just started a new book yesterday and now Atomic Habits is my follow up after that. Sandy, what brings you happiness? 

[00:34:13] Sandhya Seshadri
I. I love seeing the happy faces of my residents. So we do community activities on a regular basis. Like we just had an Easter bunny out at our property for Easter. And to see those kids running and playing and doing an Easter egg hunt is so fun. Uh, just like we had Santa over for Christmas, and we'll be doing a nice big kickoff for the summer with grill and popsicles by the pool as we opened the pool for summer. So hearing children's laughter and seeing happy communities, uh, it brings the whole place together. And neighbors know each other. Residents know each other. That's what I love to see at properties. 

[00:34:48] Roger Jacobsen
That's cool. What does your future retirement look like? 

[00:34:54] Sandhya Seshadri
A good balance of intellectual activity as well as a focus on health and time with family. So that's why doing one or two larger and fewer deals as far as the future goes, but having systems in place to where I am more hands-off rather than as hands-on as I have been in these initial years. 

[00:35:16] Roger Jacobsen
I like that. What do you think is the best way to give back?

[00:35:19] Sandhya Seshadri
I like to give back to my communities, um, in the apartments by doing all these resident activities. And when someone has a tragedy, like one of our residents, he lost his wife when she gave birth to their second child. So we rallied around and we did a fundraiser for him to be able to pay his rent for a few months. And we also got plenty of diapers and other gifts for their family so he could get back on his. Feed after that huge loss. But that way we try to be as local as possible in our assistance programs. So even people like my investors, my brokers, et cetera, donated to something like that. Um, on the personal side, I'm very passionate about math and financial literacy. So for years now, I have tutored kids in the neighborhood for free, and I'm so thrilled to see some of them getting, you know, impressive college degrees that they never would've attempted because of their fear of math. So that gives me a lot of satisfaction. 

[00:36:14] Earl Cline
Love that. We sure appreciate the time that you've spent with us. I, it's been really, really fun to get to know you and, uh, and talk a little bit about an industry that I think all three of us here have an, an incredible love for. We really enjoy, like you said, the opportunity to see your residents progress, to help other people. And the whole industry is just, you know, sometimes it gets a. Black eye or whatever, but it's really, really an incredible opportunity, I think to give back to, uh, help people grow and develop. We really appreciate, uh, your efforts to give the industry a bright spot and love the things that you're doing out there. Good luck out in Dallas. I absolutely love that market. Roger and I joke about the best barbecue that we've ever had, as in when we were in Kansas City, but by far the second best is just a little bit north out of Dallas for me, at least. Some of the best barbecue I've ever had in my life is there in Dallas also. So, We're looking forward to, uh, coming out and spending some time in your market out there really, really soon. Awesome. 

[00:37:07] Sandhya Seshadri
Yeah, let me know when your travels bring you to Dallas. I'm here to help and if you wanna get ahold of me, um, I put a lot of content out on Facebook and LinkedIn. Those are the best places to connect with me and certainly through Roger and Earl. Definitely gimme a call if you need help in Dallas. 

[00:37:22] Earl Cline
Thank you so much. 

[00:37:23] Roger Jacobsen
All right. Well that concludes this episode of Retire Wealthy and Happy podcast. Thank you, Sandhya for joining us, and we'll see you next time. 

[00:37:30] Sandhya Seshadri
See yah, thanks for the opportunity. 

[00:37:32] Earl Cline
Thank you so much. We appreciate it. 

[00:37:34] Podcast Outro
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