[00:00:00] So the big question is this, how are real estate investors who don't have a ton of free time, don't have access to off market deals and didn't start a life on third base? How do we grow a real estate business conservatively to support our families finally leave the corporate rat race and build a legacy?

That is the question. And this podcast will give you the answers. I'm at Mathews and this Real estate underground. This is the real estate underground podcast show. Number 46, buddy out in the podcast land. Thank you for joining us. This is the real estate podcast, Ed Mathews here, and I am joined by Dr.

Prenay Parikh. Pernay, thank you so much for joining us today. I am really excited to have a conversation with you. Like I said, before we were offline, I've really enjoyed your blog and your journey, and I'm sure the folks listening today will also certainly benefit from [00:01:00] the information that you're about to give us.

Cause I'm excited to hear about it as well. And also checking you out on Facebook as well as your blog. It's an incredible journey and I'm grateful for you sharing it. I just wanted to be an inspiration because when I started, there weren't many people like me who were doing real estate. So I just want to show people it's possible.

I'm not anyone special. I just tried, failed and tried again. Right. I think of mistakes and failures. I don't even believe in failures. I think they are opportunities to learn. And the fact is, is that if everyone's going to make mistakes, perfection is impossible. So might as well embrace when you misstep and learn from it and build from there.

Right. Yeah, I made a recent point at a conference that I spoke at and I was like, yeah, I was talking about my son, you know, if after attempt at walking 4, 500, if he was like, yeah, this walking thing isn't for me, I'm going to just crawl everywhere. Like how much different would his life be? Right. But we quit after what?[00:02:00]

Failure setback, two, three, four, right? And the fact is that it's that old Thomas Edison, he found 1, 999 ways not to make a light bulb before he figured out a way to make commercially viable light bulb, the idea of just reconciling yourself to crawling for the rest of your life, it's a profound image in my mind, right?

Especially someone my size, I'm six, four, and I'm not a small human being. So he crawling around, people would really think that's really strange, actually. Renee, why don't you tell us about your business and your journey and how we got here and then we can get into some specifics. Yeah, so I am a medical doctor, still practicing, went to med school, residency, did all that.

And then after I graduated, I was making a good salary, but I was still trading my time for money. Right. And I knew that it was just as important to have a good salary, but also important what I did with it. And I wanted something where I had control. over it. So I actually bought a first four unit by myself with my [00:03:00] wife.

And I thought that's what I was going to do. I was going to buy a property every year and have this big empire. But I realized that I wasn't able to scale it up. It just took so much effort in trying to find that first property, renovating all that stuff. And I still love medicine. So I didn't want to Be a real estate professional all of a sudden.

So I tried to look for something else. How do I have exposure to real estate without doing all the real estate stuff? And that's where I found passive real estate at the time. I realized that there wasn't much education out there. This was many years ago, not many books. Now we have books like the hands off investor and all this other stuff, all these conferences, but at the time there wasn't.

So my partner and I, Dr. Peter Kim, we've created a course and we've had a couple thousand doctors and dentists and other people take the course to Teach you how to find vet and invest in deals. And after that, we thought we were done. We taught everyone how to do it, but doctors are busy and they said, you know, now we trust you, we've watched the course, but we want to invest in [00:04:00] you guys and we want you guys to do the hard work.

So somehow I found an active way to do passive real estate and created a syndication company. Excellent. And so that's a scent. That is a scent equity group. We go out, we find deals. And because we're doctors, we believe that the best thing we can do is partner with real estate operators because doctors in general are managers.

They work with large teams, nurses, respiratory techs, and other doctors. And so that's our skill. So we treat it almost like a venture capital where we go in, we help improve their operations and kind of manage, and they run the day to day. So that would make you instead of the operator, you're more of a capital raiser and business advisor.

Is that correct? Correct. So a little bit different. I'm glad you brought that up. So we do two types of structures. We do JV equity, which means we're pretty much all the money in the deal. And we do that because we have major decision rights means we could tell them when to buy it, to sell it, to do all that stuff.

We have a [00:05:00] full asset management team. So we can always take over if need be. Okay. But our asset managers, instead of figuring out like maintenance and all this stuff that has to be done, but you don't get paid for extra, we focus on how do we maximize profit for our investors? And, you know, we work hand in hand with the operator and the other structure we do is called co GP.

Where we are general partners, but we make it so there's only us in the operator. I've seen deals where there's like six, 10 co GPs, and that doesn't make a ton of sense to me because we want to throw our weight around a little bit, um, and for our investors to be really the, the main cook in the kitchen.

Sure. Yeah. And having to take that metaphor a little further, having too many spoons in the soup. Yeah, exactly. Right. Yeah. And when there's six, seven, 10 co GPs, you wonder what each person is giving to the property and if there's decisions that need to be made and the, actually the SEC doesn't like [00:06:00] there to be a ton of co GPs because they're saying that if you're a co GP, they want you to actually be doing something, not just raising money.

Yeah. Right. Yeah. You have to have an active role, right? Yes, exactly. Yeah. So what drew you to real estate? I mean, obviously you have an entrepreneurial mindset and you are someone who's drawn to service obviously given your main profession as a doctor, but also, and obviously your organization through asset, but I'm curious, what drew you to real estate specifically as opposed to technology or art or some other asset class?

I tried to take a look at my life back when I had finished residency. And I thought, what do I have an unfair advantage of, right? And at the time, my sister in law or who eventually became my sister in law, she was a real estate agent in Los Angeles where I bought my first property. So I'd be texting her all day and I, that was my unfair advantage.

And that's when I would, was planning on buying all this real estate. So I'd Did all this research [00:07:00] and I didn't want that to be wasted. So I kind of just moved it over to the passive side. Okay. Yeah. I mean, obviously you've spent better part of a decade in medical school and you're clearly passionate about that.

So why would you abandon that when you seriously don't have to, right? I mean, this is absolutely something you can do as a side hustle. Yeah. Now, uh, someone asked me recently, what is a surprising fact, but I tell people medicine is my side gig. Cause it kind of has become, cause the real estate is. It's a beast.

It can take over, but I moved down to part time in medicine. And so when you were first starting though, a rough order of magnitude, how many hours a week were you spending in real estate when you first started? I work nights. And so at nighttime, it's a lot quieter at the hospital and I work in a hospital.

So when I had downtime, I'd be on Zillow all the time. I would get these MLS alerts. And for some reason, real estate agents always want to post things in the middle of the night at 12 AM. So they get a less of a day on [00:08:00] their posting date. Right. Right. Right. So actually my first property I saw at like 2, 3 a.

m. I texted my sister in law. I was like, Hey, let's go look at it. I got off my shift at 7 a. m. Went straight to the property, put down an offer and was an escrow that same day. Nothing like a bias towards action, right? Yeah, excellent. And so do you still own that property today? I do. I do. If, if I had a choice, I would sell it and put it all in passive, but my wife and her family love buying active real estate, so I keep it for her.

It's doing pretty well. It's pretty passive, but I always get that when it's time to get my monthly paycheck from the property. I always have a little anxiety knowing, wondering if something went wrong with the property. Right. But that little bit of that tinge of anxiety is a healthy thing, right? It keeps you motivated.

Right. Definitely. So let's talk about your focus today. Now, obviously you and your organization are primarily focused on much larger buildings and properties now. So can we talk about that a little bit? [00:09:00] Yeah. So we decided we needed economies of scale and the people that we work with, our partners, they have billions of assets under management.

So. We wanted to work with only really experienced people. So we buy 200, 250 units and we are able to qualify for really good debt. So our past deal that closed in August 22nd. So not that long ago, had a fixed interest rate of 2. 9%. Oh, those were the good days, weren't they? For nine years. Yeah. With four years of interest only.

So we're able to get some pretty good loans. And these days, debt is probably one of the most important things you look for. And so debt and the operators, and we didn't start like that, you know, in the starting, we did more of a fund of funds model where we would only be a small piece of the equity. But.

We realized that to give the protections and the downside protection for our investors, we really had to be the only people in the deal. And that's kind of what we've done. [00:10:00] So let's talk about debt, for instance, and your philosophy on that. So you and I, I think, come at this from different perspectives.

Um, sounds like you're more comfortable with adjustable rate mortgages, at least on a long term basis. I tend to, that's how I acquire them. But immediately, as soon as they're stable, I tend to roll them in the long term debt because my intent is to hold long term. Beyond 10 years. And I'd like to understand your philosophy on that.

Yeah. And the great thing about this and the reason why there's so much space in multifamily and just real estate in general is because there's a ton of ways to be successful, you know, and almost all of them work. So one of the nice things about real estate is if you can hold long enough, it's going to be okay.

Right. The properties are going to increase in value. And as long as you can write it out, so the past couple of years, people have been able to get out of deals pretty quick. So by renovate sell, and because of that, you don't want to do long term debt, because when someone gives you a 30 year loan, they're expecting [00:11:00] that.

Money to come in that those interest payments to come in for 30 years. And if you say, Oh, Hey, here's your money back. You might think they're going to be happy, but they're not going to be happy because they're going to have to just put that money out again. And that means more risk to them, right? If you were giving them a monthly paycheck every month, that means a lot of risk is taken off the table for them.

The short term debt, they're happy to take the money back because they'll charge you fees or they expect that to turn around pretty quick. So what we have done, and because we're all doctors, we're able to kind of disrupt real estate a little bit. We don't necessarily have to do things the way it's been done.

So we've done a couple of loan assumptions this year, meaning that the loan that the person got three, four or five years ago is what we take. And that's why our interest rate was great. 2. 9 percent because that loan literally was created four years ago, right? What we're doing for our most recent deal is we're doing a long term loan period, [00:12:00] 10 years, but it's adjustable.

And what we do is we buy a rate cap. So it almost becomes an agency adjustable with, uh, So it's pretty interesting. And one of the good things about everything that's happening is that debt market is very interested in still lending money out. We had talked about how that's different than 2008. So way different.

And they're coming out with these new products. So our next deal is going to have Freddie Mac 10 year loan with. Adjustable according to sofa. And, uh, two to three year rate cap. Wow, that's excellent. Yeah. Well, nice product. And so the rates you're seeing with those types of products, where do they land typically?

So it'll be about, it'll start around four with a rate cap of about five. Wow, that's really reasonable. And you'd mentioned earlier that there was also a period of time where it's interest only. So you can. Yeah, yeah. So [00:13:00] it's interest only for five years. So not the whole time, not the 10 years, but for five years.

So then you have a couple options because. You can pay it back early, right? Cause there's no prepayment penalty cause it's adjustable. You can refinance. So you are taking a gamble that in two years, what the rate's going to look like two or three years. But I think most people think that rates are going to be either the same or a little bit lower in a couple of years.

Yeah, I think they may climb a little bit, um, but they'll level off. It'll go like this. Yeah, 100 VIPs within where we are today, plus or minus. I'd prefer minus, but that's okay. And in terms of your strategy, uh, when you're buying a building, are you looking to hold it for something less than the term of the loan or do you have any long term holds?

We do not. So long term is five years for us. We do three to five year holds. And our philosophy is that you're better stewards of your money than anyone else. So [00:14:00] that we try to give it back to you as soon as possible. And about half of our deals, not the loan assumptions, but the other half are 1031 eligible.

So if you're interested, we can roll it on into the next deal and you don't have to pay any taxes. Excellent. Excellent. And so let's talk about the 1031 exchange for those folks that aren't quite familiar with that. 1031 is a code in the U. S. tax system where it says that if you buy a like property within Investment property, not a primary home that you're able to roll all that money into the next deal.

It has to be all of it. Can't say sell a property for 5 and buy a property for 4 and pocket the extra dollar, right? You have to say you buy a 5. You sell a 5 property. You have to buy a 10 property. Right. And that means all the capital gains, all the depreciation for each capture, basically any tax that, you know, it all gets deferred and you can [00:15:00] keep deferring and you keep 10 31, and there's a little more mid, but you can give that to your children, to your inheritance, if you pass away and they get what is called a step up in basis, meaning that the amount that they get taxed is off that new amount.

So if that 5 property is now worth 20, cause you kept 10 The new basis, meaning what they have considered having bought in that is 20. So they actually don't own any taxes on that. Obviously, if it goes up in price after you pass away, then they will owe it. But so that's a way to create intergenerational wealth, right?

Because the property, the 20 property compared to the 5 property is throwing off a lot more cash. The returns, even if it's a 5 percent return, 10 percent return, it's throwing off way more, four times more depending on how the deal looks. So it's a way to really create wealth and you're getting really a tax free loan from the government.

Of up to a [00:16:00] third of the value that you've created. Right. I mean, that's an enormous amount of money, especially when you're talking about, you know, it's interesting in single family homes. Some of our investors are focused on that and trading up from a single family to a quad to a 10 unit to a 20 unit to a 50 unit and beyond into the realm of where you play.

You are able to do that all tax free. Which is a tremendous win. And as you were saying, it's also a huge opportunity to create generational wealth and really create a nest egg for when the great beyond comes, right? Yeah. And you know, not many people do it on the passive side is very often done on the active side because on the passive side, it's a little bit more paperwork and legal structure, but we think it's such a powerful utility that we always incorporate it when we can.

Yeah. And on top of that, the other tax advantaged way to invest is through a self directed IRA. Do any of your partners utilize their retirement accounts? [00:17:00] We do. We accept retirement accounts. We do self directed IRAs, solo 401ks. And it's a good way, especially for doctors, most of their net worth is Uh, tied into the retirement accounts, so it's a great way to be able to invest.

Just know that similarly to investing as a stock market, you're not going to have access to that money until you're 65, but for most people, that's fine. Yeah. And that's the beautiful part about using retirement funds is you're not going to use them until you're 65, 67, 70 years old. Exactly. Yeah. So might as well grow at a tax advantage, right?

Oh, that's fantastic. So I know that with your own podcast, and I know that you participate in other people's podcasts like this one today. Thank you again for that. When you talk with other entrepreneurs, other either active or passive operators, what do What do you see as the difference between the ones that succeed and the ones that struggle?

I'm just curious. You know, it's funny. So every time I get to get a look behind the curtain, I [00:18:00] realized that we're all the same. Everyone has such you think everyone has all these systems built out, but no, most of their lives are hectic. There is those one people that have everything down to a wire, but the rest of us, we're just.

figuring things out as we go. And a lot of times you don't see everyone's setbacks and failures, right? But I promise you, we have a ton of them. The difference that you, you know, it's kind of like courage, right? Courage isn't, it's not being scared. It's acting despite being scared, despite being nervous.

And that's the same with people that are successful, right? They still feel lazy. I still want to watch TV. I still want to binge. I still want to eat ice cream. But despite those feelings, I'm able to. Really force myself and it's force yourself, not because I want a six pack, which I do, but you know, it's cause I want to live a long time to spend with my kids.

And also I want to see my grandkids, right. And not just laying around. I want to be able to pick them up and throw them and play with them and [00:19:00] run around life, right. And. Also create the life that I want to give them. Right. And I realized when I first started that if I would have done the traditional doctor thing, I saved 20%, which is great.

Right. Invested in the stock market that I no doubt I'd be successful, but it'd be 20, 30 years away and really my prime time with my wife and kids would be kind of gone. I think it's really important that not only do you focus on making money, but you try to see what can you do to get that ideal lifestyle, but also make sure you still live and spend time.

You know, we just went on vacation and I told you a deal is about to open up. But I told my team, I was like, Hey, Vacation is vacation. Like I need to spend time with my family because you just never know. You don't, you never know, like nothing in life is guaranteed. So I do what is called a gradual retirement where, you know, I'm doing a couple less shifts a month every year and hopefully get down to five to seven.

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When you talk about C. A gradual retirement. What are you going to do with the rest of that time? You know, obviously you're going to spend time with your family and your friends. Do you see yourself continuing to grow your real estate business? Or are there other opportunities that you see in the world that you'd like to go after and chase?

Yeah. So we have almost a thousand active investors in our group, but there's hundreds of thousands of doctors. And I know a lot of them, uh, some of them are making good investments, but a lot of them aren't. So we want to help them get into good investments. Even if that's not with us, we want to educate them as long as they're getting into an investment.

That's good. Making them money. I'm happy. Does it have to be with me? In a couple of years, I want to open an art gallery really into art, but what I want to do is normally when you do art at a gallery, 50 percent [00:22:00] of the proceeds goes to the gallery and 50 percent goes to the artist. But what I want for it to do is that 50 percent goes to artists.

They got to live, right? But the other 50 percent goes to. Charity, all of it. So try to make it a nonprofit where we're helping people make their lives better through art, but also make the world a better place. Excellent. So tell me about the charities that you're passionate about. Yeah. So the big one that I've done some art shows in the past charity art shows is doctors without borders.

Yeah. They're just amazing. You know, when even like in Syria and Libya, when their own Country's doctors had left because it was too dangerous for them. Doctors without borders still went in there at risk of bodily harm to help people. They are all medical professionals. They could be making hundreds of thousands of dollars in the U S but they go there and make pennies on the dollar to help people.

So something I really want to give them all the [00:23:00] resources they need to do what they do. An amazing organization. They do God's work truly. So having been a doctor and obviously you're highly intelligent and you could probably do anything. Did you have mentors or people that showed you the way in the real estate world?

And I'm curious what they told you, what was the best advice they gave you? A lot of times we will ask people or we'll try to find a mentor, but some of the best mentors I've had are books and you can, you can learn so much. You're really learning someone's lifetime in a couple of hours. And so I read, especially on passive real estate that I didn't know a ton about.

I read as many books as I can and I incorporated it into our course. Definitely my partner, Dr. Peter Kim, he created a brand called passive income MD and he's Really giving me a chance. Cause when I first started with him, I owned one property. I didn't really know that much people would ask questions to me and I would have to be like, give me a second.

I Google it, [00:24:00] but after Googling enough questions, I ended up learning a lot. Yeah. Yeah, exactly. You know, and especially us doctors, we have almost what I call productive procrastination where you want to get started in your, you need a well defined path, right? Medicine. It's very well defined pre med medical school, intern your residency, right?

Attending potentially a fellowship, right? Well worn for the past a hundred years. But then that's why so many people are, you know, there's 18 year olds that are killing it in real estate. And so a lot of times we will be like, okay, let me read another book. Let me go to another conference. Let me take another course.

Right. And I think all of that will get you 80 percent of the way there. Right. And probably just one or two bucks. You don't need to do that much, or maybe a course, but the rest of the 20 percent is just Going out there having setbacks and nice thing about real estate [00:25:00] is the chance of your investment going to zero is very, very slim, like very slim.

Most of the time, I mean, maybe you lose a couple thousand bucks, but consider that the cost of education, right? Everyone is willing to pay 50 to 200, 000 for an MBA, but if you put that money into real estate, you'll learn a lot quicker. Without a doubt. And the fact is that, and you alluded to it earlier, time heals, right?

If you find that you're. Underwater with a particular property, if you can figure out a way to hold onto it for a period of time, appreciation and cash flow growth, and if you manage your expenses well, you can survive that, right? It doesn't have to be a bad story in a blip in your financial journey. Yeah, my partner owns some properties in Memphis that he just sold and he hated it.

He hates active real estate, leaks and tenant problems and all this issues. And then he finally sold it and he did some math, got a 32 percent IRR. And he's like, yeah, I guess it turned out okay. Yeah, yeah, [00:26:00] yeah. But it works out and you're right. Just hold it long enough, then it'll be fine. Yep. Indeed. So you mentioned books and you and I share a love of reading and I think we're both very curious people.

How do you consume information these days? Are you still more of a book reader or do you listen to podcasts or you mentioned conferences? And I'm also curious about what you're reading these days or paying attention to. Yeah. So it's hard. I have, you can't see it, but there's like. A bookcase of like 300 books that I bought and haven't read.

Yeah. I just keep adding to it. I'm like, yeah, this is like, seems like a very good book. I'll buy it. It's hard to find time to read it. Read a lot of blog posts and I listen to a lot of podcasts, like. I'll be 20 to 30 hours worth of podcasts a week, especially when you listen to podcasts by the authors who wrote a book, I feel like you get 60 to 80 percent of the gist of the book by listening to the podcast.

Cause a lot of it is just repetition and repetition is needed, [00:27:00] right? Cause we're kind of hardheaded and they need to show us the same thing in multiple times. But if you listen to the podcast and get what they're saying, then you can get most of the book and the other part, and you mentioned this earlier, is The podcast, I get to talk to cool people like you find out what you're doing.

And I'm able to really talk to people way above my league. Like I have Brandon Turner on my podcast in a couple of weeks. I mean, he's like a superstar in our world of real estate, but he's such a cool guy. Being able to talk to people like that, I think it's something that you just can't get out of a book or a podcast I try to consume.

And it's probably. Um, I may actually be consuming a little bit too much and that's something that I've been considering because it is to consume a lot, but the more you consume, the less you're able to create. And at some point you want to start creating more, right? You want to take all the stuff that you've learned and synthesize it and remix it and make it available to people, right?

That's kind of what my podcast is. That's what [00:28:00] your podcast is, but that's something that I've kind of been battling with. How do I consume enough to learn? But not so much that I don't have time to create. So I have a secret there. So one of the things that I do is I'm reading a book or I'm listening to a podcast or an audio book.

I'm big into audio books. I drive a lot because I'm more of an active investor. So I'm visiting properties. And the thing that I do is when I hear that, I was talking about gold nuggets, right? When I hear that gold nugget, I grab it and I apply it. Right then and there I don't wait. And so what it allows me to do is I'm constantly iterating in terms of process, you know, how best to wow your residents, how best to manage an asset, lower costs, how to grow revenue, what are more efficient ways to buy and to support your residents and so on.

And I'm always looking for those gold nuggets. When I find them, I'm notorious for listening to something and immediately calling a member of my team and saying, Hey, I just heard this. And I want to do it this way, or I want to apply [00:29:00] this lesson here. What do you think? And let's get it into our operation.

And that seems to help because I tend to get into information overload, where it's just so much information that it's hard to figure out, okay, what do I do next? Yeah. Do something similar on Slack as soon as mom, I just heard this, but my problem is I listened to a podcast about baking a cake just because it sounded interesting and it was the science behind it.

It's probably not going to bake a cake anytime soon, but it was really interesting. I think based on your blog, I think you prefer ice cream anyway, but yeah, exactly. So, okay. So in terms of the deals, you'd mentioned that you've got a deal coming up in Phoenix. Is that right? Yeah. Yeah. So we created a special landing page for your guests, R E U.

Dot ascent equity group dot com. So we'll have more information there, but yeah, it's in Glendale, Arizona, which is about eight miles from Phoenix center. It's a sub market and it's actually, yeah, [00:30:00] the second hottest sub market in all of Phoenix. So everyone's heard that Phoenix is pretty hot, you know, it's been softening a little bit, but Glendale is on fire.

It's 120 units and what we really love about this deal and what we've been focusing on for the past couple months is cash flow right now. Cash flow is king. Absolutely. So it's 5 percent cash flow on day one with current interest rates in the cap. So it's just throwing off cash in year two, seven and a half percent in year three, it's 8%.

So this would actually be an ideal property to hold long term cause it's throwing off so much cash, but our plan is to hold three years sell, but we're getting a 10 year loan on it. So it gives us a bunch of optionality, which is super important, right? So say in two years, we can refi right. And give you all your money back or half your money back.

And then refi again and refi again. It's what we call the infinite return model because you have. Zero money in the deal, but you're still getting all this cash, [00:31:00] right? And it's 120 units, Glendale, Arizona. And this is also very important. We are doing what we consider very light value add. So value adds been super hot over the past couple of years, but.

People are starting to realize that they don't need stainless steel appliances or granite counters and all that stuff. So they're not necessarily willing to pay you this much. So we're not doing that. What we're doing to do is we're going to add a half bathroom. People love bathrooms. And a carport, as you can imagine, when it gets 120 in Phoenix, people are going to want a nice cool car.

So those front seats get hot. Yeah. Yeah. Yeah. And the steering wheel, I'm actually trying to grab that steering wheel and it's, you have black, yeah, it's just too much. So we're going to do very light value. And what that does is it takes a lot of what we call execution risk. If you're trying to do a million things, a lot of things have to be successful.

But if you're trying to do one or two things, then the business plan is going to be a lot. Better. The last thing that we love about [00:32:00] this deal is the cap rate, which I'm sure your people know, but it's kind of the market sentiment for a property. So the market sentiment in Phoenix is really good, meaning the cap rate for most properties is really low, but what we think is going to happen in a couple of years is that market sentiment is going to get worse.

So the cap rate is going to get higher and that directly affects your returns. Cause if the market sentiment gets worse, when you sell the property, then you're going to get less for it. Right. Kind of intuitive sense, but we're buying it at, and so others are buying at like 4%, which is very good. That means everyone thinks the market is hot.

And we're buying at a 5. 3 cap, meaning the seller, the market sentiment is bad. So we have a humongous buffer. Meaning if the market sentiment gets even worse than what we are buying at, we'll still make money. And that's important because you always want to assume that when you're buying it, the market sentiment is going to be a lot worse.

And so that means a higher cap rate. And that, you know, that's kind of a quick rule of [00:33:00] thumb. Like what is the cap rate I'm buying at? What is the cap rate they're planning on selling at? And that number should be different and it should be higher. Yep. Agreed. Higher is always better. Yeah. It's wild. Like once you start seeing some of these numbers and we have what is called a sensitivity analysis, meaning we give different returns depending on what variables change, but by far the highest thing is the cap rate.

And that's really just a projection. So you want it to be a very conservative projection, meaning you want the number to be a lot higher than what you're buying at. Yeah. So for those out there that are listening to this, what I'm hearing here is yes, that Renee and his team are betting on the fact that the properties of that market is going to remain hot, or at least not cool off too much, but they're also planning for worst case scenarios.

And that's where cashflow saves you, right? Is in an economic downturn, if say the recession that they keep saying is coming, and it certainly is coming at some point, if that 8 percent or [00:34:00] 10% Turns into 16 or 18%. Yes, your values will certainly drop. Your cap rates will compress or extend actually, and the values of your multifamilies will drop.

However, 2 things I'm hearing here. 1 is cash flow, the cash flowing from day 1, and it doesn't much matter what the property is worth. Today, tomorrow, it's, it matters what it's worth three, four, five years from now. And you're also planning on a solid plan B of having financed this property all the way through to 10 years.

So if you have to hold onto the property for a year or two, it's really not that big a deal. Yeah, and the other number that's really good to look at. So your cashflow, but also your debt service coverage ratio, meaning how much money are you taking in and how much money is going out and what's that ratio.

So most banks require over 1. 25. So you should have 1. 25 times more money you're making than you're sending out. Ours is 1. 77. So it's [00:35:00] way above that. So the property could take a huge hit and rent. It could take a huge hit and vacancy. All this. Stuff can happen and we'll still cover our debt, which is very important.

So one, I have to ask them 1. 77 is a very specific number, right? So how did you arrive at that? It's the current numbers. So it's where we look at the current rent and it's based on the T12 and the T3. So we look at the expenses for the past one year and what the money, the property is making right now.

And that's where we come to number four. Okay. All right. So it's, this is a deal specific DSCR. Correct. Correct. So this deal specific, but most banks will like you to have around 1. 25. We like to have closer to 1. 35, 1. 5, but it's hard to get those because interest rates, which is your largest expenser. So your expenses are going up, but your revenue isn't kind of staying about the same, right?

So you expect that number to [00:36:00] get actually a lot lower, and we've seen the numbers as low as 1. 03. So you're making 3 cents on the dollar more than you're spending. So I think all of us with home budgets would be a little scared if we saw that. Yeah, that means you're going to start spending money on credit cards, which is not a good idea, right?

Yeah, yeah, exactly. So, I've really enjoyed this conversation, and I, again, I appreciate your time today. I know how busy you are, but, you know, I'm curious, when you're not on podcasts talking about real estate or buying 120 unit buildings in Phoenix or wherever else you're buying them, what do you like to do personally?

What do you do in your spare time? I really enjoy fitness. I have this pretty extravagant home gym and it's something that I spend a lot of time on. And once my kid gets a little older, we'll do more hiking. I just bought this cool, like a little hiking backpack for him so I can take him around. But yeah, we do a lot of hikes, try to go in nature and just a lot of kind of fitness stuff.

Yeah. Yeah. So your son is 17 months old. Did I hear that right? [00:37:00] 17 months old. Yeah. So he's just starting to walk. He's got his feet under him, thankfully. Right. Yeah. And so hiking, I imagine you're probably not that far off, which is fine. Yeah. Yeah. Yeah. Yeah. We went to Maui recently and took him in the backpack and yeah, it was pretty great.

That's a lot of fun. Well, that's great. I love them at that age. I have teenagers and I miss those days, although I love where they're at because it's, you can have a real conversation with a teenager that you can't have with a baby, but baby years are fun. A lot of fun, if people want to learn more about you or your business or the course that you're selling, if there's doctors out there who are also looking to learn from you, what's the best way to reach you?

Yeah. So I'm very easy to get ahold of via my email. Prenay P R a N a Y. Ascent equity group.com. And also I made a landing page and actually you can schedule something directly on my calendar through that landing page, REU dot ascent equity group.com. [00:38:00] Excellent, and thank you for doing that again. We'll make sure that that URL on your email addresses in the show notes so that everybody knows how to reach you.

Yeah, awesome. Thank you. This was so much fun. Yeah, I had a blast. Pranay, thank you so much for your time and good luck to you and look forward to hearing more stories as your business grows. Congratulations. Thanks. Talk to you soon. This has been the Real Estate Underground Podcast, a Clark Street Capital presentation.

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