Ed Mathews

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 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 Ed Matthews and this is Real Estate Underground. This is the Real Estate Underground Podcast Show number 83. Greetings and salutations, real estate undergrouners. It's Ed Matthews with the Real Estate Underground Podcast. Thank you so much for joining us today. Today is an interesting conversation because this lady that I'm about to introduce is a professional capital raiser. She operates, and she is also someone who is an expert in underwriting and analyzing both markets, deals, sponsors, you name it, and so Vessie Kapulian. Thank you so much for joining us today. You're with DBA Capital Group and I'm grateful for your time and your expertise. Welcome.

Vessi Kapoulian

Thank you so much, Ed. It's a pleasure to be here, and I look forward to our conversation.

Ed Mathews

Absolutely, absolutely. So where I found you is. I don't really watch a lot of TV and I don't listen to the news because it makes me sad and angry, right. So I listen to podcasts, and one of the podcasts actually several of the podcasts I listened to you were a guest on and you were absolutely brilliant. So I spent a better part of a month begging you to come on and you graciously agreed, and so I'm grateful. But for those of us out there that haven't come across your story yet, you want to tell us kind of who you are, what you do and how you got here.

Vessi Kapoulian

Yes, I'm happy to share. I'm originally from Bulgaria, so my journey started a while back behind the Iron Curtain. One could argue that it was also a good opportunity because at the time when people talked about investments, they really talked about hard assets, so the seed for real estate was planted a while back. They didn't come from a family of me's, but my dream was to study in the US. So I studied hard, worked hard, earned a full scholarship and that's what brought me here.

Vessi Kapoulian

From there on, I kind of followed, you could say, the traditional path of going to school, getting good grades and quickly realized getting a corporate job.

Vessi Kapoulian

And quickly realized, after a few clues along the way, that I was climbing the wrong ladder, if you will, and the await recession being one, my own employer going through a couple of restructures, and that really prompted me to take a step back and think well, there is only so much you can control. But what can I control? And I decided to start a small set up a small retirement, a nest egg, by acquiring my first property out of state. And so happy I did that because that worked out beautifully, which prompted me to buy a couple more and at that point of time I think the light bulb went on as wow, this is not just a small retirement stake and a way to diversify away from the stock market. It could be something bigger. And the desire to scale is really coupled with ability to leverage. My background and analyzing deals, selecting markets, asset managing the portfolio prompted me to look into multi-family. So I made that transition and looking to continue to grow and scale from here.

Ed Mathews

Excellent, excellent. So I'm curious about your choice of asset class. So you and I obviously share that right in that I'm a multi-manly operator as well, and so what drew you to multi as opposed to another asset class, single family storage, whatever?

Vessi Kapoulian

A couple of things. One is, as I briefly mentioned, is being able to leverage my experience. So I started in the single family space, actually in the residential, and even though that's a different asset class, there are some similarities and at the end of the day, it's still in the residential space, so I could leverage the skill set and the knowledge. But secondly, as I was looking at different asset classes and their risk adjusted returns, multi-family emerged on the top, being a little bit more risk averse. I took that approach and decided to stay in my lane and that's what inspired me to look into that.

Ed Mathews

I was on a podcast yesterday and the gentleman asked me a similar question. For me it came down to my Maslow's hierarchy of human needs. Right, the base of that is shelter, right, and other things, but shelter is one of them. And the fact that they are human beings require, or prefer, a roof over their head. And if you provide a good product, then you should be able to fill your buildings very quickly and serve those people and have them live there a really long time and pay rent over that time span, right.

Ed Mathews

It makes a lot of sense to me as well. Yes absolutely.

Vessi Kapoulian

It's very tangible, achievable and you have the ability to do good while you're doing well. Absolutely why not Absolutely? We totally agree with that.

Ed Mathews

Yeah, I was. I was talking with a friend of mine who's trying to figure out you know, what exactly do you do for a living? And I said I buy crappy apartment buildings From landlords who aren't very good at their jobs and then we make them clean and safe, and then we make them beautiful and Hopefully the folks that live there live there a really long time and we take good care of them, right, I mean, that's it's. It's.

Vessi Kapoulian

It's not an easy business but it is straightforward, right, right. It's a win-win for the resident, the investors and the operator.

Ed Mathews

Absolutely, absolutely. And you get to lay your head down on the pillow at night, knowing that you're doing right by those people, right.

Vessi Kapoulian

Right, yeah, exactly.

Ed Mathews

So so, in terms of you know your business, one of the things I think is true is you have not left corporate America. Is that true?

Vessi Kapoulian

That is. That is correct. I'm still doing this in parallel. I hope I'm having holding a w2 job.

Ed Mathews

Wow. So do you not like sleeping, or is?

Vessi Kapoulian

Yes, it's. It's still a still a side hustle for me. Eventually I hope to be able to transition into this full time, but it takes time. Real estate is it's like a marathon. It's not on something that brings quick riches overnight, so I need a little bit of a longer runway. I one regret I have is not starting sooner because, again, these things I take do take time, but I'm in this for the long run and willing to put in the work I. I really enjoy what I do. I don't. To me this is not work. So Evenings, weekend and early mornings, I just have it. Have fun and love, love, business.

Ed Mathews

Well, it's amazing when you find your passion and you can actually make money at it. It it really doesn't. It may be a job, but it doesn't feel like one right. Exactly exactly it's.

Vessi Kapoulian

I wouldn't call me to call me because there is a lot more work involved. But again, Right, exactly yeah so you know it's interesting.

Ed Mathews

I followed a similar path and it took me a better part of seven, almost eight years for you know our business here to turn from a side hustle to to an actual operating business and yeah, I mean it was Whole lot of fun and I too wish so. I bought my first property when I was like 41 and that was about 12 years ago, and I wish I had started at 21.

Vessi Kapoulian

Right, right, yeah, so that's, that's the one regrets. I would encourage folks Don't wait, don't sit on the sideline.

Ed Mathews

Well, it's the old axiom. You know, the best time to buy real estate was 10 years ago. The next best time is right now right.

Vessi Kapoulian

Oh, I love this saying it could not be especially for real estate or anything in life, but it could not be more true, yeah.

Ed Mathews

So so I'd like to talk about. You know your expertise and what you enjoy doing within your business. So you know, obviously underwriting is a huge part of your business. So I would love to understand your process in terms of let's start at the macro level, let's start at a market and then we can work down to a property. So how do you, when you're, when you're thinking about, okay, the, the market I'm in is kind of played out and it's time to search for another opportunity, you know what are some of the things that you look for in a, in a market or a region that that kind of pique your interest as an investor at an underwriter.

Vessi Kapoulian

Yes, and I'm so glad that you started with the market, because it's very tempting and many times people want to start with the deal. And, yes, there are a lot of things you can do to a property, but you cannot approve it and relocate it. So it is important, right, that's your tailwind during tough times or some will propel you further during good times. So I really resort to the fundamentals, and for me these are the population growth right, you need people moving to the area, which drives demand for housing or potentially new development opportunities. Secondly, job growth ultimately won't paying tenants tenants who can afford to live their jobs, enhanced income, which so median household income.

Vessi Kapoulian

Growth is another factor that I look at Job quality and job diversity. You don't want to be in a single employer or single industry town, because what happens if leave? Right, the consequences could pretty dire. And quality of jobs also matters, because when you look at, say, high paying or export related jobs like technology or manufacturing Basically things that are income generating Versus maybe lower-end warehouse jobs, I'm sure a certain company may be putting in a lot of warehouses during peak times, but those jobs could quickly disappear during times.

Ed Mathews

Yeah, they're one of the first bit tronches of Employees to get laid off right.

Vessi Kapoulian

They don't exactly. So those are the fundamentals, and then it's drilling into the Submarket and looking at crime rates, poverty rates, again, median household income, rent to own, rent to income ratios, home values and a whole lot of Factors, but the first four that I mentioned is where I start with the funnel, if you will, before digging to the specific Submarket you know, one of the things you just said is interesting and I want to, I want to drill into it a little bit and that is around home values.

Ed Mathews

Right, you're buying apartment buildings, so you know those are not in Above five units, it's a commercial property and and they there's not necessarily a a direct relationship between the Types of property. So I'm curious, why home values? What does that tell you?

Vessi Kapoulian

when you, when you see that those figures Absolutely, and there are a few things to consider right. One is the price per per home single family home versus price per door Because ultimately then that leads to a decision Well, if it's cheaper to buy a home, most people will probably do that Versus renting one, and of course there are a few other considerations that go into that, like mortgage payment versus rent payment. So that's one. But secondly, when you look at home values and you see appreciation over time, that's also an indication of the underlying market, of the residential market, potential demand, and so that's a good indicator that kind of tells you are we going up down or new right, and ultimately you make a decision, along with a few other factors that I noted.

Investment Strategy and Property Criteria

Ed Mathews

Indeed, indeed. So you know it's interesting because you know I look at. I've worked in the past, and actually do now, with Charles Dobbins, who's one of my mentors, and you know one of the things I got from him was you know, you want to know everything that's going on in a market and a sub market right, and so one thing that I've incorporated into our underwriting process is you know, we're looking at the city or the county's tenure plan. I'm also subscribing to the local newspapers because I want to know, you know, what the business community is doing and what you know, because that's a pretty quick, efficient way to tap into you know what the next 36 months look like, because if a convention center is coming in or they're, the mall is falling apart. You know, pretty good chance you're going to see that in the paper.

Vessi Kapoulian

Absolutely, and you need to be aware, right, because these are the events that also impact your business plan, right, like one of my markets, for example, is Orlando, and one of the largest county within Orlando is Orange County and earlier this week there was final resolution to it, but almost for a year, right, there was the question of will rent control be implemented? So you need to follow those news and a lot of times people think, well, it's Florida and yeah, ultimately it did not pass because it's illegal in Florida. But what if it did right? And it wasn't in Florida specifically, right, it wasn't until late seventies when rent control was prohibited. So that's not something outside of the question. So you really need to follow those trends and events because that ultimately affects your business plan and how you navigate, knowing that information.

Ed Mathews

Absolutely, and there was rent control provisions that were being considered here in.

Ed Mathews

I mean, you're obviously in Florida, I'm in Connecticut. Same thing People are looking at I think COVID is informing a lot of that, at least here in the Northeast and so a lot of legislators are looking for ways to navigate when not should, but when the next pandemic or health crisis or crisis in general happens, what are the tools that they can put in their toolbox to manage. You've got to pay very close attention to that, because here in Connecticut there was not only was there, well, there was an eviction moratorium that actually just wrapped up a few months ago, and a lot of residents took that as oh, I don't have to pay. That's not what the governor said, but yeah, you do need to pay. And so obviously, paying close attention to the local and state laws is really important and, in addition to the legislation that's potentially coming down, in the future?

Ed Mathews

Right, absolutely so in terms of underwriting, let's take down another level. When you're looking at properties, what are some of the things? What are the attributes? What are the financials, the returns? What are you looking for for you and your investors?

Vessi Kapoulian

So we focus on stable value adds, class B, c plus properties, no heavy repositioning. We're staying in our lane and looking at more traditional or market rate multi-family. So not considering student housing or condos or assisted living facilities does anything of that sort, ideally something newer 1985, 1919 or newer property. And I would say those are the main characteristics Just at this stage, looking to avoid higher risk or heavier lift kind of assets.

Ed Mathews

Yeah, and go ahead.

Vessi Kapoulian

I was going to say the second part of the question. As far as returns, what we're looking at is ideally 15% to 20%. Irr 1.5 to 2 times equity multiple over a five-year period,3 to 7-year period. Cash on cash anywhere from 7% to 10%. Those would be a few of the metrics that shape our investment decisions.

Ed Mathews

Okay, excellent, and so when something pops up in your radar, so you're looking in your back, you're looking in your backyard, predominantly right in Florida, just Okay.

Vessi Kapoulian

Yeah, just to clarify, I'm actually based in Los Angeles, so you are. So you are. Yes, yes, so I'm based in LA, thank you. I'm investing in Florida and, of course, I don't do this on my own. Multifamily is a sports, so I have partners who are there in Florida as well, and we collaborate on those opportunities.

Ed Mathews

Yeah, All right. Well, I had it in my mind that you were a Floridian, so thank you for setting me straight.

Vessi Kapoulian

My Norris.

Ed Mathews

Yeah, so you know two very interesting markets, right, and you know being in Southern California versus, you know Central Florida, two dramatically different markets. Do you ever look for properties? You know closer to the West Coast? Are you predominantly focused in the Sunbelt?

Market Perspectives and Investment Strategies

Vessi Kapoulian

Focus on the Sunbelt. That's where I started. I've always invested out of state because my investment goal was cash flow. Secondly, landlord friendly versus tenant friendly locations yeah. And then the last factor is liquidity. To get properties to cash flow here in LA, you typically need to put a lot more money down and properties are a lot more expensive. So my dollar goals way further in the Sunbelt. So that's what shaped my decision to look out of state. Yeah.

Ed Mathews

Makes sense. So with the economy kind of changing and when inflation went through the roof and rates also jumped up, I'm curious what your perspective is on the market, especially down in the Sunbelt there.

Vessi Kapoulian

Yes. So we're going through very turbulent waters, but I believe long term, in the asset class, which is multifamily, I do think there will be great buying opportunities coming on the horizon. Unfortunately, due to some distress that some owners may experience and due to short term debt that I got into, that is floating rates, and we all know rates rose pretty rapidly, pretty much starting since March of last year, and we're probably due for another rate hike Just one more, possibly at least one more Until the Fed pause after. Maybe a lot of it would depend on other economic indicators. I know they've been really focused on raining in inflation and that is coming down, but not as fast as they would like it to be.

Vessi Kapoulian

So you can't really control what the Fed would do or what the macroeconomic events would be. So in those scenarios, I think it's important to focus on fundamentals, making sure you do your diligence upfront, you underwrite upfront with realistic, conservative assumptions, set adequate reserves aside, because unexpected things always happen during good times or bad times. So for me it ultimately boils down to fundamentals and the things you can control. And again, in the long run, I do believe in this asset class, which is why, despite some of the uncertainties in the market. We're still continuing to look for properties, underwrite properties and, of course, make offers only when the numbers make sense. So not going after any deal, but only the ones that make sense.

Ed Mathews

Right, yeah, we make offers, as I think you know, I'm sure you know that asking price is always a lagging indicator, and so the fact that the interest rates went from the low single digits now into the 789 plus right, depending on the deal people are. There was a Moody's presentation on what the outlook looked like, end of last year I think, and they were saying and I've backed this up with, I've researched this with local banks here in Connecticut and it was about 23% of the adjustable rate mortgages, the bridge loans, that are not going to be refinanced because they got it at 3.5% and now they can, you know, they can refi at 7.5 and there's not enough. There's not enough meat on that bone to cash flow, right.

Vessi Kapoulian

Right, Right, or they have to bring more capital right to bring the LTV to a point where it can cash flow appropriately. So, unfortunately, as some owners will be forced to sell, and beyond that too, rents are also moderating right, they're not rising as rapidly. So I know we saw a few or not a few, many deals that were about a negative leverage over the past couple of years and the rapid rent growth in some markets 20 to 30% maybe offset some of that imbalance in the short run, but that's no longer there.

Ed Mathews

So I agree, rents don't always go up in perpetuity, and neither does value right Right. And so you know it's an interesting point you make, because when you're underwriting a property you know being conservative and looking at historical norms, you know I've seen so many offering member andems where you know everybody's assuming, you know, 7% rent increases year over year for the first in the next five years and you know, the cap rate is either going to stay exactly where it is or it may even drop a few bips, and neither of those things are true, right?

Ed Mathews

And so if you based a model on 3.5% interest rate buying at a 4-cap and you were hoping that you know rents would overcome that purchase, College getting tight right now, right?

Vessi Kapoulian

Absolutely, yes, absolutely.

Ed Mathews

And you know the thing is, historically you look at mortgage rates over the last 50-plus years. We are right on the historical mean. Yeah, the fact is that it's not abnormal?

Vessi Kapoulian

Yeah, it's not abnormal. I think probably that's where we'll settle in the long run, which then you bring up a great point with cap rates. Right, they have reversed and continuing to reverse in any market. So are we going to settle at 6%, 7% percent? I don't know, and it's very market specific as well. It varies by market and sub market. But those are things to take into consideration because, especially a thing like cap rate, it has a multiplier effect on the valuation. And so I always encourage investors look under the hood and peel the onion, because whatever numbers you put, that's the kind of output you're going to get. Don't fall in love with the returns presented to you. Look under the hood and make sure you're comfortable with the underlying assumptions of the operator.

Ed Mathews

Absolutely, absolutely. So you mentioned earlier that you have partners, and I assume over the course of time, you've also had either coaches or mentors, formally or informally, and so I'm curious about how you gained your experience and how you the mistakes you made and how you overcame them. So I'm going to ask a question about advice. So what is the best advice you ever got, and I'm curious, who gave it to you?

Vessi Kapoulian

Yes, that's a great question. To me, it's be bold and take action. I got this from my uncle, who passed away, but he said if you squeeze a stone, and turn it into water, and that's be persistent and consistent. Nothing is easy in life. Right Difficult is almost the rising, especially when you're an entrepreneur. There are always challenges and you need to. You have two options you can sit there, cry, lick your wounds, or you can get up, own the mistake or extract the learning from that experience and keep moving forward. So that would be that's one thought that comes to mind as you brought up the question.

Ed Mathews

Yeah, no, that's really good. The fact is that, wanting to grow, somebody once told me that the reason that being an entrepreneur hurts is because growth hurts, right, if you're not in pain in some way or shape or form, you're just you're not thinking big enough, right, and so complacency is the enemy here, right?

Vessi Kapoulian

Right, absolutely.

Ed Mathews

So, obviously, being a leader within your company, I fundamentally believe that leaders are readers and so, constantly, people are people like you are out there trying to learn more, and it used to be. I read X amount of books a year, and now, with podcasts and YouTube and audio books and regular books and all that, I'm curious. First off, how do you take in information, how do you sharpen that your saw? And I'm also curious, who are you paying attention to these days? What do you read and then listen into?

Vessi Kapoulian

Yes, so I like to consume multiple sources of information. Of course books is one of them, like you mentioned, podcasts, meetups connecting with fellow investors, conferences, of course, reading the news. Lately I will say I've been following actually a few individuals, mostly due to my underlying desire to learn and study the markets even better and be and inform my own decisions, versus solely relying on the messaging by the Fed and our government. So, those few people in the Harry Dent world, a number of books on market cycles, ray Dalio, that they both look far back in history and really looking to understand what are the underlying factors, because history repeats itself and, for better or worse, we don't learn from our mistakes. And again, I'm naturally curious, always looking to learn and grow and that kind of spike, my curiosity in learning more and devouring their content.

Ed Mathews

Yeah, staying curious is important. I mean, I'm at 53 and I tell people I still don't know what I want to do for a living. I mean, this is my passion, I'm loving this, I'm doing this, but there may be a day where I want to do something else. I don't know.

Vessi Kapoulian

We'll see you learn every day.

Ed Mathews

Every day, and that's the learning growth. Absolutely, absolutely. So let me ask you, knowing what you know, if you had to start over, what would you do differently?

Vessi Kapoulian

I know this may be a very common saying, but I really mean it. I really wish I had started earlier and, specifically for me, the vehicle to personal freedom, financial freedom and living an impactful and meaningful life is real estate. That's not the only vehicle, but that's the vehicle for me, and I wish I had taken action earlier or started earlier and probably figure out a way to get in the right circles, because the circles I was in were really following the more traditional path and so my vision of success was defined by my environment at the time. So I really wish I had explored alternate resources and seeing, being able to see there is a bigger world out there and there are multiple ways you can make your dreams real.

Ed Mathews

Absolutely, absolutely so, vessie. I'm curious when you are not working your day job and you are not investing in real estate, what do you do for fun? What do you like to do outside of work?

Vessi Kapoulian

I like to spend time with my family, including my fur baby, and I also like running. At one point of time I ran marathons and half marathons. Now I just jog and run for fun several miles a week, but those are some of my hobbies.

Ed Mathews

Excellent, so tell me about your fur babies. Are you a cat person, dog person?

Vessi Kapoulian

Yes, it's a small Yorkie and his name is Ricardo. Yes, ok.

Ed Mathews

Dogs are the best. I was talking to my wife which we have two golden retrievers and I'm fairly convinced that they are way better than most humans. They're just unconditionally loving and fun and relaxing and they're incredibly smart.

Vessi Kapoulian

Yes, yeah, absolutely.

Ed Mathews

So, vessie, I've really enjoyed our conversation today. If people want to reach out and contact you or get to know you, what's the best way to do that?

Vessi Kapoulian

The easiest way to connect with me is through my site, wwwdbacapitalgroupcom. D is in dream, b is in believe, a is in achieve. My phone number is there, email, direct link to my calendar, as well as a ton of free educational content, including my first digital book, the Busy Professionals Quick Guide to Investing in Multifamily, designed to educate and empower investors.

Ed Mathews

Excellent, excellent. Well, congratulations on the book. I know how hard it is to write one so and and do basically two jobs at the same time and have a life on top of it. So I, you, must sleep about 45 minutes a night. I, with respect when you're having.

Ed Mathews

Yeah right, it's exactly Exactly so. Vessie Kapoleon of DBA Capital Group. Thank you so much for your time today. It was really a pleasure to hear your story and it's nice to finally connect in in real life so I don't have to just listen to you speaking to other podcasters. Now I get to call you friend so well. Thank you very much.

Vessi Kapoulian

I really enjoyed our conversation. I didn't thank you so much for having me as a guest.

Ed Mathews

Absolutely All right Thanks.

Vessi Kapoulian

Thank you.

Ed Mathews

This been the Real Estate Underground Podcast a Clark Street Capital presentation. Thanks for joining us. If you're enjoying the show, please remember to subscribe and share it with your friends. If you'd like to learn more about Clark Street Capital and our upcoming projects, please join our investor club at clarkstcom slash join Until next time. Happy investing.