Dr. Pranay Parikh is a medical doctor who began investing in real estate to grow his income. He bought a four-unit multifamily property but soon realized his time would be better spent focusing on his full-time career and investing 100% passively. He decided to help other doctors, dentists, and healthcare professionals do the same.
Today, Pranay is the president of Ascent Equity Group, which helps individuals build wealth through low-risk, high-growth multifamily investments in strong markets throughout the U.S. with a focus on healthcare professionals. He owns $200M in CRE, 1,200 units, and four properties as a JV, and is also an LP of over $1B in investments. In this episode, he shares why he believes in managing the manager, his criteria for vetting sponsors and deals, and how he gains leverage with operators.
Ever the actively passive real estate investor, Pranay has weekly phone calls with property management. “Anytime there’s more than $1,000 spent, we want to know why,” Pranay says. “And we always compare that to pro forma.” He tasks himself with maximizing the profit for his investors by ensuring that the sponsor or operator is sticking to the plan.
When vetting a sponsor, Pranay looks at their track record first. He prefers sponsors who have been through a recession and who have been working together for at least five years. He likes to meet them face to face and walk the properties as well. Reputation is also a major factor. “It’s a really small world in real estate,” Pranay says. “You’d be surprised.”
When it comes to deal selection, Ascent employs its own asset manager. “Usually allocators like us don't have their own asset management, but we really believe in managing the manager,” Pranay says. “So we are very selective with the deals we look at.” They underwrite each deal from scratch, then have their asset manager examine it as well before signing on.
Ascent typically brings anywhere from 90% to 97.5% of the equity to a joint venture deal. This gives them major decision rights. They have institutional-level oversight over the properties, which allows them to visit sites as often as every other week.
The number-one priority, Pranay says, is always to make sure the business plan is getting taken care of. “We have investor overrides for the decisions, buy/sell rights — we have all of that,” he says. “We really want the power to make sure our investor is taken care of.”
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with Pranay Parikh. Pranay is joining us from Los Angeles. He is president of Ascent Equity Group, which focuses on helping healthcare professionals invest in multifamily syndications. On the JV side of things Pranay is in ownership of 58 million in commercial real estate across four properties, and his fund is an LP in over a billion dollars in investments. Pranay, can you start us off with a little bit more about your background and what you're currently focused on?
Pranay Parikh: Yeah, so I am a medical doctor, I graduated a couple years ago, and was doing medicine for a while and thought about "How do I want to grow the money that I make?" I worked a lot, but now I was finally making a decent paycheck, and I wanted to see it grow. My parents had owned some real estate, and I bought a four-unit, basically right out of school, and was planning on just buying one a year. But after my first one, I realized I got super-lucky. The next one took forever to buy, and I realized I could have just spent that time working more, and investing passively. So now I invest 100% passively, and help other doctors and dentists and other health care professionals do the same.
Slocomb Reed: Nice. I know several medical professionals, doctors in Cincinnati who do the exact same thing - they buy a four-family to try it out, or they house-hack a small multifamily in a really nice part of town, and the plan is buy one a year. And they run into a lot of hurdles and headaches. Because when they buy their first four-family, they plan to self-manage, but also they have a profession that doesn't allow them much time flexibility... So they don't really have anyone else on-call for their property, but also they don't want to pay management fees, and also, at least in Cincinnati, it's difficult to find a really high-quality property manager who wants to take on just one affordable four-family. So they're kind of stuck anyways, and they get into that grind.
Pranay, sorry for the brief pause there... I just realized I misquoted your bio; within your joint ventures it's 58 million in equity, with over 200 million in assets under management. Where I was going with my previous thought was that I know a lot of people, especially in various medical fields, but also in other high-income earning positions who also want to become real estate investors, and one of the first calculations that I tried to offer is the money value of time. A lot of people talk about the time-value of money... For those of you who are not watching on YouTube, Pranay is nodding right now.
I have a friend who is a business partner, who planned originally to be a co-active partner with me on a 24-unit that we bought together to reposition, except he's also a medical professional and has the capacity to make $200 an hour acting as a medical professional. So when he had to balance "Do I make $200 an hour doing what I'm already really good at, or do I deal with contractors and lumber and paint and three-day notices with Slocomb? I should probably be sitting in my office right now." So we hired me to do the management, because it wasn't a good use of his time to be doing some of the things that I was developing skills and systems and a team to do.
I have that conversation often enough that I'm bringing it up now with you. I believe you probably have that conversation more often than I do now, that you're often in conversation with medical professionals who have the ability to earn strong incomes doing something that hopefully they're passionate about, but also very skilled in, and then find well-levered, well-automated ways to invest their capital the way that you're talking about, Am I just giving your sales pitch for you right now?
Pranay Parikh: [laughs] Totally, totally. I love that you talked about the money value of time, because I think that's something we ignore. Anything you do has a value anything. Let's say I value fun, and it's $1,000 an hour. So that always wins, right? Time with family, all that stuff. But any work you do - if you're getting paid $20 an hour, $40 an hour, $100 an hour, you should be letting someone else do that. But not only that, you have the expertise to do it better. So our business model - we don't do the real estate. Someone like you have more hands-on experience than we do. But from what we've learned over the past decade of doing this, we have learned how to manage the manager. And that's kind of what we do. I tell people that I somehow found an active way to do passive real estate, and we're on the phone with property management every week. And actually, some of the sponsors we work with, they had to set up a system to do that every week, because they don't talk to property management's that often. But we think it's important. Anytime there's more than $1,000 spent, we want to know why. And we always compare that to proformas.
So we're really making sure that the sponsor, the operator is doing what they say they're doing, and really trying to maximize the profit for our investors. And I can tell you, that takes a lot of work. And the only way we're able to do that - and that's why we do relatively larger deals, 30 to 50 million, is because then we have economies of scale.
Slocomb Reed: Tell me more about that. How is it that you vet sponsors and how is it that you vet deals?
Pranay Parikh: So by far, the most important thing is to vet the sponsor, right? So if you put LeBron on a basketball team, it's probably going to get to the final; at least the playoffs, maybe the finals, right? It doesn't matter what the team is. So we look at, first, track record - have they been through a recession? Have they been working together? And that's important - have they been working together for at least five years, if not 10 years? A lot of people will like to say, "Oh yeah, I used to work for BCE" or "I used to work for these other companies." But I want to make sure that the team has worked together and they're fluid.
So track record, talking to them. There's nothing that beats seeing them face to face. Fortunately, living in LA, there's a lot of real estate companies that are out here. So I go meet them, we go walk the properties, we go walk their old properties... And I'm an LP investor; I don't do any of this for my own investments. It's too much work for a 50,000 investment to 100,000. When we're investing $13 to $15 million per deal, it makes sense to do that.
So track record, reputation... And it's a really small world in real estate; you'd be surprised. So just talking to other people... And almost all of our sponsors that we work with, the operators, are referrals; referrals from other people that work with us, or our law firm, or our accounting firm. So reputation, and track record, and just meeting them in person; you meet enough people... Because when you look at decks, when you look at any of their webinars, of course it's going to look good. They spent thousands of dollars making that look good. But it's hard to look at the numbers, to look at their old properties, and find out what's going on. So that's it for the sponsor. And that takes a couple months. So we don't rush into a deal right away. And we have a handful of sponsors that we work with, but even within them, we only pick maybe one out of 20 deals, one out of 10, and we're able to cherry pick the deals that we think are the best. You know, they're successful, but we want to find the right fit for our investors. So we pick a small percentage of their deals, and we're able to do that because we bring all the equity. But not only that, we have a ton of vendor relations. So for example, our last deal was a loan assumption, and we brought preferred equity to the group, and it was our recommendation. We have what a lot of people have told us is the best asset manager in the game. He saved us hundreds of thousands of dollars.
Usually, allocators like us don't have their own asset management, but we really believe in managing the manager. So we are very selective with the deals we look at, we underwrite them all from scratch, and we have our asset manager look at it as well. So it's definitely a ton more work than I do when I'm an LP; when I'm an LP I'm like, "That's pretty good. Let me put in my money." But when you take care of other people's money, we are very careful who we will work with and what we do.
Slocomb Reed: Pranay, you were talking about economies of scale, and economies of scale, of course, investing $13 to $15 million at a time - it makes a lot more sense to go through that underwriting and have your own asset manager with the size of the investments that you're making... You also said you look at deals worth 30 million plus. So on some of the smaller end of those deals, if you're bringing 13 to 15 million, that could be all or almost all of the capital required. Staying on that economies of scale conversation, do you gain leverage with the operators, the sponsors that you work with, given how much of the required capital your fund is individually bringing?
Pranay Parikh: Great point. And we bring 90% to 97.5% of the equity. So pretty much everything other than the skin in the game. So that gives us a lot of opportunity. And the reason we do joint ventures is we get major decision rights. So we can decide pretty much anything - leverage, we can decide the name of the property... So we have the same -- and actually the same lawyer as Goldman Sachs. So we're able to really have institutional-level oversight over these properties, and some of the properties we go to every other week. We are really on there to make sure the business plan is getting taken care of. We have investor overrides for decisions, buy/sell rights; we have all of that, and the reason that we're allowed to have that is because we bring so much equity, and the reason that we want that is we really want the power to make sure that our investors are taken care of.
Break: [00:11:42.26] to [00:13:42.24]
Slocomb Reed: The rights to make major decisions, from the people who are investing with you - that sounds great. From the operator perspective, one of the reasons -- in a recent interview I had a conversation about why to syndicate as opposed to doing a joint venture. And one of the big reasons as an active investor to do syndication is that it keeps you being the expert... Or let's say it's me; a hypothetical world where I'm sponsoring a deal that you're interested in investing, and I'm the active partner. Instead of JVing and bringing in other active partners with their capital, I choose to syndicate, and one of the reasons to do it is because I have the expertise in this asset class, in this market. Let's say it's a neighborhood in Cincinnati, and it's a property very similar to properties I already own and manage... As an active operator, I'm not looking to give a lot of control over to my limited partners. In fact, that's one of the reasons I want to structure this deal that I've found as a syndication.
Pranay, in this hypothetical world, but also generally speaking, why should I be working with a firm like Ascent to raise the capital for my deals, when you're taking some of the control off of the table?
Pranay Parikh: Yeah, control and the money, right? So there's [unintelligible 00:14:57.08] and all that stuff. And that's a great point, what am I bringing to the table? So of course, 97.5% of the equity, right? But this kind of goes back on what we talked about earlier - relationships. We have worked with a lot of sponsors, and not everyone is allowed to do this. But we have shown that we provide more value than we take. And that value is if the property is doing well - not going to change a thing. And 99.9% of the time, I'm not changing a thing. But other than that, I'm bringing - not just the money, because a lot of times you could go to crowdfunding, you could go to all this other stuff to bring you the money. But we have our own vendor list.
One of our operators went to a new market, and we gave them all our vendors, and they're using all of them. Like I said, we have preferred equity, we have relationships with banks, and we have asset management. So we're providing a real partnership. And it's not just someone that's giving you a check and wants to take control.
So we have -- those major decision rights are mostly in case things go wrong. And we have done so much research and due diligence on the frontend that we would trust you to do everything right. So those rights are only executed when things are going poorly. And chances are they won't; it's a very small percentage, but it's there to protect our investors. We're not backseat drivers; we only partner with people who we trust explicitly to do the real estate themselves. So we rarely make decisions, and every once in awhile, people will come up and say, "Hey, what kind of leverage do you think your investors would like? What kind of terms?" That kind of stuff we [unintelligible 00:16:38.09] And sometimes they ask us about branding, because that's kind of what we do, marketing and stuff... But everything else, they run the show. So they're able to get this large check where they don't have to worry about talking to investors, they don't have to worry about K-1s, they don't have to worry about any of that stuff. We take care of it all. And not just that, we provide a high-level bespoke experience. We work with sponsors that literally have billions of dollars assets under management, and they choose to work with us because we provide a high-quality experience. Because say you work with anyone; you work with someone who's not doing anything - they don't do any major decision rights, or they're not taking part of the promote... You don't necessarily know what kind of experience that they're providing your investors, because it doesn't matter what it is, it's still going to reflect on you.
So we pride ourselves on really the highest level of experience, so that people I've worked with - best ever, they're great, their customer service is amazing... Actually - funny story. We have a phone number, and I'd say 9 times out of 10 I pick up the phone when someone calls, and people are so surprised. They're like, "Oh, I thought I was gonna get an associate." It's like, no; we pride ourselves on being available and talking to people, providing them the comfort... Because as a doctor, you don't really know real estate, and you're giving pretty large chunks of money... Our minimums are usually $50,000, so that's a lot of money, I don't care who you are. Even if you're a doctor, that's a lot of money. So it's nice to have that experience where you're talking to someone. A lot of times people will say, "Oh, hey, yeah, I already wired $100,000, but I just wanted to talk to someone." Happy to do that. We're happy to provide any comfort, because it's not just a great investment that we want to provide, we want to provide sake of mind, so that you can rest easily knowing that your money is in good hands.
Slocomb Reed: That makes sense. Pranay, you talked just now about how most of your decision-making power only comes into effect when a deal is going poorly. Give us an example of a time when that happened.
Pranay Parikh: You know, fortunately, it hasn't happened yet. We haven't had to take over control. We have rights to remove the manager in case it has to... But it's all doomsday scenarios. But that's when you want the power. We have had to set things up where they weren't doing weekly property management phone calls, or they didn't have a system for us to go look at the property every two weeks. We wanted the property managers to be there, because it was a property that just needed a little bit more work; they had to move things around, and we're like, "Yeah, this is our right to do it." And it benefits them. We never want to do something for the sake of doing it. But getting on the phone with property management every week - that's a benefit for us. And I feel that at most points having a couple more eyes on the finances, on the lease setups and stuff, helps. Of course, if you're too much, that's a hindrance, but especially some people that have a 10, 20 -- we work with this one sponsor, they have 70 active properties right now. So having us spend a little extra time on the handful that we have with them - it's a net positive for everyone.
Slocomb Reed: Nice. Well, Pranay, are you ready for the Best Ever lightning round?
Pranay Parikh: Yeah, definitely.
Slocomb Reed: Awesome. What is the best ever book you've recently read?
Pranay Parikh: I've listened to a lot of podcasts of yours, so I've got this one... And it's a little bit different than probably most of your other people have recommended... It's called Farewell Godspeed, and it collects the greatest eulogies of all time. So it just gives you perspective, and I find that a lot of times we lose perspective, and we get so stuck in whatever we're doing, and get kind of tunnel vision... So hearing what other people have done in their lives, and the thoughts that other people have - it kind of reminds you what's important and what isn't.
Slocomb Reed: That's cool. What is your best ever way to give back?
Pranay Parikh: So my wife and I, we adopted our dog from a shelter, and we love to do any type of charity that really gives and supports animals.
Slocomb Reed: Nice. Thus far in your capital raising for commercial real estate investments, Pranay, what's the biggest mistake that you've made? And what is the best ever lesson that you've learned as a result?
Pranay Parikh: So in the beginning, we had a fund administrator... And that's what everyone was using; they had billions of dollars assets under management... And they just sucked. They were horrible. And for every one phone call that they took care of, we had to manage three or four. And we were worried about taking everything in-house. We're all doctors, but to give people the experience and the level of attention that we want them to have, we had to do that. So it was very painful, we lost all the money, because it was the upfront fee for each of our deals... So we had to eat it. And we ate it from our own cash, not from the deal. But we thought we'd move everyone and now we take care of all the asset management and administration ourselves.
So try to control what you can, and just be careful; even if something is used and industry standard, and used by a ton of people, you have no idea what the quality is going to be.
Slocomb Reed: That's helpful, for sure. Pranay, what's your best ever advice?
Pranay Parikh: I want people to really think about what you want to do and where do you want to be. I got into real estate because I wanted a good investment vehicle. I didn't want to be a real estate tycoon, but I kind of fell into that a little bit, and I wasted hundreds of hours buying my own real estate, when I really just wanted a good investment vehicle. And honestly, if someone had created Ascent Equity Group before I did, I would have probably just invested and not created it. But I think having an idea with what you want in your investment - do you want a hobby? Because active real estate - it's a great way to have fun, but it is a hobby. It's a second job. And I find that 80% to 90% of doctors don't want that. They don't want to do real estate. Some do, some people love getting their hands dirty, but most doctors just want to practice medicine, but they want to practice medicine on their own terms. And I think that passive real estate is a great way to do that.
Slocomb Reed: Where can people get in touch with you?
Pranay Parikh: I'm very easy to get a hold of. Pranay [at] ascentequitygroup.com. There's ascentequitygroup.com, which is our main website; you can sign up for our newsletter. And then I also have a podcast, it's for doctors that want to be entrepreneurs. It's called "From MD to entrepreneur podcast."
Slocomb Reed: Awesome. Pranay, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend who you think would gain value from our conversation with Pranay about having control, having leverage as a passive investor in real estate syndication. Thank you, and have a best ever day.
Pranay Parikh: Thank you so much!
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