After moving to the U.S. in 1998 and starting his corporate job, Prashant Kumar’s goal became to stop simply trading his time for money. However, once he dove into real estate, he realized he shouldn’t do the heavy lifting before he’s ready. Today, Prashant shares how he actually ended up making money on a deal that fell through, and the importance of quality property management for practically passive income.
Prashant Kumar Real Estate Background:
- Full-time in IT and management consulting
- 5 years of real estate investing experience
- Portfolio consists of 1,136 units
- Based in Long Island, NY
- Say hi to him at: myrealtygains.com
- Best Ever Book: Best Ever Apartment Syndication Book
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever. We don’t get into any of the fluffy stuff. With us today, Prashant Kumar. How are you doing, Prashant?
Prashant Kumar: Very good, Joe. Thank you so much for having me today.
Joe Fairless: Well, it’s my pleasure. And I’m glad you’re doing very good. A little bit about Prashant—he’s full-time in IT and management consulting, but he’s also got five years of real estate investing experience, and he’s done a lot in those five years. His portfolio consists of 1,136 units. Based in Long Island.
With that being said, Prashant, do you want to give the Best Ever listeners a little bit more about your background and your current focus?
Prashant Kumar: So I come from an IT background. I’m a graduate from one of the best institutes from India and I came here in 1998. Ever since, I always worked in corporate world; but I always thought that I was trading my time for money. And that is what led me into getting into the real estate, because I wanted to be able to sleep and still that machine going on to create something for me and for my family, and for my friends also.
So part of the reason I’m in real estate is not just grow by myself, but for others to grow too along with me. So I have my team set up. I am involved into multifamily real estate. I started with single-family, and then I own about 100 units for myself, and then I got into the syndication portion of the business, and we are continuing to acquire more and more assets.
But the real goal is not just that we continue to grow, but our partners, our investors, they also end up creating wealth, they create financial freedom for themselves. So current focus is multifamily, we are into assisted living also, we are doing some ground up in assisted living, we’re looking at some projects for mobile home parks and storage is all on the horizon. But looking at these four asset classes in general.
Joe Fairless: Wow. Alright. You have been busy. Let’s talk about some specifics. You said you own about 100 units yourself. Are those single-family homes?
Prashant Kumar: No, I do own 5-6 single families, I own two apartment complexes just on my personal portfolio. That is equaling to about 100 units.
Joe Fairless: Okay, where are they located?
Prashant Kumar: One is located in McAllen, Mission, Texas; and the second is in Indianapolis.
Joe Fairless: Wow. Okay. So you’re at the—basically, Mexico, and you’re in the Midwest. How big are those two? I know, it’d be less than 100 [Crosstalk]
Prashant Kumar: One is a small one, 24 units. That one is 72 units, in Indianapolis. I like the Indianapolis Midwest market; pretty stable market, cash-flowing assets. I don’t have to lift my finger to get those going. Even the one in Texas, there’s not much I’m doing you know; the property manager takes care of the whole thing. So that is bringing me closer to my financial freedom, so to say.
Joe Fairless: What are your thoughts when looking at your 24 unit versus your 72? I don’t want to compare it yet to the larger stuff, because I assume you have larger stuff.
Prashant Kumar: That is correct.
Joe Fairless: You have a lot of other units.
Prashant Kumar: Yes. Basically 24 units, if I have to do it again, I would not do 24, units because of the economy of scale. I would like to have my staff on the ground, and that’s what I have for 72 units. I have my property manager and my own handyman to take care of — maintenance guy, basically.
So typically, I will not buy anything less than 100 unit [unintelligible [00:04:15].25] is met about 80-90 units, that’s where I can justify full-time staff on the property. But after that, I have not done anything below 200 units; most of our assets are 200+, either 400 or 500.
Joe Fairless: And we’ll get into those large ones in a moment, but I just want to just close the loop on these two. And we’ll spend a lot of time on the larger stuff. But for these two, you mentioned 80-90 units is where the property can start supporting its own staff, but this is 72 units, but I think I heard you say you have your own property manager and handyman. So how do you reconcile those numbers?
Prashant Kumar: So the reason I have my own staff is because right at the cusp—I know I’m paying little bit more for my property manager and for my maintenance guy, but most of what I think for me is that I’m able to sleep in the night. I don’t care, I’m making maybe 1,000 bucks less per month… Because this is a personal portfolio, it is not a syndication. So I’m not so much answerable to any investors for the expenses that I have going.
In addition to that, my property manager is willing to take on other projects. So we have always been at lookout to buy more assets in the area, so that she can take care of multiple projects for me. But at the same time, the most important thing for me is that I can sleep in the night; I don’t care too much that I’m spending a little more. That’s all it is. I’m making 20% return on my money, so that’s all matters, right? I’m not making 25%, I’m making 20%.
Joe Fairless: What about the 24 units? You don’t have your own staff on the ground, so how do you make sure that property is managed, since it’s really far away from Long Island?
Prashant Kumar: That property is pretty self-run by the property manager. Fortunately, [unintelligible [00:06:13].02] the property manager that I have on the ground, she’s part-time doing the management and she’s managing very, very diligently. I talk to her once a week for five minutes to find out how much is the occupancy, and I’ve never had occupancy below 80%, even during COVID.
Typically, my occupancy is about 90-95 percent. So one or two guys are either coming or going. Can it be better? Yes. And once again, because the key to anything below 50 unit is you have to have the right property manager who is able to manage your asset properly, preserving as if it is their own. So that’s what it is, basically. This property manager is extremely diligent. I call her and she will tell me my unit number who is staying in those units, what’s going on, and I’m pretty sure that she manages many, many portfolios. A bunch of my friends have assets in that area, and she’s managing their apartment complexes also, slightly bigger, like 50-60 units. And she is a very sweet lady.
Joe Fairless: How did you find her?
Prashant Kumar: That came to me through a referral. And as I said, a bunch of my friends have properties in that area, and they referred me. When I bought it, I bought it through a friend wholesaler, this deal, and he had referred me to her, and I have referred her to my other friends who have bought properties there.
Joe Fairless: If someone forced you to say, “Here’s an advantage of the 24 unit over the 72 unit” what would be one characteristic of the 24 unit that there is an advantage over a larger property.
Prashant Kumar: I think it is just a mindset. When somebody gets into the multifamily space, their mindset is, “Let’s buy it small. Let’s buy 10 units. Let’s buy 20 units.” I don’t see any special advantage that I have smaller units; maybe because the loan size is small, you can get loan from local banks easily, because local banks are looking for those kinds of assets where they can deploy their capital. You will not go to Freddie and Fannie, because these are about a million-dollar kind of a loan. And the only advantage is these local banks can fund you in 10 days. I saw this property way back when, on 12th of December, and I closed it by 29th of December—
Joe Fairless: Wow.
Prashant Kumar: The bank was so willing to give us the money, and they wanted to close before 31st of December because of the year-end close. And they said, “Yeah, go for it.” So we worked on it hard and we closed it very fast from the get-go. It was 17-18 days, we closed the deal. For these kind of smaller assets, that’s the only advantage I can see.
But on the contrary, there could be disadvantages, depending upon the property managers you have. If you don’t have a good guy, looking at your deal, when you being at a distance, you may end up messing around, the financials may not look as good as they can be. What are your thoughts, Joe, on that?
Joe Fairless: My thoughts are, I own single-family homes and I’ve never owned anything less than 155 units besides the single-family homes.
Prashant Kumar: Okay.
Joe Fairless: That’s why I was wondering about this. And I also know that there’s a lot of competition for the type of properties that you and I are buying. And that’s why I was wanting to learn more, because it might be helpful for the listeners.
Prashant Kumar: Yes, I personally don’t see any advantage, except it gives you the pleasure that you have started owning multifamily; it’s just a mindset thing. After buying 24 units, I thought, “I’m not going to go back into 24.” Minimum for me is 50.
Joe Fairless: Why not focus your next purchase in McAllen, or at least the state of Texas, or at least the South, so you have some scale, versus going to Indy?
Prashant Kumar: Yes. Basically going to Indy was more of a strategy. Yes, McAllen is good. South is good. It takes me approximately a day to get there. And going to Indy from Long Island, I could be there in the morning and come back home. Going to Texas – it’s just a strategic decision for me. Traveling standpoint, I try to buy—although I have assets in Houston, and we are looking at another deal in Houston also… And Texas, we love Texas market, you know, for sure. McAllen specifically is very heated, bigger apartment complexes. There’s a bunch of investors from California who have bought stuff there, 50-60 units, like, left and right, and they are trading at a very low cap rate right now, below five. I bought my apartment complex at maybe eight cap, or whatever, three years ago.
Joe Fairless: What was the price?
Prashant Kumar: That was 1.1.
Joe Fairless: Okay. The 24 unit?
Prashant Kumar: Yeah. But now the prices have gone up, I will not be able to buy that for 1.5 approximately if I have to redo that. But yes, to your point, why not that market – no, I would look for that market, I’m open to that. It is just that sometimes, you know, how much can you do yourself? Yes, I can go to Indy in the morning, come back in the evening. But I cannot do that for any of those — McAllen specifically. I mean, that’s like a flight change, you know. There’s a small airport there. They don’t fly from New York.
Joe Fairless: How long ago did you buy the 24 units?
Prashant Kumar: That was bought in, was it 17? End of ’16? Something like that. ‘17 then, I would say.
Joe Fairless: Did you say the end of 2017?
Prashant Kumar: Yes.
Joe Fairless: Approximately?
Prashant Kumar: Yeah.
Joe Fairless: So why not sell it now?
Prashant Kumar: I could sell it. That’s the thought process, I’m thinking about; whether I sell it or refinance it, it is going good. It’s just a cash flow, cash cow right now for me. Maybe I would sell it. That’s a good thought. They’re not thinking that way.
See, the challenge is, like everybody else, we also have the pride of ownership. “Oh, yes, I have this much real estate in my portfolio.”
Joe Fairless: Right.
Prashant Kumar: So that challenge is always there, it kind of blurs our vision sometimes. And then something which is there on the portfolio like right now. Even if I sell it, where am I going to deploy the money? I’m going to buy something at four cap or five cap other place, right? So I’ve to evaluate that basically.
Joe Fairless: You went from 24 units to 72 units, and then you started syndicating. What was your first syndication?
Prashant Kumar: Syndication-wise, we did a small syndication in Atlanta for 40 units. That was a very small one. That’s how we started into syndication. Then we went into a 500 or 600 something units South of Houston. But the deal did not materialize at the last day. We spent a bunch of time on it. The day before closing, we had some hiccups with our equity partner, and we got bought out and whatnot.
But there were so much exposure into the industry because the deal was very heavy lifting, and maybe it was not for us. When I look back, my lessons are, “Do not jump into heavy lift as your first or second syndication.” We jumped into that.
But long story short, we were out of the deal. But that gave us some confidence that we were able to go into that bigger numbers. So the kind of effort that we had put in that deal, I ended up becoming a general partner in a deal in Huntsville, Alabama, and as well as a general partner in a deal in Atlanta, because of the work that we had done in Houston. So I would say my first deal as a general partner would be in Atlanta, and right after that, the second project was in Huntsville, Alabama. Both of them are approximately 500 units.
Joe Fairless: Let’s talk about the Houston deal first, that didn’t work out, where you said it was a lot of heavy lifting, and it sounded like you were on schedule to close until the day before closing, and something happened with the equity partner. Did I capture that correctly?
Prashant Kumar: Yeah, you captured it right.
Joe Fairless: Will you elaborate?
Prashant Kumar: Basically, the deal was a heavy lift. We had 40% unit down because of the rain, and over the years, the owner at that time had brought in the occupancy from 30% to 60% over the years, and it just so happened that he was out of money, and he had to get out of the deal, and we were willing to get in. We had a very strong background with the partners that were there on the deal and I was helping them out.
And because this was a heavy lift, we had trouble finding the lenders… You name it, anything that could go wrong in the closing process happened with us on that deal. We were retraded by three bridge lenders, we were retraded by at least three or four property managers, we were retraded by insurance companies. We spent five months, so three months of the regular contract and two extensions. And long story short, those five months were really, really stressful. We had our half-million dollar hard the night before. Our budget, our construction budget was approximately $9 million to $10 million, in that range. We had raised about 40% of that, 60% of it was coming from an equity partner whom we had met and whatnot.
So what really happened is it just so happened that the night before, the equity partner said that she doesn’t want to do the deal with us. The primary reason is basically, she didn’t feel that we were experienced enough, and maybe we were not experienced enough at that point. And looking back, actually I feel like maybe it was the right thing that happened with us.
But long story short, he said he would take over the deal and he would pay us back our money. He could have actually walked away. The good thing—he could have just said no, and our money would have been evaporated. So half a million was a big amount for anybody; that would have disappeared. We created the whole deal and it was on a platter and we gave it to him. He gave us our money back and he gave us 1% of the purchase price as a commission to us. It was good that he did. So we ended up making some money out of it. And he took over the deal basically from us.
Joe Fairless: Did he close?
Prashant Kumar: He did. He closed in one week’s time, maybe 10-15 days after… Because everything was set, right? I mean, the loans were set, attorneys were set, PPMs were set. Yes, they would have changed a little bit, but everything was set, just that our investors — he did not take our investors. He was paying 60% of equity anyway. So he would have put in another $4 million. GPs were set on the deal, so he took those things with him… Which is okay, his business, but the good part is that he paid us our money, about half a million, and he gave us 1% as a fee basically, as a wholesale fee, so to say. That made us some money, too.
Joe Fairless: Thanks for sharing that story. That’s a unique story and lots of twists and turns, and—
Prashant Kumar: I didn’t explain that in one minute, but… [laughter] But overall, I would say that there are some good things, some bad things. The bad thing was we couldn’t do the deal. And the good thing is that maybe we were not experienced enough at that time. And the other thing is we ended up making some money on it, too.
Joe Fairless: Let’s talk about another deal that you did close on, something that you’ve learned from that deal post-closing.
Prashant Kumar: Yes. We had money sitting in our account. And some of it we returned back to our investors right away. But then we had another friend of ours who was closing a deal, and he was a little short. So we basically helped him to close his deal right away, within two weeks of this incident. So he was very happy that we were able to help him out. It’s a pretty stable deal in Atlanta.
Joe Fairless: Much different from what they were originally thinking about investing in passively.
Prashant Kumar: Yes. So investors are probably not getting what they would have gotten, but they’re happy that they are getting their 8% pref from the day one, and then we refinance the deal and we gave another 10% back to investors on top of their 2% pref. So investors are very happy on that deal. Again, as a general partner — I’m just a general partner in that, but because of the Houston deal, Atlanta deal came to us, and then we had a deal in Huntsville, Alabama, which is going on right now about. Again, 458 units that is also going on.
Joe Fairless: Going on meaning, you purchased it and you’re in the rehab process?
Prashant Kumar: Yes. We purchased it, it was a sort of a heavy lift. There was nothing down. I think we were 10% units, 5% units down. So we brought those units online and we are in the rehab process right now. And the good thing about Huntsville is it’s a growing market. It’s a very hot market. Even before the upgrades, we were getting returns, our rent comps were already matching to our post upgrade underwritten rents. So that’s the good part in Huntsville. And that’s the Huntsville deal basically; overall, going smooth. Yes, we did have some hiccups during COVID; material supply, appliances not available, things like that. But it’s the name of the game.
Joe Fairless: Taking a step back, based on your experience, what’s your best real estate investing advice ever?
Prashant Kumar: My best real estate advice ever is, yes, you have to have the open mindset. Go bigger, probably bigger than 100 units. However, do not go into heavy lift on day one. Try to find an asset, which you think can produce you the cash flow for you to gain some ground in this business.
Joe Fairless: We’re going to do lightning round. Are you ready for the Best Ever Lightning Round?
Prashant Kumar: I am.
Joe Fairless: Alright. Best Ever book you’ve recently read.
Prashant Kumar: I have read only one book that is written by you, Joe. That’s the only book I’ve ever read on multifamily.
Joe Fairless: Well, I’ll take it. I’m glad to hear that.
Prashant Kumar: Yes, yes. No, that’s the only book I have actually. I don’t even have any other book.
Joe Fairless: What’s the best ever way you like to give back to the community?
Prashant Kumar: I spend a lot of time helping others at different levels. I am a meditation instructor. I spend a bunch of time helping others free of charge; I’ve been meditating for last 30 years. And I help community, I go to libraries and help — not help; that’s a mundane world. I try to impart the knowledge that I have in that realm, hopefully, to help others to gain some peace in their mind. That’s number one.
Number two, I am very much into helping seniors, assisted living is very close to my heart. But again, that’s business. I try to help there, with open heart. And number three, we are trying to help our investors to make their money work for them.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Prashant Kumar: So meditation is something which by law we don’t publicize too much, but there is an organization called Heartfulness, in which I’m an instructor, and again, it’s a non-profit, there’s no money involved https://heartfulness.org/. So those who are interested in meditation… Of course, they can reach out to me directly at prashant@myrealtygains.com. And my website is https://myrealtygains.com/. Besides business, besides https://myrealtygains.com/, I would love to spend time with you if you are interested in knowing more about meditation.
Joe Fairless: Thank you so much for being on the show, sharing your thoughts on the 24 and 72 units, the nuances of those properties and those size of properties and how you’re able to navigate that, and then lessons learned on the first large syndication, the 600 or so unit property South of Houston, and then also how you parlayed that into the deals that you currently have in the portfolio as a general partner.
So thanks for being on the show. I hope you have a best ever day and talk to you again soon.
Prashant Kumar: Joe, thank you so much for having me on your show today.
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