Leka Devatha got into real estate in 2014 after moving to the U.S. from India in 2005. She has flipped single-family homes, office buildings, and multifamily real estate. Today, she is focused on doing her first multifamily syndication, for which she was able to raise $1M in four days. In this episode, Leka shares how she did it and why she invests solely for appreciation vs. cash flow, plus how she made $1M on a single flip.
The deal was on a heavy value-add 12-unit multifamily building in Seattle, which she purchased for $2.4M, raising all the equity needed in four days. Leka credits the community she’s cultivated through her virtual meetup and social media with her success in raising capital so quickly. She had been preparing her audience and investors by keeping them informed throughout the underwriting process, filling them in on why a deal didn’t work out, or why they might be close to making an offer. “We kind of built up this story, so then when I actually had the deal it was like, okay. Four days — done,” Leka says.
Leka prefers to hold for appreciation because, in Seattle, her chosen market, it’s difficult to make a lot of cash flow. “I still actively flip to make active income, because none of my rentals make a significant amount of cash flow,” Leka says, “so my goal is to hold them five to seven years and then turn them around for a massive appreciation bump.”
“I bought a flip to just flip,” Leka says. It was going to take five months to go from start to finish, and she was going to make a $50K profit. However, she discovered after closing the property that the land could be subdivided, so she started the process, which took about four years. She was ultimately able to sell the house that was on the property and the two lots, making a profit of $1M.
“Starting a meetup is gold,” Leka says. “It grew my network immensely, so to anybody who wants to start a meetup or host a virtual event or anything like that, I say go for it, because that’s going to help you grow your business.”
She also stresses the importance of garnering a social media following but recognizes that it’s tough to do. With time, you can get better and better at it and begin providing value through your platform. “You’re going to see not just that it’s going to benefit you, but it’s going to benefit your followers,” Leka says. “Every day I have messages in my inbox that say I inspire people, and that’s huge for me.”
Finally, Leka’s biggest piece of advice: Do. Not. Over. Leverage. Yourself. Spreading yourself thinner and thinner isn’t worth it if you have to worry about whether or not you can make a monthly payment or if you’ll be able to sell your property for a profit. She recommends doing your first deal “from A to Z” before moving on to the next one.
Leka Devatha | Real Estate Background
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TRANSCRIPT
Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I'm Ash Patel and I'm with our guest today, Leka Devatha. Leka moved here from India 15 years ago. She got into real estate in 2014. She has flipped over 50 single-family homes and four commercial buildings. She even made over a million dollars on one single flip. She was on the board of a lending company, and Leka is about to do her first real estate syndication. Please welcome, Leka Devatha.
Leka Devatha: Thank you so much for having me! This is surprising and also not at all stressful...
Ash Patel: It's our pleasure to have you, and we're doing this live from the Best Ever Conference 2022. Thank you for being brave and sharing this podcast stage with me. Leka, before we get into the details of your first syndication, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?
Leka Devatha: Yes. So I moved here from India back in 2005. I got into real estate in 2014 and started flipping homes. I have since flipped some crazy large single-family homes, office buildings, and multifamily real estate. Currently, I'm focused on doing my first multifamily syndication. I'm super excited to be here, because this is where the party's at when it comes to commercial real estate.
Ash Patel: I 100% agree with you. How did you get into real estate in 2014?
Leka Devatha: That's a funny story... I was driving in my car and I heard a radio ad for a flipping company. I said, "I have to go check it out. What does that mean?" I checked it out and it was a full-blown real estate investing seminar. That got me thinking, and it just got me hooked on to finding out more. A few short months after that, I quit my W2 and started investing in real estate.
Ash Patel: I love that story. So flipping single-family homes - why did you flip commercial buildings?
Leka Devatha: I thought it was a really good way to scale and progress my experience. I did single-family and residential for eight years, and then said, "Okay, now I have the confidence to go do it on commercial buildings."
Ash Patel: Alright, I'm dying to hear - a million dollars on a single flip. I've got to hear that story.
Leka Devatha: Sure. So I bought a flip, to just flip. It was going to take five months to go from start to finish, and I was going to make a $50,000 profit. But I found out after I closed the property that I could actually subdivide that land, so I started the process of subdivision and it ended up taking four years to subdivide. Ultimately, I was able to sell the house that was on the property for $1 million dollars, and the two lots for $500,000 each, making a profit of a million.
Ash Patel: Amazing. What were the commercial buildings that you flipped?
Leka Devatha: So I have a seven-unit office building in the heart of Seattle next to Amazon and Facebook, I have a fiveplex, I have a 12-unit, and I have another six-unit that I remodeled.
Ash Patel: Did you ever think of maybe keeping the office building and renting it out?
Leka Devatha: I did keep it.
Ash Patel: You did. Tell me about it.
Leka Devatha: I kept it. I'm actually still in the process of renovating it, and I'm keeping it solely for appreciation, not so much cash flow.
Ash Patel: Wait a minute, hold on... Everybody says you hold for cash flow.
Leka Devatha: No. I only hold it for appreciation. My market is a crazy market; I don't make a lot of cash flow on any of my holds, so that's why I still actively flip to make active income, because none of my rentals make a significant amount of cash flow. My goal is to hold them for five to seven years and then turn them around for a massive appreciation bump.
Ash Patel: Do you think that gives you an edge when you're buying properties that don't exactly cash-flow? Because everybody else is looking for cash flow.
Leka Devatha: Right. I definitely think that gives me an edge, because not a lot of people can afford that kind of rental portfolio.
Ash Patel: So what's the renovation like on this office building?
Leka Devatha: It's about $300,000 right now. It's a studs-out remodel. It was a distressed office building, so I'm just going to put my single-family flair on this building and make it look so swanky.
Ash Patel: Hold on, that's a heavy lift... How many offices are in this building?
Leka Devatha: Seven.
Ash Patel: Seven units, $300,000, down to the stud renovation? Do you have a proforma on how this building will perform once it's renovated?
Leka Devatha: Yes. We should be able to raise rents to about $20,000 a month, and then just all of our debt financing and taxes is about 12K to 13K. So we should cashflow a good seven grand a month.
Ash Patel: Okay. Incredible. Your goal is to keep that for five to seven years and sell it for appreciation... Listen, devil's advocate - what happens if the market starts going down?
Leka Devatha: We bought it at such an under-market value... When I bought the property, I bought it for $1.95 million, and it appreciated at $2.4 million. Stabilized, it's going to already be valued at $3.5 million. So even if the market was to tank, in my area, it doesn't tank that much that it's going to go underwater.
Ash Patel: Yeah, I love that. The important thing here is you don't care about what external forces are out there, you bought the property --
Leka Devatha: But it right. Buy it in the right location and buy the property at the right price.
Ash Patel: Exactly. You bought it right so you don't care.
Leka Devatha: I don't care.
Ash Patel: Awesome. Alright. Moving on to your first syndication. Give me the whole story on that.
Leka Devatha: Oh, my God. It is so bittersweet. I was able to raise all the equity I needed in four days, and the debt - we have a relationship with a local bank. The bank basically denied us our loan last week, because of rising interest rates and just the market condition. This is a value-add property, so now we are trying to get bridge financing. It's still going to pencil, just not as well as I thought it was going to initially. But I still think that there's a lot of room for growth. Again, this property appraised stabilized way more than we had thought it was going to appraise for, so still, we're going to make good appreciation once it's stabilized.
Ash Patel: Can we dive into the numbers on this deal?
Leka Devatha: Yes.
Ash Patel: And what kind of asset is it?
Leka Devatha: It's a 12-unit multifamily. It is a heavy value-add also, another 450K. It is in a neighborhood in Seattle.
Ash Patel: Purchase price?
Leka Devatha: $2.4 million.
Ash Patel: A heavy value add down to the studs?
Leka Devatha: Down to the studs.
Ash Patel: Alright. Obviously, it doesn't cash flow because that's what you like to buy...
Leka Devatha: Yes. It doesn't cash flow at all, the current rents are at $8,000 when it's supposed to be at least $16,000. But once we're done with it, it should be $20,000.
Ash Patel: Alright. Your lender backed out, or they're just having cold feet?
Leka Devatha: They're having cold feet.
Ash Patel: Okay. You only have one lender on the hook right now?
Leka Devatha: We have a couple. We're actually talking to five right now. And then because I'm on the board of my lending company, they're always my stopgap.
Ash Patel: So no matter what, they will probably give you the funds.
Leka Devatha: Yes.
Ash Patel: How do you pitch a deal to investors, that doesn't cash flow?
Leka Devatha: My investors are in the Seattle market and they understand that. They understand the market. I do a really good job on social media educating people about my market. It doesn't cash-flow today, but once stabilized, it is going to cash flow.
Ash Patel: All right. The $450,000 renovation, where does that come from? Is that part of the loan or was that part of the raise?
Leka Devatha: It's both.
Ash Patel: Okay. How much did you raise for this?
Leka Devatha: Close to a million.
Ash Patel: A million dollars in four days? How did you do it?
Leka Devatha: I have an amazing community; I host a virtual meetup. My only goal with a virtual meetup is to add value, so I bring amazing speakers and I interview them. I have a following on social media. I know a lot of my followers and we have long-term relationships. Because this is my first deal, the minute I send it out to my network, it was gone.
Break: [00:11:55.01] - [00:13:37]
Ash Patel: Why did you start building a network? Did you know you were going to raise money one day in the future?
Leka Devatha: I did not. I was on the BiggerPockets podcast. When you're on the BiggerPockets podcast, you just raise a following, so that's what happened. Then I just decided to give something back to the following by way of doing my virtual meetups, never thinking that I was going to syndicate one day and raise capital. But that was a trajectory and that's what happened. So it was not at all well planned.
Ash Patel: What's your advice to somebody who's on the fence about starting a meetup, apprehensive about putting themselves out there on social media, and don't know what direction to go?
Leka Devatha: Okay. So starting our meetup is gold. It grew my network immensely. To anybody that wants to start a meetup or host a virtual event or anything like that, I say go for it, because that's going to help you grow your business. With putting yourself out on social media, it is not easy to do. It wasn't easy for me to do for a long time. But once you get really good at it and you start adding value, you're going to see not just that it's going to benefit you, but it's going to benefit your followers. Every day I have messages in my inbox that say I inspire people, and that's huge for me.
Ash Patel: Amazing. Devil's advocate... Here in Seattle, there's got to be a lot of real estate meetups.
Leka Devatha: There actually isn't.
Ash Patel: What?
Leka Devatha: There isn't that many. Pre COVID, mine was one of two of the best meetups. The other meetup was run in the evenings, and then mine was during the day. I used to have 150 people show up every month.
Ash Patel: Amazing. Back to this raise - how did you put it out there that you're now ready to close on this deal, you need to raise a million dollars? You had to have been nervous, first time raising money, a million-dollar raise... I'd love to hear that whole process.
Leka Devatha: I had been prepping my audience and my investors in a way, saying "Look, here's the thing." The whole reason that syndication even came about as an idea is because people keep asking to invest in my deals, and I don't do enough deals for all of those investments. So I said, "Okay, let me start to go down this path and see if I can actually find a building, find an asset manager to partner with, find an underwriter, find an acquisitions partner..." And they all just came into my sphere. I don't know how, but they came into my sphere, and we started underwriting buildings.
As we underwrote buildings, we kept putting it out into our investor network, like "Hey, we're looking at this building and this is why it didn't work out." Or, "We're looking at this building, we're close to making an offer. If this is something that interests you or you have questions on how we're underwriting things, talk to us." We kind of built up the story so then when I actually had the deal, it was like, "Okay, four days. Done."
Ash Patel: Alright, you said you don't know how everything fell into place. I think I know how. It's because you put yourself out there; you've added a lot of value to a lot of people, and it came back to you. Amazing.
Leka Devatha: Thank you.
Ash Patel: Once this closes, are you going to go on to your next syndication?
Leka Devatha: It's going to be bigger and better.
Ash Patel: Did you have a lot of people that you couldn't accommodate on this deal?
Leka Devatha: I did. And it wasn't that I couldn't accommodate them, but a lot of people just weren't ready. There's a lot of funding in India; people want to invest from India to here. They just are not ready but they will be ready by my next deal. People that want to move their 401Ks or IRAs into their own personal investing vehicles; they weren't ready. But now that they know that I do this, and now they know that I have a deal and I delivered on that, I feel like a lot more people...
And also, a lot of investors are kind of iffy about investing. It's my first deal, so they're like, "We just want to invest the bare minimum. Once we start seeing returns, then we'll invest more." Most of my investors are high net worth, so if they can actually invest 100-200 grand and they only invested 25k, I know that I have a long way to go with them.
Ash Patel: How did you attract investors from India? Are you on social media in India as well? Do you market yourself?
Leka Devatha: No, these are friends and family from India that I've known all my life, basically.
Ash Patel: What are the challenges with taking funds from India?
Leka Devatha: You will have to withhold 30% of taxes upfront; you can't do quarterly distribution, it has to be a yearly distribution. And they also have to be okay with withholding taxes, creating an LLC here, creating a bank account, and an EIN here. There is a lot of challenges with that.
Ash Patel: Wow. Good to know. What is your best real estate investing advice ever?
Leka Devatha: Do not over leverage yourself.
Ash Patel: Great advice.
Leka Devatha: It has served me well in my career. I only say this because I was over leveraged at one point, and it was the most horrible, gut-wrenching feeling when you're like, "Wow, what if I can't make my monthly payments? What if I don't sell this house for a profit? What if, what if, what if?" It's just horrible living in a "what if" world. My biggest thing is do not over leverage. If you're doing your first deal, do it from A to Z, sell it, and then move on to the second. And if you're doing your 50th deal, then just be careful. Make sure you have enough dry powder to tide you along the bad days.
Ash Patel: Leka, I want to ask you, what do you use for a CRM system?
Leka Devatha: I do use InvestNext. They are amazing, they make my life super easy, and it's just an easy platform that my investors like to go on. It's super-easy for me to maneuver, because I am not the best tech person out there. I highly recommend them.
Ash Patel: Amazing. Leka, are you ready for the Best Ever lightning round?
Leka Devatha: Oh my God, I didn't know there was one. Yes, I am.
Ash Patel: What is the Best Ever book you've recently read?
Leka Devatha: Okay. It's called The Daily Stoic by Ryan Holiday. It's amazing. It's 365 pages and every page is a different inspiration vehicle. It just teaches you to love yourself. It's not a real estate book, but it's definitely great for a real estate investor to focus and have the mindset to do the crazy things we do in real estate.
Ash Patel: What's your one big takeaway from that book?
Leka Devatha: Honestly, we all multitask like crazy. I think the book taught me to just slow down, take it one moment at a time, and live in the moment, be present. I think that's my biggest challenge in life, is to be present with my kids, be present with work, with the conversations I'm having... Because I'm often reaching out to my phone, often trying to do 15 other things at the same time... Be present.
Ash Patel: I love it. Leka, what's the Best Ever way you like to give back?
Leka Devatha: I love educating, informing, and that's what I do with my meetups. It's educating new real estate investors, educating seasoned real estate investors on different asset classes or different paths they can take. It's been an amazing journey and I love inspiring people.
Ash Patel: I'm inspired. Leka, how can the Best Ever listeners reach out to you?
Leka Devatha: I'm on LinkedIn and I'm on Instagram. My handle is just my first name last name, @LekaDevatha there. My website is rehabithomes.com, and you can see everything on my website.
Ash Patel: Amazing. Leka, thank you so much for joining us today, sharing your story, coming here from India 15 years ago, getting into real estate in 2014, making a million dollars on a single flip, and pivoting to commercial, now doing your first syndication. I can't wait to see what happens in the next couple of years. Thank you again for joining us.
Leka Devatha: Ash, you are the most amazing person I met at this conference. I feel like I got here for a reason and you showed up at my dinner for a reason. I hope we stay lifelong friends because you are amazing.
Ash Patel: Likewise, we're definitely going to stay lifelong friends. Best Ever listeners, thank you so much for joining us, and have a Best Ever day.
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