Veena Jetti is the founding partner of Vive Funds, a unique commercial real estate firm that specializes in curating conservative opportunities for investors. In this episode, Veena gives a mini masterclass in marketing for operators, GPs, and capital raisers. She discusses how her team uses AI to maximize efficiency, her “secret sauce” for raising capital, and things that make her cringe about multifamily investing.
Veena Jetti | Real Estate Background
- Founding Partner of Vive Funds
- Portfolio:
- Multifamily investments
- Based in: Plano, TX
- Say hi to her at:
- Best Ever Book: Wealth Without Cash by Pace Morby
- Greatest Lesson: Partner up fast with people that you trust to build success as quickly as possible.
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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 today's guest, Veena Jetti. Veena is joining us from Plano, Texas. She is the founding partner of Vive Funds, a unique commercial real estate firm that specializes in curating conservative investment opportunities. Veena's portfolio consists of multifamily. Veena, thank you for joining us, and how are you today?
Veena Jetti: Oh, thank you for having me. I'm so excited to be here.
Ash Patel: It's our pleasure. Veena before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?
Veena Jetti: Yeah, so I'm still a one trick pony. I still do multifamily. We focus on Class B value-add multifamily across the Sunbelt. We've just moved into larger assets, so now we specialize in 200+ units with a strong preference to 300 or 400 unit assets.
Ash Patel: What made that change?
Veena Jetti: Well, scale is easier once you've done it a few times. I always joke and say there's just like one or two more zeros at the end of it. But really, the work and the fundamentals remained the same, but we've found that there is better opportunities at these larger levels, but also that it's not dramatically more work to buy 200 or 300 units than it is to buy 100 units at a time.
Ash Patel: How did you get started, and when was that that you got started in real estate?
Veena Jetti: Yes, I was kind of born into real estate, so to speak. So my mom is actually a really successful real estate investor. But she always invested in single family homes. I started in 2012. I left corporate America, I was working in corporate real estate. I left corporate America, started investing for myself in single family homes. And I quickly realized that you can't really scale with this. There was a week where I bought five houses, and I was like, "Wow, I really hate this, and it's really hard to do this, and I need to get to scale", but I love the residential side of real estate. I love the idea of revitalizing a community, providing somewhere for people to live, that's safe, and clean, and nice. So that's when I discovered my love of multifamily, and realized that that was the best of both worlds - the scale of commercial, but all of the ethos of residential.
Ash Patel: I'm going to push back on you... You and I know each other; you know that I am a non-residential commercial investor. Have you ever looked into medical/industrial/retail/office?
Veena Jetti: I invest in those types of assets. We're invested in a deal together that's industrial. I have a food hall, I have a movie studio I bought into, I invest into Tax Incremental Financing deals, I've invested into scrape and build... So I've invested into non-multifamily assets. At our company we just focus on the multifamily assets side.
Ash Patel: Well, again, let me keep pushing. So multifamily - competition's gotten fierce, right? What gives you a competitive advantage?
Veena Jetti: One, we just don't buy that many deals because it is so fierce. I'm about to transact on my first deal this year, in July. So we're just not doing that many deals. But I think our competitive edge lies in, one, our use of AI... We like to consider ourselves the fastest implementers of AI technology. We've been using AI tools for almost two and a half, three years now, to I think our dedication to our investors. And this isn't multifamily-specific, right? It's just something that we do really well. We get a lot of really good feedback on our interactions with our investors.
Three, we do a lot of education in between our deals. So as the market has shifted and it has changed, we have re-educated investors that we're not in a 20% IRR market anymore. I wish we were, but we're just not. And it would be irresponsible for us to project that out to our investors. So we also underwrite pretty conservatively compared to where we would have underwritten three, four or five years ago.
Ash Patel: How do you re educate investors, and what's the pushback that you get?
Veena Jetti: The pushback I get most commonly from investors is "But I'm getting 25% IRR from this deal with this other investment group." And my response is always "Tell me more about the deal." And it's almost always going to be new development in a tertiary market, because that's the only thing that's really underwriting at 25% right now. If you're comparing apples to apples, our investments are probably right in line with that. But that's generally the biggest hurdle that I have to overcome with investors, is that education piece of it's a risk-adjusted return, so you should get 25% if you're building ground-up in the middle of nowhere, Montana. That is an appropriate amount of return for the relative amount of risk.
For us, what we're really look for is investors that align with our investment thesis. Our investors are looking for a solid, stabilized return. They're looking for an income-producing piece of real estate, that's an inflationary hedge. They're looking for a negative K-1 on their tax return, or tax efficiency in their investment, and they're looking for operators that they have solid relationships with. So we pride ourselves in those rinse and repeat relationships with our investors.
Ash Patel: I want to circle back to the AI...
Veena Jetti: Oh, yeah.
Ash Patel: I think I'm older than you by quite a bit, but I remember when the internet was big, and I met this young lady, and I asked her what she does, and she says she helps companies move their products on the information superhighway. And I'm blown away about what she said. Turns out she worked for Amway, multilevel marketing; everyone claims they're using AI... What are you doing that's effective for AI?
Veena Jetti: It's funny, because I've been speaking on a lot of stages about this too, because this is the hot topic everyone wants to talk about, is AI. I mean, the reality is is everybody's really been using AI for years, because the word spellcheck is one of the most original forms of AI that we've been using for decades. But in today's market, there's a couple of things that we use.
So ChatGPT I think is the best basis starting ground for most people starting out. If you haven't gone and done a deep-dive into ChatGPT alone, you can spend hours and hours and hours falling into that rabbit hole. But we utilize our AI, we've been using it for about three years now for predictive modeling. So what we do is we utilize certain numbers and certain data points to be able to project out into the future where cap rates will be, where market rent will be, where market growth is going, what migration patterns look like juxtaposed with where we are in the market cycle in that specific market. So that's more of the technical side of how we use it. But we use it in our business, day-to-day. What's working there is utilizing AI for customer service, so responding to investors, responding to emails; all of those things can happen just organically through AI. And there is some training that does need to happen with that. We're also utilizing it for marketing tools, marketing campaigns, social media outreach... Content creation is probably the lowest hanging fruit that everybody can go in and start utilizing AI for today. After listening to this, you can go out and you can start doing that. There's just so many different ways to implement. If you think of any task that you have a human do manually, and it's a repeatable process or a process that you use often, there's probably an AI tool out there for that solution.
Ash Patel: Speaking of content creation, what are the best tools that you've found for creating content?
Veena Jetti: Creating content - we use ChatGPT, almost exclusively, because it gives us all the basis of what we need. Let me go a little bit deeper to how someone can use this. So when you're listening, you can get off this podcast and then go and type this into ChatGPT and you'll have a content calendar.
So you can go in there and you want to prompt-engineer. So that's something we work on a lot, to perfect our prompts. So what we'll do is we'll say pretend like you are a multifamily investor that buys Class B value-add assets in the Sunbelt. And then you give it a prompt, say, "Write me 30 topics that passive investors would be interested in hearing about." Or write me 30 topics about commercial real estate, or multifamily, or whatever your topic generally is. And a really great way to even ask about what to write is if you go to Google, and you type in "multifamily investments", and it'll give you the top five questions that are asked. Click on one of them, and it'll continue opening new questions. If you open and close them, it'll give you a whole list of questions. So you can go and you can put one of those prompts in there. "What are the most asked questions on Google?" So put it in there, and then you say, "Give me 30 topics on this." It'll spit them out. And then you can actually use what's called markdown, which will make it look pretty for you. So you can say "Add markdown to this and put it into a table format", and then you can follow up by saying "Give me a social media posting schedule", and it'll tell you "Okay, on Friday you post at noon, on Wednesday you post it three", it will tell you all those things. And then you can say, "Write me a prompt for each of these topics for Instagram." Include SEO-optimized hashtags. So you can add those to it. And then you can utilize that.
And what we do on our social media is we will take the same content, and we will cut it for different platforms, and alter it for each platform, because that's what the platforms like; they want organic content to them. So we won't take the same video and just post it to Instagram, TikTok, Facebook; we actually change the content slightly, but the content creation is still the same.
So you can go to ChatGPT, you can type this out, and you can get 30 days worth of content. You can then take that and say, "Give me 30 Real Estate quotes." And you can take the 30 real estate quotes, and then you can go to Canva - we have the Pro license, which is like 15 bucks a month - and you can go and you can create posts from it in there; they'll give you templates, and you can actually bulk-upload it, so that it's all in one. And now they have AI tools integrated within Canva itself, where you can go and change the theme; you can have it reformatted to each of the social media places that you want to post.
But that's how you really get hosts that are engaging with people, posts that you are creating... And it seems like you're putting out hundreds of hours of content every week, which you can't really do that, otherwise you can't operate a multifamily business. This is what we do, we batch all of our recording, too. So every quarter I'll record for three days straight, for like 18 hours, and that's all I'll do, is I'll just record 18 hours of me talking nonstop. And then we take that and we chop it up and use it for our social media platforms. So that's an easy way people can implement AI today.
Ash Patel: You weren't kidding, this is great advice. And this is why I constantly see you on all these social media platforms...
Veena Jetti: Everywhere.
Ash Patel: Goof for you, and thanks for sharing that.
Veena Jetti: You will never escape me!
Ash Patel: Listen, great, incredible advice. You just basically put together a roadmap for somebody that maybe is hesitant about posting, and you have no excuse after listening to this.
Veena Jetti: It made it so easy, even when you're intimidated. And I'll tell you, it's actually not the content creation that's usually the most intimidating for people. If they're anything like me, it's actually the vulnerability factor. It's scary to put yourself out there, because then you're like, "What if I say something stupid? What if I make a mistake?" You know, adjacent impostor syndrome... But I think what you'll realize is when you start putting out real educational information -- so everything I do, I go in with the idea of how can I serve the listener? It's never "What am I going to get out of this? How can I get you to invest in my deal?" That's never what I'm going for. It's always "How can I serve you? How can I give you something valuable, so that you can go and be great?" And when you lead with that, I think it's better when you are interacting with people, then people really appreciate it, and I think that will get you over that impostor syndrome, or vulnerability factor pretty quickly.
Ash Patel: Yeah. And being vulnerable is usually some of the best posts. Some of the best interviews I've had are people that are very stoic. [unintelligible 00:12:53.20] for example, you know him, multifamily guy. Big, stoic Air Force B1 bomber pilot. And I think this is the first podcast he's ever done... He shared a story about his failure that he didn't really set out to share, but I probed it out of him... And to this day, it's one of my best interviews, because he really put himself out there and connected with the audience. But on that topic, you're having all these tools create content for you. Do you ever feel like you're not putting your true self out there to connect with your audience?
Veena Jetti: I have all the opinions, so it is very hard to keep that genie in the bottle. So even when I have the prompts come out, I never take a script and read it. I'm actually really terrible at that. And I've given dozens of talks. Last year, I spoke on 52 stages. And what I did the first half of the year was I tried to memorize every line and have speech plans. I printed it out, and I would read it, and I would practice in a mirror, and I would practice saying it to other people, so that I could be very quick with it and continue going... And what I did at the end of last year - I threw it away, and I got rid of all of my notes on my slides. Now all I have is one word here and there; there's five words on my slide. And now I speak organically, and my production is just so much better. I can deliver so much more value, because I know this stuff, I've done this; I operate in this business. I'm not speaking about something I couldn't speak about right now.
So what happens is when you have everything planned out in the total script, for me, I'm just not good at it. Because all I'm thinking about is the next line I'm delivering. So I can't get the cadence right, I can't hit inflection points right, I can't say the thing that comes to the top of my head, which I do all the time... So I just stopped doing that.
So I say all this to say, even on social media, I have it create the framework, but I'm always filling it in. Because one of the limitations for something like a ChatGPT is its data only goes up to 2021. If you ask it to tell you about interest rates, you are not going to have very accurate or timely data if you're trying to talk about that in 2023. So you'd have to have some amount of knowledge. But if you don't have that knowledge, or you're just starting out, you can start with topics like "What is multifamily? Why should people care about multifamily?" or whatever your asset class is. So I always take the topic, and then I fill in everything else organically, and I speak organically. I don't ever plan anything, I don't rehearse anything, everything is just off the cuff.
Ash Patel: Veena, when I get a bio sheet from guests that I interview, I always get number of units, assets under management, a lot of metrics. I've got none of that from you. Why is that?
Veena Jetti: Because I don't think it's that exciting, quite honestly. At the end of next month, we will have bought and sold over a billion dollars in multifamily. I don't even know how many thousands of units I have right now. Maybe 5000 right now? We sold seven deals in Q1 and Q2 of last year, so I'm down to almost nothing. I don't think that's the most interesting thing about what I do, though.
Ash Patel: Yeah, I think beyond a certain point those metrics don't move the needle anymore. But what I was getting at is you've done one deal this year; do you have a goal in terms of number of deals that you want to do this year?
Veena Jetti: I thought we were going to be on track to do three deals. We had a second deal that we were negotiating PSA on, and we just could not get past some of the PSA clauses, so it just didn't go through. We didn't even get to escrow. So I thought maybe we would do three this year. I don't know if that's true or not. We're very patient. So I'll do one deal this whole year and be completely content with that, as long as it's a great deal. I would rather do one great deal than 10 average deals or bad deals.
Ash Patel: Vive Funds is your company. Do you only do your own deals? Or do you raise for other people's deals as well?
Veena Jetti: No, I do my own deals.
Ash Patel: Okay. And what does your team look like?
Veena Jetti: So right now we have a JV partner that we work with. So we partner with Blue Lake capital, Ellie Pearlman, and we've been JV-ing with her on all of our deals, pretty much just rinse and repeat process. And between both of us, I have an investor coordinator, I just hired a marketing person. My sister's my partner at the company, so she handles more of like the operations. She's my integrator to my visionary. We have our support staff, obviously; we have two acquisition analysts, we have our Investor Relations person, our asset managers... We're actually getting ready to onboard probably a second one now. And then our property management is all third party right now, and then our rinse and repeat teams - we kind of consider them an extension of our team, which is our attorneys. So we use Nick McGrew out of LA from Polymath Legal, and then our accounting and tax strategy team, which is here in Texas, Precision Business Strategies. And that's kind of the world of our team.
Ash Patel: This sounds like an Emmy award speech, thanking all the people that helped you out.
Veena Jetti: Yeah, I'd like to thank next my mom and my dad...
Ash Patel: So look, you've spoken on 52 stages in the last year - why have you not done more deals? Ad we're in June of '23.
Veena Jetti: I would love to do more deals. They're just not underwriting for our metrics. And one thing we refuse to do is compromise on our standards for underwriting. I think we're going to kind of see that result of what happens when people do make numbers work to fit the story that they need, I think we're going to start seeing that. I mean, we already are seeing that. With the Houston portfolio that failed we saw probably overly-aggressive underwriting somewhere there... And I just don't want to do that. I would rather do a great deal than not. And I'm willing to be patient. I think that's one of our biggest superpowers, is nothing changes about my life if I do a deal or don't do a deal... So we really can be selective in which deals we do.
Ash Patel: Yeah, you have your pulse on this industry. You've networked probably more than anybody else in this industry. What are you seeing from operators that are either currently underwater, or going underwater, or are just in trouble?
Veena Jetti: Yeah, I think this is an interesting question, because I hear from a lot of newer operators, or people that are trying to jump into multifamily, "Oh, well, I'm just gonna wait until everything's on sale, and everything crashes." And I'm like, "No, this is not going to happen. This is not going to be every broker has 100 deals ready for you to buy. What's happening is those deals are already happening. They're just coming to me and they're calling me about them beforehand." They're like, "Hey, Veena, I have this 400 unit in Atlanta, or Orlando, or wherever it is. I have a 400 unit asset, and we're running into some issues, our rate cap is expiring, we aren't capitalized to be able to buy down the rate again, and it's going to completely crush our numbers, and we're not gonna be able to do this. We're thinking about capital calling. We want to see if you're interested in taking it on. So we'll look at recapping those deals.
What's happening right now though is a lot of those sellers are still stuck in 2021 pricing, and it's really hard for me to capitalize a deal when there's no money even in the GP part of the deal. And so I can't even bring 5 million dollars to the table and buy out the GP portion of it, because I will probably never get that money back. So it becomes this really difficult challenge of trying to wait till the timing is right, but not letting time run out too much that they're foreclosing on those assets... But what's going to happen is these deals are going to trade behind the scenes; they're going to trade quietly, because nobody's gonna go out and broadcast, "Hey, we're underwater. Come bid on this deal." It's not a good strategy.
Ash Patel: Yeah. Do you think there's still people willing to pay stupid money for some of these deals? So people are waiting for that fire sale, but there's still so much money waiting to buy at a small discount, versus the fire sale.
Veena Jetti: Yeah, I do think so. I think that there are some assets that just have really good fundamentals, and if you're going in with long-term debt, or long-term vision on how you're going to service the debt... I think the big takeaway for this year is survive until 2025. That's got to be the motto right now, because this is when all the recaps are expiring. If we can get over that hump of the remainder of 2023, 2024, and then into 2025, I think most operators are going to actually fare pretty okay. It's more the new operators or the operators that are doing this part time that maybe will see a little bit more turbulence and a little bit more of a challenge... Because it takes a lot of work to operate these assets. It's not a weekend gig for most of us that are operating.
Break: [00:21:24.01]
Ash Patel: We're in June of 2023; your thoughts on rates and what the next move is going to be and when they're going to come down? And I don't want a cop-out answer. I know you can't predict the future, no one's gonna hold you to this... Just instinctively.
Veena Jetti: You didn't tell me to bring my crystal ball...
Ash Patel: I get it, I know. Sorry, the reason I asked that is that the opinions are all over the board. Go ahead. You answer first, and then I'll go.
Veena Jetti: Okay, I'll tell you what I think, and then you can tell me if I'm right or wrong. Okay, so I think that we've already seen the Feds slow down on raising the rate. I also think Powell has made it very abundantly clear that he doesn't care if he's the villain in this story, and he wants to continue raising rates. So I do think we are going to still see a little bit of an increase. But I do think we are going to see a stabilization, or at least no movement on rates after Q4 of this year. And after that, I think eventually we will start seeing rates come back down slightly. I don't think they're gonna go back down to 3% though. That would be great, and we could buy more and just hold it and not even worry about the business plan, wait for interest rates to go back up. But I do think that interest rates are going to start stabilizing here a little bit, and maybe even come down a little bit.
Ash Patel: I like that.
Veena Jetti: What do you think is going to happen?
Ash Patel: I don't think there's been enough pain for the Fed to stop. Historically -- look at 1992 to 2000, when Greenspan raised rates; everything kept getting priced into the market. The market's near an all-time high right now. Why is that? What the Fed's doing hasn't worked, they're pricing it in, and when they paused, I think they sent the worst signal out there. So I've talked to a lot of investors that and honestly believe the next move is them cutting rates.
Veena Jetti: No...
Ash Patel: Honestly, real estate people and Wall Street people are the only ones that believe rates are going to come down. No one else is that delusional.
Veena Jetti: Oh, yeah, I don't think they're coming down. I think they maybe stay stagnant, or maybe a slight increase, but I don't think they come down yet.
Ash Patel: Yeah. So again, for what it's worth, my opinion is we have several more increases, because they haven't inflicted any real pain in the market yet.
Veena Jetti: What I think will be interesting is if they continue to increase rates, at some point it'll make sense just for cash buyers to start buying in cash.
Ash Patel: I get it, but I think what the Fed initially set out to do was kill jobs, obviously, and take money out of the system to fight inflation. And they haven't done either. There's still so much money on the sidelines, jobs reports are through the roof... So I don't know, my opinion.
Veena Jetti: Alright. Well, we'll revisit this in like a year.
Ash Patel: Yeah. It'll be interesting. Best Ever listeners, email both of us and [unintelligible 00:26:03.17] who won. How much money do you think you've raised in your real estate career, total?
Veena Jetti: 350 million, 400 million?
Ash Patel: And how many investors was that from?
Veena Jetti: Oh, probably about 1000-ish.
Ash Patel: What's your advice to, let's say experienced operators, on stepping up their capital raising game? Because your bottleneck is deal flow, not capital raising.
Veena Jetti: Yeah, we're in the middle of a $65 million raise right now. Last year we were on track to raise $118,000,000. One deal fell out of escrow, so we ended up with 75 million... So we do raise a significant amount of capital. That's never really the issue. So do you want me to give you guys tips that will really elevate your game, that I wish I would've known years ago?
Ash Patel: Yeah.
Veena Jetti: Alright, here's the secret sauce. One, it is always easier to raise capital from your current investors; they already know like, and trust you. And I know this doesn't sound revolutionary, but every time I say this to someone, they're like, "Oh, I never really thought about this."
I go back to my investors, and every time I have a positive interaction with them, I ask them for a referral. Because rich people hang out with other rich people. They know other people in their circles. So we get a lot of our growth just from warm referrals. And it is easily the best and easiest way to raise capital after your current investors.
We also ask for testimonials from our investors. Now, that can get a little bit tricky sometimes, because investors, especially when they have a lot of money, they're a little bit more hesitant to put it all out there, especially about something in their financial picture... But you can ask them to give you a testimonial and use initials and occupation, or initials and state, so they still have a little bit of privacy... But go and ask them for that, because that's gonna help you with raising your capital.
Also for me, I have fairly increased my social media game, which I know you're like "I can't open Instagram without seeing your face, Veena." And really what it is is because there's so much noise that happens today, I have to be omnipresent, everywhere. When you think multifamily, you need think of Veena Jetti, and you need to think of it every time you open Instagram, or TikTok, or Facebook... Anytime you spend your day doing anything, you need to associate Veena Jetti with multifamily. Because when and if you're interested in investing in multifamily, what are you going to do? You're going to go and you're going to find me on social media, or my website, or wherever it is, and you're going to come into my portal to see what we're doing, and you're going to start interacting with me and building that relationship with me. So I think those are the top three things that any new or experienced sponsor can do that they probably aren't doing already.
Ash Patel: Why do you think people don't do that? Because what you've laid out is quite simple. It just takes effort. What keeps people from engaging in following those simple orders?
Veena Jetti: Well, first and foremost, I think a lot of people just don't think of it. They don't think that this is a typical referral business; a lawyer might ask for a referral, a housecleaner might ask for a referral. They don't think of this as a referral business, because you don't really engage that way with traditional institutional investors. [unintelligible 00:29:10.05] sometimes will send you "Get $200 if you refer five friends", or whatever. But it's not typical to make an investment into a mutual fund and then get a referral, right? Our industry is not primed for this. But this is a relationship business for us, because we're not some big institution where you will never know who is involved in the business, or there's some random person that's assigned to your account. No. This is very small, it's boutique-like, it's intimate. So I think people just are not conditioned to think of it, number one.
Number two, when they do think of it, it is a process. It is very intentional to do this, to follow up, to ask those questions. It can be uncomfortable to ask those questions. So I think getting more comfortable with asking those types of questions is going to ultimately help you. Making the shift from "I'm not trying to sell you something. I'm presenting an opportunity" is a big mindset change that a lot of people could just stand to have in general, but especially in this arena. And the social media thing - I think it's the vulnerability. It's the amount of content. I don't know what to talk about, which we've already solved that problem. So that excuse is gone now.
Ash Patel: Veena, what are some things that they do that make you cringe?
Veena Jetti: Okay, I hate hate hate the word private money lender. This is because I'm a multifamily snob, and you know our lingo is just different. Someone asked me about private money lenders, or tells me they're raising capital from private money lenders... It immediately makes me go "Okay, you're a single family investor. You are not a multifamily investor." And that's because for us in the commercial world, what does lender mean? It means someone lending on debt. It's like Fannie Mae, Freddie Mac, Arbors, CMBS, or whatever.
So for us, the word private money lender is not an investor. So that's one. Two, I see people trying to skirt those securities rules; the broker dealer violation is the big one I see. And that really bothers me, because every time something goes wrong -- like, when the Houston portfolio failed... And it's not because of this specific thing, but just in general, when something like that happens, it becomes harder for all of us, because our investors see that, they get scared, they don't really understand why that's somehow different than what we're doing.
So I think seeing people who are trying to get around the broker-dealer rules really, really drives me up a wall, because it is such a low-hanging fruit to be compliant on that rule. Like, just be compliant. It's hard, yes; no one loves that this is how it is, but this is the rule. And I'm a rule follower, so...
Ash Patel: Explain that a little bit for the Best Ever listeners. And I agree with you. So somebody's raising capital; what's the right way to do it, and what are things that people are doing that is just not legal?
Veena Jetti: Okay, so the first and foremost thing is anytime you are even thinking about raising capital - the word raising capital, if those words came into your mind, the first call you should make is to your securities attorney, period. That's the end of all the advice right there.
But then to take it a step further - when you're raising capital, the SEC specifically says that you cannot pay someone without a broker-dealer license transaction-based or success-based compensation. It says compensation, it doesn't say money; it says compensation. That means anything that you exchange which has value, you cannot do.
So I'll see people that will go, "Oh, well, we have 85 GPs on this deal." And I'm like, "Okay, what are all of their roles?" And they're like, "Oh, well, wink, wink, nudge-nudge." I'm like, "No, I don't, because as a passive investor myself, if you're willing to cut corners here, what else are you willing to cut corners on?"
So what they try to do is they'll say, "Hey, Ash, come raise capital for me. For every million you bring in, I'll give you 100 grand", whatever that number is, right? I'm making this up. 100 grand. Or they'll say, "I'll give you 1% of the GP for every million you bring in. That is transaction-based or success-based, because if you don't bring the million, I'm gonna give you zero. That is not allowed. Unless you are a broker dealer; then fine, that's within the rules.
But I think that that is easily the biggest violation I see over and over and over again. And even worse is I see people who have done one deal, who will go out and start these mentorships, and then they'll go and teach this to their students, and then their students will come to me, because they're part of my community or whatever, and they're like, "Can I do this?" I'm like, "No, you're not a broker-dealer." And they're like, "Oh, but maybe I am." I'm like, "No, if you have to ask that question, I promise you, you are not a broker dealer. No."
Ash Patel: Yeah, it's unfortunate that we've created this industry of capital raisers. In our deals we've had so many people approach us and say, "Look, I'd love to raise all your capital. I want 30% of the GP." Explain this to me - if you get 30% of our deal literally for bringing your investors in... Now, obviously, that's illegal... But what's worse, is they're ready to have their investors write a check without underwriting the deal, without underwriting me. No background check on me, right? Just whatever they appear to know about me is sufficient. They just want to deploy their investor capital, so that they get those 30 points on the GP side.
And while the arrow was going up and to the right, it's great. No one was getting hurt. But now that we're having paused distributions, we have deals that are imploding. I think the SEC is going to be made aware of this, and they're going to dive back in. They actually did a big deep-dive in this probably about seven years ago. And not many people were complaining, because everyone's making money. It's a different story now.
Veena Jetti: I agree.
Ash Patel: So like you said, anybody that thinks they can just become a capital raiser, marry investors with deals - it doesn't work that that way. And it's so important to bring that to light, because I don't think a lot of people know that.
Veena Jetti: Yes. And also, let's add to the private money lender list - capital raiser. I hate the word capital raiser. People are like, "Oh, you're a capital raiser." I'm like, "No, we're owner-operators. We do raise capital, but we primarily own and operate our assets, and that's the business that we're in."
Ash Patel: Yeah. And I think it goes back to that -- they've given that industry a bad rep. And there's broker-dealers out there that are legit. They're licensed by the SEC. They know the rules to follow, they're true stewards of their investors' capital, right?
Veena Jetti: Yes.
Ash Patel: So marrying money and deals when you don't really know what's going on - not a good thing to do.
Veena Jetti: But you know what I will say, that I think a lot of people don't know about, which they should know about? If this is their goal, just to make a quick dollar from those introductions - what you can do is you can do a referral fee, or a marketing fee. But I want to be super-clear on this, because you need a securities attorney to tell you exactly how to structure this correctly. And I'm not an attorney. But generally speaking, the way it would work is I say, "Ash, you know a lot of really wealthy, successful people. I think they'd be interested in multifamily. For every accredited investor you make an introduction to me, I'm going to pay you $100." Or whatever that number is; $10, $100, $1,000, it doesn't matter. For every single one. Now, the caveat is, if you send me 10 investors, I have to pay you your $1,000 even if zero invest with me, which is why a lot of sponsors don't do this, because it's a lot of risk for me, because I don't know if your investors are going to invest or not, and I'm gonna have to pay you either way for that introduction. But then you take out the transaction-based or the success-based part of it, for you go and you say, "I'm gonna raise $10 million for your deal; you're gonna give me the 30% of the GP." And then let's say I raise $0; you still have to give me the 30%, otherwise we fall again within the purview of broker-dealer rules.
So I think people just knowing that there are other options out there, and if you have a good securities attorney, they can help you with those options, and they can help lay these out for you.
Ash Patel: Yeah, and that's a good point. Look, if you're doing small deals, you're raising $200,000, nobody's going to scrutinize you. But if you're raising millions of dollars, you owe it to yourself to have an attorney involved. You're being dumb if there's no attorneys involved.
Veena Jetti: I think if you're raising capital at all, you should act like you will be scrutinized, because like you said, the arrow's not going up and to the right anymore. And if you lose money, or you don't deliver to investors, or whatever, you don't know what the SEC is going to want to look at, and you want to be papered up, you want to be buttoned up so that you can show them that you are following and complying.
Ash Patel: Yeah. Veena, I'm gonna push back on you on one final thing.
Veena Jetti: Okay.
Ash Patel: You spend so much time and effort on marketing everything; you've built a great company. Are you not spending enough time looking for deals? Because there's deals out there; why not divert some of that effort into finding those deals in middle of Des Moines, Iowa, or Sioux Falls, South Dakota?
Veena Jetti: So we have not deviated from our core markets. Now, interestingly, and bringing the conversation full-circle, we started implementing AI to start identifying new markets for us to enter into in the next 6 to 12 months. So I do think you will be seeing us enter new markets. I don't know if it's going to be Sioux Falls or Des Moines, Iowa, but there will be new markets being added to our acquisition target list.
Now, I don't spend time going after any deals. One, it's not my strong suit. And two, I don't really like it, and I'm not really great at it. So I don't spend time doing that. But what we have done is we have two people that are full-time, all they do is look for deals. And then again, we've implemented AI to help us more efficiently underwrite these deals.
So we still look at about [unintelligible 00:38:47.05] deals before we see one. There was a time where we could look at 200, and one would probably work out pretty well. Now it's 800, because these deals are few and far between of what's trading, that makes sense for our metrics and our targets.
So for me, I would rather go out and build relationships with investors, especially as the market's turning; I need investors that are more sophisticated about investing, that are more savvy about investing, that aren't scared of investing. Because right now we're seeing a lot of investors that have invested the last five years that are pulling back from the market. They're keeping that capital bucket full, too.
Ash Patel: So I applaud you for not doing deals just to keep that syndication machine alive. A lot of operators have fallen into that trap; they have built a tremendous team, they rented an entire floor of an office building, and the only way they can keep that going is fees from the acquisitions. So good for you. Veena, what is your best real estate investing advice ever?
Veena Jetti: To partner up faster, with good partners; the key being good partners there. Because when you have a great partner, it makes everything so much easier, so much better and so much more fun, quite frankly.
Ash Patel: Yeah, great advice. Veena, what's the Best Ever way you like to give back?
Veena Jetti: We do philanthropic giving. So every time we close a deal, we let all of our employees choose a charity of their choice, and put it into a vote, and then all of our investors get to vote on the charity that they choose. And then we do a donation in lieu of a closing gift; because we used to do closing gifts, and those didn't really go over as well as this does. So that our true philanthropic giving.
And then for me, I do a lot of community building in my Facebook community, I do a lot of free education there, so that everybody can learn, and there's no hurdle or barrier or excuse for someone not to learn about how to invest in multifamily the right way.
Ash Patel: Veena, what's the Best Ever book you recently read?
Veena Jetti: Oh, I just finished [unintelligible 00:40:43.02] this whole game. I'm gonna quit what I'm doing and I'm gonna just go buy a bunch of single family/multifamily on seller finance, for 0%, for 100 years. What am I doing raising capital from investors...?
Ash Patel: Yeah, he is interesting.
Veena Jetti: He's so good.
Ash Patel: And Veena, how can the Best Ever listeners reach out to you?
Veena Jetti: You can find me on my Facebook community, mastering multifamily With Veena Jetti, or Instagram, Facebook, TikTok, all the social media, just Veena Jetti.
Ash Patel: Veena, thank you for your time. Great seeing you today. And thank you for laying out a roadmap for social media marketing, raising capital. I know neither of us had an agenda on this conversation, but it was very valuable, and thank you for sharing all of that advice.
Veena Jetti: Yes, thank you. Thanks for having me.
Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five star review, share this podcast with someone you think can benefit from it. Also, follow, subscribe, and have a Best Ever day.
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