Ep #349 – Raj Tekchandani – AI Technologist with 550 Doors
Here is some of what you will learn:
Ups and Downs of Multifamily
Importance of normalizing expenses
Section 8 Housing intricacies
The best investment you can make – in yourself
The Power of Data
Machine Learning and Real Estate
Automated Reputation Management
AI-Assisted Underwriting Platform for Multifamily – Enodoinc.com
The importance of loving what you do
Marketing and Innovation = Sustainable business
To learn more about our guest please click here
Full Transcript Below:
Raj Tekchandani – Artificial Intelligence in Multifamily Real Estate (Ep349)
Intro: Hi! I’m Rod Khleif. Each and every week I record an interview with a thought leader that I know you’re gonna get a ton of value from. Now here on YouTube are the video versions of my podcast, Lifetime Cash Flow through Real Estate Investing. Now to make sure you get the latest information please subscribe and hit the notification bell. Let’s get started.
Rod: Welcome to another edition of “How to Build Lifetime Cash Flow through Real Estate Investing”. I’m Rod Khleif and I’m thrilled you’re here. And I know you’re gonna enjoy my friend who I’m interviewing today. His name is Raj Tekchandani and Raj has got an interesting background and a background that kind of ties in to our conversation today. Now he’s got you know he’s a general partner in over 400 doors and he’s in a limited partnership in you know a 150 doors, working deals right now. He’s very active and so I’m excited to have him on the show. Raj, welcome to show my friend
Raj: Thank You Rod it’s a pleasure to be here
Rod: Oh it’s absolutely my pleasure so you know let’s start the way I usually start this by having you tell my listeners a little bit about you know how you got into this business who you are and why you love it
Raj: Yeah okay so basically I’m a technology entrepreneur turn a marketing executive turned a full-time real estate investor now. I got into technology early on undergrad in computer science school in India, came to US to you know work and study and got involved in all technology jobs and been doing text. I was fascinated with you know early-stage tech startup so I’ve been a startup kind of guy most of my life. I’ve done some corporate gigs here and there but never enjoyed that went back to startups and then in 2012 was it you know I got excited about real estate as one of my friends had started buying properties in Orlando, Florida and I was wondering what he is he doing why is he doing that and he said come down with me to Orlando and I went down and I looked at the property and the values and that time the values were great and I got okay let me take risk and I bought my first condo in Orlando, Florida that was back 2012
Rod: Just a single condo just something you could say you had a place in Orlando come down and visit bring the family. Go to see Mickey Mouse the whole thing?
Raj: Exactly. So that’s my first condo and you know like the saying in Orlando, magic happens. Magic happened after that I had some cash sitting in CDs I was like you know what is this cash doing here let me take the bet and I said it’s like started buying in the next one the next one and next one and ultimately ended buying nine condos in all in the same apartment complex working out beautifully you know got a great property manager who god bless her is managing the properties for us. But I did sense that you know there was something about single families versus you know managing or having multi families you know where is leading about multi families and I said okay let’s take a little shift here this is all still working full-time in my startup gig you know I don’t know how many hours putting in so this was only on the weekends by you know took a deep breath and said let me buy one. So property came by near my hometown
Rod: You said, just to recap you said to yourself, let me really think about buying a multi-family
Raj: Right right right and I was seeing the, I was reading the advantages of you know multi-family or single-family which now I can you know write a book on or you know talk for hours but yeah so that’s what my first foray was. I bought a 15 unit property near my home. One five yes
Rod: Okay nice and this is in the Boston area?
Raj: This is in the Boston area
Rod: Okay
Raj: Suburbs of Boston. So it’s not profitable and you know I had some knowledge about you know travels and all that good stuff but I said you know this was this is gonna be my seminar if at all you know if it you know turns out to be good or bad mmm and I jumped into it and lo and behold the property has gone through its ups and downs and great learning curve and give me the confidence to you know deal with multifamily, deal with property managers and you know move on to where I am now
Rod: And you still own it?
Raj: I still own it yes.
Rod: So if you don’t mind before we go on to where you are now. Talk a little bit about the ups and the downs you know give my listeners an idea of what to expect on the positive and the negative side. What are some
Raj: Absolutely so the let’s start with the positives. I mean the positives was that clearly I knew the market you know it was in a neighboring town. That town is I would say a C town and you know we live in a sort of upscale town and but I knew because it the vicinity of the thing you know it was right across the border. And I said I take the chance and I can you know it was just driving distance and because it was so close to the border I saw the potential there and
Rod: So you say the border between your nicer area and this C area. Okay and did you think it was there that it could be gentrifying? that it could be improving? or it was
Raj: It is already. It already started improving and the parts you know the parts of that area are improving and continue to improve
Rod: Okay okay okay just want to understand okay so okay please continue
Raj: And like I said the rents were you know fairly reasonable and I said this seems like a little low rent here and you know it was about 48-50 per door and I did some research and you know felt like that you know the rents could be higher but I didn’t know what how to get there but all those things that I learned as I went along, the beautiful word called forced appreciation it came along later but on the flip side you know there was a lot of expenses that I didn’t know I mean this was the property that was managed by owner’s son and that which I found out later
Rod: There were expenses that were left off the information you were given when you purchased
Raj: Exactly
Rod: Guys that’s a big one and that’s, so pay attention to that. That’s a big one. So when you get financial information on a property you know we teach our students that you have to do what’s called normalize the expenses okay where you go through and you know you look at each line item and very often you know in that situation that probably wasn’t a line item for management right because the son was doing right
Raj: The son was doing the management. He said the management could be this much but then the other expenses like snow plowing right. He was doing it himself and I you know if you live in the Boston area you know snow expense could be just staggering depending on the year I mean fortunately this year has been great but the last year when I had bought the property it was a shocker right. It’s that you know you can’t employ somebody to screen of the snow. You have to have somebody professionally go there they have to be licensed all that good stuff. So I used to pray for no snow whereas everybody even Boston area you know looking borders now. That kind of expenses, the pest control expenses, the alarm, you know all these expenses are left out because either they were not being taken care of or the son was managing himself
Rod: Let me interject something if I may and another thing you’ll find guys is if you buy from an owner that has multiple properties, what they may do is use their maintenance guy from other properties for this property that you’re buying and none of that expense is going to show up in the T12 or the financial documents that you get and this is why it’s so critical to do what we call normalize the expenses and you you know you come up with a number for the maintenance based on the age of the property and the size of the property and you increase the taxes based on the fact that you know they’re gonna go up after the county finds out what your city finds out what you paid for it and so things of that nature. And okay so that was, so that kind of got you. So what else was it got you for you
Raj: I’m gonna be dealing with in housing you know there was had no idea about what housing was and I just, I nobody in the rent roll said that this person was housing or this person not housing
Rod: When you say housing you’re talking about like Section Aid or something so you had some met some low-income residents that we’re getting subsidized okay. There are some nuances with that that I’m sure you learned inspections and things of that nature yes?
Raj: Absolutely absolutely so you have to be on top of the inspections and you know the tenants really you know don’t care much about them and they know that you know if they complain the landlord is going to take care of you know whatever they need. And so unfortunately not be too much of a trouble you know a couple of cases get in there but that’s all you know like I said sure my friend Rod calls it a seminar. I mean these are all little seminars mini seminars
Rod: Well with Section Aid you know guys if you ever take those kinds of residents they do a yearly inspection and you know they’re gonna look for lead-based paint. They’re gonna look for its tripping hazards. They’re gonna look for all sorts of things. They’ve got a checklist and you know they’re gonna want a suitable heating and air conditioning relative to whatever environment you’re in and things of that nature but you know it’s just, the thing is, the good thing is back in the day that I did it you know they could they could they could not pay their rent, they could trash the place and everything else. Now if they do that they lose their subsidy. They lose their, I forgot the name now oh it’s like the document that they get nevermind I’m digressing. You know what I’m talking about like a certification of some sort… voucher, that’s the word I was looking for. They use the word voucher in that space. They can lose that now if they screw around the landlord. So that’s a huge plus since the time I did though. So you dealt with housing what else? What else popped up? Anything else come to mind.
Raj: Oh yeah the rents you know we’re all over the place. I mean in terms of collection you know the son property manager was collecting at will you know some rents were coming in at first of the month some were coming in the 29th of the month and some were coming delayed from the previous month’s. So the accounting was a nightmare and it was just it’s just a hassle
Rod: Yeah and you’ve got to convert everybody over to the first of the month and let them know there’s a new sheriff in town and
Raj: It takes time you know
Rod: It takes time and you lose some people in that’s and you realize that you can never let them get behind because if they get behind they rarely if ever catch up and you know these were all little lessons that you learn when you, that’s okay I mean listen with the 15-unit, it’s less zeros and it’s manageable and so it was a great education
Raj: Like I said, the best you know investment I made in myself
Rod: You bet because your hands on and now you know what to look for in the larger complexes. Well so let’s segway into something now Raj that I know you’re an expert in and that is I know that you’ve spent a lot of time back before artificial intelligence was on anybody’s lips. You were working in it and so let’s talk about technology. And the advantage of technology in this space and maybe you can give my listeners some tips and some resources and some ideas for how they can be more efficient in this exciting business
Raj: Well absolutely I mean you know technology works and on and on and on. Certain sources of data I mean that’s where we have come to like the data has become such an critical factor and it’s growing leaps and bounds every single day regardless of the industry you know real estate just happens to be one and there is tons of data, census date, income data, you know neighborhood data. There is so much data that is involve here and like you basically really do. And AI which was you know an early start before AI you know we were riding in my colleagues in computer science courses, a new language for AI which you know was never published nothing happened and then I was not even you know a word for long number of years till that came back recently but you know it’s the technology, the data analytics, the you know machine learning all these things have made a far advanced in the last few years. Real estate industry is just you know catching up on that and when I was in my last startup which was on big data analytics machine learning AI, I saw a lot of usage in across different industry our focus was pharma and finances but I saw the need in health and real estate as well and I took the you know I said I’ll take my expertise to you know see what I can do in real estate. Never had the intent of starting up software company because I’ve done that for a while but I wanted to use existing software companies and the number of players out there you know some brilliant people graduating out of MIT, Harvard, Stanford, who are you know writing software’s or real estate. I met up with a woman from MIT and who had done extensive research on real estate technologies and she and I got talking and said this is amazing in our amount of research and R&D that’s going into real estate. Mostly commercial but you know some residential as well. And I found out all the players. I you know figured out who to talk to, what they’re doing you know the bunch of people. But the software technologies that are just about to come out or are already out there in the market this year
Rod: And so that’s very general. So with some specifity, what do you see these software’s doing? I mean let’s hear some exciting things that are coming around the corner. So what is you know once this stuff comes out, how will someone be able to utilize it and what are the benefits?
Raj: So absolutely. So one of the benefits in let’s take a software company again no names but I mean they could you know suck in your rent roll your you know T trails, all the data you just you know feed them the PDF and they you know suck it up and then they’ll create you know all based on their you know machine learning over the years you know what role in you know T12 means what and they’ll create you know a proper spreadsheet or some kind of you know matrix for you to watch out for. So you don’t have to go through Excel and you know enter line item by line item and go through T trails and P3s. You just feed the files to it and outcomes you know a nice source
Rod: So if you’re analyzing a property like we were just discussing when you need to normalize the expenses, then that’s all basically done via the machine learning based on historical data from other properties, what they’ve spent on expenses things of that nature. I could absolutely see that happening
Raj: Absolutely and you know put in the expense, if I had put in the expenses in my fifteen unit it would have shown me red flags. Hey these expenses on a C class does not make sense at all
Rod: Right is that what it was? thirty percent? That’s funny you know I have you know we have a lot of students and we just have student in Denver send us a deal and it was a 30% expense ratio. No sorry my friend. Fifty is a little more realistic
Raj: Yeah fifty, they’re the victims degree
Rod: Right unless it’s a brand new property separately metered for everything and… and then you may be a thirty-five but anyway okay. Well so that’s awesome. So that’s a tool to do the analysis. Anything else that you said that you saw that
Raj: I mean I’m seeing my lot of feeding into a lot of you know property management system that data has been collected on you know the renovations that are being done over the years and you know. So you can basically go into a software and say, I’m looking at a property in this zip code and I’m trying to put these kind of tiles and this kind of kitchen appliances what kind of returns can I expect in five years?
Rod: Wow so you can actually put the finishes in based on what finishes are in other complexes to determine maximum rent and really what that demographic wants and what the rent likes. You see guys that’s what we have to do any time we find a property. Robert and I will go and shop every single apartment complex in the area and look at the finishes, look at what the rents are, look at the sizes, subjectively look at you know how we feel about those properties and then rate them against the property that we’re considering to see what we can do to compete and ideally beat. And so it’s really there’s some subjectivity to it and of course there’s objectivity as well because you’re looking at you know is it is one of them granted or is it is it Formica is that a black appliance package or a stainless appliances. What are the floors look like, you know do they have balconies, fireplaces, water, washer/dryer, hookups, things of that nature but boy the fact that if you could just plug it in. Now of course like anything, the data has got to be there. So somehow that collection has to take place there’s like and it’s got to be current as well so I could see a hurdle with the current static currency of it just because things are changing so quickly but I love the idea. Any other stuff that looked exciting to you Raj?
Raj: I mean it’s all I mean like you can you know pick up software’s that do a lot of social media analysis, sensitivity analysis. So you can say okay this is my property. What are people talking about it? Right, I mean you can they can go into the websites of that property and say hey
Rod: like reputation management
Raj: Reputation management exactly you have you have the scientific term.
Rod: Yeah and guys that’s really important and I’m sorry I interrupted you buddy that’s really important in that you know and anytime you’re considering a property you should google it and see what people say about it and it’s usually not good. It’s usually the tenants that are pissed off and they’re saying nasty things but that’s why it’s so popular to rebrand a property with a new name so you start fresh and you can manage that process moving forward and you know reputation management is a big deal with apartment complexes you know if somebody says something terrible you know you need to be proactively responding saying, hey you know please contact us so we can take care of you or you know our records reflect that that isn’t what happened, this is what happened. So that you’re very transparent. We live in a very transparent world in this day and age. So that AI software could track that stuff for you then is what you’re saying you don’t you know do the Google alerts and all that business that we do now to keep out that stuff okay
Raj: All machine learning and learn intelligence which is great. And one more example Rod. I’ll give you one more example. So my first property the larger property, we went on the Georgia and we were doing the lease audit right. So we got 150 lease documents that we have to go over and the property management companies
Rod: These are the existing leases
Raj: Existing leases right and we go we go through each and every lease. We see you know what’s missing, what’s not missing, if this is a security deposit being paid or not, then we take another spreadsheet and write down on the side, this person has no deposit or security deposit or this person has you know enough salary to cover the rent bumps or whatever if you do. So basically a tenant profile right. And we doing this with hand. I mean so I went back to one of my software buddies and said you know you’re building a software just suck in all the leases I know there’s a privacy issue and all that but that can be addressed but no reason for doing this by hand and spending hours and hours for there’s something that a software could easily do and tell you that 150 doors of Mitch you know 80 or 90, 80% of them you know cannot afford a rent bump you know right away based on their salaries
Rod: Wow well that’s powerful yeah that’d be powerful data to have for sure very cool. So let me ask you this let’s shift gears again. Are there any tools available right now that you particularly like in your analysis process because you’re an expert in the tech space you know are there any tools now that you’re using that you like that you could share? that may not be the norm. I mean you know obviously we all use co-star and loopnet and some of these other sites
Raj: Like the one that I like and you know like I said I work with this company a lot in terms of helping them and talking to them on you know Enodo
Rod: Enodo. I’ve heard good things about them okay. So talk about Enodo, speak to it because I’m not familiar personally
Raj: So you know Enodo is one company that whatever I described so far they do most of it, in you know taking your all T trails and all data that you have wrench roles, T trails, all documents that you have and taking it in and creating the spreadsheets for you and you know I like itemizing every item that is on the sheet and saying whether this thing is you know under or over to pay attention to. And they also do the whole, you put in the address, they’ll tell you what are the comps within three miles within five miles and what are the comps are renting for per square feet. So you can do lot of that upfront okay.
Rod: Now do they scrape that data from some of the other sites or I mean cuz I mean they have a slew of people out there calling apartment complexes or how do they get, how do they gather
Raj: They claim they’re tapping into some of the property management systems
Rod: Okay oh maybe Yardie or something okay okay yeah yeah all right I’ve heard that’s right I know that makes sense. So guys, you know obviously if they’re tapping into a property management system, that’s me and you know that is handling properties in a particular geographic area, they’re gonna have all of that data because all that data is running through the accounting portion of that property management software like if you’ve got an online provider like a Yardie or you know a large outfit like that, they’ve got incredible data existing on actual income and expenses which is about as good as it gets for data in this space. You’re not making phone calls and trying to do it by hand or
Raj: And I should add that Yardie itself is you know building their software’s to you know get up on the
Rod: They’re doing it as well. That’s a no-brainer yeah that’s a no-brainer okay all right and so let me ask you this you know talk about, because you started the way a lot of people progress in this business you’re at you know what five hundred and fifty doors combined now between your GP and LP and you started with a 15 unit, you started with condos just like everybody starts in this business. Were there any aha moments for you that come to mind?
Raj: Yeah I mean I would say you know when I, so part of the story there was when I got comfortable with what I was doing and I was at the end of my startup, not a startup you know I had done five years at the last start up that I work with you know an option were fully vested and I had a decision time to you know go for another startup or you know take a plunge into doing real estate full-time. It was a tough decision but because I said I can use my energy and focus in doing this if I want to do this long-term and I quit my W-2 to do this full-time
Rod: Now let me ask you a question because this is important, did you love the tech business?
Raj: I love the tech business. I still do
Rod: Do you love the real estate business?
Raj: I do
Rod: Okay guys that’s so critical you’ve got to love what it is you do and that’s why I asked because you know you’ve got such a long tech background but I know that you’re still enamored by it because that came up before we even started recording that you know and even in your bio you speak to AI and so you know and that’s why I asked because it’s so important to love what it is you do. Wouldn’t you agree Raj?
Raj: Absolutely I wouldn’t do it any other way. I mean if you’re not I mean again for the audience that listening is don’t do this half-heartedly. Now and this is you don’t do this to just make money you have to do coz you love it
Rod: Good good feedback. You don’t do it for the money. You do it because you learn to love it or you love it and the money will come
Raj: Money will come
Rod: So what words of wisdom, what are the words of wisdom would you share with people that are listening that maybe have a house or two or a duplex, they know they want more you know what advice would you give them?
Raj: So as I was, I was waiting with that is so you know I left my W2 you know I said you know if I do another one of these 15-20 units I’ll be the passive income is going to take it off you know a lot of things you know the my startup self-image is you know not much but you’d be relying on all I can options. So it was a tough decision but I left how to do you know other 25-50 unit kind of deal and I looked around in Massachusetts didn’t find much and my experience is from doing my previous property in Massachusetts you know lot of you know it’s very tenant-friendly state you know hard to do evictions here
Rod: Right landlord-friendly state.
Raj: No tenant-friendly
Rod: You said tenant friendly sorry I’m sorry yes I’m sorry I reverse through my own head yes I’m sorry you’re right dead on sorry
Raj: You want to look for landlord-friendly
Rod: Pretend I’m not here forgive me.
Raj: So yeah I mean it’s a very tenant-friendly state and you know very stacked up against landlords and eviction is hard and it’s all those things. Quickly I decided that you know Massachusetts very hard to do business and I looked outside saying and unfortunately I was you know had worked with some people not worked with I knew of some people in the whole syndication business. A friend of mine was doing it a couple of years ago and he asked me to invest and I said I don’t even know anything about it so I’m not gonna do it till I understand it
Rod: Right
Raj: Fast forward two-three years you know I’m now reading about syndication and I learned so I got introduced to what syndication and I started learning it and I literally went to school on it you know read every book, every podcast I heard you know sound and you know and like zoned in you know the other bigger pockets you have all kind of you know it’s cold sitting there
Rod: There’s tons of material out there
Raj: I just need to Zone in on multifamily syndication and that’s what I did and eventually I said okay so the first thing I would say to any listen is you know knowledge. I mean just gain as much knowledge as you can on whatever you want to do. If it’s wholesaling that’s fine if it’s syndication yeah there’s a lot to learn and do it before you even take your first step. Even as I mean you can do it as an LP
Rod: Even as a passive
Raj: And I’ll talk more about it I talked to my passive investor said you know I’m doing this but I will not invest your money unless you understand what it is you know I had French childhood friends. He says Raj here is my 50k I said no I’m not gonna take it you need to understand what it is because this is a big responsibility I am taking but you are sharing that with me by understanding what it does and how it works.
Rod: I couldn’t agree more. I couldn’t agree more you know we’ve closed 900 doors in the last 90 days and part of you know that process is telling people that don’t invest in it if you don’t have some basic understanding. And I spend a lot of time with our investors educating them as well. We do webinars, regular webinars. I’ve had to deal with this crisis in Ohio with our Ohio asset and I’ve been teaching crisis management because that’s really what we’re dealing with right now and that’s part of the process but no guys yeah and you’ve heard me say this before don’t invest in anything unless you’ve got a basic understanding. Don’t give someone your money you know go on my Facebook page you’ll see posts I’ve done for the questions to ask if you’re a passive to ask an operator so that you’re protected and educate yourselves first. So let me ask you a couple of last questions you know if you could go back in time knowing what you know now, is there anything you might do differently or tell your younger version of yourself?
Raj: You know I know that’s a very question that I’ve heard a lot on your podcast in other podcast and a lot of people say well jump into multifamily and under unit as soon as you can but I would not say that I would what I would tell myself is you know it’s enjoy the journey that you have just you know keep your mind open to you know accepting whatever is around you. So learn, learn as much as you can. Keep your mind open like. I said when I was a Tony at all you know a lot in my twenties you know computer science with everything and I wanted to build the next you know big startup company and I thought you know sales and marketing is for people that you know do not understand computer science and I was like oh that’s not right. And now I know you know there’s nothing more important than sales and marketing in your jobs and so like I said um it’s just a learning curve you get there when you get there. There’s nothing I would have done differently because I am where I am comfortably today because of what I’ve done in the last you know
Rod: Sure sure.. every piece was important including that 15 unit because it was part of your education you know I get it and you’re absolutely right about sales and marketing. Guys you pretty much need to know it for anything that you’re gonna do period okay. You’re gonna be, you need to be able to sell yourself to anyone including your family sometimes and marketing is any business according to Peter Gruber. And I agree completely, is any business that sustains as just two things its marketing and innovation okay. That’s how a business stays in business. It has to know how to market and ask to innovate.
Raj: Yeah the other thing I would add Rod is for listeners again I mean Trust is a very very important factor in this game. I mean trust and integrity, if you don’t have that nothing else that you do I mean you can you know buy the house indoors but if you can’t have the trust or you know with your investors or your partners, it wouldn’t matter it will not last for long
Rod: Great. I agree you know it’s a very small world that we live in and your reputation and is is everything. And you’ve got to be transparent. You’ve got to be you know in my view you under promise and over deliver. You don’t over promise and you’re a steward of other people’s money so you know you need to be sure your stress testing your deals right now
Raj: Absolutely yeah I’ve said it in the past and I say it again you know for my deals, the very first investor in all of my deals has been the same person
Rod: You
Raj: And that’s me and if I don’t you know invest in my own deal and I will never take it to anyone from investors you know I have to wet it myself and analyze it, believe in it, believe in the partners, and only then I would you know agree to you know raise capital for it at all
Rod: Absolutely absolutely couldn’t agree more. Raj, you’ve added a ton of value. It’s been a real treat to have you on the show and I appreciate you being here my friend and I know that we’ll stay in touch because we have a lot of mutual interests
Raj: Absolutely
Rod: Thank you
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