Better Returns: Invest Like a Pro

7. The Critical Three P’s in Real Estate Investing with Kunal Dewan

November 27, 2022 Kunal Dewan Episode 7
Better Returns: Invest Like a Pro
7. The Critical Three P’s in Real Estate Investing with Kunal Dewan
Show Notes Transcript

So, how does one become a savvy investor in real estate? In this show, Kunal Dewan shares his real estate investing journey and offers helpful tips for those looking to do the same. He shares how he evaluates and mitigates potential risks.


  • As an active and passive investor in real estate, Kunal recommends looking for investment opportunities that create cash flow. If you have a cash flowing asset, like apartment buildings, you're not bound by a time frame to exit. He believes it’s the best way to preserve capital and minimize risk.
  • When reviewing an investment opportunity, something to consider is the “margin of safety.” This is the gap between what you think can go wrong and what actually happens. Look for the reasons why the deal won’t work and assess the risk of those reasons.
  • Consider the three P’s in apartment syndications — the people, the property and the plan. Who's the team and their background? Do market research on the property. And know the plan — how is the value being created throughout the investment period.

“I truly believe real estate is the way to actually achieve what you want in your life.”

“Those who focus on returns get the risks and those who focus on risks get their returns.”

Engineer by education. Entrepreneur by choice. Real Estate Investor by passion.

Kanul Dewan on Facebook & LinkedIn
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Well welcome back to the show I'm very fortunate to have one of my good friends Kanul Dewan on the call with us today welcome happy to be here Matt I love the bio he gave me most people gave me like two or three sentences but Kanul he's very deep here's his bio engineer by education entrepreneur by choice real estate investor by Passion that is profound tell us a little bit more about yourself Kanul I'm so glad to be here with Matt I'm in Southern California and I am an engineer by education because that's what I spent you know six years of my life working through spreadsheets and software and modeling started my career in this country in early 2000 as an engineer designing buildings then moved on to designing skyscrapers and tall buildings and hospitals and then retrofitting buildings and then doing the value add in my engineering profession at the same time me and my wife started investing in real estate this was immediately after the Great Recession and our life kind of took a beautiful turn when we started receiving that passive income check and I'm still doing my education started receiving this rental check after all the mortgages and the bills are paid off still left over so we started scaling up over the next a decade or so at the same time I wanted to do more of real estate so I started a business in early 2000 the second part the second decade of the 2012-2013. and built that business from zero to early seven figures seasonal business so I work a few months of the year and turn the business have a great team using those proceeds to buy more real estate to get more passive income and hence my intro engineer by education entrepreneur by choice and real estate investor by Passion I truly believe real estate is the way is the vehicle to actually achieve what you want in your life so I'm so glad I'm happy to be here I love how the fact that your business funds your Investments that's really great great business model all right financial model that's wonderful so how did you discover multi-family to begin with it's kind of a niche thing a lot of people just don't know it exists that you can passively invest in large apartment complexes so how did you discover it yeah and you know what I'll be lying if I tell you that I knew it all along no I started like anybody else with a condo my first real estate deal was a condo then a town home then a duplex then a Triplex then a fourplex and it was just an organic growth and I you know some things are exp learned better when experience versus somebody can teach you and they might drop you golden nuggets but you know until you experience it you don't get that deep feeling deep understanding I think that's what who I am oh my God the more the better so that's how that was the organic attraction I would say to multi-family over the years also you know from 2012 2011 when I started buying those smaller multiple residential multi-family all the way to the end of the second decade you know the deals were getting harder to pencil out so start looking outside of California then I got exposed to syndications so this is it because I I I'm doing okay in my real estate Investments and I'm attracting my friends and my family and my co-workers and my people who I'm talking to and they want to partner with me and that was the organic stepping into the world of syndication now I'm raising Equity with the ex-co-workers or my neighbors so the organic Pathway to attraction to multi-family than organic attraction from investors is where I'm at today where raising capital and buying larger apartment buildings in Emerging Markets across the country what was the moment like I know when I actually discovered I was renovating a house probably like seven years ago I was flipping a house my wife and I do all the work on our own and I was listening to a podcast and that's when I first even heard about multi-family do you remember like I remember the podcast and the the host or whatever it was that that like oh my gosh a light bulb went off this is so much easier this is just running a business um did you have one a moment aha moment when because you've been in doing single-family home and duplexes and stuff like that was it just one event or did you kind of know it was about it about it and then just finally decide I'm gonna do it how did that happen I was losing offers and Deals here in Southern California so I was making offers to multi-family here oh okay inside my buy box which is the cash flow and whatnot and I was losing deals because there are people putting bids with the speculation so to me the the aha moment was slowly uh realized that okay I gotta look outside because time is the biggest valuable asset so let's look outside California to achieve those goals uh podcast has helped me a lot over the years because listening to other people how they have done it how they have grown is what really built that business into the real estate investing say oh if you can scale it put system and process in place which I've already done in my previous business when I built from zero to seven figures yeah wow you can do the same yes and that's a podcast really put the the fuel in that fire um and then meeting people and and talking to people is what really shaped and structure where we are today and there's a phrase out there that says um live where you want to live but invest where it makes sense and that's what you've done you realize okay you know it's not practical first off I would love to live in California I live in Michigan but that's not a California's not a great place to invest and neither is Michigan for that matter because we have kind of a negative population growth and all that so what what states did you look at outside of California there's a few you landed on what are your favorite markets to play in yeah I started with Arizona I started looking in with Arizona's next door yeah so I can go touch and come back um start with Arizona and then moved on to New Mexico you cannot avoid Texas yeah it's big uh than Texas and in Midwest at the same time you know I started investing passively with other great operators so so I can get the the results and the feedback from other markets as well so Midwest as well good those are my favorite States right now but of course you know I was I was amazed to learn that you know in California uh you live in a bubble you live in a bubble that because the real estate this is this is the Hub of the real estate and this is the economy that drives of course one of the largest state in the country probably bigger than a few European countries so yes it is you we kind of especially investors we're not full of themselves but at the end you know when I when I realized that oh my God there's so many Emerging Markets there's so many parallel economies and actually different economic cycles that happen across the country employment growth population growth and so much data to support that that really opened my eyes to look at a big picture uh and that's how I selected those dates and those Metro and those secondary and even tertiary markets when I start looking to Investments okay so that's the markets now what is the criteria the properties that you look at you know some people do heavy light value ads what was what is what is your criteria what do you really like what's your what's your focus on so let me rephrase the question if a passive investor asks me that question right what should I look into whenever so let's say I have a neighbor who bumps into me walking um his path three times a week hey I'm looking to invest what do you think so I tell them exactly how I look into it which is the property must cash flow and now it's really hard in today's market because when the the basis is so high when you get in but you know there should be a business plan you know gotta have an eye to look for that opportunity to create the cash flow so the number one fundamental the number one criteria that I go by is within the first year or so get you create a cash flow got it you know I truly believe that cash flow if you have a cash flowing asset and you don't you're not bound by a time frame that I must exit in two three four five years you can ride any recession you want that's number right because if the property is turning cash flow month after month quarter after quarter who cares if the property value goes up or down right you know of course your debt has to be stable you know um number two I truly believe cash flow is is the best way to preserve the capital the biggest risk for any passive investor is hey my Capital should not be lost with this operator because of some aggressive risk right cash flow balances those risks so that's my number one criteria very good excellent is there a size of properties value-added non-value ad what's what's your other criteria thank you for digging in Dave yes of course value add um larger the better I we have done as low as 30 units to as high as 200 plus units I'm not bound by big or small properties I I'm Bound by the opportunities so if there's an opportunity that creates cash flow which which can be managed in a in a scalable way then that's okay so if it's a 30 unit and even after a heavy Property Management fees and it's in located in the market whereas there's a huge uh Supply demand offset it's a great place to be so what if it's small and then you can use the same principle on a 200 or 3 unit building as well so excellent so any learnings you've had as a limited partner General partner that you could share with people to learn from it's like okay here's something happened to me that yeah for probably should probably put this out there so people are aware of it and how you kind of handled it I think we can probably talk about it for the next six hours that's not good there should be two examples like I have one really good example but yeah you're right okay so I'm gonna share one from both sides of the table I'm gonna first I'm gonna share with the passive investor perspective and also share from a GP or a general partner responsor perspective so let's start with a passive investor as a passive investor almost all the time everybody gets stuck on the returns what are my returns how fast can you get me well my response to that is well if you want returning returns fast perhaps Vegas is a great place to be this is real estate this is commercial real estate it's boring it's slow and in its monotonous but then guess what that's what makes it predictable and the the graph is is slow we don't we don't want this because that's what the stocks does right the whole purpose I mean you talk about taking money out of the stock because we want small slow consistent compounded growth small slow consistent compounded growth so that from a passive investor perspective move away from the returns and look at the offering from a risk's perspective a risk from the sponsor risk from the market risk from the operation risk from the business plan I mean I can slice and dive in so many different ways so look from the risk perspective to the big simplest thing sharing an example Lessons Learned looking at a market looking at a property the rent the revenue the number one thing in any business right the rent the biggest skewing factor is comparables so what a passive investor can do look at the offering look at the the three four five uh comparables where the rent for a two bedroom is this much one bedroom is this much right pick up the phone and do the due diligence by calling that comparable property and see how much is the rent how many units how many types of units are available right now what are the extra little uh fees they built to their tenants so mystery shopping it will take like 15 30 minutes the most but it's totally worth the hundred thousand dollars they're gonna put with a sponsor because if the revenue is where it's supposed to be everything else will fall in place you know in the world of business we talk about sales sales solves majority of the problems right the Rev so if they can just do this one little exercise before putting hardened Capital with the sponsor they will get the answer from the general sponsor perspective from the the the person who's the the jockey very similar logic I wanna I wanna do a deal I want to set up an offering and I want to reach out to my investors and you know give them the beautiful returns and then oh you know what how can I make it attractive to attract more investors the focus again on the returns that's the back that should not be the focus the focus should be how can I make this deal not work so I haven't I haven't I've done my underwriting it makes work I have a business plan it works I have the team the PM and everything that works okay now what can go wrong I have I I have a saying Matt but those who focus on returns get the risks and those who focus on risks get their returns who is that profound returns is nothing but a byproduct of mitigated risks so as a GP that should be the priority and then after that there's something called the margin of safety the margin of safety is the gap between what you think can go wrong and what actually happens right this margin of safety can never be small or big enough because that's the unknown mm-hmm so as a as a sponsor I work in this spectrum of margin of safety the unknowns and how do I not make this deal work after I had done the underwriting and after it has fit my playbook of and checked all the boxes so perfect example so now I'm going back to that the example that you asked the case study property manager property manager is such an important part of your business plan of your execution I mean they are the real jockey sitting on the horse that's where the the rubber meets the road yes and it's all based on perception of capabilities plus because you don't know the PM when you're going to a new market buying an asset you're gonna run the show so you ask around you get a referral you meet them and you get this feeling this person is capable of running the asset right and then you hand over the asset and then they run the show wow this is where the margin of safety there are no hard numbers to do the DD on a PM right so that's where the margin of safety comes in so if the capabilities do not match the expectations well of course you can fire the PM or perhaps sharpen your Communications such that there are processes and checklists where this PM can adopt and give you the results that you're looking for be in the form of reporting being the form of communication with the general contractor or or the tenant or the marketing whatever that is wow so dropping some good knowledges so to recap you can't this is a phrase we used to use in the corporate world you can't save yourself to profitability you need to make more money and that's that's where you're talking about the rats you need to be able to bump up those rats and everything is googable people need to do their due diligence but the whole thing a secret shopper takes it to the next level because when I was in Acquisitions I used to do Secret shopping I would go look at the account comps uh apartments that we're gonna put an offer on we look at the ones across the street or whatever and I pretend like I'm gonna rent the place so you can walk through because you can never really tell on the phone but to actually do that as a passive investor it's really powerful I mean because you could call and check the rent prices and all that and that's that's something I'd never even occurred to me like oh that's really good you could do that I love that and then you're right as a general partner do they have processes and systems in the methodology to fully analyze it and I like the fact that you've got that buffer and and you said something really important is one of my mentor early Mentor said you need to look for the reasons why the deal won't work that's just what you said I think that's the best you need to figure out why this deal doesn't work if you can't find anything and you need to genuinely look if you can't find anything and there's always going to be some issue with the property oh there's no perfect property out there there's always one element that ah but you need to be aware of it and then mitigate those risks but I really love the recap on both sides so that's really good you know what you're somebody I think I'd probably passively invest with yeah I would love that I think so yeah okay um let's move on to anything else you want to add there I want to add that you know we talked about these two topics but there are plenty of other elements that a passive investor should look at I mean of course there's a you know I talk about three p's in a syndication which is the people the property the plan and each of these need to be really dug deep at a molecular level you know who's the team you know their background the property the markets so that that com study we talked about mystery shopping was just a part of that property and of course the plan you know how was the value being created in this asset over the whole period right and that's what really comes into you're investing in the individual not just the property so let's talk a little bit about your why so why are you in large multi-family why do you do what you do and that's important as a general partner as a limited partner you kind of know got to know yourself to know what's good for you what's a good fit for you so what's your why yeah that's the answer is pretty deep Matt go again go do it don't do it do it yes do it do it do it do it you know so I I go back why why did I come to this country you know um I was the first one in my entire family to ever sit on an airplane no wow how old were you how old were you I was 21. okay so uh why why why do I have to go at a place where I don't know anybody I don't have any Financial backing why why do um so that's the ambition right so ambition curiosity leads to ambition and then ambition opens the doors of experiences experiences then makes you feel in a certain way where you find your why right I mean that's that's you the journey it starts with curiosity you know powered by ambition takes you to experiences I bumped into my wife now you know we have kids now we have two boys so if you've asked me that question you know six and a half years ago when I did not have a child my answer was different I was all about building the business you know I was that was my first business I was building back then second in the works and it was all about ambition both me and my wife then kids came in perspective change so that's the experience and new experience in life so the why changed so back at 20 years ago it was all about me it was all about my ambition my growth then it's about us in my life and now it's about a family so the focus has totally changed in the last two decades so today when you ask me a question what's my why you know I want to work less and earn more so that I can spend time with my kids it's as simple as that it's that part of my life which dictates everything I do and I'm not the alone I mean there are millions of people are like me people invest for the same reason be it stock market be a real estate you whatever so that they can buy time I always ask this question to my wife what does money buy well money buy things and cars and the houses then that's that's the lowest one then the money buys experiences so that's like the level two but the top is money buys time and then time gives you the freedom and then Freedom gives you experiences and things or whatever whoever you want to do whatever you want to do so to answer a question what's my wife right now it's all about my kids I work from home and I I love every single moment I spend with my boys I have two boys three that's great that's it wonderful you've accomplished a lot at your age I mean you you go into play you've got a quite very successful tax business with four locations and all that and then you're doing real estate on top of that and then you're a wonderful dad and then you take time to meet with me for two hours a week we chat with our little super super squad group with Vinci lomba so that's wonderful that you really do prioritize your world and your life and I think that's wonderful we could we could all learn a lot from you well you're too kind Matt um I will say that every day every moment everybody is given a choice you know everybody is given a choice to how they spend their time it's hard of course I mean you have a very successful real estate business and I know you go through this the same choice I have one hour to spend have lunch with my wife my phone turned off everything off just you and your wife what was this take this one hour and find more opportunities for your investors right so every day every minute every hour you're making this choice and if the the Y is always aligned their priorities are aligned no price is expensive to make the right choice so what if business takes five years to grow instead of two the the with the Halloween or the fall the pumpkin patch what's the price on that doing that on a Thursday afternoon what's the price on that or going to a zoo on a Monday morning what's the price on that exactly exactly that's the LIE fully agreed some heavy good stuff really good stuff and the light things up here we're gonna go into the rapid fire five this is just to get to know you a little bit better you ready yes I should I be scared it'd be a little bit now all these you know the answer you're the expert on you you know all these answers alrighty let's do it number one what was your nickname as a child honey honey honey honey like h-o-n-u-y honey it still is there there's a large chunk of population India my extended family they don't know my official name Kunal I mean you're not just talking immediate family members you mean like uncles cousins they call you honey honey they call me honey you know that's right that's why I start calling you you can expect my next text to you because I'm gonna start with honey I love that I love that's great okay number two are you a morning person or a night owl a night owl okay we're Kindred Spirits you know that we you know we those those 1am 2 A.M Pacific Time a text goes out to Kunal and Matt replies back within seconds I think it was last night which is only which was midnight your time so yeah you are you are a night owl I know that for fact that's wonderful okay um what would be the first thing you do if you won the lottery how much oh let's say life-changing like 5 million five million dollars so after I pay my my tax it'll be close okay let's say 10 million dollars oh you cannot ignore tax unless you invest in real estate uh so 10 million lottery fifty percent got in tax 5 million in hand uh Matt I I run a non-profit I think uh and I at least 10 percent of everything I go goes to the non-profit so 10 is right there it goes to my non-profit then of course real estate investing is a part of it and then I'm gonna have another big chunk go back to India and donate about five hundred thousand dollars to this a group of people that I had been when I was there for 20 years I never cut I never saw everybody celebrated my birthday as a party I used to take uh the money that used to get and I I used to ask my grandma to cook rice and lentils and I used to go to this slums by the river about 20 minutes from my house where I grew up in a very small town and I used to have lunch with them so I still have a very I did that for 15 plus years that I remember so I want to take that I want to build some housing over there um and then of course my my family and my kids you know the clumped here so sweet um number four if you could live anywhere in the world where would it be a California I love where I'm at it is nice there what's that number five yeah yeah I can't I I could live there if I could maybe someday I will the taxes would kill me though I'm afraid I think my relationship capital is pretty strong and that's what brings the happiness location is just a location yeah you know that's true California the weather is beautiful there though okay I just gotta face it I don't know it's hard to beat it opens number five what's the one piece of advice you would give to new investors to help them get better Returns the one Golden Nugget uh passive investor yes one Golden Nugget that I would give a passive investor who is just getting started is do not fear risks but rather learn about them and learn how to mitigate them there's there are always risk in every investment as a passive investor usually passive investor step back from a great opportunity because the fear to lose the capital far exceeds the desire to win so if they're able to mitigate those risks either by communication or chatting or knowledge or reading a podcast whatever that is whatever Avenue you know that if you imagine it's a bar chart right it's like 10 on 10 on fear and probably four on ten on desire to win right uh knowledge will bring this bar chart down and the desire till when will fire exceed so excellent mitigate risk but knowledge with podcasts with network so they feel comfortable making the decision to invest with a sponsor there you have it mic drop I have nothing more to say that's that's outstanding advice that's some of the best advice I've heard finally kanal how can people get a hold of you how can they learn more about the wonderful things you're doing in real estate yes on my website or LinkedIn or Facebook I'm very active on Facebook uh relatively decently active on LinkedIn and on website my website is Liberty and I'm on LinkedIn Kanul Doan on Facebook and I'll do one that's the best way to reach out to me and all that information will be in the show notes as well because you'll want to reach out to this guy and if you go on my website or if you can just DM me on LinkedIn or send me a private message on Facebook I have a checklist for every passive investor you know it's a very comprehensive checklist in the most simplistic layman terms it's a series of questions they can answer and there's even a flow chart they can just follow the flowchart if this is a good investment for them or not it's on my website or send me a DM and I'll send you that uh checklist the passive investor outstanding educating educating educating just like you said that's what you're putting out there wonderful thanks again for being a guest on the show I really appreciate it it's a pleasure Matt all this great chatting with you I'm so glad to be here today and share my experiences and my mistakes with your audience thanks so much we'll talk soon bye-bye bye