My Realty Gains
Aileen is the co-founder of Bonavest Capital, where she helps people generate passive income through real estate syndications. She is on the path to creating time freedom for her family and 2 young children and believes real estate is the best vehicle that can help her and others achieve this dream. Aileen received her MBA from Northeastern University and has over 10 years of experience in the Aerospace industry as the finance lead on several multi-million-dollar projects.
Prashant Kumar, CCIM – How far you are in terms of gaining your financial freedom so that it kind of motivates our listeners. How much space do you need to create financial freedom?
Aileen Prak – I would say that we are getting pretty close there at this point right now, we’ve done about 13 deals as passive investors ourselves. We’ve done about five deals as general partners on the active side of things. All that combined has accelerated our path to financial freedom. We’re still currently working our W2 jobs, but we’re taking all that active income and investing it in passive opportunities so that our money is also working hard for us while we are also working hard for our money. So combined, those two strategies are going to accelerate our path to early retirement, to the financial freedom journey that we’re looking for.
Prashant Kumar, CCIM – You are an ideal avatar for this show and Real Estate business. Where somebody who has been investing in Real Estate knows about Real Estate or if you didn’t know about Real Estate? You started just a couple of years ago. Like four years ago. You and your spouse. You guys worked full time and you took a plan into Real Estate and you started investing in Real Estate just 3-4 years ago. You are at a level where you invested in 13 deals as Passive Investors. Your money is already making money. You are making money in W2. But whatever your savings are, that money is also getting compounded every year. And on top of that, because of your diligence, because of your hard work, you have to jump into the pond where you have become GP on five deals. I’m sure you are almost there to start sponsoring a deal maybe this year around, maybe in the next couple of years.
Prashant Kumar, CCIM – From a passive standpoint, how much time would you invest into a deal? How much time do you spend on a Passive Investment?
Aileen Prak – We even get to the actual investment themselves, we’re spending a lot of time networking and establishing relationships with different various sponsors because we have to get to a point where we are confident and we trust the people that we are going to invest our money with to be good stewards of our capital. We’re spending a lot of time building up that relationship and establishing that trust and a good solid connection with them. That’s the first and foremost thing that we do. It takes a little while to build up that connection, that trust, and that confidence. And then from there once we narrow it down to who we might connect with the best within the syndication space. Then we’ll take a look at the deals and see if it aligns with our goals and our metrics and what we’re looking for in investments and if it’s going to help propel us forward to reach our financial goals. We’ll take a look at it and we’ll do some underwriting on it. Especially in the very beginning when you don’t have much experience.
It took us a long time to deep dive into those deals, and understand those numbers, but the more and more you do it and the more trust and confidence you build with the sponsor, the less time I feel that you’re spending on the actual evaluation of the deals. Because the numbers are just numbers. What you are investing in is really what the sponsor themselves, so people can have projections, the numbers on the spreadsheets can be whatever they are.
People can have different types of assumptions and based on their assumptions, the numbers can look very different. But what is important is the sponsors themselves and how are they going to operate and are they trustworthy and are they going to take your money and make it work the hardest it can for you? And so that’s what we look for is that the sponsor with that level of professionalism, trustworthiness and everything like that being before we get into any syndication deals.
Prashant Kumar, CCIM – Awesome.
Prashant Kumar, CCIM – How many deals would you work on and how would you invest? How much time would you invest if you didn’t want to quit your W2 jobs or at some point, you want to become financial freedom? You want to gain financial freedom, but normally how much time would you spend?
Aileen Prak – If it’s in the market that we’ve never seen before, it’s going to take us a little bit longer to evaluate the deal. I would say within one to two days. If we just sit down and look at it and evaluate the market itself, and then the metrics within the different economics surrounding that market itself, and if we trust and believe that market, then we’ll look at the deal itself and see if it’s feasible and if it’s realistic. That could take a couple of hours to deep dive into the sponsor’s assumptions and where the numbers are coming from.
I work with Excel quite often, and so I like to look at how the numbers one number impact the other number and how they can get to those projections. So it would take me a little bit longer to kind of understand what all the different moving pieces are within those underwriting models. So I would say, one to two days could take me if I’m looking at the deal and just deep diving into it.
Prashant Kumar, CCIM – How much time do you spend once you have made up your mind that you are going to invest your $50,000 or whatever it is into the deal, how much more time do you invest or put in the deal? What is the requirement of your time?
Aileen Prak – After we decide to invest in a deal, what will happen is that we need to go spend some time wiring the funds into it, read the PPMs and all the contract and all the legal verbiage and make sure that it’s in line and that we agree with all those terms and conditions. So that will take a little bit of time as well. And then from there afterwards, you would just sign all the paperwork and then you just wait for it to close. And from our point, all we need to do after that is just wait and get what we call mailbox money every single month or quarter, depending on the distribution timeline. And so that’s the fantastic part of it because I don’t have to do anything. I just wait for the monthly or quarterly communication to understand what’s going on with the property, but I don’t have to do anything. The operator is going to be working on it, but I’m managing it and monitoring whether or not they are working towards that business plan.
Prashant Kumar, CCIM – What were the bad experiences in Real Estate? It can be within syndications particularly or outside of Real Estate syndications.
Aileen Prak – I think because we have done our proper due diligence upfront and do the vetting of it, we haven’t had necessarily really bad experiences. Knock on wood, and so far with any of the investments that we had. I think the only negative things that are the challenges that we have faced are, when I was doing the single-family home, we’re dealing with a little bit of a difficult tenant during COVID time and the paying of the rents and trying to collect rents or a piece of it. It was a little bit of a challenge during that time, but we were able to overcome it. But other than that, everything else has been pretty good. I can share a great story that has happened, an unexpected one.
The first passive investment that we had invested with the whole period time expectation was the five-year hold period and it ended up going full cycle within 19 months instead. We were able to take those earnings and those capital gains and roll them over.
We were able to make I think like 1.9x Equity Multiple on our cash within the 19 months and that was fantastic. We were expecting to hold it for five years but the market was favourable and they sold it and got a gain. We’re able to take that cash and then put it back into another syndication and have that compounding effect and having now more money and building in more and more cash flow through those passive investments.
Prashant Kumar, CCIM – Awesome. I would like to go back to the bad experience or challenge that you had in your single family. I’m sure a lot of people have had those challenges, including me. What do you think about that kind of challenge after coming into the multifamily passive investing space?
Aileen Prak – Single-family is fantastic for certain models and people and they’ve done great in those fields. However, for me, what I found just didn’t match what we were looking to do. When there was one tenant who’s not paying, you have zero income for that month, your collection is 0% for that month. With multifamily, you have economies of scale. Even if you have a couple of bad tenants who are not paying you maybe or they’re delinquent in their payments, you still have other tenants who are covering it. You’re still making a break-even at like a lower point value, not 0% at any point in time. It would be very difficult to get to 0% with multifamily. What was great about when I invested passively in syndication is I didn’t have to worry about dealing with the property manager, dealing with the tenants, and all that paperwork that goes back and forth, communication.
The sponsor takes care of all that stuff, and I really just sit back and just read the emails and the communication that comes to us as investors.
Prashant Kumar, CCIM – This is what I wanted to know from you.
Prashant Kumar, CCIM –What are the returns one can expect from a deal as a Passive Investor?
Ailen Prak – I think now the returns are coming down a little bit more just because of the markets and the deal itself is a little bit harder and harder to find. Our expectations as Investors have come down just a little bit. What I’m seeing right now is if we can see like 1.5 and 1.6 multiple, we’ll take a look at that but what we also look for is the cash-flowing aspect of it.
We like to see if there are some type of cash-flowing assets that we can also benefit from as well as the upside. We’re not just looking purely for appreciation, we’re looking for the value, and adding a component with the cash flow that goes along with it.
What do you look for? Probably within a three to five-year-old period time, maybe above equity multiple, and then also probably cash on cash is about 7% if we can get to that. IR may be about like 15% and above but it also depends on the sponsor itself.
The metrics can be fantastic with one sponsor versus another sponsor, but I probably would invest maybe with a smaller, lesser return with a more trusted sponsor than somebody I don’t trust that has higher and better returns.
Prashant Kumar, CCIM – Awesome. 10% to 12% AAR or 15% AAR means that maybe 17% to 18% AAR and 1.8x or 1.9x. These are typical returns that we would look for in Real Estate. Passive investors as Passive Investors, I mean, that’s what you mentioned, and these are across the board. It’s not just one deal versus another deal. Some deals may be better. They all average out somewhere, anywhere from 1.5x to 1.8x in five years. Three to five years hold.
© 2022 My Realty Gains. Created by Fooracles. All rights reserved