Passive Investing In CRE with James Kandasamy

Passive Investing In CRE with James Kandasamy

James Kandasamy is the co-founder of Achieve Investment Group, a multifamily investment company, and he’s passionate about helping invest passively in commercial real estate. He has over seven years of experience in real estate and more than five years in multifamily acquisitions and asset management. He has identified, underwrote, and oversaw the acquisition process of about $180 million of quality multifamily investments, and 10 plus assets and still growing. Right now the average IRR in their portfolio is more than 20%. 

He is also the author of the Passive Investing in Commercial Real Estate book with 85-star reviews on Amazon. This book gives you insider secrets to achieving financial independence.

 

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Passive Investing In CRE with James Kandasamy

 

Brett:

I’m excited about our next guest. He is the co-founder of Achieve Investment Group, a multifamily investment company, and he’s passionate about helping you invest passively in commercial real estate. To date, he has with his team, over seven years of experience in real estate and more than five years in multifamily acquisitions and asset management. He has identified underwrote and oversaw the acquisition process of about $180 million of quality multifamily investments, and 10 plus assets and still growing. And right now the average IRR in their portfolio is more than 20%. Please welcome to the show with me James Kandasamy, how are you doing?

James:

Hey, Brett, happy to be on your show.

Brett:

Absolutely excited to get to know you a little bit more along the side of my listeners, James and I literally met just five minutes ago. And so here we go. So James, would you give our listeners and me a little bit more about your story and your current focus?

James:

Sure, sure. Absolutely. So my story, I mean, I am an electrical engineer with an MBA right now. You know, I have a CCI MSL, which is constantly blackbelt in commercial real estate, you know, always been an engineer for 22 years, in corporate life. On a W two and three to four years ago, I started doing this full time, and but we have been doing real estate, specifically commercial real estate for the past six or seven years. And, you know, we own like 2000 units with a single GP. I mean, we are the primary GP on this deal. We own assets, manage and operate as well, we also have a vertically integrated company of property management. You know, I’m focusing a lot on Austin and San Antonio. So we own around 2000 units right now. And continue to grow.

Brett:

2:49

Beautiful. And by the way, if you want to learn more about James, you can go to achieveinvestmentgroup.com. So James, let’s dive right into a little bit more about your background versus just a strategy. Okay. So I believe in this life, we’ve all been given certain gifts and talents. Some people call them superpowers, some people have given strengths, I believe their God-given gifts and these gifts been given to us to be a blessing and help to others. So I want you to go back to maybe your university days, or maybe your high school days, and I want you to maybe focus and help us understand what gifts you believe you were given. And how does that help how you help others today?

James:

Hmm, back to college days. I was, you know, I was always an entrepreneur. I was looking at different businesses, even when I was studying even though I didn’t realize it. Only recently, one of my best friends told me, James, do you remember your three years trying to sell some shirts during college? And I was like, Wow, really? Yeah. Now I remember now, right? So always trying to do something different from everybody else, always trying to achieve, you know, different heights from everyone else. Like, even during the college days, when everybody was on a summer vacation, I was spending time writing a physics workbook to sell. And this is all the work workbook and solutions that I did. And you know, made it into a book. And, you know, after the summer holiday was over, I went and sold it in different schools, and I did make really good money and it’s just something that came with me. So you know, I was and I tried like selling shirts, which I recently remembered that I was doing that, you know, to my colleagues and all that so yeah, that was what happened, you know, during school days. And when I was young, I think remembering that just makes me a bit excited because now I always had that inside my mind to be an entrepreneur even though I spent 22 years working for a corporate company and as a W two employee.

Brett:

Excellent, absolutely love that. So you have the entrepreneur spirit, you had the spirit of selling or creating something of value that’s a little bit maybe different than maybe somebody else might be doing and spending your time doing that. And then 22 years as a W two employee, and now full-time general partner on over 2000 units. Absolutely love it. So let’s dive right into your investment strategy and philosophy and how you create and preserve more wealth for your partners and, and family, and friends.

James:

So three ways that I do that first is of course, by working hard, I like to overwork or outwork, everyone. The second is be persistence. And the third one, which is the most important, I would say, do things differently, what you know, compared to everyone else, like if everybody buying deals from, you know, bidding process have no true brokers, we tried to go, you know, a different route to buy deals, right? So, yeah, being different is very important for me, because right now, the market is super hot. It has been always hot for the past 10 years, and just buying a deal and waiting for it to appreciate, which is not out of my control is going to be very hard for me. Right? So I like to do things differently.

Brett:

Yeah, very well said, I think it’s, I have a quote on my wall. And it says, if you’re not willing to risk the unusual, you’ll have to settle for the ordinary, right? And I think you’re exactly right when you say that, you know if you’re just going to be doing the same amount of work, or the same amount of due diligence, or the same amount of sourcing deals just to the traditional LoopNet or co-stars or brokers. Right, perhaps you’re going to get ordinary resort results, right. But if you’re going to be willing to do the unusual, and do something a little bit different and go against the grain, you perhaps gonna get find that you know, needle in the haystack, that better value add multifamily deal. Is that a fair summary, James?

James:

Yeah, absolutely. Let me give you some examples so that people can appreciate what I mean by that because sometimes, you know, I don’t want to talk very high level and be a marketing fluff guy, right. So, I mean, I would say 80% of our deal was sauce in a hot market, right. So either direct to seller, or, you know, it comes to a broker, but we are the only person there standing by sometimes people, people say off-market broker, but you know, there’s like 10 guys and broker two of market-beating. So we tried to avoid that, you know, definitely, brokers know that we are quick closers. You know, we are really good buyers, we say what we do, and we do what we say, you know, they like to bring us deals, which is only we can close only, you know, fastest closing for us. So the last to last deal that I did was a forbearance deal, right? Which is like not everyone does that, right? It’s a harder deal, is very difficult to get. But we put that deal under contract for three days. Today, the broker called me, tomorrow I drove, by the next day, we put it under contract, that would be the fastest under contract deal because we know that it deals very well. We are local operators, we know how to estimate rehab by just driving around by looking at reviews and not knowing the area very well. We do that very quickly. So we put the tail end in three days. And we close that deal in 45 days on our loan assumption which is crazy. Loan assumption takes like 90 days usually so so we are quick closers. We buy deals which not everybody wants to want to buy or you know, can buy right when this deal was like an 80% occupied was negative cash flowing and are not many people will be able to underwrite or have the stomach to buy that kind of deal. So these are the deals when I mentioned that be different from everyone else, right? And, but the amount of money we’re going to make on that deal is huge, right? The potential is huge. But the amount of hard work, the amount of knowledge, the amount of operational experience you need to have, is in a very, very unique, no to very few people. And that’s why I say be different. Right? And the third thing is right now I’m under contract on a deal, which is a hotel to multifamily conversion. And you know, not many people, I mean, people talk about it as the hotel can be converted as a lot of rumors and all but nobody does it right. So we bought a hotel, we had the contract on a hotel, which we’re going to convert into multifamily, which is you know, something that not everyone can do something, but we make huge money out of it. And this is where I protect my investors by being different. If I want to be the same as everyone else, you know, just buying a cash-flowing deal and give them cash flow. There’s a lot of options. But it’s also very risky. Because when you’re buying a deal on a cash-flowing basis, you’re very tight on your debt service coverage ratio, you don’t have upside. So we like to buy deals with a huge upside. So you know, when we recover it, we have a huge margin in terms of our debt service. So it makes the deal low risk.

Brett:

Makes perfect sense. Thank you for sharing that. And the thing that kind of I’m curious about right now is where and how you’re investing, you know, where are you finding these deals? Give us kind of a geographical location that the story behind that. And then you already touched on the value add is definitely only has huge upside but give us kind of where you’re finding those deals. Where are you most focused?

James:

Well, I mean, we are focused in Austin and San Antonio, I mean, it’s very hard to find deals here or anywhere in the nation where right now, multifamily is super hot right now. There’s so much capital chasing these few deals, making a lot of people making mistakes because they’re overpaying for it and hoping that it’s gonna appreciate I mean, I never do that I never buy and hope that’s gonna go up. We always buy when there’s a building upside on day one itself. So we are looking at Central Texas, which is Austin and San Antonio, and even in this area is super hard to find that kind of deal. Right? So we are just, you know, we, you know, we work hard at the same time, when you work hard, you become lucky too. So we do get this kind of deal. And since we’re able to move very quickly, you know, brokers or even sellers bring deals to us, you know, on a trust-based.

Passive Investing In CRE with James Kandasamy

Passive Investing In CRE: “My rich dad taught me to focus on passive income and spend my time acquiring the assets that provide passive or long term residual income…passive income from capital gains, dividends, residual income from a business, rental income from real estate, and royalties.” – Robert Kiyosaki

Brett:

Makes perfect sense, by the way, to learn more about James at achieveinvestmentgroup.com. And I’d love the St. Antonio market. And I also love the Austin market. You know, I think it was HP, Tesla, Oracle all announced the last 150 days, they’re all relocating their headquarters to Austin. It’s such an on-fire market. But I want to shift a little bit and I want to discuss a little bit our shows focus on capital gains, tax deferral, you know, lots of high net worth individuals selling businesses, primary homes, investment, real estate, cryptocurrency stock, and they had they’re faced with this huge capital gains tax, and they’re not sure how to defer it. We have a unique strategy called deferred sales trust, which works for that. But I’m curious on your side of things, what’s the biggest frustration when it comes to capital gains tax deferral options or lack thereof?

James:

I think it’s just an option, right? I mean, what are the options right now? I mean, it’s like for me, I mean, we have, you know, quite a good amount of depreciation, you know, passive loss in our store, and we’re able to take the capital gains, whatever capital gain comes in, right, but you know, you know, there are definitely options out there, which I have not exercised a lot of it, but I know 1031 is there, the one you’re talking about DST, even though I’m not very familiar about it, but, but I know some things about it, you know, it’s all available as well. But just even like, 1031 is very, very good, you know, time-sensitive. So sometimes you make mistakes because you know, you have 45 days or ratify three properties, or of course, within six months, sometimes we say no is, you know, it’s very high tendency to make mistakes, and try not to do that, right, because I don’t want to make mistakes.

Brett:

It is called the shotgun wedding, right? You get engaged in 45 days and married 180 days, and you can be married fast, it’s probably not a good idea. Now, I want to focus on the first thing you said when it comes to cost segregation, right, and they accelerate, accelerating that depreciation and using that to offset capital gains tax. The next step to that though, is what happens when your depreciation goes to zero, right? If you’ve owned multifamily for 27 and a half years, right, your node appreciations left, or if you’ve done an accelerated pace, and now it’s even shorter than that pace. What do you do, right, whereas the 1031, if you do the 1031, you can as long as Biden keeps it in place, by the way, he’s talking about taking it away, we’ll see what happens there. You can defer it, but your depreciation schedule travels, right. So that’s not good. So now all of a sudden, you’re like, I bought this big property, and my depreciation is traveled, I don’t have as much or maybe any depreciation, depending on what you bought it for. And so you may not even have the cost side option to offset. Whereas the deferred sales trust was really new, you can sell the further tax, go buy a property and get a brand new depreciation schedule. So I’m curious, James, what would a brand new depreciation schedule mean, for your clients and your GP positions if you could do that on every deal?

James:

Yeah, I think that’ll be a really good option. I mean, I know what DST is, and availability, but I just never really come to a stage where we need to use that. But I think that’ll be a really good strategy to defer that capital gain, you know, I think the way it works is going to another syndication, but smaller DST form, right.

Brett:

You’re close, James, most people get confused. Are you referring to a Delaware Statutory Trust, right, which is another form of like owners, the big corporations that take up all the control and this we call it the old blockbuster way, right? You’re like, why would I give it up to them with no value add, I lose all the control. There’s all the liquidity. And I’ve done Delaware Statutory Trust with clients in the past, of course, 1031s. But then we figured out what this thing called a Deferred Sales Trust. It’s the Netflix way of doing things. You don’t have to go with big syndicators, you can go in at any time that you want to get a brand new depreciation schedule, whereas Delaware is just a form of a 1031. You just started changing your 1031 Delaware into that. So yeah, definitely some big differences for people who want to learn more about the deferred sales trust and go to capitalgainstaxsolutions.com. That being said, James, do you allow or have people come in via 1031 exchange? Or is that something most syndicators just don’t, right? Because it’s too complicated, but I’m curious if you’ve been able to figure that out.

James:

While I’m able to figure it out, even though we have never done it, but I know how it works, right? You bring a few 1031s, put it on a slightly higher level more of a JV structure with the syndicator. But by know how it works, I have an attorney who does that as well as just until now. We never had an opportunity to do that. Right. So it was my last raise. There was someone who said I have a big 1031, can I put it in? But by the time I figure it out, and I’m already done raising the money, right? 

Brett:

So a 45 day, 180, right. Everyone’s on these unless the stars align perfectly right? Are you able to do that, and it’s exactly what the deferred sales trust is perfect because you don’t have to do that. That’s a definite commercial there. But I just wanna make sure our listeners understand that James is meeting for the first time. And this is a very common thing he’s super experienced in the deferred sales trust, and we could really help a lot of people together,

James:

But they shouldn’t end up naming that DST? Because it’s very confusing with Delaware Statutory Trust, right.

Brett:

You’re right, you’re right. They should rename you should be a Delaware 1031 is the way to think about it, and are should just be the regular DST, right? So your tax codes, once IRC 453, the other ones IRC 1031, so different tax codes. But, by the way, Biden might take it away, you know, James, what are your thoughts on the new buying tax plan, as it pertains to investment, real estate, and just high net worth individuals.

James:

I’m not worried about anything that happens outside of my control, because it’s very hard for me to control anything outside of my control, right? So whatever happens, we’re going to just keep on buying deals, which I know, which we are going to be buying, I know there’s going to be capital gains tax, or, you know, something along that line, if it changes, it changes, you know, we’ll go and pay the tax and we move on, right? So I like to focus on something that I can control, this is very difficult for me to say what can happen in the economy or what the new administration come and change, and it might change again, in the next four years. So I don’t want to crack my head.

Brett:

I couldn’t agree with you more, James, I think it’s the best one I’ve like, just put my head in the sand. And when it comes to like, a lot of the news, a lot of stuff that’s going on, even prior to the election, I just like, you know, I’m just gonna keep trying to do you know, what I can do to serve my family and my clients and my friends. That being said, the, you know, COVID-19 has happened, value add multifamily, has remained resilient through this whole process, for the most part, right, from most my clients and in the strategic alliances across the US. So what are you seeing there? What are your thoughts on this state of multifamily investing, given a COVID-19 and given 2021 now?

James:

I think the multifamily price is going to keep on going up because there’s going to be inflation happening and rents are going to go up. And just because of rents going up, I’m not sure the cap rate was compressed further, but with the rents going up. Yeah, I mean, your valuation of multifamily is gonna go up. However, having said that, there’s like 10 to 15% of multifamily, which was isn’t a distressed state right now, for some reason, right, due to COVID, I wouldn’t be for COVID. And that deals flow through that we will be looking for. Right. So. Yeah, it’s definitely distress in the market, even now, at the same time, you know, I think prices are just going to keep on going up. And it’s, you know, it’s just investors have to use creative methods to buy deals nowadays, right. Rather than just you know, going to the market and getting on a bidding process.

Brett:

Yeah, 100%. In 2008, crash, the same thing, right, I think it’s gonna be different than that, you know, I don’t think it’s gonna be a big of a crash, I think it’s gonna be a big correction. But I think it’s going to be about the debt piece, right, where people got over-leveraged on too many deals, and then carrying a GP or an owner come in and take over that debt position and renegotiate something along those lines, because I don’t quite know how that’s going to shake out. But I do anticipate values and opportunities in the next 12-24 months, by the way, in ‘08, it took to 2011 to see the bottom of the real estate market. Right. So the crash happened then. But then it took this much longer. So a lot to be but that’s interesting, lots of need to be seen, but really introduce it 10 to 15% are distressed right now, to see how that actually shakes out any thoughts on what you might be able to take advantage of with that or?

James:

Yeah, I mean, similar to what we did in the last deal, right? Where we buy deals that need to be sold on an assumption basis because of their penalty and if you can get it to the right basis, we will go after that kind of deal. And having said that, I don’t think real estate market prices will crack I think it’s just gonna keep on going up just because the interest rate is so low and real estate is you know, one area where because of interest rate is so low people continue to buy real estate and I think it’s gonna really help boom, the economy real estate is going to be really booming the economy because that’s the hard assets and, you know, something tangible and interest rates low and fed is keeping on buying, you know, all kinds of bonds right to help bond prices right, which is you know, a lot of it’s backed by real estate as well. So I think it’s not going to crash but there’s going to be like as I say 10 to 15% of deals is going to come out soon and depend on how it comes out and how it’s being marketed. You know, it can be priced very high or it can be priced pretty low as well and the good operators and people who know how to close quickly, able to raise money quickly and close, confidently, unable to you know, have the stomach to buy this kind of deal. will be the winner.

Brett:

Absolutely, James couldn’t speak highly enough and agree with you more on that. When I came from Marcus and Millichap, by the way, I really appreciate that you have a CCIM designation, right. And that training, that underwriting, and Marcus and Millichap, we felt like we got a lot of that high level of underwriting and understanding the marketplace and being special specialists. And that’s why you want to connect and find out where some opportunities at achieveinvestmentgroup.com with James, that being said, Are you ready for the lightning round?

James:

Absolutely. Let’s do it.

Brett:

Let’s see what we got you here, knowing what you know now if you could go back to your 25-year-old self, James, what’s the one Golden Nugget you’d make sure you tell yourself?

James:

I’m thinking big. At 20 years old? Yeah. Because I know when you’re a corporate employee, and I was already working when I was 20, you know, somebody’s just focusing on work. And you’re just looking at your career letter on your W two employment, you don’t really mix with other people like business people to find out what’s out there. Right. And sometimes, you know, you have to think big, you know, beyond than what your W two employment is, you know, giving you the opportunity, right. So I think we can think differently from everyone else from your network.

Brett:

Beautiful. What’s the biggest challenge you’re currently facing?

James:

The biggest challenge is COVID-19. I mean, I know, multifamily is still resilient. But you know delinquencies slightly higher than normal. And working with residents or working with the government organization to get assistance has been a challenge, it just takes so much of our time, because now we have to focus a lot on collections. And since we are a vertically integrated company, we control the whole pipeline. So we have a lot more control over our investment by which also takes up a lot of our time. And that’s the biggest challenge right now.

Brett:

What mistakes do you see other less experienced commercial real estate syndicators make right now?

James:

Just buying a deal for the sake of buying a deal. I mean, buying a deal is just a sprain, right? But operating a deal is the marathon right? So a lot of times, they don’t really learn the marathon side of it. I mean, it’s easy to find capital nowadays to buy a deal. So anybody can buy a deal. But whether you’re able to operate the deal, you know, able to return money to investors able to create cash flow and improve operational efficiency, able to really operate the deal during a downturn. Operating a deal during an uptrend was super easy, right? Because the market, you know, market wins is behind your back. But when during a downturn is where it tests the sponsor, the operators, knowledge, and skill on how they’re going to manage the investment for the investors. 

Brett:

Yeah, you got Warren Buffett says it well, “When the tide goes out, you see who’s been skinny dipping”, right and getting to know in this market.

James:

You need to be right now.

Brett:

Yeah. It kind of keeps going. It’s really interesting. Yeah. What are you curious about right now?

James:

I’m curious about how does the whole stimulus money has been printed? How is going to impact the economy in the future? Right. So the Fed has come up with this new methodology for some reason in the past, you know, maybe, you know, three to five years were they able to control you know, the inflation I mean, the inflation in some way without I mean, with quantitative easing, you know, quantitative tightening, they’re able to control the economy. I’m just curious about how long it’s going to grow, in what way that’s I’m interested to see how Fed is going to control the economy moving forward.

Brett:

Excellent. Last question. After all your success and all the clients, friends, and family you’ve helped create and preserve our wealth and real estate, how do you stay centered James in your values? And how do you stay encouraged to reach for new goals?

James:

We have much bigger goals in life than our own goals. So we have our own 501(c)(3) Foundation, which we are you know, in a mission of, you know, educating a lot of kids in third world countries so we have like 330 kids right now that we are sponsoring on a monthly basis for the education and we have a much larger goal in the coming 10 to 20 years. So that’s our unit count. I would say the right number of unit counts right now. 330 kids are planning 30 units I would say 2000 units but we focus a lot on giving back and making a difference in the world.

Brett:

Absolutely amazing. James, I want to thank you for being on the show. For our listeners who want to get in touch with you would you give them one more reminder of where they can find you?

Passive Investing In CRE with James KandasamyJames:

Achieveinvestmentgroup.com and then come and click on you know there’s an “Invest with us” link there. And you can get my book is called Passive Investing in Commercial Real Estate. If you can see on the camera, Stock 15 book by Jim Cramer, the street I saw like $2,000 Paid copies paid full price copies, you know, it’s not 99 sale or even free, right? That’s a lot more, right. So you can go get my book for free at passiveinvestinginrealestate.com. So I’m offering that to your audience. There’s a small shipment for $4 something but everything else is free. The same book is $20 on Amazon, that’s 85-star reviews. But I would encourage you guys to go and read it even though you have invested 50,000, or you invested 5 million in passive investing. read that book, there is a reason why I sold like 2000 copies of the door and people get really good reviews because there are so many details in passive investing, especially in private syndication, that people don’t talk about it. So this book, you know, I open up a good amount of knowledge on you know, what happens behind the scenes because, you know, it’s called the insider secrets to achieving financial independence. So you guys definitely should go and check out that book. 

 

Brett:

James, thanks so much for being on the show. So appreciate you. Make sure listeners you take advantage of that we can always still grow and learn something new even for the experienced old dog in commercial real estate and investing. Hey, for our listeners, I want to thank you again for listening to another episode of the Capital Gains Tax Solutions Podcast, where we believe most high net worth individuals and those who help them they struggle with clarifying their capital gains tax deferral options not having a clear plan is the enemy. Using a proven tax deferral strategy such as the deferred sales trust is the best way for you to exit your business or real estate or other highly appreciated asset or getting with someone like James to invest in multifamily value add in places like San Antonio or Austin Texas is an amazing way for you to create and preserve our wealth. Please go to capitalgainstaxsolutions.com if you want to learn more about that or experttaxsecrets.com if you want to learn how to use the Deferred Sales Trust to grow your business. Thanks, everybody. Until next time, take care. Bye.

 

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About James Kandasamy, CCIM

Passive Investing In CRE with James Kandasamy

James Kandasamy, CCIM is the Principal – Director of Acquisition, and Investor Relations of Achieve Investment Group. He has over 7 years of experience in real estate, with more than 5 years in multifamily acquisitions and asset management. He specializes in finding value in Multifamily opportunities. He also identifies, underwrites, and oversees the acquisition process of over $180M of quality multifamily investments (10+ Assets) and still growing.

He ran the execution of each business plan in the portfolio. He has an average IRR in the portfolio of more than 20%.

He has a Bachelor’s Degree in Science in Electrical Engineering(Hons) from the Science University of Malaysia and an MBA from the University of South Adelaide (Australia).

 

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