Do you know how to succeed in the real estate industry? Are you willing to learn what you need to scale? Sanjay Hegde highlights the importance of having a collective mind to achieve success. He is the Founder and President of Blue Ring Investors LLC and has more than 15 years of experience establishing customer relationships and managing multimillion-dollar corporate accounts for companies in the U.S. and abroad. In this episode, Sanjay shares where his journey began when he moved to the U.S. in 2001. Starting in the sales industry and moving into the real estate business, Sanjay highly valued relationships. He always emphasizes the need for a team. Having others bring something to the table instead of working on everything yourself will always be beneficial. As the saying goes, no man is an island. Tune in to discover more.
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The Importance Of Having A Collective Mind And Working With Your Team In Real Estate With Sanjay Hegde
Sanjay Hegde is the Founder and President of Blue Ring Investors LLC and brings you the company with many years of experience establishing customer relationships and managing multimillion-dollar corporate accounts for companies in the US and abroad. For the past several years as the top-level corporate executive operating in highly competitive environments, Mr. Hegde has consistently provided leadership to drive multimillion-dollar revenue growth through innovation, cost-effective operations and the cultivation of strong business alliances. He’s been involved in 150 plus multifamily units, both as a GP and an LP. Sanjay, welcome to the show.
Thank you, Sam.
The pleasure is mine. Same three questions I ask everyone to come to the show. Quickly, can you tell us where you start? Where are you now? How did you get there?
I started off when I came to the US in 2001 pretty much on the floor in a battery company and then later on scaled myself up to become the Vice President of Sales and Marketing Director of Sales for America and Asia. It was a beautiful journey, but at the same time, when you start earning, people always tell you that, “Real estate is a great place to put your money in, but then you learn where and where not to put your money in.” I started off with single-family rental properties and finally decided to focus more on multifamily and later on into syndication. That was my journey.
We’re and we’re not? Can you give us some more insight into that? What were the lessons learned when you said that? There are some experiences tied to that comment. What does that mean?
One of the things that everybody thinks about is, “Real estate investment is a great investment. Especially the first thing that you do is end up buying single-family rental properties, but the challenges that come with it are tremendous.” For example, something breaks down. You got to fix it on your own or find somebody else to do it. That costs you money. Let’s say that there is a problem with one of your tenants, leaves you. You got to fill that place. If not, it’s not bringing in any money for you.
That’s another challenge that comes with it. You’re putting your hard-earned money into it and also it affects your credit score. All of these things affect you as a single-family owner, but when it comes down to multifamily syndication and investing in one of those, you just owning the property as a small unit of the property title lesser investment, that’s number one, which means the lesser risks involved in it.
Educate your investors.
The banks are not going to go after you because you are not the guarantor behind the whole thing. You don’t have to get into the hassle of your tenants calling you and saying, “I need plumbing issues or my AC is down.” Those are huge ones and plus, you are not the one who is investing to make all that happen because you are not alone in that. It’s a team effort.
All of those things you see do make a big impact, plus you are not a part of the day-to-day grind. The day-to-day things that you need to keep the tenant happy. Overall, when you make an investment in syndication, you put your money in there, you let experienced operators manage the properties for you and you will reap the benefits compared to all the other hassles that you have to go through, being a single-family owner.
Are you speaking more from the perspective of a limited partner or from a general partner?
From a limited partner’s perspective, I’m talking about as a passive investor, but as a general partner and as a syndicator, you do have a lot of responsibilities that you take care of, especially for making sure that your investors are safe.
The points you bring up there about being a limited partner in several deals and a general partner as well is interesting. The limited partner side of things is attractive. There is nothing like getting a check every month and your phone never ringing.
Honestly, this is exactly how I got into multifamily syndication is because while I was having single-family rental apartments, I passively invested in storage houses and multifamily deals. I started seeing that I was making money from them versus losing money in my single-family homes. I wanted to know more about it. I dug more into it, learned more about it, got into a mentorship program with our mentor and I did that over a period of time.
I learned that how the real business works and how it can generate more revenue for investors? I said, “I would like to help those who want to invest passively and don’t have the time to go through the hassles of running multifamily.” I was like, “How do you do that?” You do that by educating your investors. I want to pass on all the information that I learned for the period of time through my mentorship program, as well as my personal experiences so that others can make money like I did.
Talk to us about the dangers you see from an uneducated investor.
Understanding who’s doing the syndication is the key, understanding the deal, asking the right questions such as, “How do you look at the return on investment was written off investment all the period of time? How is the deal structure is the key?” What is the experience that the syndicator has? What have they done over a period of time? A track record is important. Have they come across a difficult situation? Have they ever failed? I’ll tell you don’t get discouraged when somebody says, “We did fail in certain places because if you’ve always been winning, then there will come a time when you are bound to fail and you don’t know how to fix this.” That’s the whole thing.
It’s all good to have a good team with you. Understanding the team who are in the syndication is also there. Asking questions about doing some due diligence on your own, trying to understand, “You have this property. Is it near sea level? Is it in a flood zone? If there is a flood zone, are you planning on taking flood insurance? Why not?” What happens if you sell this property and say, “Instead of 5 years, it’s 3 years. What does that mean to me as an investor?” All of those things are some key things to ask and not just listen to the syndicator and say, “This looks like a great deal.”
There is certainly a lot to be vetted beyond the shiny PDF you get. It was sent to your email box. You hit on a lot of great topics here. We always say there are three things that go into this. It’s the team, first of all. Secondly, it’s the market and third, it’s the deal itself. Those being an order of importance on what you should focus on. How did you overcome the experience and track record side of things when people came to you and you said, “I’m starting out and yet I’m raising money?” What was your answer there?
Multifamily syndication is a team sport. You don’t do this all by yourself. You work with a group of people. You look at who the sponsors are. You look at who brought in the deal. You also look at what is the value that you’re bringing in. If you are the person who is managing investor relationships, you want to have a track record with the people who have done this before. It’s not like they’re newbies that haven’t managed properties in the past. You have to look at that part of it also and piggyback on their experiences.
Are you doing this on your own or are you still bringing other co-GPs when you guys take down a deal?
We always work with all co-GPs and that is how I work. 2 or 3 brains are better than one. You are not only doing it with your own experience, but you’re working with other people’s experience. They also look at your underwriting. They also say, “Sanjay, did you think about this one? This is the pitfalls on this one.” We all go through our experience but having collective minds brings more value to the deal than one person doing it all by himself.
Multifamily syndication is a team sport. You don’t do this all by yourself.
Talk to us about some of the things that those collective minds have helped you either avoid or do correctly.
I’m a conservative person when it comes down to underwriting and I look at things a lot different, but still, at the same time, it doesn’t matter how conservative you think you are. There are people who are better at it and can do things much better. There are certain times you would see that when you’re doing underwriting, you will look at certain expenses as just expenses, but an experience would look at it as, “Let me dig into this a little bit more of why do you think this month or certain period you see that the water is more? Was it the same in the previous year or the year before? Was there a leak in this that was causing it?”
Those are the things that you can look into. You can find it during your due diligence. I think due diligence is also a key part when you’re doing the syndication. A lot of people would have experienced certain things, which you could notice that, “That’s something that I would have overlooked.” That’s just a small example.
People don’t understand when you use the term leverage. Those small examples of those small things can play into the performance of the deal, especially when it comes time for disposition. Do you have any, “A-ha? I’m glad somebody looked at this,” and it was a pivot where you avoided a mistake?
I could say the due diligence part of it is the key where I’ve seen most of the things that experienced eyes can look at. Every time when we do our due diligence, we try to scope up the entire plumbing part of it. We want to make sure that the electricals are the right ones. Those were some a-ha moments, like things that are behind the wall that you normally don’t see when you walk in. You’ll probably see that it’s probably upgraded. It looks a little bit nicer.
It’s got a fresh coat of paint or what have you, because they would have said, “I’ve done some upgrades on this one.” I have another 5, 10 or 30 units that need to be upgraded, and then you can bring it to market rent. There is more to that story than what are the things that they probably will not have done? Is it all superficial that has been taken care of? How much of it are we need or behind the walls that need to be taken care of?
Tell us about your why. What motivates you to do what it is that you do?
Number one is when I first came to the United States in 2001, I started off in a rental house and the rental property. I saw that it doesn’t matter how well you are or what’s going on in your life. The main thing that everybody needs is a sense of security, feeling safe, living in a nice environment, coming back to what is a place called home. Number two is there are many people out there who want to retire but they put all their money into shares and bonds.
The thing is that they have a diversified portfolio, but in reality, it’s not because it’s all driven by the market. You might end up losing more money. Imagine when you’re about to retire and the market crashes. How difficult is that going to be for you with all your money stocked up in one place? I want to help both sides of the community, the ones who want a safe and nice place to live in at the same time. Also, help those who want to have a passive income and another source of revenue coming in.
Talk to us about what you see in the marketplace and how you guys are remaining competitive?
The market is hard. People are paying institutional finances, going after anything and everything and trying to buy left, right and center, which does make syndication a little bit difficult for us, who worked with investors directly at their grassroots levels. Our goal at the end of the day is not about the property. I don’t fall in love with the property. I fall in love with the numbers. That’s the key.
I look at it as, “Does this investment on behalf of my investor bring money for my investors?” If the answer is yes, then yes. I try to go after the niche market on a smaller portfolio of 50 to 80-unit properties where the competition is a lot lesser compared to 200 to 400-unit class A properties, which people find it to be flashy and nice. It looks great but at the same time, the C, B properties and the smaller brands, which have lesser competition, better cashflow and better returns for our investors, is what I look at.
How are you tackling management on those smaller properties?
When we try to buy properties, we try to buy by leveraging on properties that are close by. If anything, within an 8- and 5-mile radius, now you have a property management that is already there that you put in place. You bring in the star of property management companies in there and make sure that they are doing a good job on this one property. You’ll leverage them for the next. That way, you pile it all together.
That makes a lot of sense because not only do you have shared economies of them managing multiple properties but then you can get a management forum because I know a lot of those smaller units count. It’s difficult to get those to a pencil with bringing property management in. Where do you see this market going? Not that we’re asking for the crystal ball in your office there, but we do see institutional money pouring into this space. We do see competition driving up. Was it cap rate compression? Where do we go from here and how are you positioning yourself to protect against downside risk?
Two or three brains are better than one.
I focus on growing investors as a company. My partners and I invest in emerging markets. That’s number one. We look at the properties in the B and C class properties where we can do some value add and has a good backend. It’s one of the good things about having institutional fundings as well and the big groups buying in all these bigger properties and trying to sell at a much lower cap rate helps us also. When the cap rate goes down, automatically, it brings us because that is meat on the bone where we put in the revenues necessary to bring it to the market rent, which improves the net operating income. When the cap rate goes down, it only helps us get a better rate. It’s a win-win for everybody.
It’s a valid point there that certainly upon time to sell. It’s a great place to be. Talk to us about the capital raise side of things. What’s that process been like? What have you found challenging and successful ways to raise capital?
The challenge always is given the situation and especially with the COVID times and everything. You’ll notice that people are trying to hold on to their money more than spending money because there is uncertainty in the market. Honestly, if you look at it, you are holding onto that money that doesn’t get you anything. It’s always best to invest it in someplace and do it in the right way. That’s all I’m trying to say is don’t go all crazy with it.
Make sure that you ask all the right questions, do the due diligence necessary and make that investment. I do see that there are certain people who are scared, but at the end of the day, my job is out here to make sure that I educate my investors and partner them through this entire thing. That’s one part of the challenge that comes in. It’s like you get too many questions, which is a good thing for me because I love to educate my investors instead of telling them, “This is a great deal.”
What have you found to be some things in capital raising that may be that you found more challenging than expected?
The biggest challenge that you see is that a lot of people don’t understand how the deal is structured when you’re talking to them. They have great difficulty understanding because some of them don’t get it that they’re losing money. For example, some might say, “I put my money into this fund and this one is giving me 10% cash on cash.” I’m like, “You find that’s a great deal.” They’re like, “You’re giving me 7%.” I’m like, “It’s 7% cash and cash through the whole. You’ll be breaking about like 19% to 20%.” They’re not looking at the same map in the same way. It’s all about educating your investors and like, “This is how you’ll be making more money instead of this one.”
Smart investors understand that people are getting started on it. They jump out, “This looks like a great deal.” More than anything else, I think some people look at the flashy A-class properties and they think, “This is a safe bet.” It looks nice and it’s got a beautiful cool gym and all of those things. It’s got like 200 to 400 units. It looks nice and big but at the end of the day, it’s like, “What do you make out of this?”
I was speaking with someone who is far more successful in the real estate realm than I am. He looked at me and goes, “The syndication thing, I don’t understand that. That’s confusing.” I cocked my head and was like, “What? You’re supposed to be miles. You’re way ahead of me in this game and for far longer.” For him, it’s always been joint ventures, his own capital and bank financing.
It’s been some tried and true methods and in his never learned about syndication. He goes, “That’s a confusing way to do business.” To your point, educate your investors, teaching them how this works, why a 7 is better than a 10. Things like that are tremendous. It’s interesting that we often assume that everyone already understands it.
We think that they get it and honestly, it’s not how it is. It takes a lot of time and effort to explain, sit down and explain. I was on a call with an investor. The investor was in Hawaii and he said, “Sanjay, I can make it at [6:00] in my time, which is [12:00] in your time. Would you be interested in doing it? Do you want to be on the call with me?” I said, “Yes.” I got on the call at [12:00] AM with him and I was on call until [2:00] AM, but it was a good educational experience. He was happy that’s the key. At the end of the day, when they invest with you or not, they take away something with that. This gentleman did invest, but still, it’s all about educating someone who takes away and goes away happy that, “I learned something.”
Kudos to you for taking a call at midnight. I’m not sure I have the fortitude. I’m too old for that at this point, but clearly, you’re doing what it takes to get it done. Let’s wrap up here. If you were to help our readers avoid one mistake in real estate, what would it be and how would you avoid it?
The first thing I would avoid is not trying to do things on my own. Work with a team who are good. Don’t try to think that you can do everything by yourself and for the person who’s starting off in syndication. I’ll tell them to build a good team and try to work with a solid team of people. For investors, I would tell them that, “Do your due diligence. Ask the right questions.”
Sam, I saw on your website, you have great things that you put together, like questions you need to ask your syndicators. That’s a great thing. I’ll encourage them to read these things and do ask those questions. Sometimes you might feel that like, “It’s not that hard. I can make it up.” That’s not how it is. You do need to ask those questions.
When it comes to investing in the world, what’s one thing you’re doing right now to make the world a better place?
The thing is, at the end of the day, if we make money for what? It’s not only for us. We want to give back to the community. I do believe in charity and helping people. The wounded warriors are a big thing for me. I like to work with them. Cancer institution is something that’s very close to my heart. Philanthropy is a big part of the thing. You want to give back to the community in whatever you make. For me, do good to others as they always say, “When your earnings go up, your giving should go up as well.”
Real estate is a great place to put your money in, but then you learn very quickly where and where not to put your money.
If our readers want to get in touch with you or learn more about you, what is the best way to do that?
There are multiple ways to get in touch with me. You can always visit my website, www.BlueRingInvestors.com. I’m also there on Facebook, Instagram, Twitter, and YouTube. I do put in a lot of educational information or videos on YouTube but I would encourage them to visit my website, which has got nine reasons why you should invest in real estate.
One is specifically for busy medical professionals and the other is for busy professionals as such. It’s a good read. I would encourage them to download those white papers and get more information. I also have a Calendly link over there so that if they need to, they can call me for no obligation. A phone call to educate them on investments. It doesn’t matter, even if it is [12:00] AM. I’ll be there for them.
Thank you so much for your time. That was awesome. I do appreciate it. Best of luck to you and we’ll talk soon.
Thank you.
Important Links:
- Blue Ring Investors LLC
- Facebook – Blue Ring Investors
- Instagram – Blue Ring Investors
- Twitter – Blue Ring Investors
- YouTube – Blue Ring Investors
- https://www.LinkedIn.com/company/blueringinvestors/
About Sanjay Hegde
Sanjay Hegde is the Founder and President of Blue Ring Investors LLC and brings to the company more than 15 years of experience establishing customer relationships and managing multimillion-dollar corporate accounts for companies in the U.S. and abroad. For the past 15+ years as a top-level corporate executive operating in highly competitive environments, Mr. Hegde has consistently provided leadership to drive multimillion-dollar revenue growth through innovation, cost-effective operations and the cultivation of strong business alliances. He has been involved in 150+ multifamily units both as a General Partner and Limited Partner.
