Underwriting. A skill set that Vessi Kapoulian became an expert, in and with it scaled her business. In 2017, after arriving in the US from Bulgaria, Vessi started the journey that led her to control a small portfolio of investor real estate properties in Tennessee and Florida. In this episode, Vessi and Sam embark on managing operational expenses and capital expenditures and discuss how the current market conditions are impacting their business, and how their strategies for protecting themselves are evolving.
Highlights:
[00:00] – [07:32] The Start of a Journey
· Vessi has 18 years of business experience, 14 of which are in commercial lending and four in business management and sales, and controls over 161 doors.
· Vessi is focused on multi-family real estate investing.
· She shares how transitioned from single-family to multifamily real estate investing and how she uses content, underwriting, and deals to scale her business.
· Vessi shares how she manages her deals, stay patient and keep the feedback loop open with brokers.
[07:57] – [14:40] Underwriter’s Tips for Surviving a Sellers’ Market.
· Multifamily is a team sport. Partnering is essential for the growth and scaling of your business.
· For Vessi, it was difficult at first, but eventually became easier as she learned more about the market and became more efficient in her underwriting.
· Vessi recommends following underwriting models that are best for you, trying different models, and joining underwriting communities.
· She also recommends being mindful of insurance rates and adjusting your assumptions as needed.
[14:40] – [17:00] Scaling on a Threating Economy
· Vessi raised her reserves and CapEx in order to have more protection in the event of a market downturn.
· This increased spending is partially driven by higher labor and supplies costs, as well as increasing operating reserves.
· Vessi predicts that cap rates will continue to increase, resulting in return compression for buyers and sellers.
[17:00] – [17:59] Closing Segment
· Reach out to Vessi
o See links below
· Final words
Tweetable Quote
“I think having clarity of goals and your why, will pull you up further during good times, and push you forward during tough times”. – Vessi Kapoulian
“Underwriting is an art and a science. It’s constantly evolving and that’s what I love about it. As the market evolves, you evolve your underwriting with it. So, it’s not something static, it’s something fluid that constantly changes over time”. – Vessi Kapoulian
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Connect with Vessi Kapoulian on her website and write her an email at vessi@thevessik.com
Connect with me:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Vessi Kapoulian [00:00]
Underwriting is an art and a science. It’s constantly evolving and that’s what I love about it. So, I’m still feel like I have a time to learn. And as the market evolves. You evolve your underwriting with it. So, it’s not something static, it’s something fluid that constantly changes over time.
Intro [00:18]
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big.
Sam Wilson [00:30]
Vessi has 18 years of business experience that includes 14 years of commercial lending and four years of business management and sales. Today, Vessi controls over 161 doors. Vessi, welcome to the show.
Vessi Kapoulian [00:44]
Thank you so much, Sam. It’s a pleasure to be here and excited about our conversation today.
Sam Wilson [00:49]
Absolutely. The pleasure is mine, Vessi, there are three questions I ask every guest who comes from the show in 90 seconds or less. Can you tell me where did you start? Where are you now? And how did you get there?
Vessi Kapoulian [00:58]
Happy to share that. So, one could argue that my real estate journey, or the seed for my real estate journey was planted back in Bulgaria behind the Iron Curtain, when not many people knew or there wasn’t really a developed stock market. And so, when people talked about investments, they, in most cases, they would refer to hard assets like real precious metals. But that seed didn’t quite germinate on my end until 2017 and when I made my first investment after arriving to the US and really following a more traditional path of going to school, climbing the corporate ladder. So, I made that first investment out of state. I live in Los Angeles, California, where they’re great natural appreciation benefits, but it’s very difficult to cash flow. This cash flow was my goal that kind of forced me to look out of state. So, I started in the residential space, actually Memphis, Tennessee, buying a single-family home there and then another, and another eventually expanding into the Florida market. And I asked myself, how do I scale this further? And that naturally led me to look into multifamily. I started devouring a ton of content, joined a mastermind, started underwriting, evaluating deals, and officially made that transition earlier this year by closing on two deals. One is a JV in Tampa and the other one is a syndication in Augusta, Georgia. And continuing to look to grow and scale in the multifamily space.
Sam Wilson [02:29]
That’s fantastic. How many single-family homes did you have before you said there’s gotta be a better way?
Vessi Kapoulian [02:35]
I got up to four properties, five doors, and that’s when I figured I need to start making that shift.
Sam Wilson [02:44]
Good for you. That’s, you know, the, I hear a lot of guys who come on and they’re like, you know, we’ve had 20, 30, 40 doors, and they’re like, wait, we just can’t. We can’t meaningfully scale this, so you must be smarter than the rest of us in that you learned your lessons earlier on, so well done. That’s fantastic. So, you got out of single-family, you said, and were all those, I’m assuming, were those turnkey properties? I mean, were the things you were managing yourself. What were those single-family residences?
Vessi Kapoulian [03:09]
Yeah, I started with turnkey rentals and um, I do have third party property managers who are my boots on the ground and that I vetted before really making that leap. So, I don’t self-manage those. I definitely manage the manager and certainly learned quite a lot that I could transfer onto my multi-family portfolio.
Sam Wilson [03:29]
That’s great. And you said the first deal you got into in the multi-family space was a joint venture. Tell me how that deal came to you and you’ll break down the structure of the joint venture, maybe for our listeners who haven’t done a joint venture yet, or maybe even how that came about.
Vessi Kapoulian [03:45]
Absolutely. So, what I decided to focus on are two things at the beginning of my multi-family journey. One is a market. So, I selected the state of Florida since I already had some presence there. Property manager boots on the ground. And the second part was the skill set, and that’s underwriting acquisition. Particularly in the state of Florida, as I was doing my research, I quickly found out that 92 to 93% of the deals are sourced via brokers versus going direct to seller. And since I still have my full-time W two job, I decided to focus on the 92, 93% of the market. So, I started reaching out to brokers, eventually getting on their lists to start receiving deals to analyze.
[04:33] And every deal I would analyze, I would always respond to them with feedback on why it doesn’t work at that moment of time. And kind of reminding them of what my acquisition criteria. So, that was quite a bit of a journey. It took about six months underwriting nearly 200 deals, so that’s a deal a day. Of those only five were LOI worthy. And of those five, only one actually want the and that was an 11-unit class B property in the market of Tampa. We, it wasn’t large enough to syndicate however, through a mastermind that I had joined, I already had connections with potential JV partners, one of which was, or still is in Florida, and served as boots on the ground. [05:22] So we joined, he and went after the opportunity. I can talk about the closing process as well because that wasn’t smooth sailing, to say the least. But we were able to get it done. And now working on stabilizing the asset.Sam Wilson [05:38]
Now that’s really cool. I love I love that story. How did this joint venture partner approach you, or did you approach them?
Vessi Kapoulian [05:45]
I approached them and as I was looking for deals in parallel, I was looking to continuously reach out to people, build relationships. Really make sure that the people I work with have similar values, similar goals. And so, there were a lot of conversations that were taking place kind of behind the scenes, if you will, over a period of time. And that really allowed me to get to know the people that I’ll be working with. That particular mastermind also facilitates in person events, so I had a chance to meet them in person so, it really happened organically over time. By the time that I had the deal on the table, I already had the infrastructure set up in order to take that deal down. Not only from a partner’s perspective, but also having an insurance agent, the property manager, everything lined up so we can execute smoothly on the transaction.
Sam Wilson [06:39]
What was the purchase price on that 11-unit deal?
Vessi Kapoulian [06:42]
2.1 million.
Sam Wilson [06:44]
2.1 million. Okay. And so, your joint venture partner brought all of the equity, is that right?
Vessi Kapoulian [06:49]
That’s not right. Um, Okay. So, there’s four entities and we’re split 30/30, 20/20. And I have a larger share, mostly because of finding, organizing, setting up the deal, underwriting the deal and really having a more active part in the asset management. However, everyone has their role. We all have weekly JV calls, their certain partners who help with the boots on the ground aspects, some of the contract contractor pricing and vetting taking minutes. Reaching out to local vendors. And then we have various projects that are taking place. So, each person has a role in that project, so it’s not just me. And that’s been really helpful. You often hear that multifamily is a team sport and I could not agree with that more. Could I have done this on my own? Maybe. But I think in the long run it would be very difficult to scale if you were to do this on your own. So, it’s been amazing to have the help from my partners.
Sam Wilson [07:50]
That’s absolutely right. And that’s something that you know, we talk about a lot is the you’ve gotta have partners if you’re going to scale, what’s the, what’s that line? If you wanna go fast, go alone. If you wanna go far it was, it goes, I can’t remember the rest of the phrase, but something like goes a group or as a team, something like that. If you are listening to this, you’re probably like, you got it completely wrong and Sam, you’re right. I probably butchered that. But you get the big idea there. And that’s funny cuz I had an investor call here, gosh, with me two weeks ago maybe, and they’re like: “How many partners are on this deal? And I said: “There’s four of us and here’s…”. And they’re like: “Why are there four of you? And same question they posed to me and I’m like: “Let me just explain to you why there’s four of us. Cause here’s what the four of us are doing”. And they’re like: “Oh, that’s a lot. I go: “Yeah, I just can’t do it on my own. I could maybe, I, maybe if I were, you know, this was all, I did that one single deal maybe, but even then, it would be just a lot. Tell me about the 200 deals that you underwrote. I mean, that’s a lot of underwriting in, a lot of patience. And a lot of feedback to brokers going, hey, this doesn’t work. I mean, did the brokers get tired of hearing from you saying “No”?
Vessi Kapoulian [08:51]
Probably. And that’s always a risk you take. But at the same time, I think it’s even worse if you are kind of silent and constantly pulling deals because they see who’s pulling the deals and the packages and of course they share that with their investor list. So, there is a way to track who’s actively looking at these deals. So, I certainly didn’t want to be the person who’s only taking information and not giving them any feedback. And it’s helpful for them to get that feedback because then they share that with the seller and certainly, we are entering different waters in the current market environment, but at the time when I was looking, everything was extremely competitive. Definitely a seller’s market. So having that feedback is important. And yes, it took a lot of tenacity, but at the end of the day, it’s important to know also why you’re doing it. And my why is what was driving me. I think having clarity of goals and your why, will pull you up further during good times, push you forward during tough times. It certainly was not easy, especially when there’s a lot of noise around and you hear people closing deals left and right, and here I am trying to find the one. Um, Also I will say that especially in the beginning, a lot of these deals I underwrote for reps because I really wanted to master underwriting. So even when I got a deal that I knew right off the bat, probably won’t meet my investment criteria due to submarket location or maybe age of the property, this and that, I would still go and underwrite it fully. So, I could develop that muscle memory, if you will, of being very efficient in analyzing deals. And what that helped me also over time is learn the market learn expense, line items, vacancies, everything that you need in order to more accurately project the performance of the property. It was a learning exercise, but also a way to build relationship with the broker community.
Sam Wilson [10:50]
No, I think that’s absolutely great. I mean, that’s what a skill set to have really honed. Did you have any guidance along the way, helping you kind of define or refine that skillset?
Vessi Kapoulian [11:04]
Absolutely. So, I joined a lot of, there’s a ton of online groups or communities that specialize in underwriting. There’s also books and a ton of content that you can devour if you will. So, I definitely took advantage of that. Also, within the mastermind that I’m part of, people ask questions, support each other. So, I use, definitely utilize those forums. But really the most I learned is by actually doing it getting into those spreadsheets, diving into the formulas, and actually going through the packages and underwriting those deals. So, it was a combination of taking action and then continuous education. And I’m still learning. Underwriting is an art and a science. It’s constantly evolving and that’s what I love about it. So, I’m still feel like I have a time to learn. And as the market evolves. You evolve your underwriting with it. So, it’s not something static, it’s something fluid that constantly changes over time.
Sam Wilson [12:02]
What would you recommend if someone, and maybe you already answered this by saying the online community, you know, books that you can use, things like that. This is a conversation, actually, it came to me yesterday with somebody and they spoke. “Hey, I want to learn and master underwriting and, I’ve done my fair share of it, but I’m not sure I’ve mastered it. It’s not something I spend my every day doing. But if someone were to follow in your footsteps, what would you tell them to do if they wanted to? Other than maybe getting their reps in, but to learn and master underwriting.
Vessi Kapoulian [12:33]
So, I would start by encouraging them to select a model. There are a lot of different underwriting models out there, and when people ask me which is the best one, my response is usually the one that’s best for you. So go ahead, and try different models. Some are free out there. For example, Robert Beardsley has won and he wrote a book on underwriting that I’ve definitely, I’ve read. Use his model. So that would be one. They’re paid ones. The ones I’ve used most frequently is the Michael Blank Syndicated Deal Analyzer. And there’re a ton more. So, I would encourage people to experiment, see the one that’s suits them best. And if you’re an Excel guru, over time you can also build one of your own because there’s always something lacking in each model. It’s not gonna be perfect. But I would start there and then joining various underwriting communities. Saturday there’s like a three-hour meetup focused on underwriting led by Charles Siemens, so that’s one I attend regularly. That’s a good way to start. And of course, if you’re part of a mastermind, there are subgroups there. But those would be a few ways to get started. Is picking up a model and start to analyze deals. Maybe pick a deal, maybe not in your market if you’re too afraid to start reaching out to brokers in your market. But start analyzing and maybe team up with a buddy, where you can compare notes and learn along with each other.
Sam Wilson [14:01]
That’s awesome. That fantastic list of resources there for our listeners. Thank you for sharing all of that with us. One final question here for you, and maybe this will lead to other questions, so maybe I lied there, but tell me this: how has your underwriting changed in 2022?
Vessi Kapoulian [14:19]
That’s an excellent question and I probably would have answered it differently at the beginning of the year, but a lot has happened since the Feds started raising rates in March of this year. There are a few changes that I’m making in my underwriting. From a top line perspective, certainly moderating my rent growth assumptions to low single digits versus high single digits or low double digits. So that’s one. Normalizing the vacancy assumptions as well because occupancy levels are starting to decline and that’s just part of the market cycle that we are in. On the expense side, being even more diligent with my insurance assumptions, particularly in Florida. Rates have increased exponentially and in some cases it’s not uncommon for them to the preliminary call that you received from your broker to change by the time you close. So constantly staying in touch with the insurance broker to make sure those rates are relevant. Increasing my reserves for operating expenses and CapEx, on the CapEx front. That’s partially driven by the labor and supplies, material costs. And then operating reserves, just building in more cushion at least six months. In order to have that protection, should the market turn even more sour. And last but not least, cap rate reversion. I know historically most people look at 10 basis points per year increase. I’ve accelerated that just based on what I’m seeing in the market today. And I, one example I would give is in the Orlando market. Cap rates are currently at 4.7 versus three same period last year, and most assets are now trading at five. So that is real, that is happening and not surprising, right? Given the pace of the interest rate increases. But those are some of the changes I’ve started to make into my modeling and projections to, in order to get more realistic, or one could even say more conservative. Projections and assumptions.
Sam Wilson [16:24]
I love it. Those are very tangible things that you’re doing in your underwriting that really make a big difference in the beginning obviously the amount of money you’re willing to pay for an asset, which is yeah, that’s a…
Vessi Kapoulian [16:34]
Absolutely. Yes. And it’s for sugar, unfortunately, right? I like to be conservative, but it’s also resulting in return compression, which is now making deals even more difficult to pencil in. At least from my experience, while there has been some adjustment in seller expectations, maybe 10, 15% of the list price those seller expectations haven’t fully adjusted. And that’s what’s leading to that return overall return compression.
Sam Wilson [17:03]
Right? Right. Yep. And that takes time for people to get realistic on what their assets are worth. I know I certainly have made an offer here last week on an asset, and they came back with another number and I just said: “We’ll, just give this a little time”. I know. In the next 12 to 18 months, we’ll probably have a deal, but we’re gonna have to give this a little time. So that’s just the way it goes. Vassi, thank you for taking the time to come on this show today. Speaking of time, if our listeners want to get in touch with you, what is the best way to do that?
Vessi Kapoulian [17:31]
The easiest ways to connect with me through my website, dbacapitalgroup.com. D as in dream, B as in believe, A as in achieve. I have a ton of free content there to share with your listeners. And of course, there’s my phone number, my email, as well as a link to my calendar um, should they want to continue the dialogue.
Sam Wilson [17:52]
Fantastic. Vessi, thank you again. Have a great rest of your day.
Vessi Kapoulian [17:55]
Thank you so much, Sam. Have a wonderful day and week ahead.
Outro [17:59]
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can, do me a favor and subscribe and leave us a review on Apple Podcast, Spotify, Google Podcast, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank hire on those directories. So, appreciate you listening. Thanks so much and hope to catch you on the next episode.
