Cash Flow Won’t Build Wealth: How Commercial Real Estate Investors Scale Smarter

Rahul Bahal (00:00)
So start building because right now you have two types of deals. I have two types of deals that I’m trying to ⁓ get right now. One are high cash flowing assets with strong depreciation potential and other are value adds. And you don’t get wealthy on cash flow. Cash flow, you have to then build on that layer. So that will be some value add deals. And then on top of that, you…

sandwich it with another cash flow layer to now sustain your, ⁓ you know, you know, increases in your lifestyle if you want.

Michelle Tack (02:10)
Welcome to Real Estate Pros. I’m Michelle Tack, the podcast host for today’s great event. We’ve got a great operator, Rahul Bahal, who is with us, who will unpack some interesting ideas around purchasing commercial property. Rahul, say hi to the audience.

Rahul Bahal (02:11)
you

Hi guys, hi everyone!

Michelle Tack (02:32)
Rahul is based up in Northern California and he has a passion for commercial real estate. What I liked about what Rahul is doing, Rahul, is that he’s using a very programmatic way and approach to acquiring commercial real estate and not ⁓ being

to ⁓ I would say knee-jerk about it, but very programmatic and thinking through all the risks, but also the opportunities for growth. And I think that’s something that I’d like you to discuss a little bit further and the audience would enjoy, Raul. But before we go to that, thinking about, we’ve got all types of people that come on these ⁓ and listen to, and we’re fortunate enough, to our subscriptions of these podcasts.

We have investors, have partners, we have people that want to level up their game. for those that don’t come from the commercial world and haven’t done this, can you basically tell them and everybody else what you actually do and what markets you serve?

Rahul Bahal (03:53)
Sure. mean, everybody has a different requirement for what they’re looking out of a deal for what they’re looking for returns. So, you know, for me, the way that I wanted to go was, ⁓ you know, have deals that are less management intensive, you know, so the return on headache is lower, which is what I learned from my past experience in small multifamily and, you

residential development. That’s what I was trying to optimize for. So that naturally gravitated me towards commercial real estate investing. And the big factors that I liked about it were, ⁓ it’s a different industry, the loans are different, there are triple net leases. You can now ⁓ build back basically your tenants for insurance taxes and maintenance.

which you cannot in residential. So that I really like. And you’re dealing with business operators. So people who understand numbers and people who understand the practicality of running a property, especially a large property. So that was my requirement over here. if you’re coming from a relatively conservative investing goal point of view, I mean, that could

Michelle Tack (04:54)
Mm-hmm.

Rahul Bahal (05:21)
that could be a good opportunity and a good way for you to ⁓ learn. I mean, it is a higher barrier to entry. either like, you know, find somebody who has experience or try out a couple of smaller residential views. Not necessarily smaller, but like to get into commercial is what I would recommend.

Michelle Tack (05:42)
Mm-hmm.

I think that’s great. do you only not only but where is your market? it California? Is it Northern California? Can you tell me? I mean, you mentioned Texas, but I mean, to me, help me understand what you know, where you buy.

Rahul Bahal (06:52)
I buy all over the country. I became a remote landlord for my first ever ⁓ townhouse that I purchased out of accident. was not planned at all. So my first experience as a landlord was a remote landlord. So I’ve been experienced and very comfortable with investing remotely. So I buy all over the country. As long as the numbers work and meets the criteria.

Michelle Tack (06:54)
⁓ good.

Yeah

Awesome.

Rahul Bahal (07:20)
and it’s in the sector that I’m looking for, I go for it.

Michelle Tack (07:23)
That’s awesome. Can you, as I mentioned before, think one of your strengths is that you’ve thought from milestone to milestone, you know, coming from, for folks that don’t know, Raul also is a software engineer, but sort of step by step, you know, the risk mitigation and the components. Can you talk to how you’re keeping your business run smoothly? What you’re adopting? So folks may…

be interested in learning about that as well.

Rahul Bahal (07:55)
Yes, after discussing with more experienced operators, like how do they handle stuff, and believe me, when you talk to somebody experienced and who knows what they’re doing, and have been doing it for a long time, they’re happy to give you advice. ⁓ And all you gotta do is ask the question. It’s amazing how much information you can get when you just ask a question. the biggest two things you can do,

is stay organized and automate stuff as soon as you can. Like figure out a process, automate it. Keep things organized. I mean, I cannot tell you like how simple these two things sound and how big of an impact they can have. I mean, I am working in an area where like I’m doing commercial real estate deals. So they are by definition,

Michelle Tack (08:41)
Mm-hmm. Yes, right.

Rahul Bahal (08:56)
less management intensive than large apartment buildings or some more hands-on things like ground-up development. So that also helps. But on top of that, just staying organized and automating things as soon as ⁓ you figure out a process, that helps a lot.

Michelle Tack (09:17)
That is spot on.

In terms of, talked in preparation for this about what the next 12 months look like for opportunities and what you’re focused on. And as we talked about that, I had said it can be anything. It doesn’t necessarily have to be an acquisition of a deal. It could be related to headcount. It could be related to having more time. Can you talk to what your goals are?

if you know from tomorrow on for a year ⁓ what those are and what you’re looking to accomplish.

Rahul Bahal (09:54)
Yeah, I am looking to accomplish a layered sandwich, which is what I mentioned. So the first layer is like building a ⁓ passive income ⁓ to the point that is comfortable in my head. So I have a range in mind and I want to build my passive income and I’m getting there ⁓ to hit that goal. And after that, the next layer in that sandwich will be like building the net worth.

Michelle Tack (10:12)
Mm-hmm. Mm-hmm.

Rahul Bahal (10:57)
So start building because right now you have two types of deals. I have two types of deals that I’m trying to ⁓ get right now. One are high cash flowing assets with strong depreciation potential and other are value adds. And you don’t get wealthy on cash flow. Cash flow, you have to then build on that layer. So that will be some value add deals. And then on top of that, you…

sandwich it with another cash flow layer to now sustain your, ⁓ you know, you know, increases in your lifestyle if you want.

the next immediate 12 months, ⁓ I want to finish building my first layer and start towards the second layer of that sandwich.

Michelle Tack (11:35)
absolutely.

That’s great.

As you continue to grow and you know those and operators out there know it and as you acquire properties and you expand things get more complicated. ⁓ I’m always interested in asking folks for benefit of learning. know, can you explain a time maybe the last year or fairly recently or whenever when you had a challenge.

⁓ where a deal started going a little south and you had to pivot pretty quickly and redress the problem. And how did you do that and what did you learn from that? Can you talk to that?

Rahul Bahal (12:24)
Yeah, ⁓

Michelle Tack (12:27)
And it could be any type of deal. could be getting ⁓ funding. It could be something that was promised to you. It could be any of these. I leave it to you to define that.

Rahul Bahal (12:38)
Actually, we hit a pretty big hurdle in refinance last year. So I have a deal going on for a ground up construction in Seattle. And the projection over there was to, after the remodel, get out of the loan and do the refi. But because in the process over there, we are doing like a

Michelle Tack (13:02)
Mm-hmm. Yep. Yep.

Rahul Bahal (13:07)
condoization strategy over there to, you so you have, you take a lot and you then condoize it and then you have two essentially parcels, two tax ID numbers. And, you know, it’s a fairly popular play over there in Seattle, but the hurdle that we ran into was the product that we created is really difficult to comp right now because, you know, I was one of the people to now do it. And once I’ve done it now,

Michelle Tack (13:10)
yeah, interesting. Yep.

yeah!

Rahul Bahal (13:37)
The lenders were not accepting the appraisal report and I’m like, well, the appraisal report then.

Michelle Tack (13:43)
that’s killer.

Rahul Bahal (13:47)
And then we ended up refining at unfavorable ARV, which essentially like negated any gains that we made. ⁓ So the lender like took a value which was lower than the appraisal value and

Michelle Tack (13:47)
Huh, huh.

Rahul Bahal (14:03)
And that also was the struggle to get a lender to accept that new products result.

Michelle Tack (14:10)
What did you learn about that?

mean, you know, what were the learning lessons from that? Because it sounds like a great concept that you were doing, but you were sort of, sounds like, and correct me if I’m wrong, you were sort of first to entry there and got a lot of pushback because this was not a, maybe it was, I don’t know, but it doesn’t seem like there was a lot of, ⁓ you know, enough of that comparison to other, you know,

Rahul Bahal (14:18)
Mm-hmm.

Michelle Tack (14:38)
pieces of land had gone through that, maybe I’m wrong. So what did you learn?

Rahul Bahal (14:42)
Yeah,

I learned that the product that we had created, so we have essentially now created a condo with an ADU. So for the main house, we took a single family and we converted it into a duplex, but because of the “condoization”, it has become a condo with an ADU. And that became a challenge to refinance.

Michelle Tack (14:55)
Mm-hmm. Interesting.

Rahul Bahal (15:52)
In hindsight, would have ⁓ factored that into my research phase before I entered the deal because I did not anticipate that this… I should have talked to lenders about refinancing this type of product and that conversation could have helped me

Michelle Tack (16:07)
Mm-hmm.

huh, huh.

Rahul Bahal (16:20)
underwrite it a little bit differently. mean, the deal still works. You’re going to make a ⁓ decent return. It’s not going to be as fantastic as we initially projected, but we’re also not going to lose our shirt. there’s still going to be some profit at the end, but it’s going to be now lower than we anticipated. And this type of conversation with a lender could have helped us underwrite a better and tighter ⁓ performance.

Michelle Tack (16:44)
Right, yeah, ⁓

Yeah, that’s great. ⁓ Lastly, before we close, you mentioned that you want to grow your network, but you have a network today. So can you talk about, we understand how important it to grow the network, but can you tell me about the network that you have today and how you’re utilizing it?

Rahul Bahal (17:10)
Absolutely, yeah. The network that I’m utilizing right now is composed of ⁓ very competent and very experienced commercial real estate investors, which is an area that I was aspiring to go into as a next step. And any deal that I find or anybody finds, we bring it to the network so the group is already experienced ⁓ in…

these types of deals, what can go wrong. So you want to have experienced people poke holes at your deals so that you don’t, because you don’t know what you don’t know. And you don’t want to miss something at this level because at this level, a mistake can be very costly and could wipe you out. And this type of network also has people that have been successful at it and they can also participate in the deals.

Michelle Tack (17:47)
Right, yep.

Yep. Yep.

That sense. Thank you. You’ve been a great guest today. I love the specificity of the content. I love the fact that you’re sharing and vulnerable to share some of the things that occur. And that occurs when you’re going to new territory, not as a pun, but into new ventures where as an engineer, you have a lot of analytical capabilities.

Rahul Bahal (18:06)
That’s the biggest advantage of such networks.

Michelle Tack (18:34)
But there was something that obviously you know now that you would have checked. But you’ve given a lot of great information. Raul, I want to make sure that people can contact you. They may have some interest in the investments. They may want to partner with you. They may just want to level up their game. Can you provide your contact information, including the spelling of your email, et cetera, for the folks that are listening?

Rahul Bahal (19:02)
Absolutely, you can get in touch with me through my email. It’s [email protected]. That’s the T-H-E, Rahul R-A-H-U-L, Bahal B-A-H-A-L at gmail.com. And you can also get in touch with me on LinkedIn at Rahul Bahal. And on Facebook @Bahal.Rahul.

Michelle Tack (19:27)
You’ve been wonderful, continued success, and thank you, Raul. For those of you that are listening, that found value of the content today, ⁓ please subscribe if you haven’t to date. And for those that continue to subscribe, thanks. We appreciate it, and we’re continuing to get great content providers and operators ⁓ in our podcast. Thanks again, Raul. Continued success.