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How to Protect Your Money in Multifamily Investing | Conservative Underwriting & Risk Management

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Show Summary

In this episode of the Real Estate Pros podcast, host Michelle Kesil interviews Sanjay Hegde, founder of Blue Ring Investors. Sanjay shares his journey from a corporate career to multifamily and self-storage investments, emphasizing the importance of teamwork, investor transparency, and understanding market dynamics. He discusses the challenges faced in real estate, the significance of due diligence, and offers advice for new investors. The conversation also touches on current market conditions and how to navigate them effectively.

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    Investor Fuel Show Transcript:

    Sanjay Hegde (00:00)
    I don’t give advice to anybody. give them suggestions. ⁓ So for me, is always about, I would suggest them that, first of all, do your due diligence. Make sure that you ask questions. Try to understand how many deals these guys have done, how many full cycles they have done, who they’re partnered with. ⁓

    How how transparent are they with their you know, ask them what the challenges they had had they had any properties that had gone through a situation where You know, they were not able to pay their investors ⁓ the quarterly dividends What did they do to fix it?

    Michelle Kesil (02:00)
    Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil. Today I’m joined by someone I’m looking forward to chatting with, Sanjay Hegde, who is the founder of Bluering Investors, working towards multifamily investments as well as self storage in the Sunbelt area. So excited to have you here today, Sanjay.

    Sanjay Hegde (02:22)
    Same here, Michelle. I appreciate ⁓ you inviting me to this podcast. Thank you very much. I’m excited. And I thank all the viewers for taking your time to view this podcast.

    Michelle Kesil (02:37)
    Awesome. So yeah, let’s dive in. For those who are not familiar with you and your work, can you share what your main focus is? ⁓

    Sanjay Hegde (02:45)
    Yes,

    so at Blooming Investors, we started off in 2021 with the sole intent to help those investors who don’t have the time or the means in terms of to have their own properties and so on and manage the thing to help them invest their money, hard earned money in cash flowing assets so that they can become rich and take the benefits.

    of all the tax credits that they can get. So basically we are here to help them grow their money while saving them on taxes. So that’s pretty much what we do. And we focus on two asset classes as of now. One is the multifamily rental properties and self-storage.

    Michelle Kesil (03:38)
    Awesome, and so how did you get started in this investing world?

    Sanjay Hegde (03:42)
    Very interesting story basically. Previously I used to work for, ⁓ I had a W-2 job. I used to work for a company that manufactured lithium batteries for space and defense and industrial applications. I used to be the director of sales for Americas and Asia, Asia Pacific. And ⁓ I should travel a lot. And during one of my travels, it so ended up happening somewhere around 2016 timeframe. ⁓

    I’ll take a step back. Around that time when I was making a lot of money, I didn’t know what to do with the money. So I started investing passively in single-family homes and actively in single-family homes and passively in multi-family syndications. But in 2016, my son, he got into an accident. He was in high school. He had just learned how to drive.

    I was in Japan at that time on a business travel and it was very hard to see that I was not there for him when something like that happened. My wife took care of all of this. There was times when I was not there in my house because I had to travel so much. There were times when I had missed my wedding anniversary and so on.

    So all those things were happening. So I decided, okay, there is something that I want to do ⁓ of my own. ⁓ Most of…

    Pretty much like I’m of an Indian origin and just like most of the Indians, the first thing that comes to our mind is liquor stores. ⁓ But liquor stores in North Carolina are all state owned. So the next best thing we can think of is the 7-Elevens. And I was like, maybe that’s the thing that I should be doing. But one of my classmates who’s been in this business for a very long time, he mentioned that, Sanjay, that’s not for you. Don’t get yourself into it. So gas station is not for you. I’m like, OK, I trust you. So then I was thinking, what is the

    next thing that I could do and that’s when our re-mentor that was ⁓ basically at that time managed by Dave Lindahl his mentorship program had come down to Charlotte and I went there to see it I was I’m a numbers guy I’ve been I used to manage about 300 million dollars of business P &L and so on for my company so

    When I started looking at it, it started adding up and made sense to me. So I signed up for their mentorship program, ⁓ went to their boot camp and so on, learned that, okay, they teach you just enough to get dangerous where you can lose all of your money. And ⁓ so I said, okay, I’ll take up their entire mentorship program and took a one year’s time to learn the program, understand how it works, ⁓ use the time to network with people who’ve been in that industry. And in 2020,

    I got started with blue ring investors.

    Michelle Kesil (07:24)
    Awesome. And so what do you feel are some of the main keys that have allowed your business to be able to grow successfully and run smoothly?

    Sanjay Hegde (07:33)
    I think, ⁓

    Key thing is multifamily is a team sport. You cannot do that by yourself. So you have to, your network is your network in this particular thing. So you got to be very ⁓ careful about who you’re going to pick as your partners, who you’re going to work with, what are their strengths, because you need to have good operators. You need to have the right kind of underwriters. You need to have the right kind of, you know, from a capital race point of view, you want to make sure that you are in the strong position and so on. So, ⁓

    Those were the key things that I tried to focus on and started working with the key people and identified those and that’s pretty much what has been the success for us. ⁓ More than anything else, I know everybody says that they’re very conservative underwriters, but honestly we write about seven to eight underwriting ⁓ in a week, but we probably end up closing on like…

    two or three properties in a year. So that tells you how ⁓

    you know, how much we dive into when it comes down to underwriting. That’s how conservative we are. Other thing that helps us is being very, very transparent with our investors. We try to make sure that we walk them through the underwriting so that they know exactly what they’re getting themselves into. We do have two types of investors. One who are seasoned investors who’ve been in this for a very long time. They understand it. Then there are investors who are new to investment. They’re coming in for the first time. There’s a lot of

    hype that goes on where people say, I want to get into multifamily investing as a passive investor. What will I get? But the thing is, it’s good. We do the underwriting, one part of it. Then there is reality as well. So we stress test our properties. We explain to them how we’re to achieve those numbers. But at the same time, what are the risks? What are the rewards? As well as which way it can swing. It could swing both ways, right? But at the end of the day, we do show them

    What would be the maximum they could get out of it? What is the minimum they could get out of it? So those are the things. And obviously, ⁓ we are always available for them. We give them the white glove service. That’s another thing that has helped us succeed.

    Michelle Kesil (09:57)
    Amazing. And so when the investors come to work with you, what is it that it looks like from their lens? Like what are the type of services that they receive and yeah, kind of like what is it from their side?

    Sanjay Hegde (10:48)
    Well, so the first thing that any investor in I’ve been a passive investor myself. So I always try to look at it from a perspective of what does the as a passive investor, what does the investor really want to know? Right. Or what are they looking for? I think the first thing and the foremost thing everybody wants to know is, will I get my money back? That’s the thing. Right. So will I get my money back? And when am I going to get it back? That’s the key. So what and what is that purely based on? That is purely based on the confidence level that

    We, as the sponsors or the general partners, as the GPs who are managing the property, can show them that these calculations are based on experience, how many times we have done this business, how long we have done it, the partners that we have, what kind of experience that they have, and so on. So they should be feeling comfortable enough that, hey, their money is in safe hands.

    because it’s their hard earned money. So it was the same thing for me. just always, I knew that every investment comes with a certain amount of risk. Obviously when you are investing in ⁓ multifamily properties or self storage, anything to do with real estate, you pretty much know that it is a brick and mortar kind of a thing. So it does have a, it does hold its value unlike stocks and bonds, can be very, very volatile. This does have a certain, you know, ⁓

    ⁓ The risk is limited when it comes down to that. So to me, I always look at it from that perspective. I explain to them that particular thing. So from an investor’s perspective, that is the first and foremost concern that they have is will they get their money back? there other chances of them that they could lose it all? So that is one of the things that they always look at. The second thing is obviously what are the tax benefits they’re going to get out of it, right? Because many of them, you know,

    Majority of them want to avoid taxes right because they see that every rich guy out there is doing it Nobody is paying taxes. Nobody wants to pay taxes or at least pay as little as possible That’s the key. So those are the benefits that comes out of it So they want to know more about it as to like hey, how is this gonna benefit me? Like if I’m a business guy, how does that benefit me if I’m a w2 guy? How does this benefit me?

    You know, they don’t know a lot about ⁓ 1031 exchanges, right? They don’t know a lot about tax benefits that comes with it. What is a bonus depreciation and so on. So those are the things they want to hear from us to figure out, you know, and we also help them structure. Like I have investors who come to me saying, Sanjay, I am such and such age. You know, this is the kind of money that I have. I want to retire with this amount of money. You know, what would you suggest?

    Right. So we kind of try to understand. So obviously, with full disclosure, we inform them we are not CPAs, neither are we financial advisors, and so on. But at the same time, we also try to explain to them that we are strictly SEC compliant. And most of the things that they’re seeing are pro forma. They’re forward thinking numbers, that projections, and so on. But at the same time, this is what they can do to get to that number that they’re looking for.

    Michelle Kesil (14:03)
    Yeah, amazing. That’s helpful that you’re able to guide them through that journey.

    Sanjay Hegde (14:09)
    Yes.

    Michelle Kesil (14:11)
    What are you most focused on solving or scaling to next for your business?

    Sanjay Hegde (14:16)
    Well, I

    think, ⁓

    When you learn to solve people’s problem, identify the problem, you’ll scale automatically. So we are always in the buy, buy, buy mode, right? So the key to everything is if you want to buy, you need to have money. If you want to have money, you need investors. So if you want to have investors, you need to focus more on trying to understand what their problems are, what’s the industry really looking for, what’s the market looking for. Once you identify that,

    that you solve that problem, guess what? Scale happens automatically.

    Michelle Kesil (14:59)
    Yeah, absolutely. And what are some of the main problems that you find yourself solving?

    Sanjay Hegde (15:46)
    I think there is a fear in the market right now. The fear in the market is you would have noticed that there are more and more properties that are getting foreclosed ⁓ because at that time those ⁓ active investors were maybe too bullish, maybe they over leverage themselves a lot and you know that.

    A lot of people have lost their money. So people are scared. Investors are scared. Now walking them through as to show them, hey, you’re in safe hands, that’s something that takes work. It’s not that easy.

    Michelle Kesil (16:27)
    Definitely. What is some advice you would give to an investor that’s new or just in the beginning stage?

    Sanjay Hegde (16:35)
    I don’t give advice to anybody. give them suggestions. ⁓ So for me, is always about, I would suggest them that, first of all, do your due diligence. Make sure that you ask questions. Try to understand how many deals these guys have done, how many full cycles they have done, who they’re partnered with. ⁓

    How how transparent are they with their you know, ask them what the challenges they had had they had any properties that had gone through a situation where You know, they were not able to pay their investors ⁓ the quarterly dividends What did they do to fix it?

    You know because i’ll be surprised if somebody tells me that they have not missed a single one Unless they’re doing a fund and they’re taking from peter to pay paul, right? But if you’re doing a pure syndication like what I do every

    ⁓ property comes with its own challenges. There are ups and downs that comes with it. It’s all about how you navigate through those problems. So if there is a seasoned syndicator out there and you you are an investor who’s new to this or even if you are experienced the one thing that you have to do is ask questions. Ask them these tough questions and if that guy has problems or hesitating answer those questions then you know that that’s not a person that you want to be with, right?

    Michelle Kesil (17:58)
    Definitely, that makes sense. What is the biggest obstacle or challenge that you’ve overcome on your investing journey?

    Sanjay Hegde (18:08)
    Well, we’ve had challenges where you do due diligence when you go. ⁓

    buy the property, right? But then there are so many, there’s only so much of due diligence you can do. Sometimes when you do renovations, the skeletons start coming out of the closet during that time. And you do see certain challenges that it could be as best as a bitment that you might have to work on. There would be certain challenges that you would see that would come with the plumbing side of things, which would you have not caught at the time of your due diligence, right? There’s only so much of scoping

    can do. So yes, we’ve had those kind of challenges, but at the same time, we have also worked through it. Especially some of the challenges we did see was when we were just coming out of the COVID time, when getting anything done was a challenge, getting the right kind of, ⁓ you know, the windows that was a problem. Things were not coming out on time because of which we lost a lot of cash flow coming out. ⁓ You know, a lot of our, we have never defaulted on any of

    mortgages but when there is no money coming in obviously you gotta start sending out the money that you know so obviously your capex is coming down things became very expensive obviously we didn’t want to do a capital call on our investors because our investors you know invested what we had asked them to invest based on our math they trusted us so we did an internal capital call on our end and we as the GPs are putting our own money into it and we

    ⁓ got the situation under control and made the property cash flowing.

    Michelle Kesil (19:54)
    Yeah, that’s awesome that you were able to handle that with that strength and that reward.

    Sanjay Hegde (20:03)
    Yeah, no, basically what it does is it does help you to build a confidence level with your investors. The investors do know that these guys are not going to leave us high and dry. These guys are keeping their head low and they’re fighting for us and making sure that, you know, they’re taking care of our hard-earned money.

    Michelle Kesil (20:09)
    Yeah.

    Definitely. And so what are your thoughts on where the market is going for your business?

    Sanjay Hegde (20:30)
    Well, the thing is, it’s all about ⁓ when it comes down to the market itself, there are a lot of distressed properties out there, out for grabs at this given point of time. The way I look at it is also that, ⁓ you know,

    To me, I think that this is a good time to buy. it all depends on in our business, there is no, especially when it comes down to real estate, right? There is no such thing as a bad time. It’s always a good time, but it all depends on the cost basis that you’re gonna buy the property for. So as long as your cost basis is good and you’re buying it at a good price,

    and you know that, okay, hey, you… ⁓

    You stress test it in a point where you know that a lot of the economy is bad. You might not be able to raise your rents the way you would think that you probably did in the past, historically. And if you can do that, yeah, it’s every proper, every, no matter what season it is, the more rich year it is, it’s still a good thing. So focus on your ⁓ cash basis. Get the property at the right price.

    Michelle Kesil (21:49)
    Yeah, definitely those numbers are so important for people to make sure that they have looked through and underrated correctly.

    Awesome, well before we begin to wrap up here, if somebody wants to reach out, connect and learn more about what you’re doing, where can people find you and connect with you?

    Sanjay Hegde (22:11)
    Okay, so yes, my telephone number is 828-391-4805. People can reach me out on my cell phone. My cell phone is on 24-7 unless I’m on the flight. Even on my flight, my cell phone is on. ⁓

    because I get connected to the Wi-Fi immediately. But I cannot take phone calls, but I can definitely get text messages and WhatsApp messages. That’s definitely there. I am available on Facebook, Instagram. ⁓

    LinkedIn that’s there also you can go to my website, which is very very educational It has got a lot of information in it, which is www.blueringinvestors.com so as in Blue as in the color blue ring as in the wedding ring investors i n v e s t as in tom O R S.com So it’s blueringinvestors.com blue ring investors is also on instagram ⁓ X ⁓ YouTube we have a lot of youtube videos

    which educates our investors. have a lot of, if you go to our website there’s a publication up there which has some books that are put together for those who have never invested in a syndication, who don’t know what syndication is about and want to know more about syndication. yeah.

    Michelle Kesil (23:32)
    Perfect. Well, appreciate your time and your story. Thank you for being here.

    Sanjay Hegde (23:37)
    No, thank you, Michelle. I truly appreciate you inviting me for this podcast. And I hope I was able to bring value to your listeners. And looking forward to hearing from them. If they have any questions, always here to answer.

    Michelle Kesil (23:52)
    Amazing, thank you. And for the listeners that are tuning in, if you have value, make sure you’ve subscribed. We’ve got more conversations with operators like Sanjay who are building real businesses. We will see you on our next episode.

    Sanjay Hegde (23:54)
    Thank you.

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