Multifamily Investing for High Income Professionals | Tax Strategies, Cash Flow & Freedom

Param Bala (00:00)
Yeah, so great question. I feel like for us, when we think about downside protection, a big part of that is diversification. So we’re ⁓ shifting from looking at just multifamily to adding self-storage and manufactured housing and possibly some industrial this year into the portfolio. I think that’s a big part of downside protection. And so ⁓ we have ⁓ a fund that we’re participating in that is a combination of self-storage and manufactured housing.

Dylan Silver (01:55)
Hey folks, welcome back to the show. Today’s guest, Param Baladandapani is a radiologist turned real estate investor who turned a challenging career transition into an opportunity to gain financial freedom. Today, she’s active in the multifamily space and has over $2,000. She’s also a mentor to physicians seeking financial and time freedom. Welcome to the show, Param.

Param Bala (02:15)
Thank you for having me, Dylan.

Dylan Silver (02:16)
Now, when we talk specifically about getting into the real estate space, know, oftentimes people are struggling to find which segment to start with because they’ve got so many options. How did you ⁓ select multifamily?

Param Bala (02:29)
So I didn’t start off with multifamily. I started off slow and steady. I say I started off with a small and mighty portfolio and I’d been investing in single family homes for a while before I accelerated. But ⁓ I was primarily in the stock market like most professionals are. And then I had a career transition that you mentioned and I realized that I was making six times more returns in my real estate portfolio compared to my stock portfolio. And I wanted to accelerate because it would take me 17 years to get to financial freedom.

going down the traditional path. And after going through that turmoil, I realized I never wanted to do that again. So I pivoted to real estate and I got aggressive about learning about tax strategies, short-term rentals. ⁓ And I’ve been paying $0 in taxes for the last few years. ⁓ the IRS tax code is very real estate investor friendly. That really boosts returns. So I scaled my portfolio, ⁓ my direct ownership portfolio.

and then went on to build the generational wealth MD community to help others do this because I was like screaming about it from the rooftops. And now we’re like 20,000 strong. And the majority of people in the community don’t want to own their own real estate, which is when I started pivoting to multifamily. That’s when we built the GW capital fund to help our community invest with us in vetted opportunities. And multifamily brings in that scale, allows us to do the value add creatively at this point.

really ⁓ help those other investors to be passive, get that mailbox money, but still get double digit tax efficient returns. And so that was the reason for the pivot to multifamily. ⁓ But again, I’m a strong believer that there are multiple different strategies. You pick what makes sense for you. This is just what makes sense for the community at this point.

Dylan Silver (04:09)
One of the things that I’ve noticed that’s challenging about being a professional, whether it’s high level attorney or someone in the medical field, is you get to a certain point, you’ve got so much education, you’re putting in so much time in, and you kind of have to decide, hey, am I going to stick to this or am I gonna look for an early retirement? Because you get to a certain point and it’s like, hey, I’ve already put in this much time, what’s an extra five years, hey, this is where this gonna get me.

Param Bala (04:36)
Yeah.

Dylan Silver (04:37)
Do you feel like there’s a lot of folks, especially maybe younger medical professionals right now, who are at that kind of inflection point where they have to decide, hey, am I gonna ride this out into the sunset and this is what I’m gonna be doing? Or am I gonna maybe look to make a pivot into a real estate investing or something similar?

Param Bala (05:41)
Yeah, that’s a great, great question. And it applies to most of us, right? So do I go down the path? Do I want to retire early? And I always talk about it as if you’re someone who’s investing, I mean, if you’re making money in any way, right, you need to invest that capital. And when you’re investing it, your bucket cannot be just stocks and bonds. You need to have alternative assets in there. So I feel all of us need to be investing in alternative assets like real estate. should be at least

25 to 30 % of all of our portfolios. So you’re doing it simultaneously, right? You’re making the money, trading your time for money, taking that and making each dollar work for you so that, you know, and it makes work optional, right? Most of our, there are physicians in our community who do investment short-term rentals, multifamily, they make over a million in annual gross revenue from real estate and they’re still practicing full-time medicine, right? They just have options now because they’ve replaced their income. They’re sheltering and then because of real estate, now they’re sheltering.

millions of dollars of their ⁓ W-2, 1099 income from taxes. And so it’s almost like it’s accelerating things, but it just gives them choices. Now you practice more intentionally, or you go to work and do what you want to and do what your passion is, whatever that may be. But you have options and you can walk away from all of this. And you’re in the Dominican Republic. I travel to India six months of the year. We can do that and pick the life. So we want to live. that’s all I say. All it gives you is options and anyone making a dollar.

by going into work and you’re trading your time for money, you need to take that dollar and figure out how much of that you’re saving and what you’re investing in. And I don’t think we can eliminate alternative investments because ⁓ the holy grail of investing is have diversification in your investment so that if the stock market crashes, you’re invested in non-correlated inflation adjusted real assets. And that’s the game, right? That’s the game to win. So you’re not working till you’re 65 or working till you die. And that’s just the way I like to look at it.

Dylan Silver (07:27)
One of the things that you mentioned is being able to offset some of your W-2 tax burden, which I think gets overlooked quite a bit. And people might say, okay, well, how much money do I have to really be making in order for this to have a dent? oftentimes, I don’t know how was for you in the process. I didn’t even think about saving money on my W-2 job until I left the W-2 world. And I realized, my goodness, I could have been, you

Param Bala (07:40)
Yeah.

I know.

Dylan Silver (07:51)
getting so much money back, but really I just wasn’t aware, because I figured out I’m a W-2 employee, this is the taxes that I have to pay. Whether or not you have the full understanding of the tax strategy involved, I think that there’s a huge ⁓ opportunity, especially for people in the medical field, ⁓ to offset some of that tax burden.

Param Bala (08:10)
Yeah, and I say this and there are people who come and say, I work full time, so I don’t know if I can tap into these tax strategies. Or they’ll say, well, I don’t know if I want to do short-term rentals, which is one of the ways someone who’s working full time can get those tax savings against W-2 income. And I start off with this. No matter how you invest in real estate, we have investors who invest passively in our fund. They’re completely passive. They’re working as radiologists. And they’re making six figures in cash flow.

right, which gets deposited into their bank account every month. And that’s completely tax free, right? So even if you aren’t getting aggressive and using these tax strategies to shelter your W2 income from taxes, which you could do, but even without that, all of your cashflow from real estate, as long as you’re using leveraged real estate is inherently very tax efficient, right? And now ⁓ if you go, when you exit those opportunities, you have ways like with 1031s and lazy 1031s, the exit can be tax efficient also where you’re not paying capital gain. So I feel like I want professionals to,

Think about this as it’s amazing if you can take it and have that the cherry on the cake is when you can get the tax savings against your W-2 income. But those are a little more advanced strategies and many of our doctors do it. But even if you didn’t do it, even if you invested passively, your income and your ⁓ wealth that you’re building in real estate is inherently tax efficient as long as you’re strategic about it, right? But ⁓ full-time physicians, have physicians who ⁓ in our coaching program, they invest across the state.

I mean, across the country and ⁓ they manage remotely because we help them build systems. And they’re spending about two hours a week on their short-term rental portfolio, getting in those tax savings and having building portfolios that are generating over half a million in gross revenue. So it’s doable. It’s completely doable, which is why we need to hear these stories, which is why podcasts like this are super helpful.

Dylan Silver (09:56)
Yeah.

Param Bala (10:31)
⁓ But I always tell people remember that even if you’re not going down that path and some people like you are a real estate professional you qualify as that some people have spouses or they work part-time and they qualify as real estate professionals and so they can take those losses against their W-2 income. So there are a few strategies there medical office buildings many strategies where

people who practice medicine or work full-time or part-time jobs can still get the tax savings against their W-2 income. But even if you didn’t do that and you invested passively, you are still super tax efficient in the income and the returns you’re making in real estate.

Dylan Silver (11:03)
One of the things that is particularly relevant about this conversation is, know, when you’re talking about a medical professional, you’re going to spend so much time in school. Then you have, you know, your medical school, then you’ve got residency, and then you’ve got the first couple of years of your profession where you’re, you know, getting into the on-ramp of wealth building. All this time, right, you’re waiting for the money to be made. The money then starts coming in. But I’ve heard this term.

a Henry, I don’t know if you’ve heard this term before, higher or not rich yet, right? And it’s like, okay, well, now you have to be close to where you’re working, you’re getting your first home, now you’ve got this debt, now you’ve got the student loans, which are like, who knows how much $500,000. So now you’ve got all these obligations. And so you’re looking at everything going like, wow, you know, yeah, making all this money, but I also have all these obligations. And then so you start to realize like, okay, well, how am going to accelerate this?

Param Bala (11:34)
Yeah.

Dylan Silver (11:57)
and people start coming to you and they might say, you know, insurance or various different investment vehicles. But oftentimes, you know, people start to realize like, okay, the real way for me to build wealth is for me to be managing it, for me to be my own wealth manager, instead of me allocating it to someone else. I think that that’s how a lot of people are getting interested in real estate.

Param Bala (12:19)
Yeah, I mean, and so that’s true. remember I was 10 years out of all my training and that’s when we had the, my husband and I both, we had, was a merger of work. both lost our positions. And I looked back, I was like, we’ve been making, you know, each close to half a million dollars for 10 years. We should be in a good spot. And then there’s lifestyle creep and there’s taxes that you’re paying. ⁓ And it depends on what you’re investing in. And I was primarily in the stock market and I had large fixed income allocations.

And I realized it would take me 17 more years of doing that, even as a high income owner in a high income subspecialty, right? I have doctors who are traveling two hours each way to get to a job that they don’t like and they feel limited. I mean, I live in Central Valley, California. And so, you know, there are many situations where we, it’s this arrival fallacy. You think you’re making the doctor income, but you’re not necessarily moving the needle as much as you think you are. And I always say, I have a free calculator that people can,

⁓ If you go to generational wealth MD calm guys, this is what got me started. I put my numbers into the calculator That’s when I realized but 17 more years for me to get to financial freedom There’s a 4 % rule You can’t withdraw more than that from your stock bond portfolio if you want it to last you 30 years And I didn’t know that I was like, 10 % I can withdraw 10 % from my portfolio That’s not how it works. But real estate is a whole different ballgame, right that cash flow

It’s yours to keep, it’s tax efficient while your wealth is growing, your equity in the property is still increasing. A very different ball game. And I say, know your numbers, that’s the best way to get started. But yeah, there’s this fallacy. Most of us are Henry. And when the tax code changes ⁓ and President Trump made all these changes, Henry’s were the ones who got affected in the worst way possible. Everybody else, business owners and real estate investors got the tax breaks.

So we need to start thinking smartly and we can’t just be employees. We need to like tap into that ⁓ business person investor role. And that’s where real estate comes in where you can be super time efficient and you can still be building tax efficient.

Dylan Silver (14:16)
I’d like to pivot a bit here, Param, and ask you about acquisitions in the multifamily space. I’d say maybe now more so than ever. It’s been an interesting couple of years to be a multifamily investor, syndicator, fund manager. ⁓ when you’re seeing more and more people get into this space, you’re also seeing a lot of people take out variable rate debt, and you’re seeing the cost of builds go up, and then you’re seeing…

know, occupancy rates in certain markets fluctuate. I’m in Texas, so you would be shocked to see, you know, just the incentives that people are ⁓ putting out to get people to move into some of these apartments, things like, you know, two months of free rent plus a $500 Amazon gift card. And so how has it been for you navigating this space over the last couple of years?

Param Bala (14:50)
yeah.

Yeah, and you’re absolutely right, It’s a very different environment compared to where we were two, three years ago, right? The way we’re underwriting the experiences we’ve had have all shaped us. And when we started GW Capital ⁓ Fund One, our goal was to help our investors lower their risk. Like downside protection was a big part of it. And then the second part of it was how do we get them higher returns than retail investors? the fundamentals haven’t shifted, right? Multifamily is still…

Residential real estate has strong fundamentals. We’re still at a nationwide shortage, right? Affordability ⁓ is at its lowest. You know, it’s in some parts of Texas. It’s half as expensive to rent than it is to actually own, right? So the fundamentals exist.

But the way we acquire has really been shaped by what we’ve seen in the market, right? So downside protection is more and more important. And I say, when we think about downside protection, and this is true for all of us, right? We’re all tight trading. There three really important things that we need to look at. One is the kind of properties we buy. And honestly, right now it’s a great time to be buying discounted properties because we’re seeing a lot of discounts, but to buy for cashflow, and this is for anyone listening, if you’re trying to vet opportunities that you’re going into, especially multifamily opportunities.

It is still possible to buy properties that cash flow day one and I’m not talking about properties that cash flow one certain aggressive assumptions come into play where you know, it’s day it’s your two we’re going to have this we like to downside protection for us is going into assets that are cash flowing at five to ten percent day one.

based on the last 12 months of income, right? And new expenses because expenses go up when you acquire properties. So that’s really important. And having a longer term horizon, I think where people have gotten burned is having shorter debt terms because it doesn’t give you time to weather out the market. So we’re looking at five, seven, 10 year acquisition ⁓ hold timeframes. And so I think that’s really important on the buy side and many investors, ⁓ many, operators have pivoted. if you haven’t,

And if that’s not something you’re looking at, that’s key. The second piece is the hold piece. You really need to be able to hold onto these assets because the only people struggling are the people who aren’t able to hold onto these assets. This is where debt comes into play. ⁓ We’re very intentional about the kind of debt ⁓ in the assets we take on. And I still see some really sophisticated operators do variable rate debt. The truth is, if we’re going into a pro-inflationary environment,

we don’t know where interest rates are going to land. the safest thing is to take that variable out of the equation. So long-term fixed interest rate debt with agency is obviously the safest way to go. And then your ability to hold the deal also depends on how much we, how you stress test it. very…

aggressive assumptions are definitely not something we want. We really don’t know. And like you mentioned, rents have plateaued or even dropped in many markets, especially in the Sun Belt, right? The Midwest market didn’t get hit as much because supply has been, there was a lot of building happening when interest rates were super low. And a lot of that supply happened in those markets where the demographics were excellent, right? There’s still a lot of migration happening. But in the short term, like you mentioned, rents are stalled, lots of concessions.

and ⁓ occupancy has dropped. And so you really want to stress test those deals ⁓ really well and make sure you have a strong buffer. That’s going to be key in holding adequate reserves. But I feel like this is the best part, right? The third piece to the puzzle, right? Buying the right opportunities, having the ability to hold onto them, but controlling what you can control is what we do as operators, right? And in my experience over the last few years,

The operators who’ve really come out and stood apart from the rest are those who can, this is not, and usually typically when we say control, the tax efficiencies are always there. We’re still getting those tax efficiencies. 100 % bonus depreciation came back last year. So that’s really helping investors. But the big piece of that puzzle is value add. And value add has shifted tremendously in the multifamily space over the last two years. A few years ago, ⁓ value add was all about, let’s dump a ton of capital into these properties, rehab them and bump up rents.

No one’s seeing the ROI that was projected in these properties anymore. It’s hard to bump up rents. It’s a very different environment. And what we’ve pivoted to and ⁓ any operator worth their salt is doing is it’s creative value act. In some of our assets, the value act, mean, we’re still bumping up NOI by

30 to 100 % in some opportunities within the first year, but not by doing rehabs necessarily. Sometimes this is through property tax exemptions. We’ve done this in our Houston opportunities, partnering with the Houston Housing Authority, getting those property tax exemptions, dropping property taxes by 50%, 75 % in year one.

reducing expenses essentially. So that’s been a big one. Sometimes we go in this, we just closed on a property last week. The business plan is reducing expenses by 500,000 in year one. That bumps up, think about that at a five cap that is increasing the property’s value by millions of dollars. And we can execute that within the first two years because

We have a property management team at a sister property, same sub-market. We’re just going to move them over. So we really know what expenses are. We really know what we can do with good marketing to bump up occupancy. But all of this is what I call creative value add where it’s not your traditional bread and butter, rehab, and bump up value. It’s more how can we get creative about increasing the NOI, but not necessarily banking on income growth? I mean, especially not rent growth, right? Other income, there are ways we bump that up in, know, amenity fees.

Valiate trash, there so many ways to bump it up without being aggressive, where we know we can make it work. But I think the control piece is still there, which is what we love about real estate, right? It’s not something where it’s not in your hands, but the way we think about control, I think has shifted massively in the last few years. And ⁓ every operator has really been able to weather the storm, has done that through creative value add, which is operational efficiencies and maybe property tax exemptions or in the manufacturer.

Dylan Silver (21:04)
Yeah, feel.

Param Bala (21:22)
housing space, we’ve done it through increasing income in many other ways, utilities and building to add revenue. But it’s been a world of creative value add, because we haven’t had the market tailwinds. And the only way to do this is to really cut costs and get creative. there’s still a lot of control.

Dylan Silver (21:38)
No.

Param Bala (21:42)
available but ⁓ I would say for anyone listening I think the easiest thing to do is to go ask operators how their acquisitions in 21 through 23 are doing and then you know if they’re still able to hold on to them if they’re operationally if they have streamlined things and I think that’s that’s really what’s made the good operator stand out from the bad in the last few years.

Dylan Silver (22:01)
Yeah,

you you mentioned the ability to not just look at it from what I think most people were traditionally looking at it like, hey, we’re going to have a certain rent increase every year. We’re going to add, you know, a fountain and certain amenities, but also look at it from the other side of the equation, which is what expenses do we have that we can reduce and the tax strategy. That’s actually the first time that I’ve heard that in any interview on this show, because I think most of the time, again, people are not looking at it from that side of the equation.

They’re really hyper-focused, pretty much exclusively on value add and things that they can do to increase rents, even in like a staircase scenario, like every couple of years we’re gonna increase rents. Well, what happens when the reverse happens, when you have a downward staircase and people are now looking at, okay, well, if you’re looking at increasing my rents, then I’m just gonna move, right? Because this other apartment complex is offering incentives and lower rent. You I’m not married to staying here, right? So.

Param Bala (22:30)
Yeah.

now.

Yeah.

Yeah.

Dylan Silver (22:57)
I think everything that you mentioned about the expense side is a huge nugget for our audience here. We are coming up on time here though, Param. Any new projects that you’re working on and then as well, what’s the best way for folks to get in contact with you or your team?

Param Bala (23:11)
Yeah, so great question. I feel like for us, when we think about downside protection, a big part of that is diversification. So we’re ⁓ shifting from looking at just multifamily to adding self-storage and manufactured housing and possibly some industrial this year into the portfolio. I think that’s a big part of downside protection. And so ⁓ we have ⁓ a fund that we’re participating in that is a combination of self-storage and manufactured housing.

The returns have been excellent. ⁓ And some of those assets were bumping up and wide by, like I said,

40, 100 % in the first year of acquisition and just creatively value adding, right? And so if anyone’s interested, I would say go to gwcapital.com, capital with an A, and we have a priority investor list. That’s a great way to get notified about our upcoming opportunities. You get to be part of the webinars. A big focus for us is education, because I feel like my job is to equip everyone to know.

to do their own due diligence. And then when you come in, you know that obviously there’s no like trust factor, but I want everyone to know and understand what they’re getting into so you can really personalize your investing based on your risk and goals. so gwcapital.com is probably the best way to ⁓ get notified about future opportunities. And we definitely have our.

within the next month or I don’t know when this is airing, but we’ll have webinars on a monthly basis where we talk about new opportunities. And then for anyone really thinking about direct ownership and short-term rentals and really ⁓ owning and controlling their own properties ⁓ or getting real estate professional status, generationalwealthmd.com ⁓ is our site. And I have a free ebook where I talk about my journey and how in one year,

I accelerated to financial freedom through some of these creative strategies and it actually has all the numbers there and it’ll just get you thinking and I think that’s a good way to get started.