June 30, 2023

JF3221: Discovering the Power of Syndications ft. Anjesh Dubey



Anjesh Dubey is the co-founder of Dubey Investor Group, which helps high-income professionals to learn about passive investing and diversifying their portfolios. He is also a software engineer with 14 years of experience leading global teams.

In this episode, Anjesh shares his journey from investing in single-family homes in the Bay Area to multifamily syndications and the power of utilizing economies of scale and capital. He also discusses the two questions he would ask general partners before investing in a deal and what he’s learned from the three multifamily deals he is currently GP on.

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Anjesh Dubey | Real Estate Background

  • Co-founder of Dubey Investor Group
  • Portfolio:
    • GP in three different deals totaling 660 units
  • Based in: San Francisco Bay Area, CA
  • Say hi to him at: 
  • Best Ever Book: Do the Hard Things First by Scott Allan
  • Greatest Lesson: Be patient and set realistic goals; don't change criteria too often.

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I'm Joe Fairless, and this is the world's longest-running daily real estate lesson podcast. We only talk about the best advice ever, we don't get into any of that fluffy stuff. We don't like it. We don't deal with it. Just the good stuff. With us today, Anjesh Dubey. How are you doing, Anjesh?

Anjesh Dubey: I'm doing great. How are you doing, Joe?

Joe Fairless: I'm glad to hear that. I'm doing well, also. I'm doing great also. How about that?

Anjesh Dubey: Yeah, definitely.

Joe Fairless: Why do well when you can do great?

Anjesh Dubey: Exactly.

Joe Fairless: So with us today, as I mentioned, Anjesh. He is the co-founder of Dubey Investor Group. He recently launched a fund. He focuses on multifamily. He's a general partner on three deals totaling a little under 700 units. Based in the San Francisco Bay area. With that being said, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Anjesh Dubey: Yeah, definitely. So first and foremost, super-happy to be here, so thanks for having me, Joe. A little bit about my background - I've been involved in real estate for over 14 years as a passive investor, buying real estate in various markets across the US. Presently, my main focus revolves around managing a real estate fund; it aims to provide the best ever returns and opportunities for my valued investors. It's also really fulfilling, because that allows me to combine my passion for helping others succeed in their goals with my expertise in the real estate investment.

Joe Fairless: Let's talk a little bit about your background. 14 years as a passive investor also?

Anjesh Dubey: That's right, yes. 14 years as a passive investor. I've been buying real estate, single family homes, duplexes, triplexes, just by myself, along with my wife, and we invested in different states. So from there, my journey into real estate actually started right after college, because I always wanted to build wealth utilizing real estate. So we purchased our first investment right after college, and over time my investments grew, so that's where we built our own portfolio. And then from there, as a regular natural progression, started looking into the multifamily syndication space, and that led me to being a general partner in three different deals, and able to participate in various roles. We recently also launched a real estate fund focusing on multifamily.

Joe Fairless: How long were you an investor in your own deals until you were a general partner?

Anjesh Dubey: For about 13 years I've been doing it just by myself, and last year we started doing syndication.

Joe Fairless: Okay. Tell us about that first deal right after college. Was that a single-family home?

Anjesh Dubey: Yeah. It just came because -- before we went diving into the real estate, I was in college and I was pursuing my education in Computer Science at San Jose State University right here in Bay Area. And from there, I graduated, just like a regular progression from there, I got an internship, and then from there I just became a software engineer and working full-time in the technology industry. So I still worked full-time and the technology industry as an engineering leader, and leading successful teams and managing them.

But right after the college, I wanted to invest -- and this was new, so I did not know what was IRR, or what's the cash flow, or how do I calculate different financial terms for a deal to make sense. So I started with just my investment as a land, because where I grew up, the land is the most valuable asset that you can buy, because everyone knows that you cannot produce land. That is a limited asset. So invested in the land, and that obviously appreciated for a while, and I still have that, actually, piece of the land. Nothing we built on it, but it grew just because of the time and the market; it just grew 6x, 7x now. Still keeping it, and it's doing good.

From there, I started buying into single families. That's where I started, right here in the Bay Area, smaller single family unit. And from there, once I started to cash-flow, lower interest rates, after two years I bought again in Texas, and then Indiana, and then North Carolina... So just from there, we started going into the growing markets by just doing a little bit of [unintelligible 00:06:15.00] search, building our own team of local real estate agents, property managers. It takes time, but we were also not in a rush. So every year, two years, we just buy one property, and then over 13 years then we had a portfolio.

Joe Fairless: Why didn't you continue to buy land?

Anjesh Dubey: A couple of reasons... I think the financing on that is tricky, because banks would like to see something built on that... So if you have to buy land, you either have to come up with most of the equity by yourself. Second, to use the leverage - that's a challenge, because your cash flow is lesser, and that means your final returns are also lesser. And then since there is no cash flow coming in from there, you are not really building any equity either. So I think when we understood that, like "Okay, we can move on to some residences, because that's what will people could live, and then it appreciates better as well."

Joe Fairless: Okay. How much was the land purchase after college?

Anjesh Dubey: That was a smaller purchase, $25,000; a smaller piece of the land. And the one reason is also to move away from there, since it doesn't generate any income, but it has taxes and expenses are there, right? So you still have to continue to pay into it, instead of it paying out.

Joe Fairless: Then you bought a house in the Bay Area. How much was that?

Anjesh Dubey: That was about $450,000. Smaller townhome style [unintelligible 00:07:36.24] the community, with an HOA. And with that one, we leveraged it at 75/25. So we brought in 25% equity and 75% finance, because the interest rates were better, so we got -- at that time, it was 3.75%, around. From there, then we rented it, self-managed it... It was our learning journey.

We ran into a challenge with our tenant into that. Actually, our first our tenant in the real estate journey. After six months we had to go through eviction. So we learned from that, because we did not do our own due diligence. We thought that, "Okay, they're showing all the paperwork, it looks good", and we were not as thorough as we should be. So real learning from there, and then we got real tight after that, and looking at all the paperwork [unintelligible 00:08:27.17]

Joe Fairless: So that was about $112,000 downpayment, right?

Anjesh Dubey: That is correct.

Joe Fairless: And then you started purchasing in different states - Texas, Indiana, North Carolina. Approximately what were your down payments in those three states?

Anjesh Dubey: In Texas between 250k to 500k a property, in those areas, and then able to generate income... Definitely a certain cash flow from per unit $200 to $500 after all the expenses. If it's a $250,000, again, targeting about 25% or 30%, down. On a $500,000 property we usually tried to put about quarter in there, so $100,000 plus.

Joe Fairless: You did that for 13 years, and then just a year ago you started focusing on the larger apartment buildings. Why not just build your portfolio and keep 1031-ing your own properties, and go larger and larger and own it all to yourself and your significant other?

Anjesh Dubey: I believe that that's still a good process that I could continue doing, but I feel that it takes a lot of time, of my own time, and it doesn't go faster either... Because I think I believe that the longer you own real estate, the better it is. But by just doing it by myself, it limits - one, because I'm just doing it myself, it just limits into my own knowledge and my own expertise. And if I make mistakes, it will be just my mistakes. I'm not leveraging other people's expertise at all. So I can get limited by the capital, because it's just my capital, and it takes time to refill the capital a couple years to buy it again, and rinse and repeat.

With the syndication, I think now after so many years I've built some expertise and skill sets; I can apply those skill sets into a larger space, where we can bring in expertise of other general partners, utilize capital from other people, who lack skill sets, or who have not invested in real estate before, and make their goals achieved, and then while at the same time we achieve our own goals as well. So I feel that it's a win/win situation.

And lastly, with single-family and smaller properties, after some time, once you have 10, 15, 20 properties, it does not scale, because each one has their own property manager, a different location, and different issues, different neighborhoods, different challenges with each area, and city laws and taxes... With the syndication space, you have one large property, you have to just deal with one set of the team, and you still get same or more returns. So I think just the leveraging the economics of scale is great with the syndication space.

Joe Fairless: It makes sense. As far as the three deals you're a general partner on, what is your role?

Anjesh Dubey: Mainly, I focus on raising capital for those deals, and after the close of the deal helping out in the asset management; not as actively, but getting on the calls and providing my expertise and suggestions to the property management and the asset manager. So we work as a team. And also managing the investor relationships.

Joe Fairless: With the three deals that you're a general partner on - how are they doing?

Anjesh Dubey: That is a great question. So each property is doing differently, because first of all, they are in different areas, they have a different set of general partners, and different statistics and different neighborhoods. So the one that I have in Jacksonville - it's cash-flowing it; we have a rate cap on all the deals, which is great, because with the rising interest rate environments we got saved by that, heavy expenses. Definitely the stuff that we underwritten it - the interest rates are higher, because after that it hit the rate cap... So our cash flow has decreased what we projected, but the good thing is that we are still not cash-negative. So that is the best part.

So what are we focusing on right now is renovating the units as fast as possible, turnover the bad debt, if there is any, and make that asset more stabilized as soon as possible for it to be able to refinance, because that would allow us to be able to return some of the capital to our investors, and also get into the fixed rate.

Joe Fairless: I'm gonna have some follow-up questions just to learn more about each of them.

Anjesh Dubey: Sure.

Joe Fairless: Let's talk about all three. That's a great overview, thanks. So let's talk about the second one.

Anjesh Dubey: So the second one, we had a lot of vacancy in there.

Joe Fairless: Where is that located?

Anjesh Dubey: It's located in Macon, Georgia. And one of the reasons the - vacancies were because obviously the asset was not in good condition. So we got it at a really good cost basis; it was $60,000 per unit. So it was a great buy in terms of that, and a total of 176 units on that. So our business plan anyways was the vacancy was going to be high, because we were gonna be renovating very fast on that one, and turning around tenants who are not paying, and moving them to fill in with the better tenants, who are more qualified, and will pay regular rates.

So anytime we are moving out the bad tenants or bad debt, we are turning over quickly, and re-renting it; re-finish the unit, renovate the unit, and then leasing it to the better tenant class.
Previously, before closing our business plan to finish the renovation, by sometime mid or later next year, but with the progress we are making, we are targeting to finish our 80% of the renovation by the end of this year. So we are going very, very fast. And that will allow us to be able to stabilize quickly, and then able to refinance into the better debt after that.

Joe Fairless: Got it. Okay. The third deal?

Anjesh Dubey: The third deal is actually in Atlanta, Georgia. That is a unique deal. It is all duplexes in there; so it is 52 duplexes in one community. So really, 104 units, and the business plan over there, before the acquisition, was to upgrade these units and make them from two bed/two bath to three bed/two bath, utilizing the garage space and converting that into the bedroom. Because in that community, there is a high demand for more bedrooms, because there are bigger families, with children, and there is growing demand for just larger places.

So that fit well, and that is the deal that is actually doing a pretty good job. The challenge over there is that -- tenants just are good tenants, there is no bad debt, everyone pays on time, it is still at a 99% occupancy, which is great, but the challenge with that is we cannot go faster on the renovation of the units as we would like to. Because tenants - we have to increase the rent at the market rate, increase it by $500 or $700. And they're like, "Yeah, that's fine. We really love it here to live, and we have a lot of family members who live into different units as well, so we'd like to stay." Like, oh, then in that scenario, how do we renovate?

So what are we doing there is giving them the option that you move them to a renovated unit, and then renovate the one that got empty. But because of that, it gets slower. So the renovation is going slower, but it's really cash-flowing very well, because occupancies continue to be high, and we are able to increase the rents [unintelligible 00:15:57.17] expenses.

Break: [00:16:00.15]

Joe Fairless: Nice. So all those three - are you still paying distributions?

Anjesh Dubey: We are taking a conservative approach. We are holding on onto the distributions till the refinance on some of these deals are done... Because we don't want to go out, do the distributions, and if something did not go as planned, we do not want to dilute our investors [unintelligible 00:17:21.18] capital back.

Joe Fairless: Are all three paused?

Anjesh Dubey: One deal in Jacksonville has done a distribution, and previously we were planning to do a 1% distribution, but we have reduced it to a half a percent right now. And we are hoping that we will be able to increase it more than 1% once the cash flows becomes better. The other two are on pause, yes.

Joe Fairless: Why would the Atlanta one be on pause? [unintelligible 00:17:49.19] What's the reason for that?

Anjesh Dubey: So the Atlanta one is actually -- a correction there... It is not on pause, but there is a restriction from the lender that no distributions for 12 months after the closure. So we closed on it in the last year, June. So that restriction is gonna go away pretty much yesterday. So now we are going to take a look, get an approval from the lender, "Are we ready to do the distribution?" And then once they say yes, it will be good.

Joe Fairless: Nice. What have you learned from being the general partner today? It's been a year, but you're in three deals, and I know you've picked up some things given your academic background as a software engineer and having an engineering mind... I know you're tight, you're a smart cookie, so what have you learned from these three deals?

Anjesh Dubey: I think a lot of learning was around that once you start the execution, you can do whatever the due diligence we can on the deal before the purchase; the business plan is not necessarily going to go in the way that you hoped for. So there are always going to be the variation, and that presents a risk. So really, you cannot know everything, and when there are surprises, I think the most important thing is to have network and connections and access to the capital to be able to mitigate those risks. I think that is the most important thing, because in one of the properties we found after the due diligence one, and especially in the Jacksonville one, we've found that there is plumping that needs to be changed completely for the units, because it's getting really old and it's bursting out. So we had to add that as part of an expense after the close. The good thing was that lender agreed to add that expense as part of our capital expenditure that they were giving us the funds for... But things like that will come up, but the real thing is that if people have experience and you have a team of people who have expertise, who have done that in the past, they will be more suited to be able to mitigate those scenarios than I did right now. So that's the most important learning I think I got.

Joe Fairless: [unintelligible 00:20:03.06] the Mike Tyson quote...? Do you know that one? Everyone's got a plan until they get punched in the face...
Anjesh Dubey: Correct.

Joe Fairless: But you said it much more eloquently, and I appreciate that and I like that. Basically, once you start and execute the execution, it's game on. And as you said, the business plan won't go exactly how you planned, because you're dealing with people. You're dealing with people, and you're dealing with circumstances, some under your control, but you, I, others might mess up, and some circumstances outside of our control. So you said something very, in my opinion, spot on, which is you've got to have the expertise, and you've got to have access to capital. So you've gotta have a team of experts, and you've got to have access to capital to navigate. And if you have that, then you can navigate it, because we're dealing with apartment communities, we're not dealing with a software that might not be in demand, or might go out of favor; we're dealing with apartments, where there's clearly demand for them. So it really is an execution, and access to capital equation that needs to be solved for when challenges come up. So thank you for sharing that.

With your fund, knowing what you know now, I assume - first off, let me make sure my assumption is correct. I assume that you are raising money in a fund, and then you decide where that money goes based on qualifying operators and deals, and then you hit that fund and you invest in other people's deals, correct?

Anjesh Dubey: That's correct. Yeah. The minor difference there is that my own investors can choose; so the fund will have multiple opportunities, but my investors can choose, "I like this location. I like the proforma on this, I like the returns on this", or "I like the operator here. I want to go with this much money in this deal." And then they get to choose it and invest it [unintelligible 00:22:02.01]

Joe Fairless: Nice. Knowing what you know now, what are two questions that you might not have asked if you weren't on these three deals as a general partner, that you will ask prospective general partners that you bring your investors to in your fund? Two questions that you wouldn't have asked, that you would now.

Anjesh Dubey: I think the most important question, I would ask how are their current deals performing? I want to hear about what are the ones which are in trouble, and how are they managing that trouble. How are they managing that risk? I don't want to hear a lot more about the current deal, but I want to know what challenges they have seen so far, and how are they mitigating it? Because that will help me build trust in them, that if challenges arises here, then they are capable and suitable to be able to overcome them. And then I will ask is who all are in their general partner team? How are they gonna -- if they need capital, what are certain avenues they would utilize to access that capital? So those are the two main questions I'd ask.

Joe Fairless: So how are the deals performing currently, you want to know about any ones that are in trouble, and then who is the general partner team, and have a follow-up question within that on how are they accessing capital when they need access to it, right?

Anjesh Dubey: Yup, yup.

Joe Fairless: On the first question, how are deals performing - you ask that question, and then their answer is, "We have a couple deals; their distributions are on pause, but we are at 95% occupancy, and we're going to continue renovations and refinance it." What's a follow-up question that you'd have to determine how much trouble they are in, if at all?

Anjesh Dubey: I think the occupancy doesn't tell all details, whether that is good or not... So how far they are in their business plan to be able to refi? So if they say they are ready to refi, then that's when they will return the capital, that means their business plan should be at least 80% or above done, or completed by now. And if they are 95%, that means it's a stabilized property. So my follow-up question would be - if it is so stabilized already right now, then why the distributions are on pause? Why do you see the risk for that to not being able to do the distributions?

Joe Fairless: Taking a step back... What's your best real estate investing advice ever?

Anjesh Dubey: My best real estate advice ever is don't be on the sidelines. The market just keeps fluctuating, for sure, but get your knowledge, learn more, as much as you can, do your full due diligence before investing... But that knowledge shouldn't keep you on the sidelines. So don't wait, don't procrastinate, but learn and take actions.

Joe Fairless: We're gonna do a lightning round. Are you ready for the best ever lightning round?

Anjesh Dubey: Absolutely.

Joe Fairless: What deal have you lost the most amount of money on?

Anjesh Dubey: Due to the low interest environment, like many people have been fortunate, I've not yet lost money. I may have gotten a breakeven, but not yet lost it.

Joe Fairless: What did you break even on?

Anjesh Dubey: Breakeven - on one of the properties that I bought in Missouri, which then I sold; it was a duplex. It was turnkey, but then I ran into a lot of bad tenants, bad debt, evictions... Just neighbors fighting with each other... They are doing holes in the wall, and things like that... So it was not a good property. It was a good asset, but just not in a good location. So one learning from there was that always look for location, location, location, like everyone says... But on that one, I went for a cash flow, but then that's a challenge I ran into. But it still appreciated, and I decided to sell it and I broke even on that one.

Joe Fairless: Sounds like my fourth house that I bought... Very similar story. What is the Best Ever way you like to give back to the community?

Anjesh Dubey: I like to give back by dedicating my time to coaching individuals and empowering them to thrive personally and professionally; as I mentioned, my career is I'm an engineering leader, so I help individuals and professionals in their career by just giving them my time, and help them achieve their goals and unlock their true potential in whatever it is, whether it's a career, a business, or financial independence... And I do this voluntarily, I give that time, so that they can learn more what I have from my experience.

Joe Fairless: Anjesh, how can the Best Ever listeners learn more about what you're doing?

Anjesh Dubey: The best way to reach out is via LinkedIn. Look me up, let's connect. My website is dubeyinvestorgroup.com, and I'm very active on LinkedIn.

Joe Fairless: Thanks for sharing your story with us, sharing your lessons that you've learned from being on three deals as a general partner, and also from your 13 years of experience prior to that, building your own portfolio. I really appreciate you sharing your insight with us. I love talking to individuals who have been in there and done it themselves, got some scars, learned some lessons, and then to share with us, so that we don't necessarily have to do certain things that they already learned from, and we can all get better faster together. So thanks so much, Anjesh, for being on the show. I hope you have a Best Ever day, and talk to you again soon.

Anjesh Dubey: Thank you so much, Joe.

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