Jaideep Balekar Real Estate Background
- Works full-time as a cybersecurity consultant
- Primarily an active investor, has invested passively in one syndication
- Portfolio: 30 doors personal portfolio, 84 doors passive investment (LP), 95 doors as JV that will be closing by the end of the year
- Based in Cincinnati, Ohio
- You can find him at www.compoundingcapitalgroup.com.
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TRANSCRIPTION
Ash Patel: Hello Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Jai Balekar. Jai is joining us from Cincinnati, Ohio. He works as a full-time cybersecurity consultant and is primarily an active real estate investor, but also has one syndication as well. Jai’s portfolio currently consists of 30 doors, and he’ll soon be adding 95 additional doors by the end of this year as a JV partner. Jai, thank you so much for joining us and how are you today?
Jaideep Balekar: Thank you so much for having me Ash. I’m doing fantastic. How are you?
Ash Patel: Wonderful, man. It’s our pleasure to have you here. Jai, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?
Jaideep Balekar: Absolutely. Basically, the way I got started in real estate was I was always fascinated by real estate. I did a lot of reading, Bigger Pockets, books like that, a lot of books that a lot of people have read. Rich Dad Poor Dad is the first one that got me started. But I had a travel job, I’ve always had an IT job, and it kept me away from taking that leap of faith if you will. Then COVID happened and I started working remotely. Right before that, I had invested in my first investment property, which also happened to be a very heavy lift down to the studs renovation. So it kind of worked out. I know COVID had a big impact on many people’s lives, but it was a blessing for me because I was able to take some time away, not have to travel, and focus on real estate investments. That’s kind of how I got started. After that first project turned out well, that confidence was definitely bolstered, and I was just able to keep going deal after deal.
Ash Patel: You tell me about that first project. What was that?
Jaideep Balekar: Absolutely. So the first project was essentially two fourplexes or two quads, right next to each other, in Cincinnati. One thing that I was very confident about was where they were located. They’re very close to a neighborhood called Oakley in Cincinnati, which is more of a Class A location, with a lot of good restaurants, and a lot of millennials like to live in this area as well. It’s also right off of an interstate, so very close to downtown. Because I was kind of confident about the location, I’ve always heard from all the books and mentors, one thing that you cannot go wrong about is location. That’s one thing you cannot fix. You cannot force-appreciate an entire neighborhood and location. So I was like, “Okay.” These two houses were extremely scary. These were on MLS, by the way, and when I went to see these two quads, I saw a lot of people turning away. They were like, “Oh my god, this is just way too much knob and tube wiring, and stuff like that.”
But I took a chance I was like, “Okay, anything can be fixed.” The inspection came to be relatively okay in terms of the structural aspect of it. I was like, “Okay, the building is structurally okay. Everything else we’ll manage to fix.” Of course, one of the lessons learned is always to have a huge contingency on the rehab costs. That was my first major rehab and I had no idea how to estimate rehab costs. What I had estimated versus what it ended up really costing was three times as much. But all in all, it was a fantastic learning experience. I think I had, fortunately, enough buffer to actually cover those additional expenses in terms of rehab. Then I also ended up self-managing the property, and I still do, and that was another next layer of learning, if you will… That once you have actually stabilized the property, how do you run it more efficiently, as efficiently as possible to keep those cash flows up? So it’s been a great ride. That first deal was definitely one of my best ones.
Ash Patel: And you did this all on your own? You didn’t have partners on this deal?
Jaideep Balekar: That is correct. Yes.
Ash Patel: Can we dive into the numbers?
Jaideep Balekar: This was purchased in the late 2019 or late 2020 timeframe. We paid 400K for eight units, so 50k a door, then we paid about 200K in renovations, and about 20k to 25K in holding costs. All in, we were at about 625k for eight units. These properties were rented at 400 a door before the rehab, because they were severely distressed, so it was significantly below market rents. Once we fixed it all up, which was essentially all-new exterior, roofing, soffits, fascia, decking, new framing, asphalt, retaining walls, and an all-new interior. So that was new plumbing, new electric, new floors, you name it; new everything, basically. We were able to get the rents from 400 to $1,000 on average. So 2.5x rent increase. Initially of course, when I did that, I had a good idea that I will be able to push the rents, but I didn’t know I would be able to push the rents so much. It was a blessing in the end that I was able to actually exceed my projections.
Ash Patel: That’s great. What are these two properties worth now?
Jaideep Balekar: These are worth close to 800k.
Ash Patel: Okay. The joint venture that you’re working on now – can you tell us about that?
Jaideep Balekar: Sure. There’s a 32 unit that I’m working on with a partner I know through the real estate community and have been in touch with, an out-of-state investor. So my value proposition is to be boots on the ground, again, a deep value-add project. So I’ll be involved in overseeing the value-add component of it. It’s 32 units, mostly two bedrooms. Again, what we love about this deal is the location; it’s in College Hill. Just a few years ago, College Hill was a bit of a dicey neighborhood, but things are really looking good. A lot of new construction is appearing in all different areas of College Hill. So location and ability to push the rents post-renovation, and then ending up with a nice renovated building that won’t have a whole lot of problems in the next five to seven years. That’s really our business plan.
Ash Patel: You’re a GP on that 32-unit deal?
Jaideep Balekar: Yes.
Ash Patel: Are you investing capital as well?
Jaideep Balekar: I am investing very little capital. So a portion of the equity that I’m getting is in exchange for the sweat equity that I’m putting in, and a small portion is based on the cash that I’m putting in.
Ash Patel: Are you also bringing investors to this deal?
Jaideep Balekar: We only have two more investors, and they’re primarily putting in all the capital.
Ash Patel: Got it. And numbers on that deal? What’s the purchase price?
Jaideep Balekar: We are at 1.6 purchase, so 50k a door. We are roughly at about 10k a door for rehab, interior/exterior combined. This is more of a cosmetic rehab than a true gut job renovation. There’s no new plumbing or electrical required. But we are hoping to complete that project in 18 to 24 months, all of the rehab, and then push the current rents, which are about 600 a door, to 850 to 900 a door, which is what we are actually getting. So me and my partner, we both have other properties in College Hill, and we are getting those rents, so at least we know that we can meet those comps.
Ash Patel: Seems like a great deal, Jai. How did you guys find this?
Jaideep Balekar: This was off-market. It came through a broker but I think this individual who got we got the deal from, his main business is a construction company, he does some brokering on the side and he has his network of investors he sends deals out to. So we got that deal from him. I live very close to College Hill, immediately within the hour; I went and did swing by, took some pictures, and I’m like, “Let’s put an offer.” Because time is everything. I’m sure if we didn’t get back to him in a few hours, he would have sent it to somebody else and somebody else would have locked it up.
Ash Patel: How long was your due diligence on this project?
Jaideep Balekar: Due diligence took a little longer than anticipated. I think we had asked for 21 days, but it took longer because it was a mom-and-pop seller. So the records were not all in order. We had a lot of missing leases, so we had to get an Estoppel agreement signed. All of that took a little bit longer, it almost took 45 days. But we are glad that the due diligence period is behind us now, and we are set to close in about 10 days’ time.
Ash Patel: Did your earnest money go hard immediately?
Jaideep Balekar: No, it went hard after the DD period was done. But in some markets, you have to do hard EMD on day one. At least in Cincinnati, it’s not that crazy yet, for the most part.
Ash Patel: So this is a typical GP-LP structure with investors?
Jaideep Balekar: Yes, it is a GP-LP structure. But being the JV, there is no preferred returns or hurdles, if you will. It’s just a Class A, Class B equity, and simple line split.
Break: [00:09:17] – [00:10:50]
Ash Patel: You work a full-time job. Are you back to traveling?
Jaideep Balekar: I think I will be back to traveling very soon here.
Ash Patel: How do you manage gut rehabs with working a full-time IT job?
Jaideep Balekar: It’s definitely difficult and very stressful. I’m not going to lie about that. Although the last couple of years of my investing journey has been the best couple of years of my life, at the same time, they’ve also been the most stressful years of my life. But if you’re truly enjoying it, then it’s fine. I’m okay with the stress. Initially, in the first few projects where we were doing smaller properties, I built my own teams of plumbers, electricians, HVAC, GCs. I was coordinating all the dependencies between them, I was hauling material myself and making sure materials are on site when they need it, stuff like that. But that was taking up way too much of my time.
At that point, it made sense, because I got to learn a lot, I got to learn how much the material truly costs. So if tomorrow somebody tells me that plywood is $100 a sheet, I would know that they’re BS-ing. Those aspects were a few aspects that I wanted to get a hang of. But going forward, to manage 30 to 65 or even bigger deals, I’m partnering up with… As a matter of fact, just last evening, I had a meeting with a GC [unintelligible [00:12:10].29] they have all trades in house. We are willing to pay them 5% to 10% in construction management fees for better efficiency, being able to source the materials at wholesale pricing, and things like that. That way, I can focus on investor relationships and finding deals or acquisitions.
Ash Patel: Okay, so you’re the boots on the ground for this 32-unit acquisition. What’s your role going to be? What does boots on the ground entail?
Jaideep Balekar: Right. Now, given that I’m not the project manager on the rehab, I’m more of an oversight person, my role is going to be, if things are not going well, swing by every day, and make sure they are going well in terms of the rehab. If things are going fairly well, swing by at least twice every week to still provide that oversight. That way, folks on the ground know that there is somebody, an owner, who is actually here keeping an eye on all the work. That keeps everybody honest and on schedule, essentially. So that’s my main role. But my role is not to get all the materials and literally be there for day-to-day management. That’s my role on the 32-unit.
Ash Patel: Got it. Jai, a lot of people that work full-time jobs contemplate whether they should get started in real estate. Deep down, they may be making excuses, “I’ll wait for the next downturn, the next recession”, or “Maybe I’ll do this when I retire.” What’s your advice to that person who’s on the fence, works a full-time job, and is thinking about investing in real estate?
Jaideep Balekar: That’s a great question, Ash. I think there are multiple ways of investing in real estate. You could invest passively as a limited partner in a syndication, and that’s almost as easy as investing in stocks or bonds. It’s a very passive investment. I would say, if you’re really worried about how much time it’s going to take and if you’re a very busy professional, then that’s a good way to start. But for me, because real estate always fascinated me, the operations, and the ins and outs of it fascinated me more than just cash flows or the money, I wanted to be an active investor. If you want to be an active investor, if you’re just waiting to take that plunge, I think it’s really taking the chance on yourself too, understanding how big of a motivation you have. What are you really investing in real estate for?
For me again, like I said, it was not just the money in cash flows, but it was really freedom of time, having control over my schedule, rather than being stuck in Zoom calls every day, and even if my wife brings me lunch, I can’t eat it, because I’m on a Zoom call. I didn’t want to live that life for the next 30 years. So that was my motivation, having freedom of location, and really trying to build a life that you don’t need a vacation from. That was the end goal. If that means having to compromise and downsize for a couple of years, that was a choice that me and my wife made collectively and I’m so glad we did it. I think it’s really truly understanding what your motivation is.
Ash Patel: Can you talk more about the compromises? Because a lot of this sounds very appealing. Freedom of time, freedom of location… But at what price? This is what often doesn’t get discussed. We see all of these successful people, the cars, the boats, the lifestyle that they live, but there’s a price that a lot of us pay early on. And you’re paying that now; I mean, you’re working full time, you’ve got your plate full with real estate. So give people a little bit of that struggle, just so it’s a true depiction of what it’s like starting out in real estate.
Jaideep Balekar: Absolutely. I think the struggle is on two fronts. Sometimes, of course, if you are flushed with cash, then on the financial side, you might not struggle. But most people are starting out just as I am, and you don’t have unlimited capital behind you. The other aspect is time, and that’s probably the bigger struggle. Time management becomes crucial when you’re trying to juggle multiple different things, and especially if you already have family and kids, it becomes even more crucial. So I think the biggest challenge has been time management, being able to time block, and block time evenings and weekends, so that all of these things, like reviewing operating agreements, leases, doing your due diligence – all of that is done correctly and properly. When you’re starting out, you don’t really have a team, it’s all on you.
If you miss one thing, you might get penalized for it pretty heavily. You miss something on that deal.
So I think one aspect is time and being able to compromise on your free time, on your Netflix time, and dedicating that time to real estate. That willingness has to be there. And number two, I think if you’re willing to compromise a little bit in terms of how you’re spending your money or your lifestyle, that can help propel your real estate journey as well. Because we used to live in a single-family home in a suburb, and we definitely had way more room than we needed. It was a very comfortable lifestyle, but we made a choice that we will sell this house, get all the capital out, and invest in investment real estate. We are now house hacking in a four-family.
Now, going from a relatively big single-family home with a yard to sharing walls with people, there is a compromise. I won’t lie about that. But again, it’s really about what your end goal is, and are you willing to do really anything to get there. Truly, it’s not even like I’m not living on the streets; it’s still a pretty comfortable lifestyle. But you have to be willing to give away some of the creature comforts of your life. Maybe sell that BMW you have and get a Corolla hybrid, save money on gas and stuff like that; cut down your liability, get rid of the expensive watches that you bought when you immediately got a job and started getting those paychecks. That has happened to me, I was just always looking for stuff to buy. But now we just passed Black Friday. I didn’t even open a deal site or anything. Because I know that I don’t want to buy any more materialistic stuff and I want to focus my investments truly on building liabilities.
So I think it’s really the personal choices that you make every day. Eating at home instead of eating out every day, as an example – that has a huge impact by the end of the year. You’ll be surprised how much you end up saving, which now can be used to buy passive income-generating assets.
Ash Patel: Amazing insight. Thank you for sharing that with me and the Best Ever listeners. Make no mistake about it, Jai has a very successful career in cybersecurity consulting. He should be enjoying a lot of the fruits of the years that he’s put in, and he’s making all these sacrifices. So I love hearing that mindset. Thanks again for sharing that. Jai, you’ve got a syndication investment as well. Was that before you actively invested or after?
Jaideep Balekar: That was actually already after I had started to invest actively. The rationale for that investment was, one, I’ve always heard; investing in a syndication is where you get paid to learn. I do want to throw in a caveat there though. When you invest in a syndication, the learning is fairly limited. Because as an LP, you get these quarterly distributions and quarterly reports, but you’re not really involved in the day-to-day operations. But that was my initial, I would say, reason for investing in that syndication as an LP. Two, I also wanted to see that how does a big deal go down? How does the due diligence happen, agency lending, and so on? This property also happens to be local, in Cincinnati MSA. So at least when the rehabs are going on and stabilization is going on, I can always swing by. It’s not like in Phoenix or somewhere else where I haven’t even seen the property. But those were some of the aspects.
The person that I’ve invested with is a great guy, John Kasmin. I still have faith in John, and I wanted to invest in a deal with John. Given an option, I could have always invested that money in my own deal, in an active investment, but I wanted to invest in John’s deal. That was another motivation that I had.
Ash Patel: I appreciate that as well, because when you give your money to somebody else to hold, grow, invest, you understand the mindset of your own investors. They’re putting a lot of faith into you, with their hard-earned money. I think it’s very important to grasp the mindset of the investors. I think a lot of syndicators should also invest passively in other people’s deals as well, for that reason.
Jaideep Balekar: Absolutely.
Ash Patel: What’s the hardest lesson you’ve learned in all of this investment?
Jaideep Balekar: I think the hardest lesson, I would say, is just the importance of having reserves. Right now, we are in a great market, but the importance of having good reserves is going to be highlighted whenever a market correction does happen. We all know it will happen, nobody knows when. But when that does happen, people who are over-leveraged and have less reserves, they’re going to have a hard time. I’ve talked to a lot of lenders who have commercial lending experience of 25 plus years, and one question that I always ask is “What was your lesson learned from 2008?” Some of the lessons learned that they share – they’re experienced people, they have seen how the financial industry suffered and the real estate industry suffered… And I take that and implement that with the way I operate.
On all of my properties, at least six months of BT reserves, CapEx reserves, and repairs reserves on top of that. I keep a lot of reserves for all of my properties. Sure, I could invest that somewhere else and start doubling that money. But for me, peace of mind and a good night’s sleep is way more important than doubling every dollar that I have in my pocket. I think reserves are, I would say–
Ash Patel: How do you get financed? Is it just traditional lending?
Jaideep Balekar: Depending on the location and the condition of the asset. We are now looking at a 13-unit that is extremely heavily distressed. There’s really nothing, not even studs in the property, just load-bearing walls at this point. So for a property like that, I’m looking at private lenders like Lima One Capital. If it’s a stabilized property that meets certain debt service coverage ratios, DSCR ratios, then I’m working with a lot of the local banks, if it’s under a million-dollar loan balance, if it doesn’t qualify for an agency. Then we’re also looking at agency options, where the loan balance is big enough for agency loans, post-stabilization.
Break: [00:22:56] – [00:25:49]
Ash Patel: When you present yourself and your deal to a lender, do you bring your portfolio with you? Do you have a binder or folder that showcases the deals that you’ve done?
Jaideep Balekar: Yes.
Ash Patel: Do you emphasize that you’ve got six months of reserves for each property?
Jaideep Balekar: I do. Adn when then the lenders hear that, they just love it. I’ll share a story. I’m currently working with a local lender on the 63-unit. Most of my investors or capital partners are all Bay Area folks. Initially, I could just sense that right off the bat, he just wanted to turn our deal down. You guys come in and you buy property here in Cincinnati, but you have no idea how to operate the property. Lenders have gotten burned by out-of-state investors overpaying for properties here in Cincinnati. So that was the initial response. But then we were like, “Okay, let’s schedule a coffee meeting and meet up.”
When we met, we talked about how we run our properties, how we run the rehabs, how much we have in the reserves, and I talked about my portfolio, how I had stabilized, and what were the pre and post rents. When he heard that entire story, that was it, that sold the deal, and we just got approved on the loan. The terms were beautiful, better than we expected. When it comes to local banks and local lenders, it’s really about that relationship. If you can actually provide them with the confidence that you can successfully take this deal down and operate it well.
Ash Patel: I learned that much later than I should have. But having that narrative or that story is so important. For years, I would just send my lender, “Hey, here’s the next deal. Here’s the contract. When can we close?” I had enough of a relationship with them that they would always follow through. But when I started writing a narrative, it was so much easier and faster to get that approved. The board would hear this — it’s not just “Here’s another deal Ash is doing.” It’s like, “Oh, what a cool story. Okay, yeah, awesome. Let’s go.” It also makes you more memorable to both the lender and the decision-makers. So yeah, kudos for doing that, man. Jai, what is your best real estate investing advice ever?
Jaideep Balekar: I think really — again, this is something that probably everyone has heard a million times… But the biggest hurdle is getting started. A lot of people get stuck in analysis paralysis, they do a lot of reading and research, but they never get started. I think even if it’s a JV deal where you’re doing a very small portion and you’re getting equity just for bringing in the capital, or even if it’s an LP as a syndication like I just said, just jump in. I think that once you jump in, it becomes a lot easier. My first deal was the hardest; I learned the most in that deal. But after that, everything became almost like an assembly line. I already had my team set up, I knew where to source the materials from, and I had some lessons learned that I was able to implement in deal number two. But once you do that first deal and jump in, it becomes a lot smoother then onwards. I think jumping in is the biggest hurdle. So just get over it and start investing in real estate.
Ash Patel: Jai, your first two four-unit buildings – you did all by yourself. You’ve subsequently had partners on deals. Would you recommend people on their first deal work with a partner, or do it alone?
Jaideep Balekar: I would say it never hurts to work with partners. You also want to be careful about who you’re partnering with. But if you know you have the right partner, a friend you grew up with, someone you trust, you always learn way more when you work in a partnership, and now you don’t have to do it all. You can play to your strengths and your partner can play to his or her strengths. I’m personally –you know that well, Ash– I’m not a detail-oriented person. I’m more of a high-level big picture. But for these deals, I had to dive into the numbers, I just had to. Because if I missed something, it would cost me a lot of money. But I didn’t enjoy it. So when you work in a partnership, the stuff that you don’t enjoy, you can have your partner do it who has perhaps complementary skill sets. So I always recommend working with partners. In my mind, that’s the only way to scale.
Ash Patel: I agree as well. Jai, are you ready for the Best Ever lightning round?
Jaideep Balekar: Absolutely. Let’s do it.
Ash Patel: Jai, what’s the Best Ever book you’ve recently read?
Jaideep Balekar: Recently, I would say Who, Not How. That’s been my recent read. I’m reading Rocket Fuel now, and they’ve both been phenomenal books. Both of these books have had a tremendous impact on my mindset in terms of how I think about teams, delegation, and playing to each other’s’ skillsets.
Ash Patel: Disclosure, Best Ever listeners, Jai and I are friends. We both live in Cincinnati and those are two books that changed my investing. I recommended those to Jai. What’s the biggest takeaway you had from those books?
Jaideep Balekar: I think the biggest takeaway from those books is recognizing the fact that a lot of times realistic investors have that mindset starting out, especially the do-it-all ones. That you can do something in the best possible way and nobody else can do it better than you. I think when I started working with people, I realized that there are many aspects of this business that others can do it way better than me. Then why am I spending time focusing on those things especially on top of which when I don’t even enjoy doing those things? I think that was the biggest aha moment for me from both of these books. And really finding your who is not just about delegation because people talk a lot about delegation.
It’s not just giving work away, but you are helping them and they are helping you. It’s more of a mutual. Because for them, you are their who, and for me, they are my who. Because they are not probably good at visioning and I come in and play that role. But they are probably really good with details and execution, and that way they are my who. It’s very much a partnership mutually beneficial relationship. I think that’s how you got to see business partnerships. That was the big aha.
Ash Patel: Great. Jai, what’s the Best Ever way you like to give back?
Jaideep Balekar: Best Ever way I like to give back is in two terms really. I think giving back time is more valuable than just giving away donations. So I also donate 10% of all our profits to a charity in India that focuses on the education of kids in poverty-ridden areas. I also really try my best to have as many calls as possible with people who are starting out in real estate, and share whatever I’ve learned to help them get started. I truly enjoy doing that. I love having those conversations. I’m hoping that the time I dedicate to these folks will help them tomorrow to become good mature real estate investors.
Ash Patel: Jai, how can the Best Ever listeners reach out to you?
Jaideep Balekar: The easiest way to get hold of me is via Facebook or by email. On Facebook, my first name, my real name is Jaideep, and my last name Balekar. I’m very active on Facebook and also email which is info@compoundingcapitalgroup.com.
Jai, thank you again for sharing your story with us today. The struggles of having a full-time job and growing a very successful real estate company. Thank you again for sharing that.
Jaideep Balekar: Thank you so much for having me, Ash. It’s always a pleasure speaking with you. I really appreciate the opportunity.
Ash Patel: Best Ever listeners, thank you for joining us, and have a Best Ever day.
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