Cherry Street Investments founder Kavitha Baratakke was forced to start over with virtually nothing after a divorce in 2007 followed almost immediately by the stock market crash in 2008. Since then, she transitioned from working full-time in the tech industry to passively investing in multifamily, then crossed over to the GP side where she discovered her passion for talking with and educating other investors.
- Her thoughts on money. Investing has taught Kavitha to treat money simply as a resource. It can be made, and it can be lost, she says. It’s important to remember that you are the creator of money and it doesn’t dictate who you become.
- Her journey to becoming a GP. Kavitha decided she wanted to buy a small apartment complex for cash flow but quickly realized acquisitions wasn’t her strong suit. After three years of struggling and working with her mentoring group, she met the person who would help her realize what she wanted her role as a GP to look like.
- What her first deal was like. Kavitha played a small role in closing an Atlanta apartment deal, where she learned that talking to investors, raising capital, and educating others were the things that truly brought her joy. “It’s not so much the size of the deal,” she says. “It’s the quality of conversations I’m having with people and feeling like I’m solving a problem for them.”
- Why she doesn’t stick to one asset class. It’s all about diversification, and Kavitha is strategic about selecting new asset classes for her portfolio. She began investing in land development last year to complement her multifamily projects because of the equity growth it offers. She then chose to invest in senior living — she predicts a considerable upside in the next 20 years due to the number of people that will be reaching age 65+.
- Her fail-proof mindset. Kavitha no longer spends much time worrying about money, because she knows she has the ability to recreate what she has built. “It doesn’t matter what the market does. It doesn’t matter what my wealth looks like. I know that I have the ability to do this over again,” she says.
Kavitha Baratakke | Real Estate Background
- Founder of Cherry Street Investments, an investment firm focused on creating multiple passive sources of income through investments in various assets such as apartment complexes, mobile home parks, senior assisted living facilities, self-storage, and more.
- GP of:
- 2,200 units across Texas
- 179 beds of senior living new construction in Florida
- 1 townhome new construction in Austin MSA
- 2 land development deals in Austin MSA
- LP of senior living, land development, energy, and ATM investments; also 200+ doors of new multifamily construction
- GP of:
- Based in: Austin, TX
- Say hi to her at:
- Best Ever Book: The Alchemist by Paulo Coelho
Click here to know more about our sponsors:
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 Kavitha Baratakke. Kavitha is joining us from Austin, Texas. She's the founder of Cherry Street Investments which focuses on creating passive income through multifamily, mobile home parks, assisted living, and self-storage. Kavitha is a GP on over 2000 units, 179 beds, a new construction townhome, and two-lane development deals in Austin, Texas. Kavitha, thank you for joining us and how are you today?
Kavitha Baratakke: I'm great, Ash. Thanks for having me on. I've heard so much about your podcast, so I was like "I've got to be on Best Ever."
Ash Patel: Well, it's a pleasure to have you. Thank you. 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?
Kavitha Baratakke: Sure. I am a techie by background, I was in technology for 20 years. I transitioned slowly but surely into single-family homes. A lot of people in the investing world have this journey where we figure out that, "Hey, we’re going to do real estate," and the only kind of real estate we know is single-family homes. I did that for seven, eight years, and then had some issues with scaling, and started looking at multifamily. Years later, in multifamily investing as a passive investor, then got into the GP side of things, and here I am. I am doing land development, and also dipping my toes into senior living now.
It's been quite a journey because when I started, I really started from nowhere. I know we were talking before about failures, and I think everybody has a lot of failures before they see success. For me, I got a divorce in 2007 and that's where I started with nothing, literally. The stock market crash happened in 2008, so my nothing was reduced to half of nothing in the stock market. That was an interesting place to start right after the worst.
The last 12 years have really been focused on growing. Money is one of those things where it's more of a mindset thing, meaning that what I realized with my failures - I lost a lot of money in the stock market; I used to trade options when I first started, and I lost a lot of money. I made money too, but I lost equally as much. And one of the things I realized early on in my relationship with money is that treat money as a resource - it can be made, it can be lost. If you get too hung up with it, it's just one of those things... You really cannot let money define you or otherwise shape you, because you are the creator of money and money doesn't dictate who you become.
Ash Patel: Amazing. So many things I want to dive into. In 2007, you must have thought the universe was against you, and you bounced back. Alright, so you also very nonchalantly said, "I got into becoming a GP." You don't just get into becoming a GP. Tell us how you got there.
Kavitha Baratakke: Again, what you see on the surface when people are successful, you see how good they've become, or where they are, but you don't see all the stuff they've gone through to get there usually. Like, we all want the good stuff and we don't want the bad stuff. It took me almost three years to become a GP, but not because -- I wasn't really trying to become a GP. I joined this multifamily mentoring group out of Dallas, and my focus was to buy my own apartment. I had some homes that I wanted to do a 1031 exchange into apartments, because from a scale standpoint, these homes weren't making sense to me. I invested in them over a period of time, from 2008 or 2009 actually.
Long story short, when I started getting on this understanding of the whole syndication process and all of that, I really didn't want to be asking people for money, so I focused more on how I can buy my own little apartment complex and run it and have cash flow and retire. A very simple goal. So really looking for a GP wasn't one of those things, but I did have a lot of issues finding the apartment that I was after. I realized from that experience that I'm not necessarily an acquisitions person.
I know they say a lot in real estate, your first deal is the hardest. It takes the longest time to get the first one, and then after that, somehow the universe conspires, and maybe you believe in yourself and your ability after that point... It's just things start moving much faster. So my first deal was the hardest in apartments. I did passive, but becoming a GP was like an uphill battle, because I didn't really know where to start. I had a mentoring group, but I really wasn't sure what part of the GP role I wanted to play. I knew I wasn't good at acquisitions; I tried that for three years very unsuccessfully. So it was a coincidence to meet someone who directed me on the path that I would become a GP and do the rest of the stuff.
Ash Patel: Kavitha, what was that first deal?
Kavitha Baratakke: We saw an apartment complex in Atlanta. Honestly, I had such a small role to play in it, but I feel like... At least, this is the way I look at it right now - a lot of people post all these cool deals like "Oh, I closed a 300-unit or 400-unit." I mean, you and I know it's meaningless. What's your role, not the number of units. I cringe a little bit when I hear people say, "Oh, 2,200 doors, 350 AUM." It's just all the numbers that we get caught up in. But really, what is your role? What did you learn? What did you have to do in that project? How much do you enjoy yourself at the end of the day? For me, those were more definitions.
For me, that was a very small deal. But now looking back, I'm realizing how small my role was, but I enjoyed it so much. I enjoyed it so much because one, I just realized I had found what I liked doing, which was talk to investors and raise capital. That piece of it, for me, educating people, talking to them, and helping them make a good investment is just super-important. I realized that what drives me now. It's not so much the size of the deal, it's the quality of conversations I have with people, and I feel like I'm solving a problem for them.
So I think it started there. I did a deal in Atlanta with a big group, it was like 200-something units. We actually sold that for 44% investor returns; we sold it last year, but I still am in 2021. The bottom line was it was great for me to learn how to talk to investors, it was great to have someone handhold me when I had questions, and I think everybody starts somewhere, and that for me was just the perfect size where I don't have a whole lot of pressure to deliver something, but at the same time, I got exposure to a great group of people and they really helped me through the initial hiccups of trying to raise capital.
Ash Patel: How did you connect with that group? So you were looking for your own small multifamily, and now you're part of the GP side of this big group. How did you get to that point?
Kavitha Baratakke: I just want to preface, I don't really work with that group much anymore. We kind of parted ways; not for any reason, but I just grew into another set of groups and we started working together. So how I met these people was really interesting. I was full-time in tech, I had a work event for that whole week, the week that I met them, and I didn't really want to go do another event. You know, we real estate people, we are trying to do these events on the weekends, most of them have full-time jobs that they're trying to do... That was me, and that was a particularly rough week for me at the job. There was something inside me I was like, "I need to go to this event."
This was in Tampa. I really wanted to go to the event; I have no idea why, there was something calling me I'm like, "I need to make this event happen." Literally, I'm trying to fly out Friday evening. I missed the day of the event, but I still made it there because I had flight delays on top of that. But anyway, I heard this person, one of the speakers, and I was immediately drawn to talking to him. So I went after the event, in the evening, and I caught up with him and I said, "Hey, I really enjoyed your talk. We have a lot in common and I'd love to connect with you and set up some time to talk to you later." It just started like that and he became sort of my unofficial mentor. It was just destiny.
Ash Patel: That's awesome. I also liked what you said about not throwing those numbers out there. "I have 30,000 doors." "Well, really, tell me more." Really, you're an investor with somebody else as a passive LP and you're claiming 30,000 doors... So I'm glad you agree with that. I think we should try to change the entire industry and stop throwing those numbers out there. Instead, talk about your role and talk about what value you're offering your partners or your investors. I love that.
One more thing I want to ask you about is that you said money is just a mindset. To a lot of people, money is the sole reason they're doing what they're doing, and you apparently think very differently. Can you elaborate on that?
Kavitha Baratakke: I grew up in -- I won't say poor, but the middle class in India. And middle class in India is not middle class here. You have an Indian background, and I think you understand that.
Ash Patel: Yup.
Kavitha Baratakke: If you visit India, you will be shocked at the middle class living in India. No running water... All these things we take for granted here. I think all of the immigrants who come here really have this special appreciation for things we didn't have back home. Now that we have it here, I feel like I'm always in awe. Anyway, coming back to the money bit, I didn't grow up with a lot of money. It was sort of this idea in my head at a very young age that I would never want for anything in my life, that's how it would be. That would be my relationship with money, because I did feel when I was young that I wanted a lot of things that I couldn't get. Which, in retrospect, as an adult now, I think maybe that was a good thing, that really created that want in me to go after what I wanted and to know that I would be self-sufficient and fine when I was an adult.
But anyway, I think for me, after the divorce especially, it was my chance to reset and start over. I won't say I'm devoid of greed and other human emotions, [unintelligible 00:13:19.06] have them, and I realized how much of a human I am when I started trading options, because every day would be a good day until I lost money. I just realized money cannot dictate how I feel about my day, it cannot.
So I got really good at a certain point, I'd say, about isolating myself and worrying about ups and downs with money and with trading. So I think there were some important lessons there for me when I started trading. It wasn't about making money; I didn't get away with making a lot of money at the end of the day. I probably made some and I got into my first home, it helped me buy my first home in real estate. Because the one thing I learned there is I don't want to deal with the ups and downs, I want something more stable. So it kind of helped me transition away from the stock market really, altogether, even though options are the more riskier part of the stock market, and I got into real estate. But I think that experience changed my perception of money, because today I think... Okay, let's say the market crashes. People worry so much. You know the one thing I'm not worried about, is that I know I have the ability to create this all over again. That ability counts for something. It doesn't matter what the market does, it doesn't matter what my wealth looks like, I know that I have the ability to do this over again. That changed me in 2008, 2009 when I was trading options. I just realized I have the ability and nobody can take that away from me. It's a resource.
Break: [00:14:51] - [00:16:38]
Ash Patel: I think it's a gift when you grow up without a lot of money, because it drives you and it produces that hunger inside of you to want more and to chase what you're after. A lesson to a lot of these options traders out there right now - it seems like when the market is high and volatile, is when the options traders come out of the woodwork and they're riding high, until they're not. You and I have been around long enough to know how that story typically ends for a lot of people.
I'm sure you see it now, there are a lot of people that are learning options, getting into options, and bragging about how much money they made today on this one trade. So just an off the cuff warning to my options traders out there. You also mentioned if you had to do a reset right now, what would you do? Let's take a 30-day period of time, imagine your money is all tied up, gone, whatever. You've just got you and very limited resources. How do you start over?
Kavitha Baratakke: You know what I've realized, is that I have a lot of skills that I've built up in the last 10 years in real estate... So there are a couple of different ways. Let's say I have nothing; I could go, one, do commercial real estate as a realtor, I have a real estate license. I think that I'd have to obviously build up a seed capital at least for becoming an investor. Even if I'm a GP, I still need capital. So if I had nothing, I would have to start somewhere and first create that capital to get started.
After that, I've found commercial realty pretty lucrative, even wholesaling a couple of commercial land deals that I've done recently, along with what I'm doing usually. That's one thing with multifamily and all these other projects we're doing, it's kind of building that long-term wealth. But when you're starting, you want some sharp, quick wins, I think. If I wanted to start over again, I'd look at some short quick wins and then take that money to do the long haul. "Hey, I'm going to invest in this and. I'm going to grow this capital here." I think that's kind of where I would go.
Ash Patel: Got it. I want to get into your land development deals. And I also want to ask you, a lot of people say stick to what you know, stick to one asset class. You're bouncing around to several different asset classes. What do you say to those people that say "Why are you doing senior living? Why are you doing self-storage? Why are you doing land development?"
Kavitha Baratakke: Sorry, I'm going to correct that, I'm not doing self-storage. Probably need to fix that in my bio wherever that is.
Ash Patel: I stand corrected.
Kavitha Baratakke: I am doing multifamily, I am doing land development, as well as I'm getting into senior living. So there is a method behind the madness. I love multifamily, I think multifamily is great, but I've also seen what's happening with the cap rates in multifamily; it's getting squeezed down. So I feel, at this point, value-add multifamily is kind of like squeezing from an orange that has already been squeezed way too many times. I do have an abundance mindset, but I do think deals are far and few between the real deals.
At this point, last year, I started thinking, okay, this is great, but the returns are getting squeezed. I'm looking at the numbers and I'm like "Okay, I don't really see how this could grow. If interest rates go up, this is going to get even tighter." Which is happening now. So I started getting into land development last year, because I met this person and we started talking about land. My idea of land has always been, "Oh, you buy land, you hold, there's no cash flow, it sucks, period." I viewed everything as, "Okay, not a cash flow asset - it's not a good asset, period." Then I woke up and I said, "Oh my God, these people have been raking money in by the millions in land, just hoarding land." But I don't still feel comfortable with this whole land banking strategy, which is to hold land and pray it appreciates. But then, when I saw the adding value to land strategy, I was convinced. I was like, "Okay, this makes sense to me." What I heard back then was just this whole entitlement and process of permitting the land, taking the land from raw land to shovel ready land, it doubles or more the cost of the land per foot.
For me, that is a value-add strategy, where I take this piece of land and I'm making it buildable. It's within my control in the sense of, yes, you have to work within the city, the county, whoever has jurisdiction over that piece of land, but there is a real value you can add to that land. And land purchased in the right location does not really lose value, unless there's some event that's going to happen in the future that none of us know about. I don't know, World War III, what it's going to do... But I do believe in a growth market like Austin where everything around is growing. We haven't lost value in land in a very long time.
I saw this growing up in India as well, people banked on land and bought acres of land to sell. So I started looking more into it and it suddenly occurred to me that not every investor I have needs the cash, but they could use the help to grow their equity much faster. So land doesn't offer cash flow, but it offers huge growth and equity. We're doing about 25% on our land deals. I can't do that in multifamily, it's impossible.
So I felt like from a diversification standpoint, especially as someone who's taking in investor capital and deploying products, I am not trying to do the land deal myself. I'm on every call with the engineers, I'm learning the process, but I do have people on my team who are actually executing on this and who've done it for a while. So while I agree with keeping the focus on one asset class, I don't agree about it from a capital standpoint, because capital can go into multiple asset classes, and I think it should from a diversification real estate standpoint. So in my personal opinion, my own money is not just in multifamily, I'm a passive in so many deals. The deals which didn't pay me in 2020 were multifamily, the deals which paid me were outside of multifamily and all these other assets that we popularly invest in. So it really changed my attitude there with land, and also senior living, because I see it as an evolution of multifamily. I see the long-term growth there, and I feel like it's an asset class that is going to have a big upside in the next 20 years. The fact that there is this huge population of seniors who are turning 65 and over, there is that need in that space.
For me, it's sort of like a progression of multifamily if you will, because if you take an independent living facility, it's really not that different from multifamily. You might add some amenities, but it's an extension of multifamily. When you start getting into assisted living care, that's a little bit different, I agree. It's going to be baby steps for me, I want to learn this thing and I want to hopefully transition.
Ash Patel: Yeah, there's a lot that I want to dive into. We don't have time for all of it. But I am going to reiterate what you said about cash flow and equity. I think for the Best Ever listeners, it's really important to understand that not every investor wants cash flow. There are several deals that I've invested in and I might be the only investor, one of two or three investors on smaller deals, and the GPs will go out of their way to give me that 8% pref, when in reality, all it is is an accounting headache.
I don't want it, I'd rather just wait until the end, and maybe give me a little bit higher return. But there are a lot of investors out there that don't want the cash flow, they want the equity and the high returns at the very end. I'm glad you pointed that out. With land development, do you typically sell the property when it's shovel-ready, or do you go into the development process as well?
Kavitha Baratakke: It depends on the project, but doing both. Let's say I take a 130-acre piece of land and I separate it out into single-family, multifamily retail. We might sell the retail section and the single-family section to builders, and we might just keep the multifamily and build on it. I haven't gotten that far in my projects, because I just started land development. We are building a set of townhomes in one project that I'm a part of, we're building 98 townhomes.
We'll give some townhomes away to investors actually, on a first-come, first-serve. The rest will be run as a build-to-rent community, which is literally an apartment complex. So a little bit of both. I'd say when and if we can take the money off the table; after the entitlement process and the horizontal development, we will. My partner and I were just talking, we have something coming up in San Antonio and we're like, "Should we wait for horizontal? Should we just entitle and do a quick exit?" Sometimes the quick wins are good. One, it gives investors back capital pretty quickly, and two, it provides this high IRR on the capital, and it's a quick win for us.
Ash Patel: Sorry, what is horizontal development?
Kavitha Baratakke: The horizontal is the second phase. In the first phase we get through the permits and approvals with the city and we figured out what the easement is. The horizontal development is when we lay down the utilities, lay down the roads. Typically, it's only after that that it's really shovel-ready. Well, it's shovel-ready for horizontal development, I'll take that back. It's shovel-ready for horizontal development after the first phase, and then it's really ready for vertical construction after the second phase of horizontal development. When the utilities are there, the roads are laid out, and now we are ready to build the vertical structures.
Ash Patel: I'm the opposite. I would rather sell off the multifamily development land and keep all of the commercial. Why are you selling that off and have you looked at the returns on that?
Kavitha Baratakke: Well, I think we just haven't been into retail. I know you do retail, maybe I'll call you.
Ash Patel: Yeah, if you can pre-lease a lot of those retail spots before you even break ground, you could build a suit, get long-term leases, apply ridiculously low cap rates to them, and make a lot of money.
Kavitha Baratakke: Okay, we should talk offline.
Ash Patel: Yeah, I would look into it, for sure. There are higher returns in retail development versus multifamily. My opinion, but I'm biased.
Kavitha Baratakke: I agree with you and I think it's one of those things we don't know what we don't know. When we sell retail at like $1-$20 a foot, for us it's a quick win. We get the money, we are able to literally keep the multifamily parcel or whatever we want to build; let's say build-to-rent a parcel for nothing, once we've sold off the other pieces of parcels.
Ash Patel: Got it. Kavitha, what is your best real estate investing advice ever?
Kavitha Baratakke: Start small, start today.
Ash Patel: I love it. Kavitha, are you ready for the Best Ever lightning round?
Kavitha Baratakke: Sure, bring it on.
Ash Patel: All right. What is the Best Ever book you recently read?
Kavitha Baratakke: I'd say Alchemist. I didn't read it recently, but I continue to recently brush on it all the time. I love that book.
Ash Patel: What's your big takeaway from that book?
Kavitha Baratakke: Just follow your heart. Where your heart leads you, where your intuition leads you, that's where you're supposed to be.
Ash Patel: Kavitha, what's the Best Ever way you like to give back?
Kavitha Baratakke: I'd say I do support some charities in India. Obviously, it's very important for me having grown up there to support folks that I have back home besides my family also for education and others. But I have some folks that I support back home for education and also other needs like disabled people.
Ash Patel: Kavitha, how can the Best Ever listeners reach out to you?
Kavitha Baratakke: You can go to my website cherrystreet.us. People always somehow remember me as cherry. We have that cherry company because my logo has two cherries in it. I said, "Oh no, Cherry Street, like Wall Street."
Ash Patel: Awesome. Kavita, thank you so much for joining us today and sharing your story. Starting out in tech, having some big setbacks in your life, and accomplishing so much in the last 12 years. Again, thank you for sharing your story with us.
Kavitha Baratakke: Thank you for having me on Ash. I appreciate it.
Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five-star review and share the podcast with anyone you think can benefit from it. Also, follow, subscribe, and have a Best Ever day.
This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.
The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.
No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.
Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.
The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.