Latest / The Capitalizing Your Life Podcast / From Chemical Engineer to Commercial Real Estate: Mohit Chopra on Multifamily Real Estate Strategies
Transcript
- Glenn Today my guest is Mohit Chopra, founder of MV Capital. Welcome Mohit. Mohit Chopra Thank you, Glenn. Appreciate it. Happy to be on the podcast. Glenn Yeah, I'm glad to have you on. I've met you in person about, say about two months ago. It was great meeting you and always a different experience when you're in person. Mohit Chopra Absolutely. I know we've been talking for more than a year now, right? Since we've been part of multiple groups together. And yeah, it's always a different experience, right? Like that's what I mean, I know we realized that during COVID as well, like how important that is, but it's still the life is different when you meet people in person, being able to hang out and actually have a conversation face to face. I love the podcast, but again, it's not replacing the personal interaction that you can get for sure. Glenn Yep. Definitely. It's like also my favorite parts of the podcast is I actually get to have excuses to get people on. Mohit Chopra Yeah, no, sure. And you get to meet more people when you get a chance to be in the area, right? So you have more people in different areas now that you know. Glenn Yep, definitely. Always another connection to be made. But let's go through your story and how you got into real estate investing. Mohit Chopra Yeah, so I'll start with my story. I’m a little bit brief. I'm a chemical engineer by background. So I came to this country, I don't know, 22-23 years back for my master's in chemical engineering and did my degree, went into pharma sector, worked in product technical transfers across the US, did some projects worldwide as well. And then did my MBA and after MBA, I learned I got to do a little bit more in terms of not just relying on the job for my job security. And we had a couple of times we've had situations where my job was also on the line of, you know, corporate restructure. So that was the fire to get started to do something else. So I started investing in multi-family real estate. Glenn Hmm. Mohit Chopra Started with single family, duplexes, quadplexes. Learned within a year that that game is going to be a very, very long time in order to get any cash flow that will be good enough to have any decent passive income. So within a year I started leaning into multifamily, joined three different groups. Spent money on education, trying to learn the basics of underwriting, try to understand what the operations look like and how do you do value add and the other basics of finding the good deal, building relationships, underwriting and other aspects of multifamily. And then in a few months, found out our first deal that worked after a thousand plus deals that we underwrote. And since then we have been chugging along, I would say decently in terms of acquisitions and executing our business plan and being able to meet our and exceed our numbers. Glenn Awesome. When you pivoted from the like single-family home, multifamily, the duplexes, like how did you get into like the multifamily investing? Was it like a group of you or was it a more of like a syndication? Mohit Chopra No, it was just me. Again, I was doing that single-family by myself and then I looked into options of what else can I look into and that’s how it started. Actually, when I went from one unit and I bought my first quadplex and eight-plex, I realized that the cash was certainly improved, even though, there was a little bit more capital that was required, it wasn't extremely high. So I was like, if I can build a cash flow so quickly with these assets, let me look at what can be done with 15, 20, 24 or 30 as kind of multifamily assets. So that kind of intrigued me and I looked at a few groups and like I said, joined three different groups and actually found my partners from these groups as well. Glenn Yeah, the one thing that is kind of like overlooked, and I understand that there's barriers to entry when you get to the larger unit counts. But it's like if you're in a single-family home and it goes vacant, your vacancy is 100%. And if you get to a duplex, it's 50%. And we're in the middle of one property we have, it's a four unit with a restaurant, and it's like two people moved out and it's like catastrophic to the asset. You're in the middle of renovating two of the units. You’re literally not cash flowing in any way. It's one of those things that when you, the larger you get, the easier it is to manage the mistakes and underwriting. You know, if you make minor mistakes, or if say like one property or one unit just happens to turn into like a $20,000 rehab, I mean, you can make up for it, you know, because of the volume that you're dealing with. Mohit Chopra Right. No, and that's absolutely true. That's where I, that was the second part of it as well. When I looked at eight units, it certainly improved the cashflow, not just because we were, it's only one of the eight that actually had, we had turnover during that six months timeframe. And I started operating it. And similarly now we've doubled into 24-36 units. It's much easier to manage the consistent cashflow because of that vacancy factor too, for sure. Glenn Yeah, so how do you go about buying deals now? What's your buy box for a deal? Mohit Chopra So initially, I got into syndications as well. We did larger deals. But since 2020, we've been focused solely on small to mid-size section, I would say 20 to 70 units. That's our buy box right now. We have built good relationships now in the markets that we operate in, mostly in Ohio, North Carolina, and Kentucky now as well. And we're trying to expand into Tennessee markets as well. And within that, we have like one or two cities that we are focused on. So we have our network of brokers, wholesalers within those markets. And also the next step, we build our core team for renovations and rehab as well. So it helps us manage that. And then also from a property management perspective, that's one aspect we still use a third party in terms of property management. But one thing we do focus on is asset management ourselves. So what that entails is we always have a weekly call for all of our assets until they have totally stabilized. Once they are fully stabilized, then we switch it to once every two weeks or once a month, depending on the size and also the requirement of the asset. Also, I make sure that I visit my assets once every month. So you need to have your eyes on the ground as well, yourself. One thing I learned early on was, and that's part of the lessons and teachings, and that was really helpful joining these groups. Again, that's where the money gives you the value sometimes as well, like when you join these groups, because people have learned from past experiences and they share that. And one of the things that people share with examples of how property managers have really given them a wrong picture until they put their eyes on the ground, they saw a totally different picture. So that was a lesson. I didn't learn it myself. I learned it from other people's mistakes on that sense, right? So in that scenario, we make sure that every month I walked through my assets, exteriors for sure. And then interiors, once a year, we walk through the interiors as well, to just to gauge the level of wear and tear and regular maintenance and other components that we have to take care of. Glenn So with the way you structure your deals, is it like say you might buy a 20 unit deal, are those funds kept separate from the next deal that you buy or is it usually you guys pull your money together to buy the next one? Or how does that work? Mohit Chopra So in terms of structure, every property we create a separate LLC. So we pool a separate fund, separate LLC, separate bank account for each asset. And again, that's from a liability perspective as well. But in terms of funds, sometimes, I mean, most of the time we bring in our own capital, majority of it. And in some cases we have raised a mezzanine debt as well. So bringing in debt investors, not equity investors because we buy really high value ad deals. So our whole business plan rotates around being able to stabilize and reposition the asset within 12 to 15 months. So in certain cases, just because of the velocity of capital, because we have three different deals going on and we get a really good opportunity on, let's say, a fourth one, and our capital is deployed currently across those three assets, then we can take on the fourth one. If the numbers make sense and we bring in debt investors that we pay 10 to 12 % during that period of 12 to 15 months until we stabilize the asset and then we pay them off at refi. Glenn So whenever you bought those or you're under contract or going to buy the three apartments, is it like a fund or is it like, everybody just says, look, we found three places, this is how much it's gonna cost. Then you went to the fourth one and say, hey, we have these three and we want to buy this fourth one with the mezzanine. Is that how it works? Mohit Chopra Yeah, so you talk about fund. I'm working on the fund as the next step in terms of having consistent capital to deploy from a debt perspective as well. But currently, the way it works is, like you said, for any asset that comes through that we are able to get or we can take, but we need mezzanine debt. We do it on a deal-by-deal basis right now. So we reach out to our group of few investors who have invested with us. And again, because of the fact that we have five years plus of track record and we personally guarantee our investors the debt that we get as well. So we have pretty good consistent investors that keep coming back to us as well. So we have a good backup in terms of people who wants to invest. And currently we're doing a deal by deal basis, but what we're looking into as we start 2025 as part of the business plan for this year, we're looking into structuring it in a better way so that we have a fund model in place. And that will help us also speed up some of the acquisition process as well, but also provide more opportunities to the debt investors as well that currently have to wait some time because we don't have a deal every month of the year. Glenn Yeah, yeah, we're kind of doing the same similar thing because it's like just like the duplex and the eight plex and it's like once you get my theory is like, if you for mobile home world, it's like we have like a 15 unit or 30 unit and it's like if you could accumulate 100 units to 200 unit portfolio, the portfolio would be more efficient because then it's no longer waiting on the funds to come through or whatever the case be. It's like your cashflow is able to support operations. That's my main thing is because you pre-fund the renovations and it just turns into a harder way to operate is what I found. Mohit Chopra Right. For sure, think that you touched on two aspects, right? One is the economies of scale as well. When you have multiple assets together, I mean, that's where we are building. That's why we're focused on these markets because we have built the economies of scale in a way. For example, even though we don't do property management ourselves, we have our own maintenance guy that floats around these different assets, right? So we paid ourselves. Similarly, if from another perspective, from capital perspective, the velocity of capital is a big piece of it as well. If you can find, for example, a runaway three to five units or five units at a time versus one, that's what we normally do. For example, for a 24-unit asset, if our target is 12 month renovation, we're looking at two units every month. And similarly for 30 units, it's like two and a half, three units a month. So we need to have enough capital to be able to deploy for renovations so that we are not waiting on bank to cut the check because bank will, even if you have rehab budget, they will do it after the work is completed as well, right? So we have to have enough cashflow and capital to be able to carry three to five units upfront in terms of renovations at a time as well. Glenn Yeah, definitely. And the other thing I was going to say also is when you're able to combine the assets, it actually makes it to where you might not need as much of a reserve because they're sharing reserves. I had Bill Hamel on my podcast about a week ago and he actually, what he does is he has a blanket mortgage… or blanket insurance policy on all of his because he buys like a lot in Florida and his are like close to the coast and everything. And what he does is he gets the blanket insurance for it and I was been thinking about it recently and for us it doesn't quite work, but it made a lot of sense for apartments for sure. Mohit Chopra Right. Yeah, I mean, it's a different asset class. I mean, we were just talking about that a little time before, but sometimes I think there are certain nuances across different asset classes as well that makes a little bit difference also. And again, that's why I think what it comes down to is when you gain experience, like working with these experienced operators to know how those certain specific nuances that are more pertinent to your asset class and how you leverage these different levers that you have. Glenn Yeah. Mohit Chopra It could be the speed of capital or could be how you do this group insurance piece as well. And also certain cases leveraging cheaper or not cheaper in a sense that you paid somebody cheap, but it's just that you're able to leverage that person across multiple assets versus somebody sitting just because you have only 20 units, right? So those are kind of things that, yes. Glenn It's less risk, less risk to the lender for sure, because they have more revenue to cover the bill. Mohit Chopra Right, exactly. And that's the other piece. I didn't realize that going in, right? That’s how important that is, like in terms of lending options, because when we started out, I thought lending is the same, right? Like you will get the same rate that's across different banks. What I'm realizing over the last three years, we have seen our debt rates have gone down because the banks qualify now us as like the top tier with the experience, with the number of units, with the other assets, and also number of assets that we have repositioned successfully. We have agency debt now on our track record as well. That certainly helps. And that brings you on the top tier in terms of less risk from a lending perspective as well. So that gives an additional advantage. And again, it doesn't happen overnight. It's been five years doing the grind to be able to achieve that. But it is all that slow steps slowly lead you certain advantages one after the other. Glenn Awesome. So what's the plans for 2025? Mohit Chopra Well, 2025, it's going to be, I mean, we're planning big things as well. We have three acquisitions ongoing right now. So hopefully we'll start the year with some positive notes very soon. We have more focus now on the next level growth from process and systems perspective, both from capital, but more importantly, from operations perspective as well. There are a lot of automation and utilization of AI that we are planning to implement in our portfolio. And also, I think from a diversification perspective, apart from multifamily, we are trying to segment into mobile home park and are some of their asset classes. So that's part of our 2025 business plan. And funny enough, we've gone through two review cycles and have another meeting right after this call for that as well. Glenn Is that for mobile home park? Mohit Chopra Well, the entire 2025 business plan. And the mobile home park is part of it. Glenn Yes. Actually this is my first year where I actually made plans and then I was like, well, maybe I should include my business partners on these plans. Mohit Chopra (19:28.622) Yeah, because you have to… Glenn (19:31.345) My plans are different than their plans, I can tell you that. And it's like we start to figure out how do we get to each other's to meet, you know? Mohit Chopra Right. Well, and again, that's what good partners do, right? To balance each other out and you find the right middle that again, some, and this is where the good partnerships comes in. Like you have different, I guess, risks exposure or different understanding of the market as well. And based on your experience, you help each other out and formulate what's really might be the best strategy for the company or your partnership. Glenn Yeah. Definitely. Well, Mohit, it was great having you on and where can people find you? Mohit Chopra People can find me on Facebook on LinkedIn and on my website www.mvcapitalgroup.org. And again, Mohith Chopra, M-O-H-I-T-C-H-O-P-R-A. I'm pretty active on Facebook and LinkedIn as well. Glenn Awesome. Well, thanks for being on the show. Mohit Chopra Thank you, Glenn. Appreciate it. Good to be here. Glenn All right, thank you.