In this episode of the Alchemist Nation Real Estate Podcast, I talk to Sandhya Seshadri and her passion around why it doesn't make sense to take all the money from the investors upfront even though they put their money in then walk away and they're stuck in five years waiting for their return. Yet the other investor who raised their capital has actually gotten their money right upfront. I ask Sandhya what does it mean to an investor and why does she care so much where other syndicators don't seem to have that as an issue, in fact, it is very controversial in the community. She says that they are talking about acquisition fees, these are fees that are paid upfront to the sponsorship team as soon as the deal is closed. Before they start executing a business plan and returning money to investors, the acquisition fee has several parts to it where if a person acquires a property off-market and they have to pay a broker a fee, thats part of the acquisition fee. She says that she is OK with whatever that portion is but when the acquisition portion fee goes exclusively to the sponsors which are kind of 3% or 4%, kind of a number on a 50 million dollar deal. She knows for the fact the sponsors have no money left in the deal as investors themselves. A lot of them advertise that they're the sponsorship team have so much skin in the game. She always asks the sponsors how much skin in the game do they have after the acquisition and closing the deal when they begin to execute the business plan. Her rule is that the sponsorship team, every one of the sponsors still has the minimum investment of 50K, 75K whatever it is. The sponsorship team should have at least a minimum amount invested in the deal after closing. Let's say the deal goes poorly, badly for whatever reasons, it could be beyond their control as well as eviction moratorium where the passive investor is not the only one who should be sort of losing their money or at risk for the money, the risk should be shared as much as also with the sponsor too. If the sponsor is confident of the deal, let the sponsor put his/her money where the mouth is.
I ask Sandhya what brought her to the real estate industry and what was she doing before coming into real estate. She says that her academic background is Bachelor's and Master's in Electrical Engineering and also an MBA. She had a corporate career after which when she had children and family, the family became a bigger priority that is why she went to the stock market where she did well by luck. After that, she realized that she was paying more in taxes and knew that every rich person she knew had done something connected to real estate, so she wanted to get into it though single-family looked scary to her because she didn't like the idea of a second mortgage on a property and having to take care of tenants to screen them properly and to have to self manage. She just didn't see the margins to justify the amount she had to put into it. When a person told her multifamily and the fact that you can afford third party property management and to where she has her own time, looking at reports on a weekly basis, pay a lot of attention upfront at the beginning of the project, once it has stabilized it flows pretty well.
I further ask Sandhya what does she see happening in the Dallas market in terms of growth, is she still buying in there or she is considering investing elsewhere. She says that she is a huge Dallas fan and that is something that is not going to change for at least 5 years down the road. She sees everyone migrating there, she sees job growth, population growth and every report she reads is that Dallas is always among the top 10 if not the top 5 or your top market for multifamily. She sees the highways, she sees the new construction, she sees how much new expansion is happening, how traffic is more clogged than it used to be 5 years ago which is a sign of growth that even companies are relocating.
Going back to how Sandhya evaluates her deals, I wanted to know how she raises capital, is raising it as 506b or 506c or a private placement memorandum. She told me that she intends to do 506b and if anyone wants to invest with her, she has to have multiple conversations with them, making sure they are comfortable and understand the risks involved because every deal you invest in has the risks involved and you need to be sophisticated enough to understand the risk.
Sandhya offers 3 pieces of advice to 20-year-old Sandhya on how to improve her life
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