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HIGHLIGHTS FROM THE PODCAST With Neal Bawa:
3:59 - How did Neal Bawa get involved in real estate?
5:47 - Real estate can change your business 8:19 - Long-term mindset benefits 12:22 - Mindset in younger syndicators 16:35 - Following the best deals 20:19 - The secret weapon to buying real estate 27:59 - The "Real Focus System" 33: 11 - Why educate? 36:41 - Becoming an expert 0:56 - How Matt Larson got started in real estate 5:24 - Progress through buying, flipping & wholesale deals 9:16 - How Matt went from student to teacher as a self-taught investor 17:31 - The steps Matt took during the recession to excel 22:03 - Strategies and teaching styles that Matt implements in real estate coaching program 25:02 - Virtual Assistance & the fear of the unknown explained 31:11 - A day in the life of Matt Larson unfolded FULL TRANSCRIPT OF THE PODCAST AUDIO Neal Bawa: I tell people take the Real Focus course. When you finish the course in certain instances, not in every instance, but in certain instances you will know more about the neighborhood that you're profiling than a realtor who's been doing stuff for 30 years. Spencer Sutton: Hi, everybody. Welcome back to another episode of the Atlanta Real Estate Investor. I'm one of your hosts, Spencer Sutton, and I have Matthew Whitaker with me. So Matthew we've got, what I have heard is the mad scientist of multifamily, Neal Bawa with us today. So Neil, welcome to the show. Neal Bawa: Thank you. Thanks for having me on guys. Spencer Sutton: Yeah. So Neil is the founder and CEO of Grocapitus and he's also the founder of Multifamily University, which has around 38,000 students a year, online, learning through webinars, through different courses. So Neal, we're really thrilled to have you here to talk about Atlanta, to talk about Multifamily and just to learn from you. Neal Bawa: Thank you guys. I usually come on the podcast to learn from the podcasters, but that's okay. It can go both ways. Matthew Whitaker: Well, Neil, I'm excited to hear from you because one of the things that we were talking a little bit before is you're not only a teacher, but still a doer. A lot of times when people get into teaching, they stopped doing and you're still out there doing deals. So we're going to get some really fresh information and super excited to hear from you. Neal Bawa: Yeah. I like to criticize doers who become teachers and then give up doing simply because teaching is easier. It's easier to generate, if you've done it before you have the credibility, it's so much easier to generate that cashflow and just stay out of the risk that comes with deals. I am not like that. To me, I love teaching. I enjoy the creation of aha moments. I love it when students become syndicators and send me information about their properties, they send me emails about, hey, here's my first distribution going out to investors, I'm so proud or I sold my property, in return, so and so much money. It's wonderful to feel that because you feel like you're truly doing what you got into this for to help people, to help investors and to help students. I don't think that you can get that feeling when you turn yourself into a student factory where you're just an educator and you're just taking everybody in through the door. Neal Bawa: Hey, do you have a pulse? Great, you're qualified. I think that, that inevitably happens to even the best of companies when it just becomes a business model, right? It's just a machine and people are being churned through that. So we tend to 80%, 90% of our revenue comes through our doer division, as you called it, Matthew. I don't think that's going to change. I think that we'll keep it there, and that way we get to enjoy teaching, but it doesn't burn us out. We teach boot camps four times year. It's a delightful experience. We just finished a boot camp on a Saturday. This last Saturday we finished at about 1:30 in the afternoon and the students loved it. They really enjoyed the experience and that keeps us going on it. Our day-to-day job is asset managing the heck out of our properties and finding new properties. Neal Bawa: We're busier than most in syndicators for one simple reason, we are very unique in that we have three divisions. One of them you've talked about already, education. The second one is value add multi-family and student housing, but the third division is a unique one. We do 50% of our revenue on the real estate investment side, comes from building things. So we build multifamily. We build industrial, we build self storage, we build student housing. We've actually built all four of these asset classes in the last 12 months, and it's delightful to be building right now for reasons that are so weird that I don't even understand them fully. Matthew Whitaker: You've got so much there to unpack. I'd love to start just for our audience, with why real estate, how did you get into real estate? Give us your story. Neal Bawa: Yeah. So not the usual story, right? Most people get in single-family hold or fix and flip or some kind of rental. In my case, in 2003, my technology education company, we're in Silicon Valley, was doing so well that the founder and senior partner of the business, I was the junior partner. I was chief operations officer, a fairly large company. He said, we are not going to rent. We're going to build a custom campus that's designed from scratch for our own use, and we're going to be our own landlords. I was like, wow, Paul, that's the most genius idea of all time, you go do it. He was like, yes. You go to it, Neil. I was like, what? You want me to build a custom campus? I've never even rehabbed my own house. Neal Bawa: He's like, no, you'll figure it out. I know a lot, and I'll mentor you, and he did. I mean, he knew 10 times as much as I did and kind of held my hand through that process. So from 2003 to 2004, I bitched and I whined and I screamed and I complained about every aspect of that process, and I haven't stopped thanking him since, right? Because you learn such an astonishing amount when you build something completely from scratch, right? From fighting with the city to figuring out fire codes and egress levels, to being able to walk into a room, just look at the room and say, here's how much air conditioning is needed. That stuff you pick up when you build stuff from scratch, and they ended up building or partially building six campuses over the next 10 years, and that was my starting to real estate. It had nothing to do with real estate. I wasn't a syndicator, no money involved, but I got into real estate in reverse simply because my founder and CEO threw me off the deep end. Matthew Whitaker: That's awesome. I'd love to hear some lessons. You kind of mentioned a few of them touched on them, but I'd love to hear some lessons you learn kind of on your first let's call it first a deal. Neal Bawa: Here's the lesson that you won't have heard on this podcast before, real estate is powerful for wealth creation and cashflow. You've heard that a thousand times, but real estate actually can be completely game changing for corporations, for companies. For our company, when we built that custom campus, it was so optimally designed for everything that we did, that our net margins jumped 50% and we became a completely different company. We were elevated into a completely different class, being able to have custom real estate design. As a result, nine years after that campus opened, we exited the company. We sold it to a private equity group at class, leading multiples, as far as we know, no other company in our space had ever gotten those kinds of multiples. In real estate, what we call cap rate is really what we call multiples when companies exit and it wouldn't have happened without real estate. Neal Bawa: A lot of people are, real estate is all about cashflow. Real estate can really change your business. So I would urge every business owner out there to sit down, lock themselves up into a room for an hour and say, if I had my own real estate, what would my balance sheet look like 10 years from now? What would change in my business? What would be the benefits to me? I think that if you did that analysis, you'll be stunned with how much profit you're losing out on by not owning your own new real estate. So that was a lesson that I learned early on, and completely unrelated to cashflow. Matthew Whitaker: That's great because Steve jobs was big on this too, right? When he built the Apple campus, he was building it with a specific intention in mind to maximize interaction between people. So I see exactly what you're talking about, how it can improve corporate profitability, makes a lot of sense. Neal Bawa: It's huge. I was invited by Apple engineers to teach at the Spaceship Campus. I went in there and the efficiency of this building, a lot of people think this is like Apple built a billion dollar building because they had so much money to throw around, anyone that's been actually to this building would never say that because it's designed for extreme efficiency. It's actually designed to make Apple employees more efficient. It's not like some Taj Mahal. You go in there, you don't see $1 million weird stuff on the walls. That's the Google Campus. The Apple Campus is all about efficiency, and that's what makes Apple such a powerful company. Matthew Whitaker: Another thing you hit on, which I think most great real estate investors have is a long-term mindset. So when you said, hey, look at your balance sheet, what it will look like in 10 or 15 years, you're thinking long-term. Talk about how a long-term mindset can help investors with real estate. Neal Bawa: Yeah. A long-term mindset has so many benefits. I'm going to give you an example that is relevant to a lot of people that are listening to this that are interested in buying multifamily. A few months ago, I was on a podcast and I was asked a very powerful question. People said, Neil, how can anyone buy multifamily? Right now, I'm looking to buy a $20 million buildings, Fannie and Freddie are forcing me to pay a $1 million in impounds, which is basically your principal, interest taxes and insurance. They're saying, give me nine months of payments. I'm going to take them from you in advance. I'm going to hold on to them while you still pay your principal and interest, and then I'll give them back to you later when I think you're stable, right? So this is exactly what they're doing. It's $1 million for a $20 million building, or maybe a little less, maybe it's like $600,000, $700,000. Neal Bawa: So people came to me and said, but this really completely messes with our business model because now we have to raise $600,000, $700,000 more, and those people we have to double their money. So we have to basically have $1 million in the peel. They said, how would you potentially get around this issue? I suggested a solution, which I think left them gobsmacked, but if you think about it, it's actually a perfect solution. I said, if you're buying a $20 million building, a lot of you guys are charging a 3% acquisition fee. That's $600,000 and some of you are charging a 2% acquisition fee, that's $400,000 until COVID ends, and that these impounds go away. They're only temporary, right? Everybody knows that. They'll go away. Until it goes away, why don't you change your business model so you get your acquisition fee paid the very moment you're building stabilizes. Neal Bawa: You're still getting the same fee. So you're not making $1 less, right? You're making the exact same amount. In fact, you could probably go from 2% to 3% because you're actually getting your fees later, right? You could bump up your fees, delay gratification, but imagine the benefit to your property and to your investors. You're now raising $600,000 less in money. Everyone on every podcast says, I am very confident that within six to nine months, I'll get that money back from Fannie Mae and Freddie Mac, because I'm going to stabilize my property and that's all I need to do. Okay. So if you're so cocky and so confident, why don't you put your money where your mouth is? Just take your acquisition fee out of that inbound money that's coming in from Fannie and Freddie. Now it costs your property nothing, and yes, that business model right now is messed up because of that money, but now you've got around it. Neal Bawa: What was interesting, I had two or three other panelists and only one of them felt like that's something that they should do. That's because the mindset in our industry is not long-term. Even though when you think about it, apartments by their very nature are long-term play. You hold them for five years, seven years, 10 years, but a lot of syndicators that I see today are not looking at that long-term. I joined the company that I was talking about. I joined them in 1999 and I exited well after they were sold in 2013. So there's a 14 year mindset where we built this company. It wasn't a dot-com, it was a technology company. It was a brick and mortar, and that mindset of being a builder is missing in our culture right now, especially amongst younger syndicators. Neal Bawa: I see the older folks they've got their head screwed on right. I see some of these young ones that are 30 years old, and they're so focused on that acquisition fee that I fear for what happens to these properties two or three or four years after purchase when investors are up to 8%, but syndicators are still not getting anything because all the cash flow has to go to the investors because of preps. I feel like these properties are basically going to be abandoned with nobody managing them. Matthew Whitaker: What do you attribute that mindset to these younger syndicators? Is it that they've never been a part of a bear state market, that they've always kind of experienced a bull market? What do you think drives that? Neal Bawa: There's certainly that bear market, that the bull market mentality that plays into it? I think also the second part of it is, a lot of these younger folks got into syndication through programs, through educational program that cost them between $30,000 and $50,000 plus travel to conferences. So they put in $60,000 or $70,000 and when you put in that kind of money, there's a very strong urge to monetize it, right? That urge often leads you in the wrong direction. It's like, I got to get my $50,000, $60,000 back. I need my acquisition fees. Yes, this building's expensive, but hey, buildings only ever go up in value. So if I buy it today and it goes up in value, I'm going to make money on the back end. Well, no, you actually make money on the front end. So Winward Forest was a property that we bought in Lithonia I was telling you right before this podcast, we sold it last week. Neal Bawa: We do turn 22% IRR, 24% annualized to our investors. What was interesting was that it was actually our roughest property. It was very rough. The resident base was not good. I'd say it was a C minus, but the big reason... We took it one month after acquisition, its economic occupancy was at 70%. Briefly at 70% then went back up. The day we sold it, it was at 97% physical, 94% economics. So we obviously fixed the property as we move forward. When someone asked me on a podcast I did yesterday, they said, what was the biggest reason for your success? I said, that property was purchased at a $10,000 per door price below the market on the day of purchase. So he was like, I would have expected you to say something nice about your asset management, your army in the Philippines, your call center that you own. I'm like, all of those were factors. You asked me the question of what was the biggest factor. The biggest factor was on day one, we bank $10,000. Matthew Whitaker: How did you do that? If I'm listening to this, how do you get those types of good deals? Neal Bawa: I think firstly, by building relationships with brokers, one of the things that I teach our students is that I always make sure that I go directly to the listing broker because a listing broker and they're not supposed to do this, but come on, what I'm saying is not a secret. Listing brokers love to be on both sides of the deal. They want to represent the buyer and the seller. So I don't go to any broker other than the listing broker for each property, which means that I have to make a very large number of direct connections with brokers. If you do that, you're going to be able to get them at lower prices. The second piece of it is by dragging out the negotiation. One of the nice things about our instant culture right now is that people don't understand the value of dragging out on negotiation. Neal Bawa: So I will drag negotiations out for weeks and weeks and weeks, and unfortunately what that means is I'll lose 95% of them, but that's okay. The 5% that I win on, the time that I spent on the negotiations was a tiny fraction of the time I would have otherwise spent on this asset if I had paid $5,000 to $10,000 a door more, right? That time would have, again, I've been distributed over five to seven years of hold. So maybe you wouldn't have felt the pain, but I'm mathematically driven. I'm a statistical major. I'm known as the mad scientist because of my constant experiments, so when I do the experiment, I say that losing a property in that negotiation phase simply because other people just paid a higher price is still worth it. When I do the math, I can now spend less time on a property and have a better outcome. Matthew Whitaker: So Warren Buffet and Charlie Munger have this whole idea of the punch card, where if you could only buy 20 properties, and I know you've bought many more than that, but it kind of subscribes to that Neil that you're willing to lose a deal so that you just buy the best deals. Is that fair to say? Neal Bawa: Yes. I don't mean to imply that, that's what I've done. I mean, to imply that I set that as my standard and sometimes I fail and sometimes I succeed. There's no implications here that I am steadfast in that, but every time I am not, I kick myself in the ass, remind me of my failure to be like that, and then I make a resolve that the next deal I'm going to basically do that. So if two thirds of the time you succeed in those kinds of things, it makes an enormous difference and remember, it's not just when you buy, it's about what is this property worth to you compared to other people? Let me give you an example because sometimes people are like $10,000 a door, he's just bullshitting, right? So in your market, in the greater Atlanta market, if you go North about 75 miles is a beautiful town called Dalton, Georgia. Neal Bawa: So we went there and there was this property built in 1989 by the Coca-Cola family. One offshoot of the Coca-Cola family lives in Dalton. It's a very beautiful place. So they lived there and they built it in 1989. All of their staff has been with them since, believe it or not, with them. This property is absolutely immaculate, right? We paid what many people consider to be $2,000 a door more than other people would have paid. So you might say, you just said $10,000 a unit, how do you pay $2,000 over and consider that to be appropriate? Because of all the bidders, we were the only bidder, there were four bidders in that property. We were the only bidder that knew from day one that we were going to rebuild the burned units. None of the other builders, none of the other people had the appropriate construction experience to rebuild a foundation on a slope. Neal Bawa: So everyone else is doing their math based on it's a gorgeous property. It stays at 97%. I'm going to pay only this cap rate and I'm thinking, no, it's 151 unit property that I'm going to build 20 units in, and here's my timeline for building them and I'm going to build that into my pro forma, and that's exactly what happened. We haven't yet crossed two years of the property. I was able to go to the city of Dalton and convince them because they have such a shortage, that instead of building 20 small 700 square foot units, which is what the building had, when it burned down, they allowed me to build 29, large 900 square foot units. I replaced a three story building with a four story building. So they allowed me on the same pad to go up one more floor. Neal Bawa: That allowed me to build these 29 units. The properties NOI pre-building was $66,000. We started at about $59,000 a month in NOI, and we went to $66,000. Which is pretty good, pretty decent, right? Something you have to feel proud about, and you might say, well, that's only $7,000. You put up $7,000 a month, that's $84,000 a year. At six cap, you multiply that by 16. We've already banked a little over 1$ million in equity. That's how multi-family works, but that was nothing. Here's what the property's NOI has gone up to with these new units, right? So these new units, these 29 units have almost zero costs, right? Everything's new construction. So there's no maintenance costs and we haven't added any stuff in. Neal Bawa: The property's doing the same sort of stuff. We've added $25,000 in monthly NOI net. That's $300,000 a year. At six cap, we've added $4.8 million worth of value to a property that was only purchased for 10 million. That in my mind is what I'm talking about. This property was always worth about $12,000 a door, but it was only worth for certain kinds of people. Matthew Whitaker: So one of the things I love about you is it seems like you're a thinker and you don't just look at things on face value. You kind of break it down in reverse, which is another kind of Warren Buffet, Charlie Munger. One of the things I'm curious about is in a very competitive market, having some sort of strategic advantage, like you said, building something on a slope or the knowledge, how do you think through all the kind of secret weapons that you have and then apply it to buying real estate? Neal Bawa: You know, we're a fairly large company with 24 full-time employees. Whoever is the person that's in acquisition. Who's a front end person, you have to have a catalog of skills for your company that is very obvious to them. That should be very obvious to them. You'd be surprised at how you have this acquisition person that's running around the US not even knowing the sort of things that you really like to do. So what we've done is we've institutionalized that process by basically giving them a checklist saying, when you're looking at an asset, this is how many points you give to the asset when it has burned units. This is how many units you give to the point, if it has spare land, and so on and so forth, right? Obviously there's 10 different kinds of criteria because I gave you an example of burned units, I'm going to stick with that. Neal Bawa: What if you gave them a numeric criteria, which is okay by itself the property gets 100 points, but these are all the other things that it gets points for. Now, you've actually built this into their head so that your acquisitions guy will never miss the questions that are important. I feel that most acquisitions people don't ask all of the right questions because they were never given a McDonald's style menu. We did, it's only on a single page, so it's not some phenomenal thing. We built half of it over time, but I think by giving that extra information to people, it allows us to see some opportunities that other people don't. Also, we are extremely disruptive in our thinking. I grew up in that Silicon Valley culture, whether it was in India or in Silicon Valley where I live now, and the culture is all about disruption. Neal Bawa: We are taught to disrupt. We are taught to accelerate. We're taught two X is a bad thing. 10 X is a good thing, right? So go big or don't go at all. That's our thought process and we are willing to commit to that with the risks that come with it. Let me give you an example. Phoenix is a really strong market and we're building a very large project, $55 million project called the Crimson Falls, Crisman Falls. Sorry. We're building that project there, and when I tell people, okay, we're building it in Mesa. They're like, Mesa, really? Why not Phoenix? The answer is, what if I had a virtual assistant whose job was to basically look at the press releases that come from cities that are secondary cities in primary metros that I love. So I love Phoenix, but I don't buy anything in Phoenix. Neal Bawa: I love Orlando, but I don't buy anything in Orlando. I'm looking at Lakeland, which is about 40 miles from Orlando. I'm looking, I have a list of these cities. Have a list of their city websites and I'm reading press releases, and every once in a while, we've got a numbered system where we see those press releases and we go, ah, this was interesting. So the city of Mesa, two and a half years ago decided we're going to build an entire section of Mesa that we're going to bring in terabyte connections. Terabyte is the fastest kind of internet connections you can get, and we're going to zone land industrial, but it can only be used to build data centers and nothing else. So you can't just build a warehouse, you have to build a data center. So I was looking at that for a while and I asked my partner for that area, start looking at this area because they're just going to build data centers. Neal Bawa: So by the time we were in acquisition on a piece of land, two completely unknown companies had built large data centers there. You've never heard of Apple or Google. These are small companies that build large data centers, and so there were these billion dollar data centers and believe it or not the largest data center in this row, this street that just has only data centers is not either Apple or Google. It's some company that I've never heard of. So eventually what happened is everyone else followed Apple and Google in and built even bigger data centers? Well, stuff like this is in the public domain, but how many syndicators are actually looking at following press release from cities to figure out what a city is doing? Just the land value in that area has tripled, because places like Mesa lands $5, $6 a square foot. It's cheap. Neal Bawa: Then somebody makes an announcement like that. Two years later, the land's at $16 a square foot. Imagine how much money you would make just sitting on a damn land, right? The same sort of thing is happening. My current favorite city in the United States by a long shot. It's like, when I look at my list right now, this city is number one, two, three, four, and five. That's how much I love the city, but no one, if I gave you a list of a hundred cities, you wouldn't pick it from that list. Even if I gave you 10 tries, right? The city is Idaho Falls, Idaho. Firstly, you wouldn't pick Idaho at all, because it's like Idaho, who the heck? I mean potatoes, right? Then why would you pick Idaho Falls? You'd probably pick Boise. The point is that data shows today that Idaho Falls is in the most unique situation of any city in America and happened to be the only city in America that gained population and gained jobs during the last six months. Neal Bawa: So every other city in America lost jobs, which is normal. Nothing wrong with that. This one, they gained population, they gained jobs. You might say why? Well, that's because there are $1 billion dollar government contracts that are fully funded now, and it's been a while, but now those contracts are rolling. So the number of people that they're needing to hire is in the thousands or tens of thousands of people. There's an energy lab that is in East Idaho that is driving all of this stuff and it's funded for the next 15 years. So it's not like the local economy will be affected. So you go to East Idaho, it's insane. I mean, they practically haven't heard of COVID. They don't wear masks. It's a fairly open area. The density is low, so they don't have a lot of cases, but it's not like they have low cases, but they don't have a lot of them. Neal Bawa: When I go into this marketplace, I can now build, I can buy multifamily zoned land for $3 a square foot. $3 a square foot. There's no other good market in the US where that number is under $15. So when I start, I have $12 a square foot as an advantage, which is huge because I mean $12 a square foot is an incredibly large advantage to have. I mean, I can make all kinds of screw ups and still end up with 25% IRR. Those kinds of things are easier to do today than 30 years ago. I mean, the software that I'm paying for and I pay for such a huge number of them. LandVision, I pay for Local Market Monitor. I pay for housing alerts. I pay for CoStar. I mean, we're not paying for CoStar anymore because brokers send us report. I pay for two or three others. Neighborhood Scout. Neal Bawa: This software, Matthew, it costs a 100th of what it used to in the 80's. 100th, right? People would charge you $30,000 a year for some subscription where you get this 200 page printed thing that would arrive in your home once a month, and you'd have to read this. No such thing as cell phone alerts, when a piece of land that comes up, nothing like that existed. So it's 10 times more efficient, 100th the cost and I still see people not spending that money. Then they're like, Oh yeah, I'm just buying stuff from the marketplace. Well, good luck to you. You are not part of the new generation. Matthew Whitaker: Talk a little bit about Atlanta. Obviously you bought in and around Atlanta too. You're not in it... It doesn't sound like you're buying in Atlanta proper or you have bought in Atlanta proper. You've bought in Dalton and you were telling us some other locations before we jumped on the air. Can you kind of talk about why you like to buy kind of in the outskirts of Atlanta and kind of what you're looking for in an Atlanta property? Neal Bawa: It's not about Atlanta, right? We are profiling markets. As a city or as a Metro, Atlanta ranks very high. So first what we do is we profile markets. A lot of the people that are following me are actually using my methodology, so that methodology is called the Real Focus system and it's free. No one has to ever pay anything for the Real Focus system. At last count, I think there's about 40,000 people using it. The Real Focus system is white box. It's the opposite of a black box where you don't know what's happening. So it's a white box, it tells you exactly what it's doing. It's a system that has five rules for cities and five rules for neighborhoods. The rules for city are Goldilocks zones for population growth, job growth, income growth, home price growth, and crime reduction. Neal Bawa: These are the five that through statistical analysis, we found that matters the most. Oddly enough, schools were not in that list. So what we found was when we correlate investor profit to demographics, these are the big five. With jobs having the highest weightage amongst those five. So what we did was, we built a Goldilocks zone for each. If you allow home price levels to go up too fast, you develop a bubble and you don't want to go into a city when the bubble is already developed. You want to go in as it's developing, believe it or not, you don't want to go into early either so that's a common myth. So what we did was we built this Goldilocks system and we put it together into two hours of training and that training is offered at multifamilyu.com for free. Neal Bawa: It's completely free. There's actually no product, no pitch, no follow-up, no subscription. You come to multifamilyu.com each Jan, and you get a new list of cities, and then you walk away. All we get is your email address. So we do get something out of it for it. We built that system and then we profiled every major city in the US and believe it or not, the system clearly tells you that these superstar cities are absolutely shitty. So Los Angeles shows up really low. San Francisco shows up really low, Miami, New York. They show up awful in some of these metrics. Most people don't understand that because they think of these as safety. Of the top 25 metros in the United States, we were only able to find one. One metro where home prices actually matched incomes. That happened to be Atlanta, Georgia. In every other metro, home prices were significantly already above what incomes could afford, right? Neal Bawa: At some point that indicates a slowdown. What this means is Atlanta has more headroom than other metros for income, for these differences to grow. In Boise, when you buy a single family home, it's 54% above what that price should be looking at the people's incomes. In Atlanta today, it's only 6% above the incomes. This means that Atlanta has a much bigger run than Boise does at this point of time. So that's why we picked Atlanta as a metro, because as a metro, it has these phenomenal fundamentals. Now, when we go in and look at Atlanta, while other people have figured this out, unfortunately before us. So when we're looking at places like Buckhead, I mean, they make no sense whatsoever. It's just like who the heck are these people that are throwing money into Buckhead. They have just no clue, they don't use any numbers or they just bought land from their brother-in-law and made their brother-in-law rich. Neal Bawa: I mean, that's probably the most likely scenario. So we look at this and we're like, when we're profiling individual cities, Smyrna comes out 10 times better than Buckhead. Lithonia on the East side comes out better. In the lower side we went to Fayatteville, on the upper side, we went farther than Atlanta metro to Dalton. So we're surrounding Atlanta. So far we've done three directions, so I need to buy a property on the West of Atlanta so I can kind of complete my siege of the city. I find that those are much more profitable. I mean, it's just that the mathematics of it makes a lot more sense. You might say, why are people then buying inside of the city? If you ask them, they're going to say, well, it's because they're closer to the jobs and while that's reasonable, it's not reasonable in a Metro like Atlanta, because you could still be close to a freeway in Atlanta, in a place like Lithonia and still be 29 minutes from downtown at 9:00 AM in the morning. Neal Bawa: Who cares? It's not midnight, it's 9:00 AM in the morning. Fayatteville, you can work at the airport and you have a 19 minute commute to your apartment complex. So I think that some of those arguments are very hollow. It almost feels like people have said this so many times that they start to believe them. So early in the process, I would say 2011 through 2015, it made sense to buy in central Atlanta. That's what I would be doing if I was there. I recognize today that I'm late, so the periphery is better for me. I think it's better for almost everybody else. Stone Mountain is another one that made a lot of sense in the last two or three years. Matthew Whitaker: The thing I love that you talked about is about objective data, right? Reading the data, not just trusting some sort of gut instinct, especially believing a story that people have told for a long time, but actually looking at the data when you're doing your investing. You obviously have a hard to educate too, because you're doing all these deals, you said 80%, 90% of your income comes from actually doing, being an investor. So why educate? What is important about education for you? Neal Bawa: Well, it's built in my family DNA. My mom's an educator. Wife's an educator. Sister-in-law educator, father-in-law educator, mother-in-law educator. My sister was an educator for several years. So it's kind of built into our DNA, and when I came to the US, I worked for 14, 15 years for a technology education company. So I think you get to the point where education is part of your DNA, and the other thing is that I feel like the sort of voice that I have is lacking in the real estate industry. Educators are not lacking here. There's lots of great ones, but I feel like the viewpoint that they have is very different. They talk about data, they talk about Excel spreadsheets, but then what I see is when these educators are buying properties, they're buying properties in areas that are... I mean, nobody that is truly data-driven would buy there. Neal Bawa: I'll give you an example and I won't tell you who this is, but this is an educator who I feel on the education side is doing a very good job. He knows what he's doing, got a very comprehensive methodology and students like it, but then, I saw this person buy a large property in a market. So we have two lists of metros. We have one that's 3,300 metros, and then we have another one that's 516 metros. So this place that he bought in happened to be in Louisiana. It wasn't the worst market out of those 516. It was the second worst. So that was one market also in Louisiana, that was worse than this market. They were, I think about 50 miles apart. I looked at that and I said, there is no way that anyone looked at the demographics of the state of Louisiana or this particular market before they bought this. Neal Bawa: They simply just look at their Excel spreadsheets. So what I'm finding is that there's a lot of lip service that is being paid to the use of demographics, the use of data. If data is actually being used to justify purchases, instead of the other way around, where the data should be driving the purchase. Another example of that, Matthew, is that when we were looking at syndicators buying stuff in a market, and then a year later, same market, two years later, same market. Five years later, same market. The question that I have is this, so do you every Jan just look at the list of fastest growing markets in the US and do you ever do that, because how could your market be the fastest growing or even the top five fastest growing for two or three consecutive years? Neal Bawa: That simply doesn't happen. There's a few exceptions to that rule. Provo, Utah is always in the top five. Amongst super small markets St. George, Utah's in the top five, but amongst larger markets it's completely inconsistent. If you're saying that I'm data-driven and you stay in one market, then the biggest piece of that data, which is what is the speed at which this market grows, you're ignoring. So if you're ignoring the 800 pound elephant in the room and pointing to the ants that are running around and saying, these, these are data ants, and I'm following them, come on. Come on. Matthew Whitaker: Could there be a case made though, once you become an expert in a market, you know what a deal looks like that would make you want to stay in that market, even if the market's not growing, Neal? Neal Bawa: It's completely true, but it's also very lazy. In my mind, becoming an expert in a market is a process of hard work. So the syndicator did the hard work. They truly understand their market. They understand which side of the freeway is better. I get that. I do get that. My point is why couldn't they build that competency in another market? It's only a matter of hard work. It's only a matter of time. It's a matter of airline miles. I think it's doable. We are nine States. The other thing is, if you were truly data-driven, the data will help you with that process. Today, the data tools are phenomenal. I tell people, take the Real Focus course and when you finish the course, in certain instances, not in every instance, but in certain instances, you will know more about the neighborhood that you're profiling than a realtor who's been doing stuff for 30 years. Neal Bawa: You'll say stuff to them, that'll make them go wow. I mean, the realtor doesn't spend two hours a day looking at data, but data companies do. That is what they do. Location, inc. All they do with their 1000 employees is look at real estate data and they do it 10 hours a day and they've also got an army in the Philippines, backing them up. How can any realtor in the US know more? So I think that realtors certainly know a lot, but I think that there's ways to know a heck of a lot more. So bottom line is, that what you just said, Matthew is true. I think somebody becomes an expert in that market, they're definitely better than anyone entering into that marketplace, but why restrict yourself? Is there an 11th law that Moses wrote onto the tablet that says, thou shalt not try two market? Or three? Is there a limit? Matthew Whitaker: Well, you're right. Once a lot of people become an expert, then they go and sit back and just kind of leverage that expertise and not work hard. So I think you nailed it, Neal. Same reason somebody goes to teach and quits doing deals. Neal Bawa: Teaching is definitely easier. Also, a lot of people are like yeah, but I'm getting a lot of awesome deals from my marketplace. Well, if you went and established a beachhead in three other markets, you'll get awesome deals in those markets too. It's a process, right? I'm frustrated that people don't take the time to do that process, and part of that is they don't have my virtual army. I 10X everything that I do using my virtual army. 17 of our employees are from the Philippines. They work eight hours a day. They work US hours and they multiply everything that they do. They are a forced multiplier for us. In many instances, they actually multiply our business 10X. Spencer Sutton: Well, Neal this has been great. Matthew Whitaker: It's been awesome. I feel like we need a second version of this, because I felt like there's just so many more questions I want to ask you, but I appreciate you jumping on with us, Neal and I learned a ton. I took two pages of notes while you were talking. So where can people find you, Neal? Where do you want people to reach out? Neal Bawa: Well, actually the first part is really simple. I happen to be the only Neal Bawa in the worldwide web. If there's bad stuff about me, you're going to find it right away. So N-E-A-L B-A-W-A just hit enter and you'll find conferences that I've taught at, podcasts. A lot of content I put out. Research, like one favorite thing for me to do is I talk about corridors. I don't like cities. I talk about the top three corridors in the US. So you can just type in the word Neal Bawa corridor, and you'll see the corridors that I'm interested in. The second way is to go to multifamilyu.com. So tonight, for example, over a thousand people are signed up, because I'm doing at five o'clock, one hour before the ptenantial debate, just who came up with this. So one hour before I'm teaching a section about implications and opportunities of the COVID era. Neal Bawa: So this is a kind of a blow by blow, very interesting data-driven seminar, it's tonight. It's on multifamilyu.com. We do about 30 of these a year and they're all deep dive, data-driven, but they're also very entertaining. I learned from my mom. My mom was a school teacher in India, and she says to teach, you must first entertain. Only then can you grab attention. So I always incorporate that into my presentation. Spencer Sutton: Well, that's great. Well, listen, thank you. We have enjoyed it so much, Neal. Listen, if you're out there and you've enjoyed this podcast, go ahead and subscribe. If you haven't, anywhere that you get your podcasts, leave us a review, a five star review. We will keep asking for those. So Neal again, thank you, and everyone we'll be back in two weeks with another episode.
