Preview Mode Links will not work in preview mode

How to Scale Commercial Real Estate


Jun 2, 2022

Learn how to create a passive income stream and achieve financial freedom with our guest, Vasu Kakarlapudi M.D.

 

Vasu is a board-certified ENT surgeon and successful real estate investor. In this episode, he tells us how he uses a meticulous and methodical approach both to surgery and real estate. He also discusses how he and his team at Apta Properties were able to build a track record of over $700 million worth of multifamily investments. With over 16 years of experience in investing, managing, and developing successful commercial real estate, Vasu is passionate about helping fellow medical professionals and high-wage earners make their money work for them.

 

 

[00:01 - 08:45] Slow, Methodical, and One Step at a Time

  • Vasu on his medical background
  • Realizing that even though they have a lot of income, they don’t have a lot of freedom
  • Deploying your income in a meaningful way
  • How time blocking to help him prioritize
  • Transitioning from single-family to commercial real estate

 

[08:46 - 15:43] Making the Least Amount of Mistakes

  • Building a world-class team
  • What they are doing to prepare for the future
    • The importance of demographic trends
  • How they deleverage but still remain competitive
  • Sacrificing yield but preserving capital

 

[15:44 - 18:05] The Rewards of Real Estate

  • Real estate allows you to be better at everything else you want to do in life

 

[18:06 - 19:55] Closing Segment

  • Reach out to Vasu! 
    • Links Below
  • Final Words



Tweetable Quotes

 

“One step at a time. The way you climb a mountain is one step at a time, right? I made it a mission to just get better every day and knowing that it would take time.” - Vasu Kakarlapudi M.D.

“If you're not methodical about how you do things, you can get yourself in trouble really quick. And the same thing goes with real estate investing.” - Vasu Kakarlapudi M.D.

“Just have goals, 30-day goals, and make two-millimeter shifts in your mindset. Take action but take action in a guarded way.” - Vasu Kakarlapudi M.D.

-----------------------------------------------------------------------------

 

Connect with Vasu! Follow him on LinkedIn and visit the Apta Properties website.

 

Resources Mentioned:



Connect with me:

 

I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

 

Facebook

 

LinkedIn

 

Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on.  Thank you for tuning in!

 

Email me → sam@brickeninvestmentgroup.com



Want to read the full show notes of the episode? Check it out below:



[00:00:00] Vasu Kakarlapudi M.D.: Real estate allows you to be better at everything else you want to do in life. And especially for surgeons, there's a lot of negativity right now in medicine, about a lot of negative secular trends in medicine with, you know, declining reimbursements, increased expenses and corporatization of medicine, suits getting in medicine and et cetera, et cetera. And if you don't need your medicine income, because you've got passive income to cover your monthly expenses, all of those things become less painful for you. You become a better clinician, better surgeon and better doctor at which I think is better for the community. 

[00:00:43] Sam Wilson: Vasu Kakarlapudi is an experienced ear, nose, and throat surgeon who applies his meticulous surgical precision to his real estate entrepreneurial endeavors. Welcome to the show. 

[00:00:52] Vasu Kakarlapudi M.D.: You're welcome. Thank you, Sam. 

[00:00:55] Sam Wilson: Hey, the pleasure's mine. Same three questions. I ask every guest who comes on the show: in 90 seconds or less, can you tell me, where did you start? Where are you now? And how did you get there? 

[00:01:03] Vasu Kakarlapudi M.D.: Yeah. So, sam, I grew up in Kansas City, a son of Indian immigrant parents and like a lot of other young boys at that time in the mid-eighties the Kansas City Royals were big. So I wanted to be a professional baseball player. Tried out for the high school team and quickly realized my talent wasn't going to support my dream. So I had to switch to textbooks and like, a lot of other good Indian kids who did good in school, went into medicine and got into a combined program, six year program with the University of Missouri, Kansas city.

[00:01:28] Vasu Kakarlapudi M.D.: There, I really kind of fell in love with meticulous nature of head, neck, ear, nose, and throat surgery. Went to residency at the University of Maryland. And so, subsequently my wife and I started our careers together in Louisville, Kentucky in the greater Southern Indiana, new Albany, Indiana, a suburb of Louisville, Kentucky.

[00:01:45] Vasu Kakarlapudi M.D.: And we quickly realized, my wife's a dentist and we quickly realized that although we had a lot of income, we didn't have a lot of freedom. And so I looked around to kind of see who were the guys that were actually happy in medicine and who were practicing medicine for the fun of medicine. And most of them had passive income.

[00:02:01] Vasu Kakarlapudi M.D.: And a lot of them receive their passive income from real estate. So being the curious guy that I am, I investigated and found people who were doing real estate and figured out kind of how they did things and figured out how I could apply those principles to my own real estate investing career.

[00:02:16] Vasu Kakarlapudi M.D.: So, so fast forward, I'm now 47 and practiced medicine on my own terms due to the financial freedom that real estate has afforded. And so through various real estate endeavors, over the period of time, I've had friends and family that have joined us and now I help other colleagues across the country to get involved in real estate.

[00:02:33] Sam Wilson: Right. And that's such a big void is in the, you know, high-income earning professional space. It's amazing. How few have that, that understanding of passive income. I mean, I hear on this show all the time, just like, oh yeah, that was a thought that came to us, you know, 10 years out of school. They're like, wait, we gotta figure out another way to do this. Cause we're burning out here. The two things you've mentioned there that you saw in the colleagues that you looked up to, or that were maybe ahead of you in their real estate investing journey was they had income and freedom. It takes a lot of dry powder to develop a meaningful cash flow stream is my, it would be my assumption or analysis in, you know, a meaningful income off of passive real estate investing. Can you walk us through the journey for you? Maybe where, because I mean, once we get to things in this, in this business, right, we get income and then we also get the appreciation, play. What's been kind of your strategy on that front for handling the income side of that? 

[00:03:28] Vasu Kakarlapudi M.D.: Well, I mean, the first thing is you have to have income. And so fortunately as physicians, we're blessed with a relatively high income. And so then the question is how do you deploy that in a meaningful way? A lot of your listeners probably know real estate is a really a way to grow wealth slowly, but it's kinda like a, you know, Jim Collins, I like to read and I'm sure a lot of your readers probably read a lot of Jim Collins works and he talks about the flywheel.

[00:03:51] Vasu Kakarlapudi M.D.: And it takes some momentum for you to start building the flywheel, but after a period of time, once that flywheel starts going, it's hard to stop. What if you leverage your income initially, and then continue to scale that and let your appreciation, you mentioned appreciation and let your appreciation generate even more income for you.

[00:04:08] Vasu Kakarlapudi M.D.: It's time where, you know, you're essentially your passive income can exceed your monthly expenses. And therefore that's kind of, our definition of freedom is, is, you know, passive income greater than your monthly expenses. So it doesn't happen overnight, like most good things in life. But if persistence and patience and humility and always wanting to learn, it's kind of a surefire path to, to get to financial freedom.

[00:04:33] Sam Wilson: Right. Yeah. I liked the idea that this is a slow, a get rich slowly game 'cause it, it certainly is. And there, there are some big licks that you can get along the way, but it's certainly not the ones that produce that predictability inside the space that I think so many of us are looking for.

[00:04:48] Sam Wilson: How have you scaled your business? You're still a full-time ENT or a part-time ENT. I don't know how that quite works out in your field, but how have you scaled those two at the same time? 

[00:05:00] Vasu Kakarlapudi M.D.: Yeah. Fortunately, we're in a big group, so I've got 14 partners that help me leverage my time a little bit better, so I can spend more time on some real estate endeavors.

[00:05:09] Vasu Kakarlapudi M.D.: It's really a matter of just prioritization and you know, you can do a lot of things if you really just prioritize your time. So it's, you know, as physicians, we're used to working long, hard hours and it's part of the training. It's part of the process to get to be a, ear, nose, and throat surgeon.

[00:05:24] Vasu Kakarlapudi M.D.: So, so really, it's just a matter of, you know, when you have blocked time for being a physician, you're a physician. And when you have blocked time for doing real estate, you do real estate and you don't intermix. And so like today is a, is a real estate day for me. So I'm working, working from home and working on real estate.

[00:05:39] Vasu Kakarlapudi M.D.: And I don't have any clinical responsibilities yesterday. I was a physician. I didn't have any real estate responsibility. So it's really about blocking time.

[00:05:46] Sam Wilson: Right, yeah. I think that's a great, I mean, that's something we all struggle with is where to focus. But, you know, being able to do one and the next certainly is key.

[00:05:54] Sam Wilson: What's it been like? You know, you started off as a passive investor, is that right? 

[00:05:57] Vasu Kakarlapudi M.D.: Well, I actually start off as an active investor and in single-family, like most people 17 years ago, and quickly realized that couldn't scale that way and had a lot of you know, toilets and termites and 2:00 AM phone calls.

[00:06:09] Vasu Kakarlapudi M.D.: And we were, we realized that I could scale a lot easier with commercial real estate. You know, I was fortunate enough to have some significant amount of mentors that helped me. And I've, you know, basically followed them, get my real-life PhD and how they vet deals, how they finance deals, how they put deals together and the entire sales cycle and how they optimize and liquidate those deals.

[00:06:29] Sam Wilson: So you worked alongside mentors that were bringing deals to the table and they said, Hey, help us take this down. You know, you guys can kind of do the Co-GP model. And then you went out and said, Hey, I'm gonna do this on your own. This is not a game. I'm calling it a game. This is not an industry where it's easy to break into, I don't think. I mean, it's something where, especially if you're doing large multifamily projects or whatever asset class, which we'll ask that next, but that you guys are into.

[00:06:55] Sam Wilson: I mean, it takes time to build a team, to build momentum, to find the right assets, to underwrite them, to, to kind of get all those skillsets. How did you do that? 

[00:07:02] Vasu Kakarlapudi M.D.: One step at a time, the way you climb a mountain is one step at a time, right? I made it a mission to just get better every day and knowing that it would take time. So, you know, I've been at this for again 17 years, so this didn't happen overnight. You know, the first thing I did was I read, listen to podcasts, and found mentors and followed them on deals. I, you know, did a lot of work before I dip my toes into the real estate world, because I think the surgeons, you know, we're, we're pretty risk-averse. We're used to following a pattern. That's the way we were trained is we go from one landmark to another landmark. And you do that in a very methodical risk-averse way to protect our patients. You know, you were mentioning just before that you, if you don't mind me saying that you just had some surgery and that's what I do.

[00:07:45] Vasu Kakarlapudi M.D.: And sinus surgery is very, very delicate. It's, you know, you're right in between the brain, the eye, the smell centers. You've got a lot of very important structures. So if you're not methodical about how you do things, you can get yourself in trouble really quick. And the same thing goes with real estate investing.

[00:08:00] Vasu Kakarlapudi M.D.: If you're not very methodical and scientific about how you approach things. So this is not a place where you just, you'd listened to a podcast from Sam, and then the next thing you know, you, you go take down a multifamily unit complex. It just doesn't happen that way. So slow and methodical, one step at a time and just have goals, 30 day goals and make two millimeter shifts in your mindset. And take action but take action in a guarded way where you can you know, work with a team of people who have done what you have done. And if you're humble and curious, and a lot of times, those folks want to help you. And that certainly the case in my situation where mentors wanted to help me.

[00:08:36] Vasu Kakarlapudi M.D.: And so I took advantage of that and really you know, was, was humble and curious and learned along the way and was able to finally take some action one step at a time. 

[00:08:45] Sam Wilson: What does finding opportunity look like for you today? 

[00:08:49] Vasu Kakarlapudi M.D.: Well, finding opportunity is really building a team. You mentioned plenty of times in your podcast about, you know, real estate is a team sport.

[00:08:56] Vasu Kakarlapudi M.D.: And I couldn't agree with that more so on our team. You know, it's not just me because I knew that if I was, again, I really kind of just started off with trying to invest my own capital. And friends and family wanted to invest along with us because we've had success. And so in order for me to really kind of continue to raise capital for my friends and family's investments, I knew I had to build a world-class team.

[00:09:16] Vasu Kakarlapudi M.D.: So we have a team of, you know, world-class underwriters you know, property managers, asset managers, and acquisitions folks and disposition folks that really help us do this in the most effective way. So we got domain experts in each of the areas of the real estate cycle.

[00:09:32] Sam Wilson: Now, each of these individual, kinds of seats on the bus, are they all specific to your team or is it this kind of shifting team framework that we kind of see in some of these deals where it's like, okay, Hey, I'm going to work with Vasu on this. And then the next time you might see that same person working with somebody else on another deal, or is it, Hey, this is all your guys's in-house team?

[00:09:50] Vasu Kakarlapudi M.D.: No, I'm teamed up with one group. We are Co-GPs. So our entity is called Apta Properties and Apta Properties is teamed with 37 parallel properties out of Richmond, Virginia. They've established shop that's been friends and business partners of mine for many, many years. And you know, combined we've done over $800 million worth of acquisitions that's been successful in the '08, '07 crisis, the European debt crisis, COVID pandemic. So, we've got a very seasoned, established team that has, you know, we follow very, very, very conservative. I know it's used a lot, but conservative underwriting that has stood various economic cycles and still been profitable.

[00:10:26] Sam Wilson: Yeah. If you, if you've made it through '08, you know, with your shirt's still on and, you know, you look, you said, you mentioned a few other calamities that, that we've endured. If you've made it through those cycles and you came out still smelling good then, yeah, you've seen some things. You've seen some things, I guess, on that front, you know, there's a question that I'm commonly asking right now, what are you guys doing right now to prepare yourself for whatever it is that could be coming next? Correction, a downturn, a bull market, whatever it is you guys see? What are you doing to prepare for the future? 

[00:10:56] Vasu Kakarlapudi M.D.: So I think it really comes down to studying demographics. So we're trained as surgeons to be very, very scientific and you'd practice, you know, evidence-based medicine is a buzzword that's used a lot. And so in the real estate world, it's really studying demographic trends because demographic trends are long-term trends as you know, Sam. And so we know kind of, you know, where people are moving in the next 25-30 years. You know, what age group? What their household income might look like? What their psychographic preferences might look like? And so we can study, you know, on large scale metropolitan statistical areas that are poised for growth. And we break that down to submarkets. And so on you know, before you even actually look at a deal we spend a lot of time as demographers kind of looking at where we want to go before we actually look at the deal because we certainly don't want to get observation bias into a deal and fall in love with the deal in a bad submarket and a bad MSA.

[00:11:46] Vasu Kakarlapudi M.D.: And then get caught with our pants down. So it starts with that. And then, you know, we dive down deeper into the submarket, the asset-specific location. And then in terms of underwriting, you know, we're relatively very low leverage. So I think one of the things that a lot of people are doing right now is they're banking on, you know, 10, 15, 20% rent growth, and they're baking that into their underwriting and, and we're not. They're over-levering themselves. The interest rates are low. And so, you know, you're going to 80, 80% loan to value. And they're, they're getting some supplementals on top of that. We're in the sixties in the high fifties or sixties.

[00:12:19] Vasu Kakarlapudi M.D.: So that does sacrifice our yield a little bit, but we want to be the players that are going to be as Ken McElroy  says, when the tide recedes, you'll get to see who's naked. And we want to have our shorts on when the tide recedes, so our underwriting, our assumptions, our conservative leverage and picking the right market. So I think if you had to pick three things, those are the three things that we really try to excel at. 

[00:12:38] Sam Wilson: Yeah. I love, I love that. I love the idea of, of deleveraging. I mean, leverage is a beautiful thing, but it cuts both ways. I mean, it really does. And that's something that yeah, it's exciting when I hear people saying things such as, Hey, you know what?

[00:12:53] Sam Wilson: We're going to take some risk off the table. We're taking, we're pulling back leverage and your yield is going to take a hit because of it. Sorry, but it's just what we're doing. And this is, this is the way we see the path moving forward. How do you guys do it? But the key question here is how do you guys deleverage and yet still remain competitive on the buy-side?

[00:13:11] Vasu Kakarlapudi M.D.: Yeah. So I think a lot of that becomes, you know, who's the biggest player, who's the biggest investor in a deal? It's the lender. And so we have very good relationships with lenders that were able to get money for debt for exceedingly low rates, almost an obscene rates. With inflation the way it is, I almost feel guilty getting you know, 60% loan to value on the, on the kind of rates that we're getting. We're buying rate caps to insulate ourselves as well. So it all comes down to the team. So, you know, the lenders, our shop as being very, very low risk. And so they're pricing their lending equivalent to the risk profile. And so we're able to, you know, pay that forward to our investor group of which, I should add though, that every investment that we raise capital for, I'm the largest investor in there.

[00:13:53] Vasu Kakarlapudi M.D.: Their dollars are invested with my dollars and are my partners dollars. And our dollars are treated no differently. So we've got so much skin in the game beyond just our reputation. We have financial skin in the game as well. So to answer your question, how are you able to get, still get yield is a lot of it's based upon your reputation.

[00:14:10] Vasu Kakarlapudi M.D.: And we're, you know, acquiring assets in the, you know, 50 to $80 million range. So there's a little bit less competition in that space and lending is better. And the risk is lower because you've got better economies of scale. You get the, you know, the high quality property managers. And so we are still able to get, you know, reasonable yield and still get overall double-digit returns, even if rent gross stabilizes to historical norms.

[00:14:35] Vasu Kakarlapudi M.D.: And if they continue with the way they've been done right now, we'll, we'll do better, but we're still gonna make money, even if we have a major recession. 

[00:14:42] Sam Wilson: The key there that you, just to reiterate it is that you're able to get far more favorable terms from your lender, just because they say, oh wait, you're only putting 60% LTV on this.

[00:14:52] Sam Wilson: You know, we're going to give you a great, great term sheet on this because it's a risk, a very risk not risk-free, but a risk reduced play for them. 

[00:15:00] Vasu Kakarlapudi M.D.: Yeah. You see a lot of bridge debt now with CapEx and so forth, and we don't even, we raise all the CapEx on the front end.

[00:15:06] Vasu Kakarlapudi M.D.: So, you know, I mentioned our loan to value is 60%. Our loan to cost is in the fifties because you know, yes, we're sacrificing yield, but our, our primary goal is capital preservation. If you follow the science, the greatest athletes in the world are not the ones who played the best, but the ones who made the least amount of mistakes.

[00:15:23] Vasu Kakarlapudi M.D.: Yeah. So, you know, we want to make the least amount of mistakes. 

[00:15:25] Sam Wilson: That, I like that. I hadn't, I hadn't heard that before, but that's a, that's certainly true. I play, I play a sport every Monday night with a group of guys and the only thing that always run through my head is all I got to do is not screw up.

[00:15:36] Sam Wilson: Right. And then let the other guys make the mistakes and we will win by default. So that's funny, certainly that you say. That what's it been like? What's been the journey like for you in bringing other doctors and other high-income earners along for the journey that have been kind of rewarding in the sense that it's like, you just see the light bulb come on for them?

[00:15:54] Vasu Kakarlapudi M.D.: I can't tell you how rewarding it's been. So, you know, everything I've done, I beta tested on myself before I brought this out to the rest of the world and my friends and family. So, as I found financial freedom, you know, I have devoted more time to my family, I've devoted more time to my interest.

[00:16:11] Vasu Kakarlapudi M.D.: I've devoted more time to charity. I get to do the things that I want to do because of the power that real estate, the fruits of real estate. And so, I feel like I'm a much better physician now than I ever was before, because I'm not playing the volume game. I'm not under any pressure 'cause I don't need the paycheck from my day job as a doctor. I found that I'm much more empathetic and caring to patients, which as, you know, as a, as a patient yourself, that's as important as the science. I always have the science, but now I'm learning some of the softer sides of how to really connect with patients.

[00:16:40] Vasu Kakarlapudi M.D.: And so that's the power that real estate has done for me. I've been able to spend time with family. More time with my kids. I've got we've got a 13-year-old and a 10-year-old. And right now they still like mom and dad and want to take advantage of that as much as we can and have been able to, you know, support the charitable causes of, you know, everyone's got their own charitable cause. And for us, it's underprivileged kids that don't get a fair shake in life. And so we've been able to use a lot of the real estate earnings and practice earnings to divert that into causes that we'd like to. So the long story. Real estate allows you to be better at everything else you want to do in life.

[00:17:13] Vasu Kakarlapudi M.D.: And especially for surgeons, there's a lot of negativity right now in medicine, about a lot of negative secular trends in medicine with, you know, declining reimbursements, increased expenses and corporatization of medicine, suits getting in medicine and et cetera, et cetera. And if you don't need your medicine income, because you've got passive income to cover your monthly expenses, all of those things become less painful for you. You become a better clinician, better surgeon and better doctor at which I think is better for the community. You as a patient, you know, would probably want your doctor who wants to work on you because of their passion for their craft, as opposed to having to pay their kids' private school tuition, you know?

[00:17:51] Sam Wilson: You're exactly right. You're exactly right. And I hadn't, hadn't quite ever thought about that. But no, you're right. If I had to pick, I'd pick the physician that's in your shoes, not, not the guy that, that has to hustle, hustle it out, you know, getting patients through as fast as he can in order to, in order to meet his, his income requirements. So that's absolutely fascinating. Vasu, I have really enjoyed our conversation today. Thanks for taking the time to break down your business. The things that you've learned along the way, what real estate has done for you, and of course, how you were helping other physicians really learn and follow in your footsteps.

[00:18:19] Sam Wilson: I think it's absolutely cool. And also love certainly the way that you have chosen to give back. I think that's absolutely fantastic. If our listeners want to get in touch with you or learn more about you and what you do, what is the best way to do that?

[00:18:30] Vasu Kakarlapudi M.D.: Yeah, it's been my pleasure, Sam. Our entities called Apta properties. We're on the web and my LinkedIn profile is just Vasu Kakarlapudi M.D. on LinkedIn. 

[00:18:38] Sam Wilson: Awesome. And we'll be sure to put those links in the show notes. Vasu, thank you again. I certainly appreciate it. 

[00:18:43] Vasu Kakarlapudi M.D.: Thank you, Sam.