The Data-Driven Blueprint for Building a Billion-Dollar Portfolio With Neal Bawa

December 17, 2024

In this episode of The Same Day Podcast, Yoni Schmidt sits down with Neal Bawa, CEO and Founder of Grocapitus Investments and Mission 10K, to discuss the data-driven blueprint that has revolutionized real estate investing. Neal shares his process for identifying winning markets, explains how data can minimize risks and maximize returns, and dives into his innovative strategies for leveraging depreciation and syndication. Neal also talks about his mission to develop 10,000 rental townhomes.

The Data-Driven Blueprint for Building a Billion-Dollar Portfolio With Neal Bawa

Neal Bawa is the CEO and Founder of Grocapitus Investments and Mission 10K, companies focused on addressing America’s housing shortage by building affordable townhomes and investing in commercial real estate. Known as the mad scientist of multifamily, Neal manages a $660 million portfolio spanning 4,400 units. His background in technology and data science has led him to create innovative solutions in the housing market, including his educational course Location Magic, which teaches investors how to identify the best cities for real estate investment.

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Here’s a glimpse of what you’ll learn:

  • [02:08] Neal Bawa talks about his transition from tech to real estate investment
  • [05:56] How to maximize depreciation benefits with expert cost segregation strategies
  • [07:11] Using data-driven insights to find top investment cities
  • [21:23] Five key metrics for successful real estate investing
  • [29:13] The most critical first step for anyone starting in real estate
  • [34:35] Neal’s favorite city to invest in today
  • [37:11] What’s next for Grocapitus and Mission 10K?

In this episode…

The real estate world is often clouded with various opinions and gut instincts, leaving investors to navigate blind spots and uncertainty. Is there a way to predict success with pinpoint accuracy using data? Can the power of numbers and analytics really lead to a billion-dollar portfolio?

According to Neal Bawa, a data scientist turned real estate investor, the answer is a resounding yes. He highlights that leveraging key metrics like population growth, job growth, income growth, home price trends, and crime reduction can help investors identify the most profitable markets. By creating a system that prioritizes data over intuition, Neal has not only scaled his portfolio to over $1 billion but also empowered thousands of investors to replicate his success. His approach, which he calls Location Magic, enables a predictive and systematic way to assess markets, ensuring investments yield maximum returns while mitigating risk.

Resources mentioned in this episode:

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Quotable Moments

  • “Data beats gut feel by a million miles.”
  • “My story is just about taxation, really.”
  • “We cost segregate everything that we own.”
  • “Attend at least six meetups a year in your local metro.”
  • “Idaho Falls, Idaho, is my favorite city to invest in.”

Action Steps

  1. Leverage data analytics for real estate decisions: Utilize data-driven methods to identify promising real estate markets. This approach helps to mitigate risks associated with speculative investments and ensures decisions are backed by factual trends and patterns.
  2. Implement cost segregation for tax benefits: Apply cost segregation techniques to maximize and accelerate depreciation benefits. This strategy effectively reduces taxable income and enhances cash flow, making it a powerful tool for real estate investors seeking to improve their financial standing.
  3. Engage with local real estate meetups: Attend at least six physical real estate meetups annually to build a network and learn from others. This engagement allows investors to gain insights, share experiences, and identify potential partnerships or investment opportunities.
  4. Develop and utilize tools: Use tools like Neal Bawa’s Location Magic to assess cities based on key metrics such as population and job growth. This method offers a structured way to evaluate and compare different locations, ensuring investments are made in areas with strong growth potential.
  5. Explore build-to-rent opportunities: Consider entering the build-to-rent market to meet the growing demand for rental townhomes. This sector provides an opportunity to cater to renters seeking privacy and home-like amenities without the commitment of ownership, addressing this key housing market trend.

Sponsor for this episode…

Keyrenter Property Management:

This episode is brought to you by Keyrenter Property Management.

Keyrenter Property Management is a full-service property management company that helps clients buy, renovate, and operate real estate assets.

The team helps clients build wealth while taking the headache out of property management.

That’s why, no matter what rental you have — single-family homes, condos, townhomes, or apartments — they can give you the management solutions you need.

To learn more about their services, go to https://keyrenterpmc.com/ or send them an email at [email protected].

Episode Transcript

Intro 00:04

Welcome to The Same Day Podcast, where we discuss driving incremental business growth and other topics related to real estate, property management and entrepreneurship. Now to the show at hand.

Yoni Schmidt 00:20

Hi there. Yoni Schmidt here, hosting today’s episode of The Same Day Podcast where I connect with top business and real estate leaders. Past guests include Chip Gaberino, a local restaurateur entrepreneur. Yaron Pacht from Centiv, a tax maximizing strategy firm that helps investors conduct cost segregations for their depreciation schedules. And Morgan Martin of Merrill Lynch. Today’s episode is brought to you by Keyrenter Property Management. At Keyrenter Property Management, we are a full service property management company helping our clients buy, renovate and operate real estate assets. We help our clients build wealth while taking the headache out of real estate ownership. That is why no matter what. Property, you have a multifamily single family condo townhouse. We have the management solutions that you need. Go to keyrenterpmc.com or email us at keyrenter at [email protected]. Welcome to our podcast. Today I have the incredible honor of hosting Neal Bawa, the CEO and Founder of Grocapitus and Mission 10K. Neal is widely celebrated as the mad scientist of multifamily, known for his revolutionary, data driven approach to commercial real estate. With a $660 million portfolio spanning 4,400 units. Neal is a sought after speaker and a master strategist. Let’s dive into his fascinating journey and game changing insights. Welcome to the show, and thank you for being here, Neal.

Neal Bawa 01:50

Thanks for having me on the show. I’m very excited to be here.

Yoni Schmidt 01:54

Yeah. So, Neal, let’s just dive right into your journey and inspiration. Tell us a little bit about what initially inspired you to venture into commercial real estate and build, you know, go capitals and a little bit about your background in technology.

Neal Bawa 02:08

Sure, Yoni. I mean, pure accident. I am a technologist computer science degree. Data science is my background. I was running a technology and healthcare company with hundreds of employees in early 2003, and I basically got my induction into real estate in reverse. Right? Most people will start with a fix and flip or, you know, a single family rental. I started my real estate journey in 2003 with a 27,000 square foot built from scratch campus, so it was a $7 million project. And there was there were no investors, there was no loan. It was basically built using the company’s money, which is why I got away with hugely expensive mistakes, like having to move walls and stuff like that, because, you know, I’ve never done it before. We were running a technology and healthcare business. So we run it from 8 a.m. to 6 p.m. and then sit down at six and from 6 to 9 dinner time, we would basically late dinner time we would we were working on this and we built the campus from scratch. And once it was done, I had a small piece to piece in it. So I noticed that my the once the campus was built, it really helped our business grow. So my, my bonuses and my salary increased. Right. You know, I was technology so big fat tech salary and tech symphonia. So I was paying, you know, 50% of the man. And I noticed all of a sudden I’m paying a lot less, but earning a lot more. So we’re like, hey, let’s double down on this. So we started building more campuses and we ended up building improving, you know, another five campuses over the next 3 or 4 years. And every time I did that, my take home salary increased. So by the time 2009 came around, I had a ton of money in the bank. And so I was like, okay, real estate’s obviously great. I see these depreciation benefits. Can I get them on single family rentals? And the answer was yes. So I’m like, okay, let me. I don’t want to buy something because I don’t know anything about real estate. Let me do some research. So I’m a data scientist, so I collect stuff, right? So I basically started writing software scripts, programming scripts to gather data from different websites like, you know, Zillow and Trulia and their predecessors from the Department of Labor, you know, statistics. Because I was trying to answer a question that is a very annoying question that I never got a good answer to from anyone, even though I went around meetups and my family and everybody else in real estate asking the question. And the question was only was what city in the United States is best to invest in for real estate? It’s a simple question, but with 1000 cities in the United States, every answer that I got was bogus or complete bullshit, right? It just because it was usually, well, I know that so-and-so city is good. Okay. Why do you know that? Well, because I’m investing there and I’m doing well. Okay. But the question is, which city in America is the best to invest in? Have you looked at 1000 cities? No, I have, I haven’t, I’ve just looked at three. So okay, so this city is best out of three, right? I’m trying to get the answer for which city is best out of 1000.Right. And so I couldn’t find anybody to give me the answer. So it became an obsession for me. And you know, I’ll stop here because, you know, I’ve answered your question, but it became an obsession for me. And that obsession is what has led me to $1 billion portfolio. Just the answer to that question is really the rest of my journey.

Yoni Schmidt 05:24

Yeah, I love that. I mean, so many questions come up off of that, right? I mean, so you became addicted to depreciation basically, because you saw how that can help your income grow. Love that. I’ve been there. I’m there right now. I’m experiencing it in the single family residential space. And, you know, quick question. I guess in terms of your depreciation strategy, do you do cost segregation models. Do you build cost seg models for your depreciation schedules? Or do you just take a linear approach to it?

Neal Bawa 05:56

We segregate everything that we own and have always done that because that maximizes the numbers. It doesn’t just maximize the timing of the depreciation, it actually maximizes the depreciation itself. So you end up getting a lot more depreciation. You know when you when you cost seg the you can depreciate some things much faster. And so your dollar numbers of depreciation are much higher. So by definition I cost segregate everything for those people that are listening that don’t know cost. Segregation is a way to maximize and accelerate the depreciation that you would receive, either from a for a single family or in my case, for a 200 unit property. And it’s a very, very useful exercise. It’s it has a very high payback for the money that you pay for it. It’s a third party that has to do it.

Yoni Schmidt 06:43

Yeah, definitely. And I would tend to agree with that. And we just recorded I just recorded a podcast about two weeks ago with. a cost seg expert, so if you haven’t listened to that, I highly recommend listening to that podcast with Yaron Pacht. Not out yet, but in about a week or two. So, you know, I don’t want to keep the listeners at the edge of their seat too long. But tell me, did you find the answer to the question that you were, you know, so curious about?

Neal Bawa 07:11

Yeah. So I was very frustrated because I was trying to find a way to buy the question in the sense, you know, okay, well, I go to this website, and the website basically gives me a list of 1000 cities, and it gives me all this data and it says, okay, based on these 32 different parameters, this city is probably the best to invest in. This is probably the worst. Unfortunately, back then those services didn’t exist. Now they do. There’s a housing alerts and local market monitor. But in 2009 those services weren’t around. And so nobody was giving me the answer to the question. So I said, okay, well, I am a data scientist. So what I’m going to do is basically I’m going to mine the web and put the data into a predictive analytics software called R. It’s a statistical analysis software that everyone in our industry uses. So we basically mined a terabytes of data from all across the United States. And what kind of data are we mining? Right. We’re mining home prices, population growth, job growth, income growth, you know, school quality crime. You know, every demographic factor that you think would affect, you know, real estate profits. And we’re also mining real estate profits over the last 3 or 4 years because we wanted to see, you know, be able to backtrace our data and see, you know, there was a correlation. And what we were trying to do is to find a correlation between all these things that I just mentioned and real estate profits. So on the one side, I’ve got, okay, here’s how much profit each city is making for people on average. And here’s all these different factors. Which factors are clearly correlate the most to this profit. And what we found out was, as we were looking for that information, we started realizing that five factors had the biggest impact. They were, you know, there’s hundreds of factors. And now in a professional space, I use hundreds of factors. But back then I was not a professional. I was an amateur. I was just trying to figure out which city to buy homes in. The short answer is I found the city and luckily it was in California, right? So we were able to run data on 1016 cities and filter down to, you know, certain cities of certain sizes. I didn’t want to buy in super expensive places. And the city came out to be Madera, California, 144 miles from where I live. Just pure luck that it was in California and one of the biggest factors back then. There was an extra factor. And back then, because prices in 2005 had peaked, and then 2009, they had crashed. I was one additional factor, which is not relevant today, was the difference between the peak and the trough. Right. Because if what happens with real estate is when when prices fall and you get bad news, right, they fall more than they should. So the peak to trough is a good indicator of how underpriced a market is right. So with Madera, peak to trough was the highest in the United States, 71%. So a property that was roughly $300,000 in 2005 was available for $95,000 cash in Madera. Right. And these were brand new four bedroom Kaufman and Broad homes with, you know, backyards. And they were beautiful. Right. And most of them nobody had ever lived in. So so what I did was the first thing I did was, you know, I was, I, I had a big business with a huge campus that I built myself. It had a massive conference room with a capacity of 120 people. So I decided I’m going to open a meetup group for data analytics in real estate. Right. Because nobody was doing it. And it’s like, I’m going to do this. And I called it some horribly non-marketing name. And the first time I held it, four people showed up. All data scientists, right? And the second time I did it, ten people showed up. Third time I did it, 100 people showed up because I was in the right place. I was in Silicon Valley, right? There’s all these geeks and nerds and dorks that you know, that are running around Silicon Valley earning huge amounts of money. And so these people would come there and and instead of a one hour presentation three hours later, they’re still asking me questions. And they’re basically in real time, improving my spreadsheets and my data because they in many cases, they were much smarter than I was. So we had this interesting little geeky community with all these people having plenty of money. And so people were basically using Madeira. Some people found Merced, which is 20 miles away from Merced, Madera, to be better. And so we were all going there and putting cash offers on properties, and I was buying one property a month. Another guy from Apple was buying two a month. And like we were buying like crazy and we were making crazy amounts of money because back then the properties were so cheap. The moment we got, you know, you know, leverage on them. The moment we got a loan, the property was cash flowing on day one, right? We can’t do that today. I mean, realistically, it’s not possible to do that easily, but these properties were cash flowing $1,000 a month for us on day one. So like, you know, it was it was just a disgustingly, shockingly good time. And we couldn’t convince anybody else of it because everyone kept thinking, the sky is falling. And we’re like, how can the sky be falling when every time we buy a property we make $1,000 a month in cash? Cash flow. Right? Who cares what the value of the property is in the future? I’m making $1,000 a month now, right? Yeah. And so, yeah, all of those $90,000 properties are worth, you know, $400,000 now, and I’ve either sold them or refinanced them. Bottom line was this this became very interesting. And one day one of the guys from Apple comes to me and says, you know, this thing that you’re doing where you have this, this black box where you, you know, put these cities in and basically interesting, you know, suggestions for cities come out. Right. And I was suggesting cities all across the US by now. By now, you know, there were lots and lots of people asking me about cities. So I was suggesting Provo, Utah and Greenville, South Carolina and all these other cities that have since exploded. Austin. And this is like 2009. Nobody knows about Austin. And I’m talking about Boise, Idaho, which now, like prices have tripled. Right. So I’m doing all of this stuff. And people some people are like, you’re just full of shit. Neal. And some people are like, actually going to Provo, Utah and buying 100 acres of land which turn into ten x or 20 x what, what the land was worth when they bought it. And so this guy comes to me and says, you should do two things. And I said, what? He says, first thing you should do is turn this black box into a white box. I said, what does that mean? Make it obvious how you’re doing your calculations so, you know, find a way to get away from this proprietary R software. Only data scientists know it. Find a way so that anyone can use your spreadsheet. It took me about a year to figure it out, but I found a way to simplify it. And then the second, because, you know, initially I was mining data from websites. And I’m like, this mining business is not something that people can do. How many people know how to write Perl scripts or Python scripts that I knew how to write? So we figured out how to find public websites that had this data and tell people steps on how to get the data from different sites about job growth, population growth, income growth, home price growth. And so the black box turned into a white box. And the second thing he said is publish it on the web. Because this meet up business, you know, you’re talking to 20 or 30 people. You should be talking to 20,000 people, right? So I turned it into a system. I called it Location Magic. By now, I’d been told that my stupid names for analytics and data were horrible, and I needed to fix those. So I called it Location Magic. How to figure out the Best Cities for Real Estate. And I published it on a website called Udemy. Udemy, which is a website which now has millions of courses. Back then it had thousands of courses and it sort of exploded. I mean, right now, if you type in the word Udemy, Udemy and my name, Neal Bawa, and you click on the first link, you’ll notice there’s 14,000 people taking the course, right? And there are thousands of five star reviews. My courses ever only had a 5.0 rating, right? Most courses on Udemy have, you know, four four star ratings. 4.14.2 is pretty common. This is a five star course because people the biggest question after the course are what are you getting out of this? And I’m like, I just am having so much fun. I’m not a real estate guy. I’m a technologist. I run a tech company. I just found this system and it was really sexy. And I bought dozens of properties and I’m making lots of money and I want to share it with people. And that’s why the course only has ever had five star reviews, because people understood that I actually had nothing to sell them at all. I had nothing that I could give them except for knowledge. And so yeah, on average, 10 to 20,000 people are taking the course at any given point in time, and you can take the course. It’s very fun. It’s very interactive, very interesting. It’s just like a it’s like you learn so much about America that you never think you’d learn. And so I put it on the web, made it a white box, and it sort of exploded. And before I know it, my phone’s ringing. People are calling me from conferences. These are like real estate conferences with $2,000 tickets, and they’re offering to put me on stage. And I’m saying, I think there’s a mistake. I’m not a real estate guy. I don’t have a real estate portfolio. I mean, I have my personal portfolio, but I don’t have any investors. Like, it’s just me. And I’m not running a tech company. Right? Not a real estate company. And they’re like, yeah, yeah, yeah, we really like that, you know, because there’s so many people standing on stage and pitching something. And we know that you don’t have anything to pitch. And so you can be like our token nerd, our token data geek at the conference. And I’m like, but you know, I, you know, I don’t have the money to come to the conference. They’re like, no, we’ll pay for your ticket. We’ll pay for your hotel, we’ll pay for the conference, we’ll pay for your food. And I’m like, really? You’ll do all of that? And they’re like, yeah, we can do that. I didn’t realize back then, these people are selling millions of dollars in tickets, right? And I’m like, oh, I’m in. Right. So I take like a day off three, four, five times a year, and I go to these conferences and I’d stand and present and I thought I was I mean, I should have been charging $10,000 a day for this, by the way, but didn’t know any any of those things back then. Right. So I go there, I start presenting, and before I know it, this ecosystem of people starts to gather around me. And I, for the first time. I said, you know, maybe there’s something I’m going to do with this in the future. So I started making an email list. It was just first name, last name, email and nothing else. Right. And so I started making a list and before I know it, by 2013 when I sold my tech company, the list has huge numbers of people in it, right? And they all love me because they’ve all I’ve done is shared information and never pitched anything. I didn’t have any sponsorships or anything like that. So it was a very clean system. So I sell my company in 2013. I have this massive multi-million dollar tax bill. Right. Shockingly high. And I go to my tax attorney and I say, hey, if I just buy real estate with this, can I get this bill down to zero? And he says, no, Neal, you can’t get it down to zero that way. And I say, is there any way other way of getting it down to zero? He says, yes, there’s this thing called syndication where what happens is the general partner puts in 5 to 10% of the money, and his investors put in the other 90 to 95%. And he buys these big buildings and he manages them. And guess what? Instead, even though he’s putting 5% of the money in, he gets 30% of the depreciation. The other people get 70%. The limited partners get 70. And if you do that with your millions of dollars, you can reduce your tax bill to zero. And I’m like, I need to know everything that anyone has ever said about syndication. So I’m hitting books. I’m going around talking to people, I’m calling my database, and before I know it, I have buildings in contract. So I went, you know, I started with single family, then duplexes, triplexes, quadplexes, seven plex, 14 plex. Then from 14 I jumped to 237 units because of taxation. So my story is just about taxation, really. I mean, that’s the one word that, you know, when when people like me who are technologists, we make a lot of money, but we don’t keep a lot of money. Doctors and techs get screwed over the most by the IRS, right? Right. Because we’re just about the same, you know, 250 to $400,000, you know, W-2 income. And then with our bonuses, we tend to be higher. And at that point, you’re paying ridiculous amounts of taxes to California and ridiculous, ridiculous amounts to to the feds. And so, so many people that get into real estate get their to bring their taxes down to zero. And I was able to, by becoming a general partner, do that. So that and when I put these properties in contracts, I was terrified because, you know, I didn’t have that much money to put into the properties. But I started sending out emails with information about the properties and, you know, my underwriting and why I was buying them, and pictures of the areas and videos of the areas. And it was shockingly easy to get investor money because they’d been listening to me for 5 or 6 people and I’d never asked for anything. And so now we have this very geeky, you know, heavy Silicon Valley. But, you know, there’s I have investors now from all 50 states, but it’s still very heavy on on Silicon Valley style people. Technologists. We have about 200 doctors investing with us. So there’s about 11, maybe 1200 investors that have put in about $330 million of their money, and we’ve put that money into about $1 billion of real estate, all using the technologies that we talked about. So, I mean, the story really hasn’t changed. We’ve just got better at taking the data and where before we could tell, you know, a city is good. Now we can basically look out three years and five years into the future to see rent growth and, and, you know, cap rates, which is basically a metric that we use in multifamily that, you know, single family guys don’t use. So we can predict what the price exit price would be. And so we just got better at our job. And it’s been a very fun journey. So the first ten years of real estate, 2003 to 2013, either I’m building campuses or I’m buying stuff on my own and sharing with friends. And then the next decade is the, you know, 1000 investor. So 11 years now as a professional. So you know hopefully that’s that’s that’s that’s interesting to people. But I mean that’s how a lot of people get here because of taxes.

Yoni Schmidt 20:35

Fascinating for me to just hear this entire story. You you’re known for the mantra data beats gut feel by a million miles, right? Yes. Clearly you’ve you’ve lived by that mantra for, you know, many years now. Tell us a little bit about those, you know, what were those five metrics like that that boil it down for the layman, you know, investor like me who’s going out and buying single family residential homes. You mentioned it may not work necessarily for SFR, but mostly for multifamily. What were those five metrics aside for, I guess, the peak to trough that you mentioned earlier? And, you know, the other part to this question would be how do you identify other key metrics that are, you know, most useful for real estate investment decisions?

Neal Bawa 21:23

Sure. Okay. So firstly, Location Magic was always designed for single family rentals, so it works better for single family than it does for multifamily. For multifamily we had to add supply. Supply is a very big deal for multifamily and not a big deal for single family at all. Okay, so so Location Magic as it exists today on the Udemy website or on my website, which is Multifamily University. So type in just the words Multifamily University. And you can you can get the latest version of Location Magic. The key with Location Magic is it requires annual updates because it’s based on how the country is doing, the economy, population growth, immigration, all of those change year over year. So what we do is once in a year, we change the algorithm in the Excel spreadsheet so you don’t have to worry about it, right. So there are five major metrics. And you can you can imagine what these are right. So population growth job growth home price growth income growth and crime reduction right. These are five. And people are like, well, what about schools? Schools are very important. Yes they are, but I find that crime reduction in schools actually are completely connected together. They have a very high correlation. So if you if you do the crime work, you’re really doing the school work anyway. You see what I mean? They’re very highly correlated. So why have more metrics when you can have less and get the same result? Right. If if you have six metrics with schools, you are getting the same exact list as with five. So I took the sixth one out. Got it right now. It is very important to understand that it is not just population growth. It is in a certain amount of population growth. Right. So if you say something like, well, my city is growing fast, what does that mean? Right. So what Location Magic does is it sets an entry point for each of these metrics. And it also tells you where to go and get the information. So it does, you know, so what it says is. Okay. You went to a party yesterday and one guy was saying Provo, Utah is the best place to invest in the United States. Another guy was saying, it’s it’s, you know, Grand Rapids, Michigan. Okay, fine. They could be both completely off because you might have a third city like Greenville, South Carolina that you love. So what it does is it says, okay, spend ten minutes doing these steps and it’ll give you the five metrics for Provo, for Greenville, for Grand Rapids. And then for each metric, the Excel spreadsheet will give you a thumbs up and a thumbs down based on whether it’s hit the certain threshold of population growth, job growth, income growth. And based on that, it will tell you which of those three cities is better. And you don’t even know anything about Greenville, South Carolina or Provo because you just went to a party and heard them. Right. But you’ll be able to say things like, Greenville, South Carolina is actually growing three times faster than than Grand Rapids, Michigan. And but Greenville clearly has a crime problem, which is very problematic. Where where, you know, Provo has almost no crime compared to these two. So I’m just going to, you know, I like to go in a low crime area. I’m going to pick Provo. So you’re making a very quantitative decision and you’re able to compare stuff. I have people who have actually gone through and compared 50 cities and published those Excel spreadsheets. And, you know, because there’s a community at Multifamily University, they keep giving this stuff to each other. Right? Which is great because who has the time to go gather this information for 1023 cities in the United States, right. So people have actually taken it. They’ve extended it. Then there’s people who have because this is an open source product. I don’t own it. Right. So people have actually taken it and added a sixth and a seventh and an eighth and a ninth metric for specific things. Like there’s one guy who said, if I add these four metrics, then it works for student housing. Then another guy said, if I add those four metrics and change this one, it works for self-storage facilities. I don’t endorse any of those things, but it’s nice to see people take an idea and move forward with it and actually grow it. Now, on the multifamily side, we still use the five metrics, but we care a huge amount about the cap rates that are prevalent in the market. And and most importantly, the supply that comes into the market and the submarket. Right. So Phoenix, for example, has 30, 22 submarkets. It’s a large 5 million person metro. So when we’re buying multifamily, we don’t just look at the Phoenix metro, we also look at the specific one mile, two mile submarket, right. Like Avondale is a submarket. And we look at incoming supply there because we find that single family rentals are not affected as much by incoming supply. There’s a little bit of an impact, but multifamily huge impact from supply. Now unfortunately, supply data is proprietary, meaning there is no way to get it without paying a subscription. So we now pay about $50,000 a year for various subscriptions from multiple different sources. But the rest of the formula.

Yoni Schmidt 26:25

CoStar is one of them.

Neal Bawa 26:26

I’m guessing CoStar is sort of the most important one, but Yardi Matrix is the other one. And and by paying for those, we have a good sense of that incoming supply. So we’ve extended it over the years. But I have to say that for the most part, Location Magic hasn’t changed in the last 5 or 6 years. We had to change it during Covid because all of the numbers were negative. Didn’t make any sense. But now that, you know, things have stabilized after Covid, you know the normal numbers make sense. So all we tell people is come to multifamily university once in a year, grab the Excel spreadsheet for that year, and then you’re good, you’re good to go and you can compare. And then people have even tweaked it further. For example, there’s one guy who said, I think job growth is more important than you think, Neal. So what he’s done is he’s doubled the weightage for that one factor. So he’s using a higher weightage for job growth and a lower weightage for all of the others. And that’s fine. You know, whatever works for you. I’m giving you a system and you can tweak it based on your thought processes, your ideas, and what you know about that local market. So I’m pleased that there’s 80 000 people currently in some way or the other using using this. And, you know, people are like, how do you make money from this? My answer is very simple. 1.25% of those 80,000 people are the people that have given me $330 million of equity to buy $1 billion portfolio, and the remaining 98.75% people got something valuable. They say good things about me to other people on the web, which grows my, you know, my sphere of influence. So there’s value there too, right? They they write, you know, these tens of thousands of five star reviews that that are there, they have value. And and so they’re getting something of value. Maybe they’re not accredited investors. Maybe they don’t have $100,000 cheque to give me. But I think the whole thing works and it was never intended by design to do any of these things over a, you know, 21 year journey. It just sort of ended up here.

Yoni Schmidt 28:24

Yeah. Love that. They say that, you know, the what is it? The law of compensation is determined by how many people that you help and how well you help them. Right. That’s I think, one of the five laws of stratospheric success from the Go-giver. If you haven’t read it, it’s an excellent book to to to read and share and give. Let’s talk a little bit about advice for, you know, aspiring investors. You’ve been around the block. You’ve done this for quite some time. You know, for someone who’s just starting in real estate, what would you consider the most critical first step? And, you know, aside for, for, you know, using this spreadsheet, right. What books, tools or resources would you recommend that they look into adopting, you know, a data driven approach to investing like you? Sure.

Neal Bawa 29:13

I want anyone that’s new to real estate, because I get this question a great deal, both from, you know, family and friends as well as from investors. So first, definitely take the Location Magic course on Udemy.com. That’s a good start because you you want a very non-biased opinion before you start getting bias. And then next join. Attend at least six meetups a year in your local metro. And these are physical meetups. You you know, if they have them over zoom. I’m not talking about those. Those are on top of the six. I want you to go out to six physical meetups and at that meetup, do exactly what I’m about to tell you. So when you go to a meetup, for each meetup, take a piece of paper with you and a pen and note down the three people at the meetup that were not organizers but were the most intentional, right? So this person, for example, is doing things in an intentional fashion. This person is saying, you know, when they have haves and wants. There’s this section where they give you a minute to talk about what you have. What do you want? That person is the most prepared because your job is to model yourself that way. When I was, you know, initially started buying buildings back to back, sometimes I would fall short of equity. So I would go to, you know, six, eight, nine meet up groups in a year. And I was always the most intentional person there. I would arrive early, introduce myself to whoever was at the front desk, offer my assistance, and many times they would ask for my assistance, I would give my assistance to them, and then I would introduce myself to the to the guy who was organizing the meet up group. I would give him lots of compliments. I would make sure that they knew my face because my intent always was to prepare presentations, bespoke, bespoke, interesting presentations and keep sending those presentations to the organizer because sooner or later, whoever they had as a speaker would cancel and they would be like, this Neal Bawa guy keeps sending me these interesting, you know, presentations about quirky topics. And I need a guy. And, you know, they’ll sooner or later call you. So whatever topic in real estate you feel you can get good at, or you can learn more about, learn more about it. I mean, you can watch a YouTube video and design a PowerPoint based on that. These days, you don’t even need to design the PowerPoint. You can simply take the YouTube video and have ChatGPT design it for you. Bottom line is, from the very beginning, your intent is not to simply be a person that visits the meetup group. Your goal is to become a presenter at meetup groups as many as possible. So whatever area you’re in, maybe it’s fix and flip, maybe it’s single family rentals. Maybe it’s rehab, right? As you learn more, take everything that you’re learning from meetups and from, you know, YouTube and other places and books. Design a presentation. No one is going to ask you at a meetup level whether you’ve done it a thousand times. No one does. Right. You’re not presenting at a conference. When I’m presenting in front of 3000 people, I have to have a track record. Right. I do that in Orlando every year. You don’t have to do that. It’s a meet up with 40, 50, 60 people sharing their ideas, sharing their thoughts. All you have to do is have a presentation. And a presentation is not enough because people need to feel good about you. That’s why you have to go to the meetup, be early, offer help, and every single time go up to the presenter and thank them. If you do this and by the way, at Haves and Wants, you need to have a crisp 32nd presentation of what it is that you have and what it is that you want, right? Most people ramble on forever and everyone tunes out. Yours needs to be the best. The Crispest. How do you know to make it crisp? Look at the people that have the best haves and want. In the meetup. Write down what they’re saying and say. How do I make mine better than this? Right. You just you have these these role models there and at the end of the presentation, if you, you know, you know you if you haves and wants allows you to do that basically say, just so you know, at the end of the presentation, I’m going to be in the back of the room and I’m going to do a case study on a multifamily property that’s $15 million that I’m looking to buy. Now, you didn’t say you bought one. You didn’t say you’ve sold one. You didn’t say you’ve made anybody any money. You’ve just said, I have a case study for a $15 million property that I’m going to buy, right. And then have an iPad with all of the information, pictures of this property and the underwriting screenshotted and stand there and start to swipe it. Two people will gather, and then a third person will be like, what? What are these two people looking at on this iPad? Third person will gather then fourth, before you know it, you have a big audience. And as you’re showing them this property, if somebody says, have you bought it? Say no, but I intend to buy it. I’m I’m working on investors. I have lots of interest. This is a great property. I think I’m going to make, you know, I’m going to double investor money in five years. And as you’re saying that to them, as people start to engage with you and make eye contact, ask for their business cards, and that’s how you’re going to grow your database. Yeah, right. This is a very simple process. It’s not complicated at all. Anyone can do it. It’s you know, you don’t have to have any credibility. You don’t have to have a track record. Everybody starts this way.

Yoni Schmidt 34:28

Right on that. Tell us, what’s your favorite city to invest in today?

Neal Bawa 34:35

It changes over time, but today it is Idaho Falls. I have no affinity to any particular city, so Idaho Falls, Idaho is my favorite city to invest in for a variety of different reasons. The city has low inflation, low land cost, so I can build there. Also, when I buy a property in Idaho Falls, the quality of the tenants is very high, incomes are very high, and Idaho Falls has the nation’s only Nuclear research lab that builds full size nuclear plants. A lot of people are like, well, Trump may not like nuclear. Actually, Trump really likes nuclear. But let’s say he doesn’t like it. We still have to fight wars in this country, right? We have a war coming up with China in the next five years, no matter what happens. And when we fight these wars, all of the ships have nuclear engines. The only place in the United States where you can make those engines is Idaho Falls. So we have, you know, a massive infrastructure around nuclear in Idaho Falls. And that infrastructure is growing at three times the, you know, the the US economy. So terrific place to invest in. I think it’s a phenomenal place. Charleston, South Carolina is a phenomenal market that is benefiting from the fact that North Carolina is now becoming a very expensive market. Raleigh, Charlotte are very expensive. And so people are getting pushed down and a lot of them are going to Charlotte. Grand Rapids, Michigan is a phenomenal market that’s benefiting from the from the return of, you know, return of manufacturing to the US. But only a small amount of manufacturing is returning to the US. But if Trump implements even 10% tariffs or 20% instead of the 60 that he’s talking about, there’s a list on our website of a dozen cities in the United States that have the infrastructure already. You know, the you need massive amounts of electricity and massive amounts of water and massive amounts of industrial capacity. It costs billions to build it. So guess what smart people do? They just basically go to cities that already have this infrastructure, and those cities are the ones that are going to benefit. Right. And so the day the the tariffs are imposed, the industrial, you know, capacity in those cities will go up. The jobs will go up that day. Right. So I’ll be out with my checkbook the day he implements tariffs. I’m going to wait until then.

Yoni Schmidt 36:55

Love that okay. So that brings me to my you know, my final question for your vision. So what’s next for Grocapitus and Mission 10K? Any major goals or projects on the horizon right now?

Neal Bawa 37:11

Yeah. So Grocapitus is the company that basically for a number of years has been buying properties and improving them. It’s a very profitable venture. You can see we’re transparent. So if we do good we tell you if we do bad we tell you it’s on our website, it’s at the top of the website. You can just see which ones we’ve done well with and which ones we have. Right. It’s all there. But the longest, for the long time, I realized that while taking older buildings and rehabbing them is beneficial for society, what’s really beneficial is creating new stock. So I separated my companies and Mission 10K became a developer. So as we started looking at developing apartments and I’ve developed a lot of apartments currently have, you know, 800 units in lease up in various apartments in the US. Wow. I realized that most people actually didn’t want to live in apartments. They lived there because they have no choice. They they don’t have the money for a single family rental. Right. And they, you know, they certainly can afford apartments, but they don’t want to live there. They want to be in a place that’s more private, has more privacy, especially since Covid. So Mission 10K pivoted and became a pure play townhome rental developer. So our goal is to develop 10,000 rental townhomes, each with a garage and a backyard. So you get that home feeling, but you don’t need $80,000 for a down payment for a single family home.

Yoni Schmidt 38:31

It’s built to rent.

Neal Bawa 38:33

It’s build to rent where we’re building these communities of 100, 200, 300 units where everyone has a townhome and some are bigger, some have two car garages, some have one car garages, some have master suites on the ground floor. All of them have backyards and their small backyards. They’re not large backyards. But what it does is gives people the privacy. You can have pets. You can have, you know, you can park a boat because you’ve got your own garages. And so I found that the communities that I’ve built that are townhome communities, people don’t leave because they think it’s their home. Whenever I build a brand new apartment complexes and I’ve built beautiful communities, people, when I survey them don’t think that it’s their home. They say, I’m just waiting to collect enough money to get a single family home where most people that live in my townhomes, they say, we want to live here for 20 years. That is value created for my adopted country. I’m an Indian. I came here as an immigrant and I really feel very strongly about giving back. I don’t think I can give back better than having 10,000 American families living in a beautiful home brand new that they like.

Yoni Schmidt 39:38

Yeah. Love that. Hopefully one day maybe you’ll consider Tulsa, Oklahoma, Oklahoma City, Northwest Arkansas, come here. Invest in our region. So just so you know.

Neal Bawa 39:48

My number one market to invest in in the United States right now is Northwest Arkansas. So I have properties in contract for construction in Rogers, Bentonville and Fayetteville. Rogers, Bentonville and Fayetteville are Oklahoma. I’m waiting for the rents to go up. So for new construction, a market’s average rents have to cross 1200. And Oklahoma is getting there. But it’s very close, but it’s not quite there without that, because construction costs are more or less fixed. Your underwriting doesn’t work so well. So we’re we’re sort of waiting for Oklahoma for a while. Tulsa is a great market too. But I would take Oklahoma City over Tulsa simply because Oklahoma has a greater benefit from the return of manufacturing than Tulsa does. Also, Oklahoma is a much larger market. Tulsa is 400,000 people. Oklahoma is, you know, as a metro, over a million. And so if I can get lower, you know, if I can get high cap rates in a million person market, I’d prefer that over a 400,000 person market.

Yoni Schmidt 40:49

Yeah. Love that. Well, we manage roughly 700 now properties in northwest Arkansas. And I can tell you it is it is a very good market to be in, especially with Walmart and Tyson. The return of the Walmart J.B. hunt. Yeah, I mean, you know, there’s a lot going on in Northwest Arkansas. It is a little bit more expensive. But, you know, despite the pricing being a little more expensive, the rents are, you know, also keeping up with it. So and taxes are not as bad as you would, you know, expect like in states like, you know, Texas or Florida, for example, where that’s one of the reasons.

Neal Bawa 41:29

We picked Northwest Arkansas. We are not investing at the moment at the moment in Texas and California, Texas and Florida, because the combination of high taxes and high insurance is an issue where with Rogers, the insurance is okay, it’s not great. It’s okay. But taxes are pretty reasonable overall. So when we look at that market, we feel like it’s much easier to get our net operating income up. So if you’re a property manager with 700 units, we should talk offline.

Yoni Schmidt 41:56

Well, we’d love to talk to you and learn how we can help. Neal, thank you so much for being here, enlightening us, educating me, specifically our listeners, our guests. This has been super, super fascinating. We’ll be sure to put the link for both Grocapitus and the Udemy course in the comments below. So if you’re interested in learning more and or connecting with Neal, feel free to check those comments in the description in the video below here. Thank you so much, Neal. Really appreciate your time today and for being here with us.

Neal Bawa 42:36

Thanks so much. Thanks for having me.

Outro 42:42

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