A real-estate mogul who owns more than 1,000 units shares the 5-part checklist that helps him make t
- Neal Bawa, the CEO of Grocapitus and MultifamilyU, employs a data-driven approach to real-estate investing that effectively removes speculation from his decision-making process.
- He uses population growth, income growth, home-pricing growth, job growth, and crime reduction as criteria in his strategy.
- Bawa says "data beats gut feel 100% of the time."
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Neal Bawa, the CEO of Grocapitus and MultifamilyU, didn't set out to become a force in the real-estate-investing arena. It just kind of turned out that way.
In fact, his introduction to the space was anything but conventional. It all started on a whim.
"I'm a technologist that accidentally found his way to real estate, basically in kind of a reverse fashion," Bawa said on the "Millennial Investing" podcast. "In 2003, my boss — who was the CEO of a technology-education company — asked me for help to build campuses from scratch."
He added: "At the end of it, we had a stunning campus that vaulted our business to the next level and made it impossible for our San Francisco Bay Area competitors to compete with us."
Bawa was hooked. He'd seen his initial investment transition into a formidable competitive advantage in real time. And from there, he started building.
Bawa invests in real-estate syndicates, which, in layman's terms, equate to crowdfunding for institutional-quality real-estate deals. Normally, an investor wouldn't be able to get a piece of this type of action because of the enormous amount of capital involved, but syndicates make it all possible.
What's more, he thinks this type of strategy is attainable for anyone that's interested in getting a piece of the action.
"One of the paths, I think, is to consider actually being an equity partner with some of the syndicates out there," he said. "I think that's a very, very good place to start."
If you're interested in this path, he suggests attending a number of conferences that are breeding grounds for deals, including Dave Lindahl's Ultimate Partnering conference, Michael Blank's Deal Maker Live conference, and Jake & Gino's conference.
5-part checklist for picking the right investment '90-plus percent of the time'
But developing relationships and making connections aren't going to help much without an eye for a good deal. Luckily, Bawa offers up the data-driven criteria he uses to spot a great market to invest in "90-plus percent of the time." He's not relying on hearsay or personal anecdotes. He puts his faith in the numbers.
"The strategy is based on the fact that there are these 800-pound gorillas in the room when you're looking at properties," he said. "These 800-pound gorillas are basically demographic gorillas, OK? And they affect everything you do. They affect your rent, they affect your delinquency, and they affect your appreciation."
These five variables, or "gorillas," include: population growth, income growth, job growth, home-price growth, and crime reduction.
"When you measure the size of these gorillas for every single property in every single city your looking at, you become a much better investor because you're a data-driven investor; you're not a speculator," he said. "You don't speculate."
If a city or property doesn't meet Bawa's criteria, he's on to the next one — no questions asked.
Here are the exact metrics he homes in on before pulling the trigger:
Population growth: A minimum of 1 to 1.25% growth a year
Income growth: At least 2.25% growth each year
Job growth: At least 2% growth each year
Home-price growth: At least 2.5 to 3% annualized
Crime reduction: As you would imagine, Bawa says to make sure crime is trending lower.
All of the data above can be accessed for free through city-data.com and multifamilyu.com/toolkit. Investors looking for specifics on implementation can head to udemy.com/realfocus, where Bawa will take you step-by-step through his vetting process. Type in the code "MAGIC49" for free access.
"Data beats gut feel 100% of the time," he said. "Whatever you cannot measure, you cannot manage."
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