#13: How I bought my first rental property ft. Pranay Parikh, MD

Welcome to the Passive Income MD podcast, where we talk about creating your ideal life through multiple streams of income. I'm your host, Peter Kim. If you enjoy hearing about this stuff, make sure to hit subscribe so I can bring it to you every week. Now, let's get on with the show. Hey, everyone, this is Peter Kim, Passive Income md. And today I'm really excited about this episode because I'm going to be bringing on board Dr. Pranay Parikh, and he's actually going to be talking about his very first rental property purchase. I mean, a lot of times on these podcasts, what I've noticed is that you talk to people who are very far down the road and sometimes they actually forgotten what it was like for their first purchase. And the good thing about Dr. Preak, he's been. Again, it's maybe been a. Actually, I think it's been about a year and a half now, but he's still relatively fresh in his mind, and he's more than happy to share his whole process, what he was thinking and kind of where he's going from here. So getting right to it, I'd like to introduce Dr. Pranay Parikh. How are you doing?

Hey, Peter. How's it going? I'm doing well. How are you?

Good, good. Thanks for being here. Can you just let us know who you are and what you do?

So my name is Prane Parikh. I'm a physician here in Los Angeles. I actually work nights, so I'm nocturnist. I'm also director of education for our hospitalist group. And I'm also a part of Passive Income md. I help with the Facebook group. I created a course with Peter about Passive Income. So.

Awesome, man. Yeah. So that's why I'm so, so excited to have you here, because I've seen you come along on this journey quite a bit, you know, over the last couple years, and it's been amazing to see. And I felt like we need to share this with other people because there are a lot of people that are just starting out this journey, and they're just trying to figure out how to get started. So I know that you bought your first rental property about a year and a half ago. How did that all come about? I mean, I guess in terms of mindset, what made you decide, first of all, that that's what you wanted?

I was trying to figure out where I would put a little bit of excess money. I had. I had just paid off my loans and was trying to figure out what to do with it. I was doing the, maximizing my 401k and all that stuff. And fortunately I had a little extra money left and I was trying to figure out should I put it in the stock market, what should I do? The big thing was whatever I wanted to do. I didn't want to make sure I paid extra taxes because it was my first and second time paying those much in taxes. I really didn't want to pay that much more. So I found real estate. And I think I've told you, but I was fortunate enough to have a sister in law that is not only a real estate agent, but a real estate investor in the Los Angeles area. So it kind of came easy to decide to do real estate.

I mean, what was your end goal? I guess when you first started this whole thing, like where I know you wanted to buy a property and it sounds like you wanted to avoid some taxes, but what was like the end goal for this? Like where did you see your life going and what kind of life were you trying to create?

Yeah, so the end goal was to probably own somewhere between five to 10 properties at least if they were all in Los Angeles, and to kind of have a little nest egg. And I really wanted to have something very separate from medicine and something that would be fun to do. My parents had properties and real estate and would kind of use a different side of my brain and provide a safety net. So make me money every month and you know, if something happened, I could always just sell it.

Gotcha. Yeah, I think that's a great way to think about it. I mean, that's exactly how I started. I had some situations happen at work and I decided that, all right, the only way that I was really going to be fulfilled in medicine was to have some income coming from outside so that I could shape it, shape my career in medicine how I want it. And it sounds like it was the same for you, is that right?

Yeah. And because I was doing the whole 401k HSA, all that stuff, I wanted something outside of that to really be well diversified, you know, and like they say you should have as many income streams as you can to kind of be, feel safe.

Gotcha. And you said your sister in law, she's a real estate investor as well as a realtor, is that right?

Correct. And actually property manager. So I kind of got lucky to marry into that. But the big thing that I always recommend people is because everyone knows a real estate agent, a test is actually not that difficult. But I think especially if someone is in your family or one of your friends, you have to vet them, maybe even more than you would someone else. But she was able to meet all my criteria. And we looked for properties for mutts and were finally able to find one.

Gotcha. How long did that whole process you said a couple months. How many properties do you think you.

Looked at on Biggerpockets real estate forum? You look at 100 properties, you make offers on 10 and you might buy one. And that's roughly about how much I did.

Gotcha. I mean, how did you know what was a good deal and how did you know what to make offers on is what I'm getting at.

Yeah, you know, a lot of times you really don't in the beginning, you know, so there's certain amount of rules, like the 1% rule where you look at a total price of the property and you want that to be a monthly rent that you can get, which is zero properties in California. So we kind of have a different world out here in real estate. But a lot of times it's just trial and error. So you look at a property and you're like, hey, this looks interesting. And in the starting, that's literally every single property and you just follow it. Does it get sold? How long does it get sold at? How long is it on the market? What does it go for? Does it go for less than asking, you know, and then you kind of just refine your taste after a while and if you spend the effort looking at it, you'll eventually start seeing trends.

What resources did you start using to kind of learn how to do all this stuff? You mentioned Biggerpockets forum, but what else? I guess books, blogs, podcasts, what else were you using?

Yes, the BiggerPockets forums, they have actually a blog that is amazing. I've actually bookmarked a lot of their stuff. Of course your vlog is great and there's a couple books kind of blanking on the names. I think the ABCs of real estate, that's pretty good. But you know, I'm not a huge book reader when it comes to this kind of stuff. I found that I was able to get pretty much everything from blogs and just discussion with other people through passive income docs online through Biggerpockets and my sister in law.

Yeah, gotcha. I think you probably touched upon a lot of the same resources that I used to. I mean there were some books that I read in the beginning. The ABCs of real estate investing. The same one that you mentioned was a good one because it actually has some numbers, some Calculations kind of how to do some basic due diligence on some of these rental properties. And you're right, the Bigger pockets blog forum, I mean that's, that's gold mine there. And it's all for free, right? So in terms of knowledge, it's all out there, people want it. And of course on my blog I try to do a lot of that as well. And we're trying to add to that with the podcast and on our Facebook groups as well. That's awesome, man. So you started with that and then you started putting down offers. Now how did you know how much exactly to put down for some of those offers? That's always been a concern for people when they first start making some of these offers. How do they know like. Yeah. What to ask for?

Well, so let me start off with putting an offer. If you're not familiar with real estate is not as big of a deal as you think it is. For example, there's a lot of properties that will not even let you look at it or send you all the paperwork before you put down an offer. So most offers are. Not all offers are non binding. You know, you can basically cancel for pretty much any reason. So I had to get over that fear initially and that took a little while and a lot of help from my sister in law and just other people online that I talked to. So the big thing to look for and it kind of depends on if you're buying a single family home or multifamily single family home. It's a little bit easier. You can kind of just go on Zillow and take a look around the neighborhood, see what's sold. That's why it's important to look for trends. So my sister in law always recommends going to different neighborhoods and just favoriting different houses. And then Zillow will send you an update. Is it under contract? Does it get sold? What did it get sold for? And then the second part is having a good real estate agent. They'll be able to pull up what they call comps or comparables to see what's been sold recently. So. So a lot of real estate is what the market is. Things may go up, things may go down for whatever reason.

Did your sister in law help you with some of the numbers as well? I mean, not just the purchase price of the home, but kind of figuring out what kind of rental income you might get and what it might look like in terms of a cash flow perspective for you.

100%. Especially important to get a real estate agent that knows that Specific area. I was looking at Long beach, for example, and she really didn't know the area all that well, but just like me, she would look on it on a daily basis and we kind of learned on it together.

I mean, why did you pick that area, particular one?

It's one of the few areas in Los Angeles that is kind of beachfront and affordable as opposed to all the other ones. And there is billions with a B of money that's getting put into that market to make it better. And it's really getting nice, even to the point that I'd probably be willing to live there if I worked closer.

I think I know some people that are living there now that actually love it.

It's beautiful.

And I, yeah, I've been there myself and it's actually come a long, really long way. And again, I know some physicians, even in our group, there are some physicians that live there and actually really, really love it. So. But there are places, like you said, that are still a little underdeveloped, that are kind of undergoing some transformation. It sounds like you kind of went looking in those types of areas, right?

Yeah, I want to look for a place that I could go in and maybe add a little value, what we call value add. So maybe a little cosmetic. And one of the big things I noticed about this one was that the property was self managed and we were able to install a property manager who was able to increase rents just by making it easier for the tenants to get stuff done and taken care of.

So you didn't want to manage it yourself, you're saying?

Correct. What I always recommend to people when they're analyzing deals, even if they are willing to self manage, is to put in the property management into their numbers because that's the only way to scale up. At some point I wanted 20, 30 units. I wouldn't be able to manage it myself. And as you.

What do typical property managers, what do they normally charge for people who are wondering?

Yeah, it's usually 5 to 10% of monthly rent. And that number varies according to how much work it takes and how many units you have.

Gotcha. And so from the beginning, when you first started looking to the point where you actually got that property, I guess finished escrow and it was yours. And you know, again, this is just the whole search process till then. How long was that whole process for you?

Ooh, it's hard to say exactly. I'd probably say six to eight months. I'd say from being interested in real estate, reading and looking on properties, you know, and I would look at anywhere from four to five properties per day, if not more.

Gotcha. So when you actually made that offer, I mean, did you feel like really confident when doing that or was there any sort of part of you that you know, was worried that you weren't making a good decision? Because I know that a lot of people, even me, and a lot of the investment decisions I still make, I mean, there's that fear that comes over you and you're like, am I making the right decision? And sometimes that actually stops you from making any decision. And so I'm wondering how you felt when you were actually doing it and then how you overcame that because obviously you did because you ended up with the property.

So. So it's actually pretty interesting how I ended up getting this property. So let me take a little bit, step back. As you guys know, I work nights. So for some reason real estate agents always like to publish their properties overnight. I don't know why. So worked out in my favor because I'm always, you know, awake at 3, 4, 5am and you can set up what is called a MLS major listing service alert that emails you as soon as a property gets available that meets your criteria, and that's through your real estate agent. So I had that set up and I saw this property and it looked amazing. So I texted my sister in law, told her, you need to make an offer as soon as you wake up. So that's what we did. And I had the whole night to kind of work out the numbers. And what I try to do is I try to be pretty conservative. So I say 10% vacancy, I use 10% maintenance. And we'll be happy to kind of give you all this in a spreadsheet, but it's worst case scenario, would it still be a decent deal? And I want to have the deal be good in multiple ways. So this deal, for example, was good in cash flow. It was around 5 to 6% cash on cash. So basically the amount of cash that would be in my pocket compared to how much I put down initially. So about 5 to 6% of that per year. And then it was underpriced by about 50 to $100,000. So immediately I'd gained some equity in it already. So that's why I told my sister in law, you need to make an offer right away. And we actually put an offer. They were going to have open house I think a couple days later. But I went to go see it the next day. I actually didn't even sleep. I went straight to Long Beach, I went to look at it, we put a full price offer down and they canceled all the open houses.

Gotcha. I mean, but how did you. First of all, that's amazing story. And the amount of determination you had to get, that was awesome. And it sounds like you were super aggressive and you made it work. But again, I mean, was there any fear in you? Were you worried that you weren't making a good decision? Did you decide you got to do it anyways? Like, how did you get yourself to take that action?

Totally, totally. You know, and my sister in law was asking me if I wanted to walk the place and I was like, I kind of do, but I honestly have no idea what I'm looking for if I did walk it. The thing is, when you, when you put down an offer, you have about 30 days to look at it. So I was able to hire a bunch of experts to come in, an inspector. And this isn't normally done, but we had someone do a camera through all the sewage lines and we had a bunch of people that I know know what they're doing and are licensed to help me get over that fear. And you know, if for any reason that they found something, I'd be able to cancel and I'd just be out a couple hundred bucks, which is not the end of the world, instead of being stuck with a really bad deal.

Gotcha. So tell us a little bit about the property itself, like how many units, kind of, what kind of area it's in.

Yeah, so the property is in Long Beach. It's in. One of my goals for Long beach was I want it to be in the single digit numbers. So 8th, 9th, it's around between 8th and 9th street and 3rd and 4th street is where all like kind of the young people live, you know, where rent is like 2,500 for a single bedroom. So it's where like class A, like really high people live. So mine's only a couple blocks away. So that's why I was fortunate to go in there. And I had traveled around that area, I drove around, so I knew it was a good area and I wanted multi unit, Right. So duplex, triplex, fourplex, so that they shared some walls, shared a roof and it wouldn't be as expensive as buying kind of a multiple single family homes. I didn't want anything more than four units because five units or more and you have to get a commercial loan where the interest rate is higher. Right. So at that point I didn't want to spend that much money. So four units close to the water. I knew I'd always have people to live there. As many bedrooms as I could afford, basically.

Gotcha. And so how's the management process been in terms of finding a property manager? Has that been difficult? Because I think one of the major concerns is how do I find someone else to manage it and how do I trust them? How do I know they're good?

Yeah.

And how does that process worked out for you?

We kind of get that all the time. Property manager, lender, and I kind of have the same answer for everything. So two things I look for. I look for referrals, number one, and I look for reputation. So I ask around, see who else is using this. And I had two actually separate friends recommend the same property manager. And then I looked at the reputation. I googled them, see if there's anything funky going on. And then I talked to him. So, biggerpockets, your blog has some kind of things to ask everyone on property Manager. So, you know, I just had it pulled up on my computer while I was talking to them on the phone. He answered all the right stuff and they have been invaluable. I mentioned at the conference that I had to evict someone and it was actually not that big of a deal because they took care of it all.

How much work and how much time have you put into or did you put in into kind of getting this all fixed up and getting things in order?

So the property or before the property?

No, about the property itself. Once you took over the property, how about the time it took to kind of get things going, moving, that sort of thing?

I've actually only been to the property once since I bought it, and that was to drive by and show my parents that I owned it, because I've had literally zero reasons to ever go there. And one of the things that I wanted was to make sure that it didn't require that much rehab because I was just barely squeaking by with the down payment. And I've just been fixing things as we go. Probably spent a couple thousand bucks in total since I bought it. So it's been very minimal effort required. And they used to do phone calls, but I'm always asleep, so I get an email maybe once a week or twice a month asking me for my opinion on something, but it's pretty much very laid back and they take care of everything, basically.

Gotcha. So it sounds like a lot of the work was done up front in actually trying to find the property, get it, and then maybe a little bit of work in the Beginning to kind of do some of the rehab, decide what you want to do. And then once management is in place and things all fixed up, it sounds like it was a little bit more, I don't know, smooth sailing for you. Does that sound about right?

Yeah, yeah, yeah. It's a little bit of stress when someone leaves, you know, and that's kind of the problem with only having four units as opposed to, you know, know 50. When you're missing one person, you kind of really feel that in your wallet. But other than that, really, it's. Yeah, smooth sailing.

Gotcha then. As a physician, I mean, what's been, I guess, one of the biggest challenges for you in trying to buy real estate and manage it and all that stuff? Has it been the time, do you think? It's been the knowledge more, has it been getting over that fear? Like, what's been the biggest challenge or obstacle for you?

I think having that fear of doing anything that increases your liability. You know, one of the first questions we always have anyone that wants to start real estate before they even start looking at properties, something about an llc, do I need this? Do I need an umbrella? But it's kind of just getting in motion. And, you know, it took me a while. After I started making offers, things started moving pretty quickly. Knowing that things will be okay and knowing that fortunately you have kind of a backup with your salary, know, you don't necessarily need this to survive.

Gotcha. And what's your plan with this property, like, kind of moving forward?

You know, I've been kind of on the fence right now. It's been doing pretty well. Smooth sailing. Personally, like, to own a multifamily somewhere between 50 to 100 units, but I don't have the funds for it. So I think eventually maybe I will sell this and do what is called a 1031, where you don't have to necessarily pay taxes on your gain and you're able to put all that money into another place.

Gotcha. And are you investing in real estate otherwise, like, besides just this, or.

Yes. So since that time, I've been doing a lot of passive real estate.

Explain what that is. Passive real estate.

Basically, it's all the work that I did for those eight months. Instead of someone like me that's kind of just trying to do it by learning as I go, someone who's an expert in their field will go and find a property, buy it, rehab it, get people in and. And they ask for investors. So they'll say, hey, you want to put in 25 to 50,000 in this and I'll kind of do the day to day and we'll sell it in a couple years and then you get a piece of the profit. That's what I've been doing. And then you can have either that for individual property, so like 300 unit apartment complex, which is called a syndication, or you could have a company that buys multiple, multiple apartments over time. So. So maybe like three to 10 years. And that's called a real estate fund. So I've mostly been investing in real estate funds because it's kind of lets me diversify across states and locations.

Awesome. So what's your ultimate goal with all of these properties and this real estate investing? Is it for cash flow? Are you trying to build your wealth? Where are you trying to go with this?

Yeah, so one of these online classes I took by Coach Carson, who teaches real estate, he talks about different stages that, that people are kind of in their career and their net worth. I graduated a couple years ago. I feel like I'm still in the growth stage. So I'm kind of using my money to grow equity or kind of my net worth. And then, you know, maybe in five to 10 years I'll convert that into something that is more cash flow and that will be kind of where I achieve financial freedom. I think personally right now, the kind of growth in equity and what will work for me best right now in my family.

Okay. I mean, it sounds like you're really busy. I mean, you obviously have a job and you have these titles that keeps you busy. And then you have your real estate properties and you're investing and obviously you are helping me with passive income docs and our Facebook groups and things like that. What other things are you up to? And any sort of kind of cool new projects you've been doing?

Yeah. So I actually just started a blog. It's pranay parikh.com and it's to really just help people learn to be more productive. And one of the big questions I get is, you know, how are you able to kind of do all this? And I actually looked to you and I was asked, peter, how are you able to do all this? And. But you know, so my first three blog posts would actually be pretty relevant, I think, to whoever's watching this, because I kind of outlined my structure of how to learn anything, you know, and I feel like in medicine we've kind of gone through this path. Elementary, middle school, high school, college and med school and all that stuff, residency. And we kind of are used to one way of Learning, we're kind of pigeonholed into that. And so when it comes to learning something for fun, say you want to learn a new language or real estate or investing, you are kind of lost because you have analysis paralysis. So I had to do it a couple times. Learning to help you, learning to start a blog. And. And I thought I'd put it all in one place and help people. So it's my first name, last name, Com. It's all free and check it out if you want.

Yeah, absolutely. We'll definitely put a link to your website and your new blog in our show notes. And I've got one last question for you. I mean, what's one tip for somebody? We get at this all the time on our Facebook groups and things like that. How do I get started? Or what's the one biggest tip that you have for me? You probably have a lot of tips for people and you give it all the time. But if you had to kind of sum it down to, like, your best tip for people who are trying to, I guess, start investing in real estate, buy their first property, or kind of get started along that journey to financial freedom, what is that one tip?

There's never going to be the right book. There's never going to be the right online course. You're never going to feel you're ready, even though you are. But, you know, it's kind of like when you started residency, did you feel ready to be an intern? Or when you were an attending, did you feel ready to be an attending? But you guys have the ability to do this with just a little bit of reading, a little bit of talking to other people. We're kind of all in this together, and I know for a fact that you guys can do this.

Awesome. I want to thank you for your time. Thanks for being here with us today. And I'm sure so many people are going to really feel inspired by your story. So I really appreciate you sharing that.

Thank you, Peter.

Okay, take care. All right, guys, see you next time on next Episode. Really enjoy having you here. We see you next week. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, make sure to hit subscribe. Are you part of our community yet? Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. You can join us on our Facebook group Passive Income Docs, and you can always learn more at our website, Passive Income. And thanks again for allowing me to be a part of your journey. See you next time.