Financial Freedom Through Real Estate Investing
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Christopher H. Loo, MD-PhD: Welcome, everybody to this week's podcast episode for the Financial Freedom for Physicians Podcast. I'm your host, Dr. Christopher Loo. And as you know, we talk about four types of freedom: time, financial, location, and emotional freedom. And what's grown from a small cohort of physician guests and audience has now expanded so that we're reaching more people. And with that, I'm bringing on guests doing things on the cutting edge, such as real estate syndications, investments, business owners, or entrepreneurs.
So today is going to be a discussion all about passive real estate investing. And with that, we have a special guest, his name is Mehdi Khachani, coming out of Miami, and he is the CEO of JMK Investing. So today's talk will be all about real estate, syndication, so many welcome.
Mehdi Khachani: Thank you for having me.
Christopher H. Loo, MD-PhD: Yeah, I know. It's interesting, because you found us organically, which is really great. And then we were talking backstage. So just tell us about yourself and about JMK Investing, and we'll go from there.
Mehdi Khachani: All right. I was at some point with a W2. So I can relate to all the physicians that are receiving a paycheck from an employer. And eventually, I transitioned and I built my real estate portfolio here in Miami. So prior to that, I worked in the medical device industry, I was an employee of Medtronic. It's one of the largest medical device companies. And I started buying properties on the side. And as I did that, I figured that I needed better property management. So I started a property management company. And from there, I added a general contracting business to initially just serve the portfolio of properties that I had, but then I took on third party clients.
And then from that point on, we did brokerage, and now we're serving clients and helping them identify investment properties, we do syndication. And the beauty of it is it's a one stop shop offering. And so when we work with potential clients, we can hold their hands from the moment they decide to buy property, through getting them tenants, remodeling the property, and eventually selling it down the road.
Christopher H. Loo, MD-PhD: Yeah, that's quite interesting. And I like how you reference W2 into self employment and entrepreneurship. I know physicians especially are interested in real estate because of the passive income, but a lot of them don't want to be landlords or there's high barriers. Tell us in general, the different ways you can get involved in real estate investing for passive income.
Mehdi Khachani: Yeah, so I mean, the most common way I'd say is as an LP on a syndication. So essentially, you have a sponsor or general partner that puts together a deal, they identify properties that are distressed, or have some operational efficiencies, and they see those properties, at least in the multifamily side, as a value add opportunity. They go in, they improve the property, improve the financials, and eventually, there's some form of exit down the road, where you either refinance the property or you sell it. As an LP you put in a certain amount of money, typically it's 50 to 100k. Some people have 100k as the mean contribution, and then you'll be receiving regular cash flows from the property and eventually you have capital events down the road. And these projects can take five to seven years. That's one way to do it.
The other way to do it is to do a JV. So I have a doctor that I've purchased property with and he's in it with me, and it's not completely passive. So essentially we own the property, two or three people, and we each have a different share of that property. And then there is the way that is really involved, which is you can buy property yourself without needing an indicator to hold your hand, and as soon as you buy it, you will find an amazing property manager so that you have zero headaches.
Christopher H. Loo, MD-PhD: I started my career out in direct active real estate investing and being a landlord, and the top three headaches for landlords or tenants, toilets and trash. And then you realize there's better ways to do it, you can go in as a partner or a syndication. So if people are interested in getting involved, what's the easiest way to get started, in terms of resources? Should they become a landlord first, get some active experience? Or find a sponsor or syndicator? What are your thoughts?
Mehdi Khachani: Hey, I think action is the best way to do it, so long as you get something going, you're in better shape than just over analyzing and thinking about it. And you don't have to buy something very big. If you want to just experience what it is to own a property, you can buy a single unit, a single family home, look at the cash flow and go through that entire process to educate yourself. It's not necessarily going to be the most profitable venture. But you'll go through the process of paying for insurance, property tax, working with the title company on the closing, working with a realtor, possibly hiring a property manager. Property managers should technically offload the owner from most activities. That's one way to do it. And like I said, I prefer to do something rather than not do anything and just think about what's the optimal way to do it.
Doing syndication is relatively safe. And if you get a paycheck in your mailbox. And if you find the right investors to partner with, you’re going to be doing very well. And the reality of it; I mean, on syndications, you’re the syndicator, that's okay. But as an LP, LP’s own the majority of the deal, and they do just as well on this transaction. And it's okay to diversify as well, you can try one and the other and then find the right balance.
What I've seen with physicians specifically, is that you have so much going on with patients and follow ups and, and working with insurance. The last thing you want to do is deal with the paperwork. And I come from a family of doctors, by the way, my dad is a gynecologist. He owns a clinic with 12 beds. My brother is also a gynecologist here in town. So I know it's a completely different mindset as a real estate professional.
Christopher H. Loo, MD-PhD: Yeah. The other thing is, so you mentioned property management. Most of my guests have either been investors, mostly direct active, and a lot of them have been syndicators. What's interesting is you have property management experience. Say you have a landlord, and they're trying to offload properties, but they don't want to sell it, they just kind of just want to handle it passively. What are some ways to vet a property manager?
Mehdi Khachani: That's a very good question. I mean, you want to talk about the size of their portfolio, how long they've been in business, their processes. You want to ask for references. One of the advantages we have, a lot of the maintenance is handled in house. So we have a crew of people that are on our payroll that do maintenance. The advantage of that is if you need any type of maintenance service, you're going to have top priority because you’re a client of ours. Speaking of Miami specifically, I think it applies to some other cities too; vendors are very difficult to get hold of. So having everything integrated actually makes it extremely easy for the landlord.
I think you probably heard about the book that talks about the one thing, I think the title of the book is The One Thing. Once you own a property, what's the one thing you want to do right so that if you were to do it correctly, everything else going forward is easier? And that one thing I would say is definitely picking the right property manager. And I would take it to another level. So if you were not to have a property manager, what's the one thing you want to do right? If you were to do it right, everything gets easier, running and managing the property yourself, is finding the right tenants. We spend a lot of effort, and we prefer to have the property completely empty than to have the wrong tenants in our facilities.
Christopher H. Loo, MD-PhD: Yeah, it's all about vetting the tenant. And when I first got tenants into my property it was just all about their character, credit history, occupations.
Mehdi Khachani: Income. You're gonna need records of all of that.
Christopher H. Loo, MD-PhD: Income, yeah. The wrong tenant can just mess everything up.
Mehdi Khachani: So absolutely, absolutely. Let me also share a tip with your audience. So all those things you mentioned are extremely important. Character; I like to meet the tenants in person. You want to make sure the tenant has the right level of income. On the leases, there is an area where you can specify the amount of maintenance that the tenant is responsible for. So essentially, on our leases, if anything can cost less than $200, to take care of - the light bulb, I mean, they have to change the air filters. It's their responsibility. And so if you're going to manage the property yourself, or even as a property manager, you want to set that threshold around $200. So that they're not gonna call on you for things that don't need your attention.
Christopher H. Loo, MD-PhD: Yeah, that's so key. Now that we've got a good lay of the land, tell us more about JMK. And I know some people are interested in property managers. Do you do out of state property, or do you just do local property management?
Mehdi Khachani: Mostly local, but we have a service, which is like a property management service, where we can and work by, especially with debt servicers, where we manage properties remotely. We're focused on the US market. But property management is only one one vertical of our business. Aside from that, we also have the general contracting and plumbing license. Essentially, we offer services, even to third parties, for remodels and new construction. And that's another group. And each of these businesses have its own P&L leader, a business leader. And then the third one is the brokerage, which is actually growing very fast. We have our own realtors in house, that is the properties that we manage, but also these third party customers, houses or transactions for buying and selling on the commercial and the residential. And then the investment, and the investment is the most exciting one. One of the things we do is we cater a lot to people from California, the North East, and also Latin America. With everything going on over there. We have a lot of investors that seek properties in the southeast to kind of hedge against inflation.
Christopher H. Loo, MD-PhD: Yeah, that’s so wonderful. This was a very fascinating discussion. I think real estate is quite an attractive investment. How are you talking to clients about positioning themselves in the current times, with interest rates and potential housing bubbles. What are your thoughts on that?
Mehdi Khachani: Yeah, regarding the housing bubble, I don't think we're gonna see what happened in 2008. So there’s gonna be a correction, but nothing crazy, like last time around. Regarding interest rate, interest rate definitely is going to impact property values. I mean, the debt service is going to be more difficult at a higher interest rate. But on the residential side, the demand is affected by the interest rate. So if you look at a house that's worth $500,000, because the interest rate is higher, the pool of people that can buy that house is also lower.
In terms of things that can be done. I mean, you want to be as cautious as possible. You want to be careful with how much leverage you have. Definitely a big factor. I would try to get as much credit as possible in terms of line of credit. Why? Because if there is some form of crisis, or if the current recession gets worse, you want to be in a position to buy. So trust your leverage, try to be a little bit more conservative. Try to have cash available to go after opportunities when they come up. But at the same time, you don't want to go out completely right. The opportunities are available. Nobody knows what's going to happen. So if you find an opportunity that meets your numbers today, go for it. Buy it, and I think regardless, inflation for real estate is not a bad thing. What happens in real estate when inflation takes place, rents go up, when rents go up, property values go up. It's harder to get a loan, but still your property value is definitely going to increase in value.
Christopher H. Loo, MD-PhD: Yeah, this has been a really interesting discussion, how can people visit your website or get in contact with you?
Mehdi Khachani: They can visit our website at https://jmkre.com. That's for the brokerage. Or https://jmkpropertyinvestment.com. We also have https://jmkpropertymanagement.com. And then finally https://jmkcontractor.com for the contracting services.
You can reach out on Facebook, on LinkedIn. I'm always available to help, need advice, if you're trying to make a decision, shoot me an email. I'm always looking forward to meeting new people. And my goal, I've kind of achieved financial freedom. I think that's probably the best thing I could have dreamt of. As long as I can sustain it, I'm happy with it. But I want to help other people get to where I am, so if I can do that. Reach out to me and I will give you my best advice.
Christopher H. Loo, MD-PhD: Excellent. And for all the listeners, Mehdi’s resources will be in the links in the show notes. Thanks so much. It was a pleasure to meet with you and talk with you and just discuss the current state. You gave some very interesting and important nuggets of wisdom.
Mehdi Khachani: Thank you.
Christopher H. Loo, MD-PhD: Many thanks again for being here. If you’re new, you can find me online at Christopher H. Loo, MD-PhD, where I have links to other episodes or links to online resources that will support you on your financial literacy journey. I’ll see you there in on next week’s show. While I bring you thoroughly vetted information on this show regarding a variety of financial topics, I cannot promise you a one size fits all solution. This is why I caution you to continue to learn. Educate yourself and seek professional advice unique to your situation. If you want to talk to me, I welcome it. Please reach out via my website or email at Chris@drchrisloomdphd.com. I read and personally respond to all of my emails. Talk soon!
Editor's note: This transcript has been edited for brevity and clarity.