The In's and Out's of Passive Multifamily Real Estate Investing!

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Today we are diving into the ins and outs of passive investing in multifamily real estate!

– A passive investors role within a MF syndication!

-Top underwriting metrics to analyze as a passive investor​.

-Typical returns for passive investors in multifamily (class a, b, c).

-Minimum investment amounts? -MORE!

VIDEO TRANSCRIPTION

00:00
so we’re good to go i would have thrown
00:01
a wig on too man if i was doing any kind
00:03
of makeup work here
00:04
you know i don’t know i’m going to cover
00:05
up this this this crazy wig needs to
00:07
latch on to something man
00:09
that’s true that’s true but welcome to
00:11
money mondays we do this every monday at
00:13
what time ben
00:14
3 30 central 3 30 central so for those
00:17
of you tuning in for the first time we
00:18
talk about
00:19
a lot of different topics right this
00:21
week’s topic
00:22
is the ins and outs of passive investing
00:26
but real estate investing real estate
00:29
jeez you missed like two of the eight
00:30
words in the title
00:31
man 25 off but okay you know we do all
00:34
sorts of different topics this week
00:35
we’re talking about passive investing in
00:36
real estate
00:37
but you know if anyone has any future
00:39
topics please let us know we’re happy to
00:40
go through topics
00:41
you know we really try to go through
00:42
these and kind of talk about what we
00:44
know
00:44
what we don’t know maybe write and kind
00:46
of share the things that we know and
00:47
don’t know
00:48
but more importantly at the end of this
00:49
we do q and a so we were happy to kind
00:51
of solicit live feedback
00:52
so if any of you have any feedback
00:54
please feel free to ask yeah we want it
00:55
to be interactive right you know i mean
00:57
so yeah i’d definitely
00:58
encourage people to let us know if
01:00
they’ve got you know some topics that
01:01
they wanted to cover right
01:02
is your haircut interactive it can be i
01:05
was good i was going to ask because ask
01:06
you know on on camera today hey anybody
01:08
know a barber they’ll come out tonight
01:11
as a benefit for the team you know a
01:13
company benefit we can get a massage
01:15
a little masseuse get a haircutter and
01:17
um well i know it’s unfortunate because
01:19
of coba you know
01:20
the barber that i was going to you had
01:21
to come out of business we did get a
01:23
fish tank for the office that’s the
01:24
audition
01:25
the team is growing it was uh yeah by
01:28
three
01:28
salt water fish tanks no and it was as
01:32
heavy as it sounds folks um
01:33
you know but it looks it looks beautiful
01:35
we always want people to kind of come
01:36
over so it’s another talking piece for
01:38
us
01:38
absolutely so all right well let’s hop
01:40
back into this
01:41
right let’s keep going let’s talk about
01:43
some real estate here so
01:44
um getting started as a passive investor
01:47
what are the first steps you did a
01:48
little
01:48
you did a little bit more past investing
01:50
than i did you know so why don’t you
01:52
kind of talk through what your process
01:53
kind of looked like i mean to me
01:55
i think the first thing i’m trying to
01:56
say getting educated right regardless of
01:58
what you’re investing and i know we’re
02:00
talking about real estate but whether
02:01
you’re doing real estate or oil
02:02
yeah you know go get educated go learn
02:05
from people that
02:06
have done it usually i like books
02:08
podcasts is obviously a new thing as
02:10
well
02:10
for me i learned most of what i know
02:12
from podcasts and books i mean hands
02:13
down no questions asked
02:14
get educated figure it out but also hop
02:16
in and get going right
02:18
go to meetups meet people that are doing
02:20
it right that’s the big thing get a
02:21
little bit of guidance but also don’t
02:23
sit on the sideline and don’t expect a
02:25
home run on your first investment right
02:27
i mean it just
02:27
it happens great but also it’s about
02:29
learning through the process
02:31
and you know kind of get going so and
02:32
we’ve got we’ve got a good module on
02:34
investoracademy.net folks you know if
02:36
you want to check it out it’s it’s one
02:37
of our cost-effective
02:39
you know courses that we have online and
02:40
it really goes a to z
02:42
you know it’s a 30-minute show on
02:44
facebook live and on some of the other
02:45
platforms that we have um
02:46
you know stuff on so we can’t dive into
02:49
all the intricacies of it
02:50
but you know that that kind of has a lot
02:52
deeper dive on investoracademy.net right
02:54
so you know getting educated is one big
02:57
step right
02:58
you know networking with the right
03:00
people you know even as a past investor
03:02
there is a little bit of a job
03:04
you know because these are such
03:05
tight-knit investments right you got 20
03:07
30 maybe 40 investors on the whole thing
03:10
you got to be at the right place at the
03:11
right time right and you have to know
03:13
those people that are doing deals
03:14
you know you can’t generally solicit
03:17
these for the most part right now
03:18
there’s 506 c’s and b’s right
03:20
so maybe you’ll stumble across some of
03:22
those
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you know but for the most part it’s 506
03:25
bs
03:26
right and so those mean that you have to
03:28
know the sponsor
03:30
ahead of time yeah you know and be on
03:32
their distribution list
03:34
to even be able to look at the deal yeah
03:36
right so you have to get out you have to
03:37
pass out some business cards especially
03:38
at the beginning
03:39
and really kind of understand who’s
03:41
doing deals yep all right so
03:43
that’s kind of going to our second
03:44
question which is you know how to find
03:45
deals well you got to get out there
03:47
get out there talk to people the term
03:49
you’re looking for figure out what you
03:50
want to do first right if you’re purely
03:52
i guess one thing we kind of glossed
03:53
over if you want to be purely passive
03:56
or quasi-active quasi-pactive or fully
03:59
you know you’re participating a hundred
04:00
percent but you’re kind of thinking well
04:02
but it’s not really passive right let’s
04:04
actually let’s take a step even farther
04:05
back right we dove right into passive
04:07
investing some people might be like what
04:08
the heck is that yeah right let’s go
04:10
let’s go through the tiers of power
04:11
let’s just maybe go up the echelon so
04:13
the first thing you have is pure passive
04:15
investing to me that is i’m gonna hand
04:17
bend some money i’m gonna check out
04:21
right you know meaning step away let him
04:23
trust him to do his job
04:25
right and he’s gonna hopefully get a
04:26
return on my money right
04:28
i’m not very involved it’s very passive
04:30
for me i may be filling my paperwork i
04:32
may be doing some wire
04:33
and yeah and i’m getting mailbox money
04:35
right the next rung up usually
04:37
is people that want to figure out how to
04:40
get involved in a deal right
04:42
so maybe ben is buying a deal and i part
04:44
hey ben can we partner
04:45
i will help you with x i will help you
04:47
with the construction management because
04:49
i live in that city and i i’m a
04:50
my background is in construction right
04:52
so now i’m probably investing
04:54
money which is going to generate some
04:56
income but i’m fairly active right
04:58
the next rung up is like hey ben i want
05:00
to do what you do right i’m going to be
05:02
you
05:02
yep right so now again usually you’re
05:04
investing money
05:05
but it’s very active and then last but
05:07
not least some people buy their own deal
05:08
as well
05:09
right and that’s kind of going up the
05:10
ladder it’s not really just passive
05:12
investing at that point in time to me
05:13
that’s all active
05:14
and you can do it any combination it
05:16
doesn’t mean we’ve seen a lot of people
05:18
take that
05:18
that rung upwards but we’ve also seen
05:21
people that have just
05:22
dove right in right yeah and as soon as
05:24
and as chat said hey chad how’s it going
05:26
hey
05:26
it’s all about your goals and how much
05:28
involvement you want to be in a deal
05:29
that’s exactly right
05:31
there’s pros and cons of each level and
05:33
you’re it’s all about your time
05:34
you’re you know you find it what you’re
05:37
looking to get you know are you trying
05:38
to convert sweat equity into equity
05:40
you know or are you retired and looking
05:42
for cash flow i mean it depends
05:44
everyone’s got their different things or
05:45
there’s not a right or wrong
05:46
and i always tell people you know with
05:48
with our deals and i’m sure it’s
05:49
probably similar to some of the other
05:50
folks as deals do
05:51
right you got to fill out four pieces of
05:52
paper for us you got to make a wire
05:54
transfer
05:55
and then all we ask after that is that
05:57
you review the monthly financials you
05:58
ask questions right
06:00
and most people don’t do that but we
06:01
still ask people to do that right
06:03
um you know and beyond that right you
06:05
know we don’t even mailbox money anymore
06:06
right
06:07
you know we don’t do that because it’s
06:08
too labor intensive we’re just getting
06:09
dumped at ach into somebody’s account
06:12
right so then you kind of sit back and
06:13
you let the the the distributions kind
06:15
of come in
06:15
but that’s really as a passive investor
06:17
that’s all you have to do yeah right i
06:19
mean beyond obviously you’re going to
06:20
vet the sponsors you might be
06:21
voting rights later on right yeah but i
06:23
mean even
06:24
agreement every couple yeah i mean even
06:26
that’s a a simple email right there’s
06:28
not like you’re gonna have to go
06:29
somewhere and
06:30
vote in person i mean obviously there’s
06:32
you know a little bit of to the a quorum
06:33
and
06:34
you know a certain amount of people have
06:35
to vote yes to do something but
06:37
you know review your company agreement
06:39
just to kind of see if there might be
06:40
some additional things that you have to
06:41
take
06:42
you know into consideration whenever you
06:44
invest but for the most part it’s very
06:45
minimal
06:46
so that is what passive investing is in
06:48
the most truest sense and for
06:49
a lot of the working professionals that
06:50
we work with this is the best option for
06:52
them because they’re working 40 50 60
06:53
hours a week
06:54
and they don’t want to do what we do we
06:56
live and breathe this stuff every single
06:57
day
06:58
you know and so for them it’s the
07:00
perfect combination right they get they
07:01
get the benefits of
07:03
investing in commercial real estate
07:04
without the headache you know of
07:06
actually having to manage the asset
07:08
right
07:08
absolutely so kind of moving along here
07:10
because i know we kind of got a little
07:11
little sidetracked i mean event tends to
07:13
get sidetracked but it’s okay we like to
07:15
talk and that’s what we do
07:16
so you know you should see us in our in
07:17
our conference room we uh
07:19
we’ll go through 40 different topics
07:20
around the world and be back and start
07:22
over where we started
07:23
hey we try to get some stuff done you
07:25
know it just depends on how much coffee
07:27
we’ve got
07:27
no no all right so let’s talk about what
07:29
is the typical
07:31
minimum investment for multi-family
07:32
associations sorry before we go with
07:34
that
07:34
going back to the fine deals maybe we
07:36
talked a little bit about where to find
07:38
sponsors but maybe you want to touch on
07:39
things to vet how do you vet a sponsor
07:41
well i think that’s important i think we
07:42
got that something’s coming up
07:44
right um well no no okay so let’s talk
07:46
about that that is actually important
07:48
right um you know from a perspective of
07:51
what are you looking for in terms of a
07:53
deal what are you looking for in terms
07:55
of a sponsorship team
07:56
right you need to define your box right
07:58
first where do you want to invest this
07:59
is your box not there
08:01
not my bias is not this is like hey
08:03
where do i want to invest right so you
08:04
want to say
08:05
i only want to invest in class a deals
08:08
in primary markets right and that means
08:10
the fw houston austin you know
08:13
atlanta those are primary markets and
08:15
you’re only going to invest in the newer
08:16
assets you know say
08:17
90s and above is going to be class a
08:20
right that is your box
08:21
that’s a pretty defined box right and so
08:23
you’re only going to look at deals that
08:25
find that are falling in that box right
08:27
and then from there right okay now i
08:29
found a deal it falls in this box
08:31
now what i do now i’m going to vet the
08:32
sponsor right i want to make sure that
08:35
their track record is there
08:36
they’ve got you know the business acumen
08:38
to pull it off they’ve got the team to
08:39
pull it off
08:40
right you know they maybe got assets in
08:42
that area or if they don’t do they got
08:44
boots on the ground
08:45
you know you need to go through some
08:47
vetting process and you need to ask
08:48
questions
08:48
and then and sorry good i was always
08:50
going to say i’m always leery unless
08:52
people have invested with us
08:54
prior i’m always leery of anybody that
08:56
doesn’t ask questions and just
08:58
willy-nilly invest into our deal and i
09:00
usually will call them up and say hey
09:01
you know did you review the company
09:03
agreement did you review the ppm
09:05
did you go over the webinar that we went
09:07
through because what we do is we go
09:09
through a webinar it’s usually an hour
09:10
an hour and a half
09:11
we go through the whole entire business
09:12
plan and we let people ask
09:14
questions and try to pick it apart at
09:16
the end right it’s an open q a
09:18
we don’t hold back we’ve also gotten
09:20
some crazy questions
09:21
you know but that’s fine we want people
09:23
to put us on the hot seat this is their
09:25
hard-earned retirement money
09:27
so you have to ask questions folks but
09:29
that’s the one thing you have to define
09:30
your box make sure hey this is where i
09:32
want to invest in
09:33
and then from there you find those
09:35
people that are doing those types of
09:36
deals and then you vet them
09:37
right and it’s a typical thing if you’re
09:39
going to be a partner with somebody
09:40
which you really are
09:42
you know you need to vet somebody right
09:44
and you know asking those tough
09:45
questions there’s
09:46
nothing if you’re if your sponsor is not
09:48
answering those
09:50
i would be i’d be leery yeah absolutely
09:53
yeah don’t be scared to ask them what
09:54
their best deal is what the worst deal
09:55
is why is it the worst deal
09:57
what have they been with what have they
09:58
made exits what have those gotten right
10:00
can i talk to your investors right so
10:02
it’s
10:03
you know it should i mean this is your
10:05
hard earned money don’t be scared to ask
10:07
your sponsors questions
10:08
and folks and you know there’s always
10:09
people that are starting off so
10:10
everybody always has to have that first
10:11
deal
10:12
so you know you can either be the
10:14
disaster can be
10:16
wildly successful right but you need to
10:17
determine okay who is that
10:19
first that person’s first deal who are
10:21
they partnering with because i think on
10:22
that it’s not necessarily going to be
10:24
that person that might have brought you
10:25
the deal but more so the team’s
10:27
experience too so don’t just
10:28
don’t just vet and look at the one guy
10:30
or gal that’s kind of leading it
10:32
look at the team because there might be
10:34
two or three guys or gals that are in
10:35
the background that are really the ones
10:37
that are kind of shepherding the deal
10:38
along too
10:39
right yeah so for those of you tuning in
10:41
monday mondays with us every monday 3
10:43
30 central talk about a big variety of
10:45
topics usually real estate focused
10:47
usually multifamily focused but we’re
10:49
happy to talk about any topic people
10:50
want to talk about so if you have
10:51
suggestions please feel free to let us
10:53
know
10:53
otherwise we’re just going to keep
10:54
picking topics out of a hat until we run
10:56
out of topics so
10:57
that’s what we’re going to do so uh our
10:59
house could continue to get bigger
11:00
though yeah
11:01
it’s got to keep picking things up ben’s
11:02
got a lot of hats ben likes to wear his
11:04
hands
11:05
i got to cover up his head yeah now if
11:06
only he could use those hats while he’s
11:07
working so anyways
11:09
um uh more importantly uh so this week
11:12
we’re talking about the ins and outs of
11:13
passive real estate investing
11:14
right we’re going to wrap up this
11:16
presentation probably in about five
11:17
minutes or so so if you have questions
11:19
you know to me the best part is q a
11:20
that’s what we enjoy the most
11:21
that’s what i think the audience gets
11:22
the most out of so feel free to leave
11:24
comments questions we’ll talk to them
11:26
um really quickly before you do that so
11:29
chat says uh
11:30
vetting your sponsor is one of the most
11:31
important aspect of my decision making
11:33
in joining a team
11:34
it can make her break a deal for me
11:35
absolutely no questions as it should
11:38
like it’s not just about the deal
11:39
because a good sponsor can make a
11:41
mediocre deal maybe perform right if
11:42
they think it’s going to form absolutely
11:43
a bad sponsor can make a good deal yeah
11:45
it goes both ways right you know a great
11:47
deal can be mismanaged and a bad deal
11:49
can be
11:50
brought across the finish line right
11:52
yeah and david says david
11:55
iggy says what’s up hey what’s up my don
11:57
iggy amanda says i always recommend
11:59
speaking to people who have invested
12:00
with the sponsors and previous deals
12:02
yeah totally agreed ronnie says what’s
12:04
up guys both of you all have starbucks
12:06
today
12:07
time for y’all to code gps starbucks
12:09
deal we want to buy a starbucks
12:11
property so we can rent it just so i
12:13
could say i own a starbucks i bet you
12:15
the cash
12:15
on that thing is really low it’s
12:17
probably off the recap yeah i wouldn’t
12:19
be surprised
12:20
but we’re not wearing plaid today so
12:22
we’re both wearing blue sporting the
12:23
bubbles i really really thought about it
12:24
this morning but i decided that
12:26
uh leslie chat says try and spend time
12:29
with sponsors and ask questions verify
12:30
on your own
12:31
trust but verify their track records
12:33
integrity skills values and goals be
12:34
aligned with yours
12:35
completely agree you know code go to
12:37
their office go see their fish tank go
12:39
hang out with them
12:40
you know so uh you know definitely you
12:43
need to you need to feel comfortable
12:44
with these people right you know i mean
12:45
it’s it’s not just uh
12:47
yes you can you can never meet them in
12:49
person but you need to have some phone
12:51
call calls with them you do need to do
12:53
some background checks you just need to
12:54
you need to understand where they’re
12:55
coming from and where they’ve been
12:57
right because it is important and i
12:58
think integrity chat brought
13:00
stuff like that up to some of these soft
13:01
skills are important right you know are
13:03
they going to do the right thing
13:04
you are wiring somebody money folks you
13:07
know you need to trust
13:08
that they’re going to not take off with
13:10
your money right
13:11
and so it’s very very important that you
13:13
trust these people and that
13:14
that they’re the highest integrity right
13:17
so
13:18
talking about some of these additional
13:20
questions here so
13:21
i’m gonna i’m gonna hop around because
13:23
we’re kind of running a little bit
13:24
behind on time right
13:25
um you know what is the typical minimum
13:27
investment
13:28
we’ve seen anywhere from 25 000 for a
13:31
passive investment
13:32
upwards i think the most that we’ve seen
13:34
is probably 500 000
13:36
you know to kind of get into some of
13:37
these you know more institutional
13:40
you know funds but assume that
13:43
what you’re going to see from us is
13:44
going to be anywhere from 50 to 100 000
13:47
minimum right you know friends and
13:48
family we might you know work in the
13:50
deal it’s really up to our discretion
13:52
the reason that we try to try to keep it
13:53
at a certain thing is that we don’t want
13:55
200 investors on our deals
13:56
right there’s that’s a lot of paperwork
13:58
that’s a lot of compliance it’s a lot of
13:59
tax returns that we have to do
14:01
so we usually back into what the minimum
14:02
is going to be and that’s the reason why
14:04
we pick different amounts
14:06
you know and and also just depending on
14:07
how big the deal is so that’s one of the
14:09
questions that we had
14:10
and so usually you’ll see in between 50
14:12
to 200 000 the kind of the
14:14
the spread that i see well yeah i mean i
14:16
said 250 i mean i’ve seen that upwards
14:18
of 500k
14:19
right you know you’ve got to be
14:20
listening to me man come on you’re
14:22
killing i’m
14:23
kind of spacing out i’m here texting
14:24
with my friends all right well
14:26
somebody’s gotta do some water
14:27
people if anyone’s you so much those are
14:29
you tuning in monday mondays 3 30
14:31
central
14:31
go ahead and leave comments questions
14:33
we’re about to open up the q a
14:35
talk about a lot of different topics
14:36
this week we’re talking about passive
14:37
real estate investing all right so let’s
14:39
talk about top
14:40
underwriting metrics you know i think
14:42
some of the things that you know you
14:44
probably want to focus on
14:45
is it a good deal or not right um and
14:47
this is all
14:48
very you know don’t take this as you
14:51
know
14:52
um you know set in stone i think each
14:54
each metric is
14:55
is important its own way right i usually
14:59
look at stuff as an average annualized
15:00
return right
15:01
you know because if i can get six to
15:04
eight in the market
15:05
and the market being the stock market
15:07
right if i can get
15:08
15 to 20 percent in a multi-family deal
15:11
and get the tax benefits
15:13
of investing in commercial real estate
15:16
i’ll take that deal all day long right
15:18
now does that include is the majority of
15:20
that average annualized return in cash
15:22
flow
15:22
or is the majority of that on an exit
15:24
and so you have to kind of weigh that
15:26
too right so a lot of people will talk
15:27
about cash on cash returns
15:29
total returns but what average
15:30
annualized returns is folks is you take
15:32
the total return that you’re gonna get
15:34
say it’s a hundred percent right and say
15:36
you’ve owned the property for five years
15:39
well what’s your average analyze return
15:41
20 percent
15:42
right so that’s what it is because that
15:43
was talent that was a tough one that was
15:45
a tough one but
15:46
i like that because i look at things in
15:48
that in that way
15:49
but other folks are irr driven you know
15:53
i would say honestly take a top
15:54
underwriting metrics first thing i like
15:56
to look at is what is the reversion cap
15:57
that that person is getting no
15:58
i was good i was getting what is someone
16:00
going to value the exit
16:01
value how are they going to value what
16:03
the property’s worth at the end because
16:04
that’s an easy number to tweak and all
16:05
of a sudden a bad deal looks great
16:07
yeah and so you have to be one thing we
16:09
won’t get too far in the weeds and this
16:10
is we talk about this on
16:11
investoracademy.net folks is
16:13
you know a reversion cap is obviously
16:15
the cap rate that you’re gonna you’re
16:16
gonna value the property when you go to
16:18
sell
16:19
and usually the rule of thumb is okay so
16:21
say we bought it at a six cap
16:23
and we’ve held it for five years you
16:26
know and
16:27
we’re gonna say that hey we’re gonna
16:28
increase that reversion cap rate 10
16:30
basis points for every year that we hold
16:32
it right so now we’re gonna sell it at a
16:34
six and a half
16:34
cap perversion right we’ve seen people
16:37
go the opposite way
16:38
right where they’re actually decreasing
16:40
the reversion cap rate to a five and a
16:42
half and then they try to justify it oh
16:44
the market’s great
16:45
or it’s going to get better or interest
16:46
rates are going to be low and blah blah
16:48
blah
16:48
it’s always better to err on the side of
16:50
caution and
16:52
and say hey you know if we get better
16:54
than this great but this is what i’m
16:56
this is what i’m saying that we’re going
16:57
to sell it for in five to seven years
16:59
because ultimately nobody has a crystal
17:01
ball so that’s why it’s better to be
17:02
conservative than to try to be
17:03
aggressive and try to make the deal work
17:05
so reversion cap rates a huge metric
17:08
that somebody should take uh take into
17:09
consideration right yep and ask those
17:11
questions
17:12
um typical returns right what we project
17:16
is anywhere from eight to twelve percent
17:18
cash on cash
17:19
and usually our total returns you know
17:21
on a five to seven year basis
17:23
it’s gonna be a two x multiples that
17:24
means it’s gonna be a hundred percent
17:25
return or more
17:27
you know and that’s but ultimately we’re
17:29
always trying to find deals that hit i
17:31
mean
17:31
most deals any deal that you see is
17:33
going to fit that box
17:35
they’re all going to be in that you know
17:36
i’d say seven to
17:38
11 percent average cash flow you always
17:41
have to go differently than that
17:42
to 12. i’m saying just kind of well
17:44
that’s what ours i’m saying just kind of
17:45
in general
17:46
like average you know maybe our deals i
17:47
think are a little bit better cash flow
17:49
but in general deals that hit the market
17:50
that people position the way they
17:52
position them
17:52
they’re trying to position that six
17:55
seven percent up to
17:56
10 11 right cash on cash they try to
17:59
position at 10 to
18:00
15 percent irr that’s ultimately can
18:02
they hit it it’s a different question
18:03
but in terms of what the position is man
18:06
yeah i mean so some maybe some that’s
18:08
probably a good good thing to kind of so
18:10
some rules of thumb that we always say
18:11
is we’re always trying to hit
18:13
a 14 plus maybe 14 15 plus
18:17
irr you know probably 15
18:21
plus uh aar and then like we talked
18:24
about
18:24
on the cash on cash returns anywhere
18:25
from you know probably eight to 12
18:27
is what you’re kind of looking at you
18:29
know from us and we invest in
18:31
b and c assets we’re trying to do some
18:33
nicer stuff
18:34
so uh you know stand by folks hopefully
18:36
we have some good announcements here in
18:37
the next couple weeks
18:39
but you know for right now that’s what
18:40
you’re gonna see usually on a b and c
18:42
asset and in most primary markets
18:45
you know and it can fluctuate a little
18:46
bit but that’s usually what you’re
18:47
looking for so
18:48
if somebody comes at you and says oh i
18:50
got this 10 irr deal
18:52
in some secondary market right that is
18:55
not a good deal
18:56
no you know that’s a deal that you
18:58
should run away from because it’s
18:59
already risky because it’s in a
19:00
secondary market
19:01
and 10 irr is below where it’s supposed
19:04
to be
19:05
um you know in the industry yeah so
19:07
those are some typical returns
19:08
so we got one question in all right
19:11
before we do that
19:12
for those of you tuning in monday
19:13
mondays with us every monday 3 30
19:15
central
19:15
yep we talk about a bunch of different
19:16
topics we’re talking about passive real
19:18
estate investing this week but if you
19:19
have future ideas for topics let us know
19:21
we will do a whole show about it
19:23
otherwise we’ll keep picking topics
19:24
and we’re in our q a section so if
19:27
anyone has any comments questions go
19:29
ahead and leave them there
19:30
this is the best part in my mind
19:31
hopefully the most value for you all
19:33
um really quickly so ramil says hello
19:37
hello
19:38
ronnie says most institutional lps are
19:40
very irr driven
19:41
i completely agree that they are i don’t
19:44
know if i necessarily agree with that
19:45
philosophy though i think cash flow is
19:47
probably just as important
19:49
and chad says exit cap rate rent bumps
19:52
is it sustainable from their analysis
19:54
yeah absolutely yeah absolutely because
19:56
it’s easy to say that this potential
19:57
i’m going to go make this place look
19:59
awesome and charge a million dollars of
20:01
rent for it what was this
20:02
that’s actually a great that’s actually
20:04
a great example thank you chad for
20:05
pointing that out i don’t know
20:06
we’re moving quick so yeah rent
20:08
increases we have seen people that
20:10
they’re gonna put three thousand dollars
20:12
in which is really not a lot of money
20:13
folks into these
20:14
into these units and they’re gonna
20:16
charge an additional 200 bucks a month
20:17
it just doesn’t work like that
20:19
right so you know you have to say is
20:21
this
20:22
justifiable based on where the other
20:24
where the comps are
20:25
what’s what’s the competition doing
20:27
right um and sometimes you’ll you’ll see
20:29
they’ll have their comps in there and
20:30
the comp is
20:31
way across town and is a 15-year newer
20:34
asset than the one that they’re buying
20:37
and you can pick that apart pretty
20:38
easily so but that’s a good that’s a
20:41
good metric to
20:42
to be on the lookout for as a passive
20:44
investor
20:45
so all right so we got a question here
20:47
which multi-family asset class
20:49
generates the best returns for passive
20:51
investors man we always get these tough
20:53
questions
20:54
you know i mean all right so the cash
20:57
flowing one that’s my answer you want to
20:58
go
20:59
yeah that’s actually that’s probably the
21:00
best the most difficult diplomatic way
21:02
to say it right you know which one
21:04
provides the best
21:04
yeah i mean they can they can all vary
21:07
it’s all about the price you buy it at
21:08
the market you’re in it’s not
21:10
you know the thing i will say is that
21:12
usually with like a c value add there is
21:14
more risk
21:15
with having to implement the business
21:16
plan than buying a stabilized what they
21:18
call a coupon clipper right a coupon
21:19
clipper is just a deal that
21:21
is humming along it’s doing what it’s
21:22
doing right
21:24
yeah it’s a little bit more turnkey you
21:26
don’t have to do much and you’re just
21:27
getting your
21:28
six to eight percent right yeah you know
21:30
but i would say that
21:32
the days of finding those class c
21:34
value-add properties especially those
21:36
ones that are going to be in b and a
21:38
markets
21:39
those are long those are have long since
21:41
passed you know so you have to be
21:43
you have to realize that anybody that’s
21:46
buying those
21:47
value-add plays nowadays this is
21:49
probably the second round of updates
21:51
that have happened since you know the
21:53
the the downturn in eight nine and ten
21:55
right you probably have already had
21:57
somebody come in and do a value add
21:59
so you know kind of looking at something
22:02
that
22:02
maybe is a little bit newer might be a
22:03
little bit less risky i i think we’re
22:06
we’re more leaning towards weighing risk
22:09
versus return
22:10
risk adjusted returns right is what john
22:12
montero likes to say and that’s
22:13
that’s exactly where we’ve been probably
22:15
the last 12 months is
22:17
you know which asset is going to provide
22:20
the best one
22:21
right because like fair said those class
22:23
c deals yeah if you get one of those
22:25
diamonds in the rough man those are
22:27
great
22:28
we have made a fortune on those but
22:30
they’re just not there anymore so maybe
22:31
stepping up to a little bit better one
22:33
will actually get you a little bit or
22:35
just as good a return and you get a 15
22:37
20 or a newer asset
22:38
which is less risk so i know that’s
22:41
probably not what that person wanted to
22:42
hear in terms of
22:43
the answer but that’s going to be our
22:45
answer on that one
22:47
so we get anything else on on facebook
22:50
that’s it so far so if anyone has any
22:52
questions feel free to let me know i
22:53
mean the one comment
22:54
that we did have actually no there’s one
22:55
that i i sorry i saw ronnie’s i didn’t
22:57
see amanda’s so amanda says after you
22:58
are in a deal which kpis should a
23:00
passive investor monitor
23:01
throughout the life cycle of the deal
23:03
are there any red flags that a passive
23:05
should look out for i think absolutely
23:09
there’s there’s there’s plenty right i
23:10
think the easiest one is
23:12
where are they at actuals versus
23:15
projections right
23:16
you know or even even more so you can
23:19
even do budget versus
23:20
actuals you know what you’re getting in
23:22
terms of your financials which
23:24
you know we try to make sure that the
23:25
budget matches the the projections
23:27
sometimes
23:28
they’re a little bit off especially when
23:29
you’re using a third-party property
23:30
management company that
23:32
pretty much does whatever it wants um
23:34
you know but that’s probably the easiest
23:36
way to track like where’s the revenue at
23:38
versus
23:39
where it was supposed to be at right or
23:40
where the expense is at where versus
23:42
where it was
23:42
another one too is look at the balance
23:44
sheet i don’t think enough people look
23:45
at a balance sheet i think that’s a very
23:46
critical thing to get an idea of what’s
23:47
going on on the deal yeah and there
23:49
might be a lot of like
23:50
there’s the other thing too right
23:51
there’s probably a lot of cash that
23:52
might be sitting in the bank
23:54
you know i mean there’s cash there’s you
23:55
know there’s there might be money tied
23:57
up in
23:57
escrow that could be part of you know um
24:00
you know the business plan that still
24:01
needs to be executed too
24:03
right so but i mean i’d say the easiest
24:05
metric is just
24:06
you know what do you get would you
24:08
project versus what’s happening right
24:09
now
24:10
and there could be a good justification
24:11
right you know i think the one challenge
24:13
that we’ve
24:13
we’ve had in the past right is the
24:15
lender has dragged some of these draws
24:17
out and this stuff just takes longer
24:19
than anybody anticipated
24:21
now don’t get me wrong we’d love to get
24:22
in and get done with the rehab in two or
24:24
three months it just doesn’t happen
24:25
because the lender is always
24:26
jerking us around yeah so sometimes
24:29
there could be a justification for hey
24:31
why is it
24:32
why is it slower than what we
24:33
anticipated right yeah you know but it’s
24:35
really the lender’s fault so why don’t
24:37
the lenders like you
24:38
i don’t know man i don’t know these
24:39
lenders man i bust their chops quite a
24:41
bit
24:42
you know you can because you’re pushing
24:44
you want to push but you can only push
24:45
so much right they’re the lender you got
24:47
to be
24:48
somewhat you know they’re your partner
24:50
in the deals yeah you’re going to be
24:51
somewhat you know i guess professional
24:53
with them
24:53
but um you know the servicing side which
24:55
we won’t get into the weeds on that is
24:57
just usually the people that
24:58
approve and process draws and they’re
25:00
usually the
25:02
lowest rung on the lender poll and so
25:05
they they can slow some stuff up so
25:06
bottom line is is that
25:08
there could be a a justified response to
25:11
that but you just need to ask those
25:12
questions
25:13
ask questions so what should lp’s net
25:15
return criteria look like in today’s
25:17
market cash and cash irr
25:18
et cetera cash from cash 7 to 12 percent
25:21
totally depends on the play
25:23
irr you’re looking for 11 to 17 percent
25:26
right if it’s higher than that you
25:28
really question the underwriting right i
25:30
mean just
25:31
um if it’s lower than that you gotta
25:32
understand the deal and
25:34
um total return you know you’re right
25:36
now you’re looking for probably an
25:37
annualized base of about 15
25:39
it’s kind of what you’re seeing right
25:41
somewhere in that 13 to 20
25:43
percent annualized 20 you know that’s
25:45
kind of what well total return yeah yeah
25:47
i mean the average times that by the
25:48
amount of you know i mean usually
25:50
and i guess five to seven years we’re
25:51
trying to have a hundred percent total
25:53
return
25:53
yeah ty said the next question what
25:55
about hold times five to seven years yes
25:57
so there you go so monday mondays we do
25:59
this every monday 3 30 central we talk
26:01
about a bunch of different topics we’re
26:02
talking about real estate
26:03
passive investing this week but we’re
26:05
trying to talk about anything we’re in
26:06
the q a section so if people have q a
26:08
let us know come on otherwise we should
26:10
keep going actually
26:11
well that’s our last question we’ll keep
26:13
going we’ve got one more slide oh
26:15
so two more slides actually and if
26:17
anyone has any questions go ahead and
26:18
leave them we’ll answer them
26:20
so all right what do we got man we got
26:21
it so if anyone free lessons
26:23
about multi-family syndications versus
26:24
reits go to disrupt equity.com
26:26
syndication vs reits so v-s-r-e-i-t-s
26:31
put together a package there around
26:33
stuff you can access
26:35
and keep going this next one’s yours all
26:37
right it’s
26:38
probably gonna be about what we’re
26:39
talking about next week all right want a
26:42
road map to passive investing real
26:44
estate all right
26:46
so yeah yeah so we’re giving 30 off to
26:47
our for our passive investing course
26:49
right so this is what i was talking
26:50
about
26:50
earlier folks investor academy dot net
26:54
use the coupon code money mondays dollar
26:56
sign
26:57
right and uh we’ve got the url over
26:59
there just to go straight to the actual
27:01
thing it’s
27:02
really cost effective and we take an
27:04
extremely deep dive on this stuff yeah
27:07
for us
27:07
it’s a way to educate investors we’re
27:08
getting asked all the time about all
27:10
this stuff so we spent a lot of time
27:12
a lot of hot weekends in the studio yeah
27:14
and i show kind of really doing deep
27:16
dives
27:16
we did we did we did we hopefully added
27:18
a lot of value here i mean we just
27:20
opened up our kimono and just
27:22
let everything out and that’s what
27:24
investoracademy.net is so we got another
27:26
question
27:26
what about waterfall structures that lps
27:29
should look out for
27:31
um actually is one thing understand what
27:34
those are how those work
27:35
right you see those more often right um
27:38
and uh what else am i missing uh
27:41
[Music]
27:42
yeah i mean and then in the end of the
27:44
day understanding
27:46
like as an investor so you want the
27:48
sponsor to make money too so it’s okay
27:50
if the sponsor is you know getting rich
27:52
on the upside you already probably made
27:53
your return but
27:54
understanding where those thresholds are
27:56
what those look like right and what
27:57
happens if the sponsor doesn’t perform
27:59
and i think i think we talked about this
28:00
was it last week chris was bringing up
28:02
some good
28:02
some good points here you know i mean
28:04
ultimately
28:05
you know you just need to ask the
28:07
question okay so what if
28:09
you know half of what you say is true
28:11
right you know instead of making that
28:12
million dollars
28:13
you know you’re making 500 000 who gets
28:15
paid right
28:16
ask those questions of the sponsor
28:18
because we’re seeing some more and more
28:20
complicated and
28:21
weird ways of putting deals together and
28:23
i’m not saying that they’re bad or
28:24
they’re wrong
28:25
they’re just different and i’m a big
28:27
proponent of if it’s overly complicated
28:29
people
28:30
don’t like it because they feel like
28:31
they’re getting the short end of the
28:32
stick so
28:33
if you still like the deal you like the
28:35
sponsorship team but you just need to
28:36
understand a little bit more
28:37
ask those questions just say hey give me
28:39
10 minutes i want you to walk me through
28:40
some scenarios
28:41
of how much money i can make and they
28:43
should have those numbers
28:44
right you know so what’s coming up next
28:47
week man what are we next week we’re
28:48
talking about how to raise capital
28:50
during covet 19. not covered 18 not
28:53
covered 20 coveted 19. well we’re hoping
28:55
we don’t have a cove at 20. geez
28:56
you know so we’ll do a deep dive on that
29:00
if anyone has any questions you can go
29:01
and
29:02
send them out to us and we’ll get them
29:04
kind of ready for next week otherwise
29:05
we’ll answer them q and a live
29:07
so for those of you tuning in monday
29:08
mondays 3 30 central every monday
29:12
every monday even columbus day you know
29:14
we still we
29:15
continue to work hard i didn’t know that
29:16
it was a holiday until lilly and my
29:18
daughter told me she was like i’m
29:19
staying out front because i was like
29:20
we’re going to school what’s going on
29:22
she’s like oh it’s a holiday so hope to
29:23
see you guys again next week
29:25
but you know thank you guys and if
29:27
anyone has any more questions we’re
29:28
going to wrap it up right on time
29:29
actually two minutes late oh going once
29:33
twice there’s always a little bit of a
29:34
lag so let’s 2.2
29:37
2.5 we really want benefits we’re gonna
29:40
talk about raising capital next week so
29:42
that’s that’s an interesting topic a lot
29:44
of people are interested in that
29:45
so why don’t you tune in send in your
29:47
questions ahead of time we’d love to
29:48
take them
29:49
um if not i think we’re good to go yeah
29:51
we’ll see

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