Cracking the Code of Commercial Real Estate: Bob Bowman Discusses Smarter Underwriting

Hello and welcome to the Raise Capital Legally podcast and YouTube channel, your go-to source for insights on raising capital the right way. We dive into topics that matter most to real estate syndicators and fund managers with live Q&A opportunities before we wrap up. I'm Krisha Young, co-host and business development director and client success coach at Syndication Attorneys. And of course, joining me is attorney Kim Lisa Taylor, founder of Syndication Attorneys. Now, Now, before we get started, please note that audio and video from this event will be posted on our podcast platform, YouTube channel, website, and social media, and will be made available to the public. You can go ahead and ask questions at the end of the broadcast by raising your hand or typing it in the Q&A. Information discussed during this event is of a general educational nature and should not be construed as legal advice. Now, today we're cracking the code of commercial real estate. Bob Bowman discusses smarter underwriting. Kim Lisa Taylor and Krisha Young welcome Bob Bowman, the Creator of Commercial Underwriter, one of the most popular commercial underwriting software platforms in the industry. Bob has built a reputation for helping real estate syndicators analyze deals with accuracy and speed. In this episode, he shares the secrets behind successful underwriting, what makes or breaks a deal, and how technology is reshaping the way professionals evaluate commercial real estate. Whether you're new to underwriting or looking to sharpen your skills, Bob's insights will help you approach your next deal with confidence and clarity. Hello.

Hey, Bob. Hi there. Hello, everyone.

Yeah.

Hey, Bob.

Yeah. Well, thank you for having me. I appreciate the opportunity.

Exciting. Such a big topic, too.

So Bob and I have known each other for a very long time. I think we met in— well, we certainly did meet in the same real estate training program, which was the RE Mentor Training Program with David Lindahl. And I think he and his wife started right around the same time that my husband and I started, which was, you know, back in 2007.

Yeah.

Yeah. And so Bob and I have kind of stayed connected to that group over the years. We've been, you know, in their coaching program. Bob has certainly done a lot of additional things with RE Mentor, and he and I co-teach the Private Money Boot Camp that RE Mentor has. several times a year in different locations around the country. And we've been doing that now for, I don't know, 7 or 8 years. It seems like it's been a while. Um, so we, uh, know each other pretty well. Uh, you know, Bob's, uh, wife Diane, if you don't know her, she's like super sweet and, uh, very, very smart. Um, and she actually contributed to my book, um, on how to raise capital legally, uh, for real estate. So she contributed to that, uh, and specifically in the chapter where we were Talking about calculating cash-on-cash returns, because I wanted to make sure that I was saying it correctly. And I, I trust Diane to do that. Not that I don't trust Bob.

I was going to say, can you qualify that, please?

I trust them both. But yeah, Diane and I have some history together. So whenever we see her, Bob tries to keep us separated.

But very good reasons for that too. Not discussed on this podcast.

We'll find a different platform for that.

Yeah, yeah, that's another podcast.

That's a different podcast.

That's a different one.

But, uh, all right, Bob, so let's tell people a little bit about you. How did you get started in commercial real estate?

Well, you know, thanks for asking, and thank you everybody for your time. Um, you know, I got started, I was, uh, I was in the corporate world environment selling office equipment. And my wife and I have been watching all the infomercials and decided to quit my job at the time and started buying single-family homes here in Central Florida. I actually live in the Orlando, Florida area, and that seemed to be going pretty good. The first thing we did is we went out and got educated on how to become an investor and how to learn the different techniques of buying real estate properties, as you know, from an ownership perspective. And then the real estate crisis came in 2006, 2007. And when our single-family homes started depreciating greatly, especially here in Central Florida, and I know that was true around the country, we decided that I needed to make a paradigm switch and I needed to learn How to raise money because going from single-family homes, I decided to do multifamily. I didn't have any money. You know, all my capital and what I had was tied up in my single-family homes. And I have to tell you that, you know, we were deeply in debt. You know, those are the times where you use your credit card, you know, for all the rehab. You know, you did a hard money loan and you turned around and sold the house. You flipped it and then you paid off your credit card and you got, you know, some money on top of that. And of course, my wife and I, we were very active and we got caught in the middle of all of that.

Yeah.

And so, we decided that we needed to move into maybe multifamily. And that's where I met Kim Taylor. I decided to go to Boston for the very first private money camp that, you know, it was Kim's boss at the time who was Part of the Ari Mentor stage. And then that's where I first met Kim and her husband, Chris.

Well, actually, he wasn't my boss at the time. I met him at that same event. So, I met Gene Trowbridge. I met him at that event and said, hey, I do work for other attorneys. I wouldn't mind working with you. And he was looking around a sea of 300 people. There were like 300 people at that private money boot camp, remember?

Oh, yeah.

Yeah. And he said, he looked out over the crowd and he said, I might have some overflow.

Well, I didn't realize that, Kim. Thank you for sharing that. I wasn't— I didn't know that detail. But, you know, I mean, yeah, back then, I mean, the classes were huge. I mean, you know, 250, 300 all the time until, you know, till COVID hit. Then it started, then it changed. But then the whole market changed. But yeah, so I met there because I knew one thing: in order to be a successful real estate investor and not having any money and be deeply in debt— I remember my wife saying, she says, honey, you know, we can't afford to go to the class. I think the class at the time back then was $5,000, and you could bring a spouse for $500, and, you know, plus all the other expenses. And I remember my wife saying, you know, honey, we can't afford that. And I looked at her and said, you know, We really can't afford not to go. And so she went up with me in that cold December for that very first private money. And I sat in the very front row and I said, I, you know, for 3 days and said, I've got to take in everything that I can and learn how to raise money. And so I can't tell you how valuable and how important it is to meet, you know, Kim or, and Kim's future partner at the time, Gene, and learning how to, you know, talk to people and raise money legally. That one thing had the single most important impact on me because after that class and I learned, you know, what to do legally and what, you know, somewhat I was talking about, I didn't have any education at all on how to buy apartments or any other commercial real estate. But I was able to talk to enough people to get $1.5 million of accredited investor forms signed off from people that were interested in what I was doing during the real estate crisis when we were losing 500,000 jobs a month. And, you know, the real estate was in the tanks and everybody would— my friends were questioning, Bob, what in the world are you doing? Do anything but real estate. But You know, going to the private money and learning how to do this is probably— is the— was the single most thing that changed my life and changed the life for my family. Because without being able to raise money, you're never going to reach your full capacity and your full capabilities and what you can really do if you're only finding deals and you're not, you know, raising money. So that's what we learned is You know, how to underwrite, because nothing happens until you have a deal, right? You don't raise money, you don't do loans, you don't do anything until you find a deal. So, you know, being a really good underwriter and also, you know, attending this class that Kim has, things, and learning how to raise private money, you know, was, was, are the 2 things that I do that had the most impact. And so once we got started after I— that private money class, I joined the coaching program because I wanted to fast-track. You know, again, same thing. Well, honey, we can't afford it. We can't afford not to. But within 6 months of the program, after learning how to raise money and then taking an apartment class with Ari Mentor to understand how to underwrite deals and how to do the business, I bought my first apartment in Texas. 6 months later, and I bought it. It was a C property. Didn't quite know what I was doing, but I kept going back to the books. You know, what did they say here? What am I supposed to do? Okay, when do I call him? Yeah, and I was trying to figure it out. You know, I was a copier salesperson before I got into single-family homes and didn't have any money, and I had to borrow money for the earnest money from one of my investor friends. Because I had no money. And so I bought my first deal for $3.4 million and I sold it for $6.8 million. And we just took off and started buying apartments in different parts of the country, particularly in the Southeast. And then when the apartment marketplace started tightening up, we started looking at offices about 8 or 9 years ago. And we bought offices in Dallas and I still own 7 in Charlotte. And the office has been unbelievably great investment. Regardless of what you hear, there's always opportunity. And then more recently, as the market continues to change, we took a direction about 2 and a half years ago and we started buying RV resort parks. We bought our first one in Ohio, and the— and that market itself is just, you know, phenomenal for future equity and certainly for cash flow because the majority of them are—

We've got some questions here that we want to get to, Bob. So let's not go too far down that road yet. So what inspired you to— you have this commercial underwriting program. Tell us a little bit about it and, you know, why you created it. So, and, you know, because at some point along your journey, you must have learned that, hey, you know, it's tough to do underwriting with the tools that are available, right?

Yeah. So essentially what I was doing is I was trying to solve a problem. That was the only reason. And so, what we did, I was buying apartments and underwriting apartments, pretty straightforward, income minus expenses is your NOI, et cetera. But when you're in commercial real estate, besides the unit-based analysis that you find when you're valuing commercial, the whole rest of the world is valued on a dollar per square foot. And in order to have a tool and create a tool that could help us identify great commercial investment opportunities is something that, you know, we didn't have. So we went out on the market, we found one company, and I bought that product, paid thousands of dollars for it, and after one year they discontinued it. Oh my gosh. I took that knowledge and information, tried to do it on Excel, but it failed. It failed for a number of reasons, and that's when I learned that Microsoft doesn't give Apple all the attributes to their products, and so it would never work on an Apple. And secondly, the computations and the things I created and the design behind this to become very efficient to make investment decisions quicker, I just couldn't do it on Excel. So I ended up doing it on the cloud, and I hired an architect developer, and that's how we created the software so I could evaluate. Uh, many different types of commercial real estate, uh, you know, because I see myself as an investor, not an apartment investor, but a commercial real estate investor, because I'm, I'm always looking for great deals for my—

Yeah, and that's something that's different about you, Bob, than a lot of the other people that we've met. I mean, a lot of, a lot, a lot of our mentor students and other students that have gone and learned just one asset class, and, uh, you know, it's kind of like, hey, if You only went to school and you learned math and that's all you knew and you didn't know how to speak English or, you know, plain English, you'd be really limited in what you could do in your career, right? So you really have— that's why when we go to school and when we go to college, they force us to take all these foundational courses. So we have this background and experience and understanding of how the whole thing works. And, and, you know, with that, we're able to craft a path for ourselves. And I see a lot of real estate investors getting stuck in this, you know, they're kind of one-trick ponies, right? This is all I know how to do. I mean, even my dog knows about 15 tricks. So you got to figure out what your goal is. And I like the fact that you said you are a real estate investor, not just a multifamily investor. And I love the fact that your underwriting program, and I think it makes it really unique in the market, is not— it's for a specific asset class. It works on all different types of asset classes. And, you know, I think, I think that's such a valuable resource. You know, you were part of our Go Beyond Multifamily virtual event that we did in June last year, which was, you know, a big deal. And we had over 50 speakers. In fact, anybody that's interested, you can still go to the website. You can still watch all of that. It's only $97. It's all still relevant. None of it is dated. You know, it's it's really you know the whole point. Vinky Lumba and I put that together, and Bob was part of it. The whole point of that, even Christian was part of it. She was in there too. Is to make people aware that y'all are sitting on the sidelines because multifamily isn't in a good spot right now. But we got a ton of other clients that are doing other. cool things and you should know about that. And, you know, getting people to kind of widen their scope and broaden their horizons. So when I first learned how to do this stuff, I went to the RE Mentor Program. I learned multifamily, but I went to every different type of asset class training program I could do for like the next 3 or 4 years. So self-storage, single-family, you know, multi-day courses. just to learn all these different asset classes so that I could be a better counselor to my clients. And so I could become a better-rounded real estate investor myself. So I encourage all of you to check out the gobeyondmultifamily.com website. And, you know, $97, you can pick and choose who you want to listen to. If you want to learn about mobile home parks, you know, marinas, vineyards, Airbnbs, build-to-rent, triple net, RV parks, you know, so many different asset classes that you can be exposed to and people that are doing it. And then some people that had some really great offers if you want to learn more about those programs. So, you know—

I put it in the chat, but it's gobeyondmultifamily.com.

Yeah, yeah. And it was a great event. We got a lot of, you know, we had a really great attendance and we had a lot of, you know, Really good reviews.

So, and it was this year.

It felt like last year, but it was this year, June.

I know. Yeah, like actually this year. This year feels like it's been three years. I don't know why.

I can't.

Well, Kim, I love your analogy of the math analogy and the one focus being more than that. I really like that. You know what people? What's important to understand is that. You know, no matter what asset class that you prefer, that you'd like to go with, they all have life cycles and things change. And the reason, one of the reasons that we changed is that, you know, when I started 2007, when you and I started back then, you know, the market was different. And then, you know, and then find, you know, as it evolved and the more demand and less supply for multifamily happened, I used to go into deals and make LOIs where there was, you know, anywhere from 3 to 5 people. That made offers on it. And I— and the— and what, what broke the camel— the straw on the camel's back— I was in, uh, Texas, in Fort Worth, and I put an offer in on an apartment there, and I, and I had an inside track to it, and there was over 150 offers. And then that's when I knew that, you know, um, that my numbers weren't going to work, prices were going to be pushed up. There was so much competition, and then that's when, you know, we decided to evolve into a different product type because that's what happens. Now, eventually, at some point, you know, multifamily will come back, but, you know, we've been saying that for a long time. In the meantime, there's some great opportunities out there in commercial real estate to underwrite and make money today.

Yeah.

And so Tell me along your path, Bob, what are some of the biggest mistakes you've seen investors make when they're doing their underwriting?

Well, I would say that, you know, there's several. Number one, in the pure sense of underwriting, people— the biggest mistake is property taxes because, you know, they hear from the broker that, you know, the property taxes don't change until the end of the year and you're going to be okay. But what happens in a lot of states, they're all point of sale, meaning at the point of sale, the new, the new ownership pay is going to pay a higher amount of property taxes. And whether the millage rate changes or not, because you paid more, the property is worth more, you're going to get a bill. And so you have to anticipate that in your underwriting. And so.

Okay.

You know, that's like one of the first biggest mistakes. The other thing that's a big mistake is in payroll. When people look at, oh, I can operate this better, and they just start cutting payroll without knowing or understanding. When I ask them, well, how is the property currently being operated? You know, how many people are they? Full-time, part-time? Do they get benefits? You know, when you're looking at a payroll number, you really don't know all that. You know, you know how many are you know just how many people in general and what are their roles? And so when you look at payroll number and people just cut the number, you know I you know I refer to all this as common sense underwriting. And and and and so you need to go and understand and know what questions to ask before you start changing the seller's numbers. The other the other things that are really big right now if you're in the multifamily business. You know, there's just so many, you know, all these brokers today because of the demand are selling on a pro forma. And I don't buy pro forma. I don't buy on pretend numbers. And so what happens is that in order to get the seller their number, the broker pushes up this value add. And, you know, and in, you know, many cases what they're purporting, you know, you're going to have to verify because if they're saying, oh, go in and spend $5,000 a unit and increase the rents $200. Uh, a unit that may or may not be possible. And so, you know, just a— this is a really, really extreme example of something that happened last year, Kim, with an RE Mentor student. They had it— a short version is they found a property in Texas and it was way, way— rents are under market. Then, and that was the story, and the broker said, you put in $8,000 a unit, a lot of money. you'll get $500 more a month. We went in and because we've already been doing it, we've already rehabbed 40 of the 210 units.

Wow.

Well, long story short, we did an evaluation on it and we took all of the renovated units and matched it up against the other 160 or so classic units. And do you know, then we broke them out, 1 and 2 bedroom, et cetera, that the difference between the renovated units And the rents for the classic units on an average was only $19 a unit.

Oh my gosh.

Yeah, it was so extreme. So I had the, I had the lady, I said, look, you need to fly out there right now. You haven't seen it. You need to look at the comps. You need to go figure out what was going on. 3 days later, they called me and said, Bob, thank you for saving me from this deal. So, you know, it's really important that you understand and learn and have the tools to be able to underwrite things like this. So that you can make, uh, not just investment decisions quickly, but make good investment decisions. And that's what we have and what we show in Commercial Underwriter.

Yeah, and they're also trying to say, oh well, this is what you're going to be able to get, so this is what the seller wants, as if they'd done it, right? You know, they'll try to push those pro forma numbers. Well, you know, hey, it's going to be worth this much after you put all this extra money into it, so that's why we're selling it this price. You know, it's like, well, wait a minute. No, if you want that price, you have to do all that stuff. And, you know, the naive person won't, won't know that, you know. And this comes back to making sure that you have the right coaches and the right people, mentors, right, Bob? Because I can't tell you, for a while, not recently, but for a while, every week I'd get a call. Oh, I'm, you know, I'm a new person, new to multifamily. And, you know, I'm like, oh, who's your coach? Or, you know, who you're learning from? Who's your mentor? And it'd be like some new person. And I'd, you know, be ticking them off. I'd go, okay, there's number 30. And so, what I feel like these people were doing is that they would go out, they'd do a deal, and oh my gosh, this is great. And we need to expand our network so we have more investors. So they start teaching and next thing you know, your guru has done, you know, one 25-unit deal and now they're now teaching you how to buy 200- and 300-unit apartment complexes when they really don't have the right experience. So make sure that whoever you are following actually has done it. And, you know, not just as a coach, not just as a mentor, they've actually done syndications, they've actually been in the trenches and they've had, you know, some war stories because if they don't, then they probably haven't been in it very long, and they're just really teaching you so that they can increase their network of investors, and you're not necessarily getting the best education. So there are people that are tried and true that have been out there for a long time teaching, and there are a lot of new people. So just, you know, make sure you do some background and due diligence. You know, RE Mentor, they've been around forever, you know, since 2005, I think. And I got introduced to it, Bob got introduced to it in 2007. And, you know, they've stood the test of time. And there's a few others out there that have been around for a long time, but also ask, you know, how, what are their, what are their students buying? Because I went to one event, you know, big, big-time person. I'm not going to say who it is, but, you know, had a big following. And, and he said to me after I spoke at his event, he goes, you know, there's like 100 people in the room. And he goes, I think you're really going to get some business out of this. He goes, because there's at least 2 or 3 people here that are going to buy 100 units by the end of the year. It's like, okay, I'm used to dealing with people that are going to buy 1,000 units by the end of the year, you know, 500 units by the end of the year, you know, or this guy already has 10 units, you know, he's really on it. I'm like, okay, slightly different crowd than what I'm used to. But, you know, y'all got to start somewhere. So that's okay. Get your start, but then just make sure that the mentor you have is actually getting you to the level you want to go to and that they have that right experience behind them. Because if they don't, they're not going to be able to help you grow past where they are.

Yeah, I think you make a really good point there. There's a difference between experience and knowledge, you know, and, you know, an example, you know, we've all met people that think that they know everything, you know, Mr. Know-it-all. And, you know, and there's enough people that have just enough knowledge to be able to do these kind of things, but they don't have any experience. And that's what I think Kim is trying to say. If you get the person that, you know, has experience, that been in the trenches, that has the scars— I call it scars and stripes.

Wow.

Yeah, yeah, because it's not easy, but you learn from your mistakes, right? So, but if you have somebody that has the experience and they know how to impart that knowledge to help you, and, and that's what I do through my program, because in commercial underwriter I do 2 free learning labs a month where we actually— and I teach content to my users on how to underwrite, how to look at deals, you know, changes in the market. Like right now when I do my learning lab, they usually last about 30 to 40 minutes, and I always have room for questions and answers. And I'm giving guidance on how I'm actually underwriting with these tariffs and this unpredictability. And unknown, but we know for a fact that the cost of living, that we're going to be paying more at some point soon. We just haven't felt the pain yet. The only place we're feeling the pain is in the grocery store. We haven't felt it in the gas prices, but it's coming, and we already have our vendors calling us, telling us to get ready for a price increase. So how do you underwrite to that? So, you know, and so that's what I do through Commercial Underwriter, because I want to help people be able to become better underwriters and help people with their business through my product. And that's what I do. As a matter of fact, the last few deals I've done with my users that asked me to look at one of their deals, and I ended up sponsoring it with them and buying the deal and bringing the investors. So, uh, but you know, experience and knowledge are, are way two different things. So that's a really good point, Kim.

I'd like what you said too earlier about, um, just going back to like what you were talking about earlier, um, about how you learn how to talk to people and raise it legally too, because there's that element of it that a lot of people don't like kind of put 2 and 2 together until like later on in the process. But when you're having conversations with potential investors or whatever, or whatever, when you're underwriting, when you're looking at properties and you're looking to raise capital and private money in this way, there's a whole legal aspect of it that you really need to know about. You need to understand all of the nuances with that and the costs associated with getting offering documents done and the time involved and, and And, you know, like the words you can say, words you can't say, you know, etc. So I think that's another sort of like missing piece that people don't really understand until it's like, okay, now I need to— I'm just going to bring in some passive investors. And it's like, well, okay, we got to reverse engineer this now, you know, and make sure that you understand the law around all of that, um, in addition. So I like that you said that at the very beginning.

Yeah, you make a really good point, Krisha, because there's really 2 aspects to every securities offering in this particular podcast is really kind of focused on the deal and how to determine if it's a good enough deal that you can bring in investors. So this goes to the structure, right? Like, how are you going to structure this deal with investors? What are you going to be able to offer them? What kind of an overall return is this property going to generate? And so, you know, is it enough that if you give what investors expect in today's market, which is somewhere around the mid- teens. Is there enough left for the management team to make it worthwhile to do the deal? And so you really got to know your underwriting and put in real numbers or based on fact and experience in order to know whether or not that deal is worthy of investors. And, you know, maybe something that only throws off a 7% or 10% return is great for your own portfolio if you like it and, you know, you feel like that's good enough for you, then that's okay. But you don't have any room for investors in there, you know, unless you just want to give away parts of the deal to other, you know, friends that want the same return you do. But if you're trying to carve out something for yourself, then you have to be able to bring in investors. So then the second part of this comes into what goes along with bringing in investors. And that's where you have to learn how to legally raise private money. And that's, you know, what my books are about. How to Legally Raise Private Money was the first one. This is the beginner's guide. The other one, How to Raise Capital for Real Estate Legally. This is the more in-depth encyclopedia version. This is the one Diane contributed to, Bob's wife, where we talk very specifically, how do you calculate those cash-on-cash returns? And it all starts with Bob's underwriting. You got to do the underwriting first. That's going to tell you then what your overall return on the property is going to be once you pay off your property operating expenses, your debt service, you know, your taxes, your insurance, all that stuff that Bob's software is going to help you determine. And, you know, Bob's guidance. And then now, you know, okay, what kind of cash is left and how can we split that? How are— and then what documentation are we going to have with our investors to be able to convey to them what we're doing, what we're offering in exchange for their investment? And how we're going to run the company. So, you know, 2 aspects: securities laws apply to how you're raising the money, and then, you know, the corporate LLC acts of every state apply to how you're going to structure those deals with your investors and what you're going to offer them in return for their money and, and how that's going to be distributed when there is cash to split. So, and also, what kind of fees are you going to be able to earn that are going to keep you going until there profit share, because a lot of times these deals take a couple years to get to profitability, right, Bob?

Yeah, yeah, they take a while. And, you know, if you're on the GP side, the manager side, you know, it takes 2 or 3 years before you start generating enough money so that you can receive some kind of a distribution as well. And the reason for that is that you have cost on top of your purchase price. So if you're buying a property, just to be simple, for $5 million, And when you add in your, you know, costs for the loan, all of your closing costs and fees you have to get the loan done, to pay Kim Taylor the SEC fees to create your legal documents, you're going to take an acquisition fee. All of a sudden, you know, you've got $1 million in addition to the $5 million. So now that property is only worth $5 million, but you have investor money and your money and everybody tied up into $6 million worth of real purchasing, right? Because you're, you know, your total capital stack is $6 million. So now you've got to generate enough revenue and build your business and build the value and equity and the cash flow so that over a period of 2 or 3 years, you've gotten to a break-even and now your property's worth $6 million. Now you're at breakeven where you can pay your investors and you can pay the lender back, but there's no money in it for after that. So now you've got to build that business over $6 million in order for you to be able to really start making some real money, which is in the equity. So it takes a little bit of time to do this. I call it evolution. This is evolution, not revolution. This— you're building a business. This is not a get-rich-quick thing.

Yeah, yeah, yeah, very much so. And, you know, so it's not at all unusual to have deals where, you know, for instance, if it's a development deal, well, there's not going to be any cash flow during the development period. So, you know, you're not going to pay investors. You could offer them a return that accrues, but it doesn't get paid until later when the property actually is, you know, got the certificate of occupancy, you've got it leased up. And now you've, you're stabilized and maybe you've even converted to permanent financing, then at that point you're going to be able to start making distributions and you can catch up what accrued during that development period. In a renovation project or a value-add where you're going to be doing some renovations in order to increase rents, then you're going to have that same kind of lag time. You know, you're going to have that period of time, 6 months to, you know, 12 months or something. Where you are going to be doing improvements and, you know, maybe the rents aren't where you need them to be so that you've got enough money to pay investors. So you can do the same thing. You can have a preferred return that accrues during that period of time, but you're not paying it until there's actual cash flow. And technically, a lot of people don't realize this. It's illegal for you to take money from reserves. You know, you raise capital and raise enough money from reserves and then give it back to the investors. investors and call it a return on investment. That's actually technically illegal because you're not giving them a return on investment. It's, it's a misrepresentation. What you're giving them is a return of capital, or you're just raising more money. And, you know, so when you get it, when we see clients that get into those situations, well, you know, I don't have anybody that will invest with me unless I pay them monthly, or, you know, and they've got to get their returns right away even if we're not making money. Those clients usually always, always end up in trouble. Because things take longer. All those people that they're paying, you run out of money to keep paying them. And then, you know, pretty soon down the road, it's affecting everybody else because you're not getting paid and neither are your other equity investors. So you've got to be really cautious about how you structure these deals. And that's something that we excel at, is making sure that not only are you taking care of investors, but you're also taking care of yourself. And that's important because if you're not being taken care of, it's not It is not in your interest, the best interest of your investors, for you not to get paid. Because if you do that, then you have to go out and do other deals, find another job, do something else in order to sustain your lifestyle, and you've turned your attention away from them. Their interests may suffer. So, you know, you want to be cognizant of that and don't do those kinds of deals and make sure that you're working with experienced counsel that's going to keep you from doing those kinds of deals or try to, try to protect you from yourself. Sometimes, you know, we can't do that. You know, at some point you're the client, we have to do what you want us to do, but we will try to dissuade you when we see that you're, you know, getting ready to fall off a cliff. So, Bob, I'm sure you see a lot of that too, right? You see people who are ready to take the plunge and you're like, wait.

Yeah, I try to keep them out of the water. You know, that's right.

But we can only hold the backpack strap until it breaks, and you're on your own.

Oh, and our books are on Amazon as well. You can search up Kim Lisa Taylor on Amazon and, and find our books there.

Yeah, or you can go to our website. Um, if you haven't gotten one already, you can go to our website and get a free book there. Um, there's a free book tab. So anyway, all right, so how can underwriting support capital raising more effectively? What do you think, Bob? What, you know, how does that underwriting, you know, help you tell the story to your investors?

Well, it has helped me a great deal. Matter of fact, I've been able to raise millions of dollars because of my underwriting effectiveness. Because, you know, think of it, if you're presenting a deal to a friend of yours that might be interested in investing, Interesting. Or whether you know them or not, your ability to understand your deal by being the very best underwriter that you can. When you understand your deal, that confidence and that understanding of it, you know, that spills over to the person that you're talking to, and they realize that, wow, okay, you know, this is very convincing. I like this. This is really good. And so I remember that, you know, I'm a very conservative underwriter. And so I'm gonna tell you a real quick story. It's a true story. As this was after I was at, I think it was about 1,500 apartment units at the time. And I had a really big equity company out of Phoenix come to Orlando. And somehow they got my name and they wanted me to meet with them. And so they wanted me to be the asset manager. For apartments they were buying in Orlando and Jacksonville. And so I had a deal and I sent it to them, and they— it took them 3, 4 days to get back to me, and we decided not to do the deal. Then they sent another— then I sent them another deal later on, another deal I liked. They looked at that, 3 or 4 days they got back to me. I had a third deal and I sent it to them, and they got back to me within 1 hour. And I said— and they said, hey Bob, we want to do this deal with you. I go, well, when are you going to let me know when you're done analyzing it? He goes, we've, you know, he goes, we don't have to analyze your deals anymore. He said, your underwriting is so good. We've already, we know what your approach is. We understand it. And so all we have to do is verify your numbers. You know, it takes us about an hour. We want to do the deal. And so they put up, they were going to put up $30 million of equity. It was over a $100 million purchase. Just like that, and it was just because of the underwriting because they trusted what I was doing and how what my approach was at. And so how I underwrite in the simplicity and the clarity that I use that I developed through my software has allowed me to really help me to raise money in my deals because you know you have to know your deal, and it can't be a sales pitch when they ask you a question. And, you know, and, and so, but when you know your deal and you've underwritten it sufficiently, then you're going to come across in a manner that's going to help you raise money.

Well, and so I think maybe we need to go back a little bit to some basics here because there could be a few people on the call. We all start brand new. I mean, the first event where I met Bob, you know, I didn't know what a security was, believe it or not. So never heard the word before. I had to learn all this stuff. This stuff. You guys got to learn all of it. But what is underwriting? So underwriting is, you know, you got to understand the property, the— you've got to review the income and expenses. You've got to do financial modeling to figure out what you're going to be able to do to improve the performance, how much that's going to cost, how much extra revenue that's going to generate. You got to do market and economic analysis. You got to Know your debt, what your debt's going to look like, what your interest rate's going to be. Is that going to be adjustable? Is it going to be fixed? What's the maturity dates? And you know, just valuing what the property is worth today, what you think it will be worth later on. I mean, when you come to us, we we have some you know clients that don't understand. When you're going to pitch to investors, it's not just a big pitch flop. You know, fluff. piece. You know, this is an information piece where you're imparting to your investors what they're investing in. So you can have a pitch deck that's kind of a presentation style. It's just got bullets. It's easy to understand, read, gets people excited. But then you've got to give them a more detailed investment summary that explains the details of the investment, including sources and uses of funds. Where's the money coming from? How's it going to be spent to acquire the property, including your acquisition fee, our legal fees, all of your pre-closing expenses, your capital improvement budget, you know, and your whatever reserves you need. And then you also need to have your income and expense statements year by year with all the numbers that Bob is going to help you, you know, create using his underwriting programs and his training. So he's helping you understand what are realistic numbers, what, you know, how do you put them into the software and get out that income expense statement. And you're going to do it over— usually people do it over a 5-year period. You know, most, most of our clients are holding deals for 5 to 7 years. And then you got to do an exit analysis, right? And is that something that your software does, Bob? Does your software help create that exit analysis?

Yeah, it'll give you all the way to the end of the term, its value, its return to the investors, internal rates of return, ARR, both cash flow and equity. You know, one of the things that's kind of interesting that I did for myself, because when I created the product, you know, I used my 8-year-old granddaughter to test it. And I would give her an office building, which is a lot more difficult than an apartment, and she would create the rent abstract for it, even though she didn't understand what a cash-on-cash return was. So, but, but so what I've done, what happened many times, 2 things. One, as soon as you get your numbers in and you put your numbers in, it's invariable that, you know, you get excited about the deal and you have somebody say to you, hey, well, if I give you $100,000, how much money am I going to make? So I automated that whole process. So as soon as you get your numbers in, all of that information, including all the percentages of the returns, the equity, The, the money going in, the money going out over the time period, 5, 7, 10 years, is already done. You can print it, you can email it, you can put it in PDF, you can drop it in your property package that Kim will help you put together for your deal, and it's done. There's no inputting. I automated it, you know, because I try to use as least keystrokes as possible, you know, to automate, you know, the whole process. So if I knew my 8-year-old granddaughter could use it, So the simplicity was there. So if you're a new user, you're getting started, it's extremely simple. But that's why I call it simple input and sophisticated output, because it's that clarity and that detail, that conciseness that the investors want to see and know. You know, they don't want a story. They just want to know the facts. You know, you know, and, you know, they'll, they'll say once in a while, have a really— investor will say to me, say, Bob, Is this a good investment? And then they'll pause, they'll stop, and they'll say, Bob, is this a good investment? Or is this a great investment? And if you can't answer that, when you understand and you're a good underwriter, that'll just come right off your tongue. And the investors, you know, you have a better chance of having them participate in your deal because, you know.

Yeah, it's important that you can convey the information to your your investors about the underwriting, about the, you know, legal documents that we create that they're going to have to review what those documents mean. So there's a learning curve to all of this. You know, Bob is, you know, start with Bob, learn your underwriting, come to us concurrently so you can learn how to raise capital legally, how to develop relationships with your investors so they already know, like, and trust you and they believe in you and they believe in what you're doing and they want to be part of it, you've got to develop relationships. You know, everybody thinks that they can wave a magic wand and, you know, send out a bunch of stuff on the internet and people are going to flood them with, you know, $100,000 checks. And I would just caution you, if anybody does that, you might want to consider the source because you could end up in jail. Chances are they would love to, they would love to help you launder their money. It's like, oh, you've got to be careful about the sources of those, those types. I mean, if they're too eager, then you've got to be concerned about that too. So you really need to get to know people, make sure they're legit, make sure they're not trying to use you for some illicit purpose, and that you want them in your deals. Just because someone has money doesn't mean you want to be in a business relationship with them for the next 5 to 7 years, right, Bob? Have you ever had an experience with that?

Yeah, you know, your partners are— boy, you know, that's how I see most deals falling apart because they get into a partnership and one person is greedy or one person is controlling or one person's doing all the work. And when the partnership starts falling apart or you develop a lack of trust, that's when your deals start to— that's when you start getting in trouble. And, you know, it's really painful to have to be with somebody for 5, 7, 10 years in a deal when the relationship turns toxic. And that's one of the biggest reasons why deals fall apart is because of the partnership. So, don't start a company with somebody, you know, talk to Kim, you know, she'll set up your LLC. You'll have a company anyway, but just do one deal at a time and make sure you like them and they like you and you'll have the same work ethic. And you'll be a lot more successful and you'll be a lot happier.

Yeah. And the more people that are in the management, the more likely those problems are to happen. I've just seen— my experience has been any more than 5 people in management is disastrous. I've— the worst-case scenario, I saw it immediately, uh, with litigation amongst the management team, uh, started immediately after they closed on the property in And it lasted the whole time they had the property, and it sucked up all of the profits to where, you know, the lawyers won and the investors lost. So, and a huge amount of wasted time and effort and anguish, you know, on the part of the people that were involved in that, because, you know, litigation is not fun. I used to be a litigation attorney. I ran from that field because I didn't have the stomach for it. I'd rather put deals together than try to You know, rip them apart. But yeah, you've got, you've just got to be cautious about that. Krisha, do we have any questions? Does anybody have any?

And I was just thinking the same. If anybody has any questions, you can put it in the chat. Yeah, you can put it in the Q&A. Here's your chance.

And I think, Bob, we may be doing a private money boot camp again in December, right? I heard a rumor about that, but I don't know if there's a specific date yet. So we'll let you guys know if that's going to happen and when.

Yeah, well, you know, I'm not sure it's going to happen yet, Kim. I talked to the source this morning. So, okay, back next week more just to make sure. If it happens, it looks like it'll be in Orange County, California, and it would be the first weekend after Thanksgiving holiday. It would be like December 3rd, 4th, or 5th or something. But none of this— the concrete has not dried on this yet, and I'll know more next week. Hopefully we'll know. Okay.

All right. So, Bob, people are asking— yeah, go ahead, Krisha.

Yeah, just, well, tell us about your program. How do we learn more about it? Do you have a website? Is there somewhere we can go? To purchase?

Yeah, there is. Uh, can I, can I bring it up real quick and answer one of your questions on, um, how we help investors, how we make decisions quickly?

Yeah.

And I'll give you the website.

Yeah.

Um, this will only take a second, just so you know what you're looking at. Um, let me just dial it up right here and share my screen. First of all, you know, the name of the product is Commercial Underwriter, so you can go into, you know, commercialunderwriter.com. And you can see and learn more about the product. You can schedule a free demo. You know, you're welcome to contact me if you like, if you're interested. But this is a commercial underwriter here. It's got a— you're looking at a dashboard that's constant. So no matter what I'm doing, what numbers I change, my most important metrics appear here. Blue is basic, pink is more advanced calculations, but the green stands for money. And that's where I look right here. The yellow boxes are dummied up for me so I can— it's an input because I don't want to input anything more than I have to. But how I make investment decisions quickly, as soon as I get my numbers in, I created this cash flow model and I just come down to the bottom. And this is where the rubber meets the road right here. No matter what the equity splits are, this tells me from my cash distributions on real numbers Based on how I underwrote the deal, it shows my— this is kind of hard to see, I think, for you. Let me see if I can enlarge this. Yeah, let me, let me make this bigger. You can see here that what I have is my, my investor's preferred rate of return at 7%. And this is actually coming from what's left after, after the NOI and the debt is paid. This is Actual cash flow. So you can see the investors are going to get 7%. So I'm going, okay, this is a partial year at 3.1. Okay, so then I look at us, you and I, we're the GP, we're the manager. So you notice we talked about this, you're not going to make any money or hardly any money at all in the first year or two. And then I have a partial distribution for the manager because we're building our business. And then the manager starts getting $82,000. They get their 7%. Now, if I have to go back because there wasn't enough cash flow at the beginning of the investment, then I have— is there any remaining cash in any of these years? And you can see that the remaining cash in this investment builds up over the years and gets stronger. And so you can see that there's plenty of remaining cash if I needed to go back and pay the investor. And also, It's a lot of comfortable room to pay myself. You know, you don't want to get yourself into a deal where all the money's going to the investor. And, you know, and when it's that— when it's that tight, then you get into issues with the lender because you're getting really tight in your debt service coverage ratios. And so, you know, you know, you don't want to get into that position. Also, you don't want to get into an investment and get an acquisition fee. And then work for the investors for five, seven, ten years, and you don't make any money. So I broke this out, and I know that in a quick view, as soon as I get my numbers in, if these numbers here are good, you know, and there's enough remaining cash, this deal is gonna work for me. And then I can go directly to my my returns, and here's my one hundred k investor. You know, they gave me $100,000. You know, there's no yellow here. There's no input. So they gave me the money. Here's their 7%. At year 7, I'm giving back their $100,000. And very important that you show this. And we write a check. You know, Diane, my wife, you know, you know, we write a separate check to them and then they'll get another separate check for their equity. So, you know, here it shows, you know, they gave us $100,000. And we gave him back $222,000, and it's got the internal rates of return, the average rates of return. I can print it, I can put in a PDF and send it to the investor. I drop it in my property package so I know that, okay, this is really going to work. So if an investor ever asks me, I could just send this to them. I know right now. So how do you—

I want to point something out that is critically important here, Bob. It is that in the total line, it's that second to the last number, 17.49%, that's your average annual investor return. So that's a compilation of all of those preferred returns you gave them from cash flow, whatever cash they got from cash flow, plus whatever they got from the sale. And together, you know, divide it out over, you know, add those together, divide it out over the years that you've had it, that gives you a number. You take that number, divide it by the original amount of money that you raised, That gives you your cash-on-cash, your average annual investor return. And so the AAR, so that's critically important. Some people use IRR, a lot of people don't understand it. So a lot of our clients use AAR, you know.

So I have both right here for them. I have IRR. Yeah, the IRR gets calculated at the sale. So the IRR was 13.87, and with these numbers, it'll be very easy to get investors in your deal. Easy from the point of view is that you have a great deal here. This was a deal, by the way. This was a deal.

That's great.

So yeah, so I mean, so, you know, it's just, it's just another, um, something that saves time, saves money, has clarity, easy to use, and you don't even have to type anything in. It's all automated. And then the last one, after I go through the cash flow distribution and I do this, then what about you? You're the GP, right? What about you? So I have manager returns here.

Oh, nice.

And so one of the things, there's a couple inputs because I don't know what the acquisition fee is going to be. And also, you know, what percentage of return, whatever we pay the investor, we, you know, the manager also gets the same thing. The important thing is that you never get paid more than the investor, ever, ever, ever. That's a hard rule. So one of the things that we did here, we can see, okay, so if I buy this deal, you know, and with, you know, then it's worth $1.644 million on this little deal. So if I need a sponsor, if I need somebody to help me raise capital based on how I underwrote it, you know, this is how much money in the deal that I'm going to make if I did it by myself, which you're probably not going to do, but you can determine about how much you're willing to give up or give away. And there's some guidelines there as well, but it's already done. And the most important thing is your— is the manager's promote. Okay, you know, we had, uh, and you know, we, you know, my wife Diane, you know, she does all this every time we get a deal. And it just so happened a few years ago, one of our users that was buying you know, some property, they had investors say, you know, hey, so-and-so, you know, what is your promote? You don't have any money in the deal. And basically what they were asking is that, you know, you know, what is your equity? And the $1.171 million isn't actual equity, but in the deal split, this is what your 7% is calculated from. Okay? Because that's your percentage of it. And that's, that's called your promote. And so we automated the whole thing for you that if anybody ever asks you, the promote is already there along with your money and what you could do provided you perform the way that you underwrote your deal. And so in my situation, you know, I'm ultra-conservative and I have a reputation, you know, because I don't have a lot of tolerance for risk. So it's really cool, all the things that are here. Uh, you can, you know, get onto the website, or, um, also, uh, Kim, if I may, um, Diane and I, my wife, you know, we're gonna do a commercial class if people—

Oh, nice.

About commercial. It's gonna be next Friday and Saturday. It's— Oh, wow. Yeah. Online. Uh, if anybody is interested in learning how to underwrite, how to value, how to find, you know, we're going to have— it's going to be— my wife used to be a— now she's a national speaker, was for a long time. And her last contract was with Rich Dad Poor Dad. She created their commercial class mobile home park classes and different things. And we actually started in retail. She's been working for investors all her life and some very well-known investors, including Robert Kiyosaki. So Diane and I are going to do the class, you know, like we used to do for AriMentor since they're not doing it anymore, because some of my users wanted to learn how to buy something else other than a policy.

I love that. Yeah, Bob, how, how can people, uh, get access to that?

Okay, so, um, it's, uh, commercialunderwriter.com and then a forward slash and class, or I can, I can maybe put a link or something on the, on the chat if I can I'll get out of this.

Yeah, if you can show that, I think people would— and I might even be interested in that. Would you say it's next Friday, Saturday? Is it a 2-day class?

Yeah, it's a 2-day from 10 to 4 Eastern time.

Wow.

Okay. 10 o'clock to 4 o'clock Eastern time. It'll be myself and my wife. We've been doing this for many years, and we'll open up your eyes on how to buy medical office buildings, office, retail, strip centers, warehousing, industrial. You know, there's a lot of great opportunities, and I'll share with you a couple of the property types that we've done really well in that I really like. Okay, and if you could find one of these, I'd consider sponsoring one. But we've had a lot of success, particularly with a certain type of office building. And my, my wife is— she started off Working with these investors that, uh, in retail. That's how we met. We started a company with these 2 guys called American Eagle, the American Eagle Outfitters. We started that from zero, and Diane did all the leases, found the location. She did a lot of the market analysis. She worked in the finance department. I was in the operations side, out in the field, opening the stores, managing. I was involved in buying. In, in the city. And it was quite an experience. And one day we met at a home office in— the home office was in Pittsburgh, and we had a meeting there. And I met Diane. I've been talking to her for 5 years. We fell in love. She quit. She left American Eagle. I left American Eagle. We had about 45 stores and nobody thought it would work out. But we just had our 43rd wedding anniversary on the 4th of July.

By the way, all my blue jeans are American Eagle blue jeans. I'm wearing some right now. Just a random tie-in. We're a little over time here. Bob, I'm so glad you told us about this class. Actually, I put the link. What is the cost for the class?

The class is $995, and you can have— it's for you and your partner. You can do it for 2 people.

Wow, that's great.

Yeah, so it's, uh, it's— I'll have to try to get in there. I just had my marketing company send this to me. I think it's commercialunderwriter.com/ /class and then maybe another forward slash.

I'm not exactly sure. It worked.

It worked.

It's in the chat too for anybody who's here live. But I just typed in my URL like commercialunderwriter.com/class and it brought me right to that page.

Oh, okay. Good to know.

Okay, so you're doing this on Halloween. Is it, you know, masks optional?

Oh, I thought we had our mask on already.

All right. This has been great, Bob. Uh, you know, I'm so glad to hear that you're doing that class. Uh, I look forward to seeing you again at our next Private Money Bootcamp. And, uh, or we'll see you soon in Florida anyway. And, uh, we'll, uh, you know, hopefully this has been helpful. Of course.

Kim, I'm sorry, I didn't mean to interrupt, but for those of you that are interested in Commercial Underwriter, um, if you contact me, uh, in the next few days before our class— our class is on Friday— between now and the next 7 days and want to purchase, uh, Commercial Underwriter through Kim, uh, you know, just you have to make sure you give me your name, you'll get a $500 discount. Okay, because it's subscription-based, so You know, the price you'll see on the internet is $29.95 for a purchase. Your price is $24.95 if you say, if you say Kim Taylor in your email to me. And we'll get you registered. Yeah. And of course, the software, you know, what I— what you get with that is that I have free onboarding training one-on-one. Uh, you'll also learn how we incorporate AI, where we use the seller's financials in either PDF or Excel to import directly in the software. I did that 2 years ago, so we're way ahead of everybody as it relates to AI. But, um, you know, you'll, um, you'll also be able to attend my education. There's no cost for that. My learning labs on underwriting that I do twice a month. I also review and help deals. It also includes all my versions, and that's for the first year. All the versions that we come up with, they're all part of— it's all free. There's no cost to you. After the first year, you have 3 options. You can unsubscribe, or you can pay $99 a month, um, and for all the same benefits. Because it's cloud-based, there's cost all the time. Or right now you can pay Or when you renew right now, I have where you can pay $895, get a 25% discount. So instead of paying $1,200, it's $895. So that's the investment in the program. But what you're going to get out of it is going to be tremendous. And so you'll need a product if you're going to do the commercial class, because the underwriting and the formulas and things are different. Yet similar, and that's what part of— we're going to take a deep dive in how to analyze these properties, and I'll show you how to do it next Friday if you want to do commercial as well. Okay.

Perfect. Okay, Bob, thank you so much. I'll see if I can corral my husband in to go into your commercial underwriting software. I'd like to do that, and we will talk again soon, I'm sure. Thank you.

Well, thank you, everybody. Thank you for your time.

Thank you.

Thanks, everyone.

All right, bye.

Have a good day.

Take care.

Bye-bye.