EP16: Don't fall for SHINY Returns in an Investment, Understand the Multi Family Financials with Rob Beardsley

That's why it's really important for investors to be educated and they're not making investment decisions based on where they see the highest numbers because there's so many ways to manipulate the numbers and also where the highest numbers are also, like we discussed, could be where the highest risk is. So we need to be aware of that and look below the, you know, below the surface layer to really understand are these projected returns reasonable and is risk under control?

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Hey, hey, hey. Welcome to Think Outside the Stocks, another episode and we have today with us Rob Beardsley from Lone Star Capital. Fun things about Rob. Rob has actually published the number one book in multifamily underwriting. In fact, that is the only, only book about underwriting. He went to college for computer science and hey, he has the qualities of one of the best entrepreneurs because he dropped out of the school and started his journey when he was merely 20. So that's with that fun fact about Rob, let's jump into just having this fun discussion with him. Rob, welcome to our show.

Yep, thanks for having me.

So what did I miss? Rob, you have quite an interesting journey. And starting at the age of 20 and what you have achieved so far, you have tremendous portfolio, about $350 million for multifamily just under this short span of period. How did you get there and can you elaborate a little bit about your story? How did you get interested in real estate and why this underwriting is your motivation? Most favorite thing to do?

Sure. Well, I got involved in multifamily similar to how many people got involved, which is listening to podcasts like this and doing online research, attending meetups, going to conferences. The benefit that I had was my family had a background in residential real estate. So I had understood and been around real estate ever since I was a kid. But My family had never done anything in multifamily. So once I got interested in multifamily, I thought it was much more exciting and a better path for me. So I went all in and was able to meet my business partner at a conference and we started our company, Lone Star Capital, together. And it's been about five years now, like you mentioned, where we've acquired over 350 million in assets, all in Texas, and have, you know, we're looking to continue to grow the portfolio and expand operations.

That's great. I mean, it's, it's amazing that you had such an early start. I feel jealous. But anyway, today we are actually talking to our listeners that our listeners are mostly passive investors. So they are not so much. So they don't know so much about underwriting and what underwriting is. Can you explain that, what this term underwriting means?

Sure, yeah. Underwriting is just the financial analysis of a potential acquisition. So whenever we look at properties that we want to buy, we put the deal through our underwriting process where we will look at the income, the expenses. We'll look at pro forma rents, which means what rents we think we can charge in the future based on our business plan. We'll of course have to put together a potential business plan with renovation budgets, exterior plans and things like that, and then finally put together the debt scenario, because most real estate investments include debt. And then we need to figure out a projected sale value for what we think we could sell the project for three, five years down the line to project a total return for our investors. So that is in a nutshell, what underwriting is.

Thank you so much. So when they're looking into, say for example, buying a single family home, they just have very few parameters about what the market rent is going to be, what is the potential of the single family home is, and going in, just what kind of cash flow they have. Right. So when you are looking back, what kind of financial reports do you get in terms of the underwriting?

Well, the most basic requirements to underwrite a deal would be just the seller's financials and their rent roll. So we, what we like to see is 12 months of trailing profit and loss statements from the seller and then a most current rent roll. And even, even if we don't have their financials, but we can have their rent roll, we can do a pretty good preliminary underwriting because at the end of the day, we don't really need to see their expenses because we have our own portfolio. So we know the general ranges for what Expenses should be. So, and when we underwrite, we don't necessarily look at the seller's expenses to determine what our expenses are going to be. We look at our portfolio and, and those typical expense line items, and that's what we do to project out what our pro forma expenses look like. And then on the income side, if we have a rent roll, then we can see, roughly speaking, where their rents are today. And then we then can trend them to where we think we can take the rents, which are pro forma rents, via our business plan.

So you have the rental that's coming in, which is past 12 months, expenses and income statements for them. And now you input it in. By the way, love your underwriting model. You have this proprietary model that you have created for yourself, right. It's expansive, extensive, and it takes a look at different areas. So now you have the input. Can you explain about what different areas of this underwriting model this input goes in?

Sure. Well, everyone's underwriting model is built differently. And thank you very much for the compliments on our model. We use our model every single day and that's what we use to evaluate our properties. So it's something like you mentioned, I built from scratch. And we've analyzed well over a thousand deals with the model. And so we've been able to tweak it to make it work just the way we want it. And the way we want it is a balance of simplicity and robustness, because you don't want your model to be too complicated, because then you're spending too much time on every deal and you're wasting time. And then on the other hand, you don't want it to be too simple because then it doesn't actually inform you and provide you the information that you need to know in order to make an investment decision. So that perfect balance of simplicity, ease of use and robustness is what we're looking for so that we can be as efficient with our time. So the way our model is set up is we have an inputs tab. We input things we've been discussing, such as the income expenses, pro forma debt and things like that. And then on the outputs, we have the pro forma, which actually shows you the projected financials over a 3, 5 or 10 year hold period. And then we have a waterfall which calculates the returns with the partnership and the investors. And we have some other tabs such as sensitivities and a summary tab and things like that. So if anyone listening is interested in getting their hands on our model, you can do so for free on our website lscre.com yeah. So feel free to download that and use it and edit it to your liking.

So that's great. Thank you so much for offering that. There are some passive investors who would love to get hands on that model. So let's break it down step by step. Let's talk about debt. When we have how you structure the loan from the lender, what is that model talking about and what are the different assumptions that you are tweaking in that model and in terms of the loan?

Yeah. So the key assumptions on the debt side are the term of the loan, the interest rate, the leverage point, the amortization and the interest only period and the fees. So that's quite a bit. That's quite a lot of stuff right there. But that is what we focus on. And the other thing that we focus on that isn't really going to show up explicitly in your model is the prepayment penalty.

Okay.

So it's very important, even though it's not necessarily front and center. Typically when people think about debt, they think about only a couple things. They think about the loan amount and the interest rate and that's kind of what their focus is. But in reality, peeling back a layer and analyzing the prepayment penalty, analyzing the fees and the terms that may be related to your draw requests and things like that. You know, debt can get quite complicated. So it's really important not just to look at a loan and say, well, that has a nice interest rate. So this is a good loan. Because sometimes the best loan isn't the one with the lowest interest rate. So we spend a lot of time analyzing the loan inside and outside of the model. Because inside the underwriting model it's quite simple. You just plug in the loan amount, the interest rate and a couple other factors and it's going to have an impact to your returns. And then you can tweak that and see how tweaks in the debt change your projected returns. But what that won't really tell you the full story about is the kind of smaller fine print of the loan. So like I said, we spend a lot of time looking at the term sheet itself and negotiating those finer points.

Yeah. And then it's really important. Right. A couple of things that you said I want to go back to it is that interest only period. It typically is good to have that three to five years of interest only period because that's when you are creating that renovations in the units. And that kind of helps a little bit with the Cash flow, right?

Yeah, I mean our goal is to maximize cash flow for investors. So the more interest only that we can get, the better. And for those that are listening, interest only is when your loan is only paying, you're only paying interest on the loan and not also principal. So if you have to pay principal and interest, then your more of your cash flow is going to go towards servicing your debt payment rather than to free cash flow for distributions. So if you have interest only payments, then you can only pay interest to the lender and then you have more free cash flow to distribute to investors. So that's what we like, we like to maximize that so we can maximize the cash flow for investors.

So the three things, if you were to say for passive investors to look into the debt structure, what will be those three things?

I would say first and most important is leverage.

Right.

So debt is the number one source of risk in real estate. And so looking at the leverage and understanding how much risk the leverage is adding to the deal is really important because you can have a deal that goes perfectly well, it's in the right market, business plan goes well. But if you have too much debt on the property, it could result in a problem. So you have to look at the, the debt in relation to the value of the property to the potential of the business plan. So, so leverage is the first thing that I would look at and next I would look at the term of the debt which is, is it short term debt, is it long term debt? So a lot of bridge loans are three years and then permanent financing is seven to 10 years. So that also has an impact to the risk factor of the deal. If you have a situation where there's a short term bridge loan that's going to add more risk to your deal. So today, in today's market we're focusing more so on long term debt. So we're borrowing at around seven years, which provides us flexibility but also long term duration to mitigate risk in the meantime.

Yeah, that's very interesting, especially the market that we are currently in. Past two years that we have seen the interest rate has been really low. But since the Fed started doing those interest rate hikes, the lending has become one of the biggest risk. And it's so good to see that, you know, you are actually focusing lending being the top risk and how you can mitigate that risk. So it's, it's so nice to see that. Now moving on to the rest of the underwriting model. Right. We, you talked about the, the, the waterfall structure which is basically the split structure for partnership. Right now, syndication is a partnership where the passive investors and the active investors are coming together. So can you talk about what's called the waterfall and spelling it down that you know, basically what is the partnership structure that is provided there and what should the passive investors look for?

Sure. So I would say what passive investors should look for first and foremost, very simply, is a preferred return.

Right.

In the majority of waterfalls, there is a preferred return which puts investors, which gives investors a minimum return before there's any split of the profits with the manager. So preferred return is really important.

So essentially, essentially preferred return is before the partners, the syndication team, gets any dollar, all this money is coming to the passive investors, right?

Yes. And with that being said, not all preferred returns are created equally. So there's different types of preferred returns. And so you need to, as a passive investor, look at the fine print of the preferred return and understand the mechanics of it and then decide for yourself whether you feel that those terms make sense for you and is a fair deal for you. So let me just break it down a little bit. Preferred turn can be subject, it can be cumulative and compounding. It could be non compounding, which means that if the preferred return is not paid in a given period, the missed portion of the preferred return can accrue and compound to the following pay period. So now investors who aren't earning their full preferred return are actually earning interest on their unpaid preferred return. And that's the most favorable. So investors should be looking for a cumulative and compounding preferred return. The next element which investors need to consider is whether the preferred return is subject to return of capital. What that means is in a more favorable preferred return scenario, which is more institutional, the investors would be owed first their preferred return of, let's say 8%, and then they would be owed their return of capital. So investors would get preferred return, then all their original investment back and then the profits would be split with the sponsor. So that is the most institutional preferred return. It doesn't mean if a deal doesn't have those characteristics, it's a bad deal or a bad partnership. It's just something to look out for and be aware of.

That's interesting. Thank you so much for breaking it down. Especially the institutional users. It's interesting that they get their money back before the sponsor actually starts getting any money. Right. So moving on from that part, of course there are some assumptions about what kind of expenses you are predicting. Right. Tell us more about when you are predicting the expenses. What are you looking at? Are you Looking at renovations, internal, external. Can you give it a little bit insight into that?

Sure. So every deal, we approach every deal from a fresh perspective and we look at what the deal needs and what we think would be the optimal business plan to generate the highest return. So what that means is we don't just renovate the property completely in hopes of getting higher rents, for example, we actually analyze the comps and we look at, well, what is a reasonable level of pro forma rent that we think we could achieve and then what is the business plan going to entail in order to obtain those rents? So, and then we could find ourselves in a situation where we think we could raise rents to a certain level, but the costs are so high to do that it's actually not worth it. So we want to find that sweet spot where we can find an investment where the renovations that we do give us a strong ROI to when we meet those performer rents. So a main focus for us is internal or interior renovations. So for us, that's a typical unit turn. We call it where we're upgrading the kitchens, new flooring, new paint, new cabinets, or new cabinet fronts with backsplashes in the kitchen. We might do a smart home tech package with smart locks and smart thermostats. We often like to add washers and dryers into the units to enhance ancillary income. And we'll also add ancillary income through covered and reserve parking or, and, or a mix of both. So those are just a few ways to add value.

That's great. So essentially now we have that business plan together about what renovations are going to be applied to the property. We have the internal property renovations, we have the exterior property renovations. And with that you get a chance to increase those rents and increase that value of the property. Can we talk about the term I'm going to plug in here is the forced appreciation. And if you are listening and you are passive investors, don't get afraid by the term forced appreciation. Let's talk about it. Can you explain the forced appreciation? What are we trying to do with these renovations and this value add plan?

Yeah, it's actually very simple. When we implement a value plan where we're able to increase the income of the property, that doesn't just result in higher cash flows, it results in higher property value because commercial properties are valued based on their income. So with all things staying stable, if you increase the income of the property, if you increase the income at the property, you'll increase the value. So that's all that forced appreciation really is. And that's, that's the name of the game.

So essentially in the single family market, when your value of the home is dependent on the surrounding houses and have they have been going up and down and we are at the beginning of 2023, since last year, mid of the last year, we have started seeing that value, the values of the single family home going down. But in case of multifamily, it does impact a little bit the market, but not so much because you still have that control that you can increase the income and that value of the property goes up. Right. So it's treated like a business almost. Right. That you have the property value, the market kind of parameter, and together it creates the valuation of the property, unlike the single family homes, which is just determined by the value of the home that's next to you. Now let's talk about that market parameter, right? It's, it's called the cap rate. Many investors, they look at, oh, what's the cap rate? What's the cap rate? If it is, it is good to be have a higher cap rate or a lower cap rate. Can you speak to that, that you know, that cap rate being such an important aspect of this underwriting Y this.

Is a bit more complicated, but it is very important. So in terms of the value equation, we have the income, which we talked about, right? And if you raise income, you're forcing appreciation because properties are value based on their income. And then the flip side of valuation is the cap rate. And the cap rate in terms of valuation basically is the unlevered return or the income per price that investors are willing to pay for that property or for that market. So in markets that are very strong and high growth and, and where investors perceive low risk, the cap rates will be lower because the market is willing to pay a higher price which results to a lower income to price ratio or percentage for those assets. If you look at worse markets where there's slow growth and where there's higher risk, or if the property specifically has higher risk, that is going to sell at a higher cap rate. So what that means is yes, you might be able to buy a property at a higher cap rate, which is good because it's higher potential income. But you also might find yourself in a situation with higher potential risks, right? There's no free lunch, there's no easy way to invest. Buying at a high cap rate, buying at a low cap rate, they're both difficult things to do.

So essentially if you have the higher cap rate, your risk might be higher too. So you kind of have to evaluate it. And I'm in Austin, Texas. You know, cap rate has been really, really low and going down here. So but that reduces that risk about the market, right? So just remember that. So talk about the cap rate expansion, you know, in terms of market where, where is this, the direction of the cap rate and how does it matter for an investment and when you underwrite it, what do you consider?

So what we've experienced in the market over the last six months, I would say is a pretty, pretty decent expansion in cap rates. And what that means is, and that's driven by interest rates, is driven by uncertainty in the market. And what that means is even if your property has the same income six months ago as it does today, it's worth less. Right. And so that's the impact that that's having to investors in the market. Now for investors that are looking to invest in today's market, they might be in a better situation because cap rates are higher. They might be able to get in at better valuations. So we've seen that across, across the board. And I think for the future, I think we could see somewhat of an additional increase in cap rates as time goes on, but not a whole lot. The what I want to point out is if your income is stable and your property value went down only because of the cap rate expansion, that has nothing to do with cash flow. Your cash flow is still the same, assuming that your debt is fixed and your income is the same. Right. So this is the importance of having the right business plan and deal structure and debt structure. Because if we go through a situation in the next 12 to 24 months of lower property valuation, which means higher cap rates, it may not be a good time to sell. So it's a good position to be in if you have fixed rate debt and long term debt, where you're able to continue to have good cash flow and you know your, your investment's going fine just the same, right? Cash flow is good. And then you can wait it out this 12, 24 month period and then when cap rates come back to be more favorable again, you're able to take advantage of and sell and earn a strong return.

Yeah, that's very interesting. So essentially with the cap rate, you're driving the valuation of the property and based on the business plan, from what you're seeing, if the passive investors are concerned that, you know, cap rates are expanding, the market is kind of changing, they might start seeing a little bit more duration in that investment. Right. So if they have slotted to be for five years, maybe they will see an additional year. But in terms of capital preservation, is it still, you know, that risk, does it still provide that risk managed returns to them?

Yeah, I mean, that's the question that every investor needs to ask themselves when they look at a deal.

Right.

And that's when, when I was talking about bridge loans versus long term debt, you know, you might be in, again, there's no free lunch. Right. You might see a deal, there might be deal A that has a bridge loan and it has higher returns that are projected. And then you might have deal B which has long term debt and it has lower projected returns. Because as you pointed out, a longer term hold is going to actually show a lower IRR or a lower projected return as compared to a shorter term hold. That's just due to the time value of money. Right. If you're able to buy and quickly sell, then you're going to make a higher percentage return. So that's why it's really important for investors to be educated and they're not making investment decisions based on where they see the highest numbers because there's so many ways to manipulate the numbers. And also where the highest numbers are also, like we discussed, could be where the highest risk is. So we need to be aware of that and look below the, you know, below the surface layer to really understand are these projected returns reasonable and is risk under control?

Such an important point that you make there. I always tell my investors not to look at the shiny numbers because I come from a consulting background myself and I know that, you know, you tweak a small number and the projection and the, you know, returns are just going to jump up high. And that's why we are very careful when we are evaluating deals with different, you know, partnerships that we have and we are looking at what are their assumptions, what are their conservative assumptions. Right. So as a passive investor, if you were to say that, let's take a look at this five different conservative assumptions, what would you say that to ask them to go and look at the underwriting and ask those questions to the sponsorship team.

Sure. So I already mentioned this once, but I'll just add it in again. Which is leverage.

Yeah.

Right. The risk profile of a deal is dramatically different when the leverage is at 60% versus 80%. So it's important to look at that. But that isn't as much of an assumption as just a deal term. Right. An assumption is more so where we think rents are going to go and where we think the exit cap rate is going to be and how fast do we think rents are going to grow? Right? So those are all really important assumptions to be focused on. So if we were to call it five, I would say number one would be pro forma rents. That's a very sensitive input and a very important assumption that needs to be justified with rent comps, which means you look at comparable properties in the area to justify the pro forma rents based on the business plan. So that'd be number one. Number two, I would say, and I'm ranking these in order of importance, number two, I would say is exit cap rate. And we talked about this a little bit, but the exit cap rate is basically the way that you project your sale price in your underwriting, in your acquisition underwriting. And the way that that works is when you construct your model, you're going to project out your income over the next three, five years. And let's say we will plan to sell after five years. What you do is you would look at your projected income in year five and then you would divide that by your projected or your assumed exit cap rate and that would come up with a sale price. Just for example, if you project in year five to have a million dollars of income and you have a 5% exit cap rate, that means you're projecting to sell the property for $20 million. And that's how you derive your sale price. So the higher your exit cap rate, the more conservative you're you're projecting your sale to be, right? If you increase that 5 cap to a 6 cap, that'll bring the 20 or 20 million dollar projected sale down to, I don't know, somewhere around 18, 18 million or something. So lower exit cap, more aggressive, higher exit cap, more conservative. So it's important to look at it as an investor to see if the exit cap rate makes sense based on the market that you're in and, and the type of property that you're buying. So that would be number two. Number three, I would say is your probably your rent growth or your expense assumptions. So rent growth is pretty straightforward. You know, most people are projecting somewhere around 3% per year in organic rent growth. And that just depends on the market you're in. If you're in a stronger market, that might be reasonable. In a weaker market, that might be a stretch. So again, it depends on the quality of the market. And matching that to your underwriting expenses is really straightforward. It's just, are you conservatively budgeting your expenses and how those expenses grow? You know, we all know that property taxes, at least in Texas, Grow a lot faster than a lot of other things. And so it's important to focus on property taxes, insurance, and just being conservative to have some room for error there. So that would be kind of tied for three and four. And then if I were to use one more thing to look at, I would maybe throw out there your, your economic losses, your vacancy, your bad debt and things like that. If, for example, all the comps in the area are at 90 occupancy and you're projecting to stabilize at 95, that's a little bit, that sounds a little bit riskier or a little bit more of a stretch and harder to justify. So it's better to look at the comps in order to derive your vacancy and your bad debt and things like that.

You summarize it so well. I think these are the top five assumptions. You know, the most conservative way to look at it. And thank you so much for explaining that. So just to recap your rent pro forma, it's if you have the higher pro forma, that's kind of the aggressive and you have even if a little bit lower than the market, what market is achieving that's of the conservative, the cap rate for the exit. If it is on the higher side, that's the conservative. If it is projecting to be lower side or even the same cap rate as the entry cap rate, that's kind of the aggressive part of it. The rent growth. And we have seen so much rent growth during COVID some of the areas even showed more than 10%. But going back to that basic about the 3%, which is, which has been the national average. And I think that rent growth kind of goes hand in hand hand with inflation. So even if the inflation is high right now, to conservatively say that, okay, let's assume that 3% growth. So if anything other than 3% happens on the higher side, that's kind of going to create that positive cash flow and positive returns to investors. So lower rent growth is that conservative criteria when it comes to expenses, staying on the higher side of expenses. You know, again, through covet the supply chain got so disturbed and the expenses of the renovations got so high. So projecting that on a little bit on higher side, that's again being very conservative. And just that the economic loss of the property, I think that's a very important aspect you mentioned there. Essentially for listeners, economic occupancy is, is not your actual occupancy. So your actual occupancy could be about 95%. But there are always going to be some people who cannot pay that rent. Right. So there's going to be some loss, there's going to be some expenses. So the, so the loss of occupancy is that economic occupancy Rob just mentioned. So thank you so much, Rob, about that. And I think that kind of gives a good wrap around, you know, the underwriting model and what passive investors especially should look for in order to analyze this investment and to see if this is the right level of risk that they want to go in as a property. Right financials are such an important aspect. And when I was actually very surprised when I went from that single family rental mentality to multi family and I started understanding the underwriting, it just felt so expansive. It's almost like an octopus with tentacles with, you know, multiple sheets and all the sheets impacting even one smallest tweak change. For example, if you consider that 3% rent growth and you make it that 5% or 7%, suddenly your IRR is going to be just going high. And that's where we are, what we are saying, you and me together, we are saying that don't fall for that shiny numbers. When you are evaluating a deal, it's not about if one particular investment is going to give you 20% IRR and the other investment is going to give you, say, 16% IRR. You have to go back and look at all these underwriting criteria that Rob has mentioned here, which has been incredible. So thank you so much, Rob, again, for sharing your like, giving your knowledge dump for our listeners today.

Yeah, my pleasure.

Is there anything else that I forgot to ask you about underwriting that you would like to mention?

No, I think we covered the basics. You know, obviously practice makes perfect.

Yeah.

And for passive investors it is. We want to keep passive investing passive. Right. So we don't want to turn this into a job where you have to underwrite a lot of deals. So it's important to kind of get the, the right metrics down and build trust with a sponsor. So that way you can quickly look at their numbers and have trust that they've done a lot more homework and making your decision a lot easier.

Absolutely. And that's a very good point for listeners. Don't go into that analysis paralysis kind of a mode. It's not about you getting that, downloading that underwriting model and evaluating it and kind of creating it, but it's about you downloading that model and understanding that what goes behind it. What is the sponsor team looking at it diligently. Right. So this could be just the questions that you ask in the webinar, the investment webinar or post investment webinar. When you are on that one on one call with your sponsor team, ask these questions. Don't go into analysis paralysis but do evaluate to the level of comfort that you feel at it. So given that, Rob, tell me how many properties do you actually underwrite to get to that one investment which is worthy to put in front of your investors?

I would say ranges from around 50 to 100.

Wow. So 50 to 100. These 10 tackles of a spreadsheet of underwriting to be done to get that one investment in front of the passive investors. So keep that in mind investors, if you are looking into that, somebody has already done so much of analysis and we also, you know, provide that layer of analysis in, in terms of underwriting. But do be prepared to ask that right questions. So thank you so much Rob again for this segment. It has been tremendous this input for our listeners today. With that we are going to go into our next segment which is actually my favorite segment. And this is about you. Rob Bearsley, how do you think outside the stocks?

Well, obviously my main focus is real estate private equity. So the vast majority of my investments are in our own properties and in real estate private equity. Right. Alternative investments and continuing to think outside the stocks. I have friends that I invest with in venture capital. It's a small portion of my overall investments but it is a diversification for me. So I invest in pre seed seed and series B, you know, series A Series B investments on the tech side of things. And as far as the stock market itself, I buy the s and P500 index and I don't time the market. I don't pick stocks, I don't do anything I don't ever plan to sell. I just buy index by the s and P500 index and that's it. And then lastly I own a lot of equity in watches.

And that is, that is interesting.

That is a very fun investment, if you can call it that.

Yeah, fun. Fun and enjoyable. Something that you can enjoy as well, right?

Yes.

Thank you so much for sharing that. And with that we are coming to our next round which is kind of a fun round. I call it a rapid fire round. So I'm just going to ask you a few questions and a quick 30, 60 seconds answer. And since you talked about watches, that is going to be my first question. What is your favorite watch?

Favorite watch? My favorite watch is a one of the rarest Rolexes. It's called a Rolex Daytona and it is A rose gold watch that has, it's called a rainbow. So yeah, if you're more interested, you can look that up and I'm sure you'll find many pictures. It is of a controversial watch, but it's very beautiful in my opinion.

Oh, that's interesting. I'm gonna, you know, look up for the image and I'm gonna put it in the show notes just to, you know, see if interest the, the listeners are interested in knowing that what is your best worst deal ever? That is what is the worst deal that you know, that you had that turned out to be best at the end.

Interesting. Well, our first deal was quite bumpy. We acquired the property with a management firm and that management firm was doing very bad things and we had to fire them immediately. It was very messy. It was very stressful time to remove them, to right the ship, replace them with a new management team and get the business plan back on track. That whole process delayed us quite a bit and it was a difficult property to begin with. But when we were finally able to stabilize the asset and sell, we were still able to make a strong return for our investors. So that's a long story made very, very short. There was a lot of trials and tribulations. It's a very stressful time, but I feel like my brain has, you know, taken the lessons but then deleted a lot of the heart moments from that experience.

But hey, the best part is that, you know, it was going to be that the worst deal, but you kind of turned it around. And even as a first deal, you could actually provide better returns to your investors. So kudos to you and congratulations because there is, you know, I always say that these are all the learning experiences. This is all what make us what we are. Right? So that's incredible to have that in that kind of experience in your first deal. And with that, I'm going to wrap it up for our listeners. So Rob's book, if you're interested to check out, it's called the Definitive Guide to Underwriting Multifamily Positions. It's available on Amazon, so go check it out. Rob, what's your favorite book?

I like Getting More by Professor Stuart Diamond. That's a really good book about negotiation and I really like how straightforward he the professor is in his teachings.

Thank you so much again. And listeners, you heard Rob today, you heard about the underwriting and how you can evaluate. How can you ask that right question? Also remember that underlying that operator, that sponsor is so important because no matter what challenges are there in the in the environment, the operator with their experience and their strategies. They are going to apply this experience on the deals and the challenges that they're facing. So remember that and I hope you learned something new. Thank you so much for joining again.

Sounds good. Thanks for having me.

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