August 2026 Meetup - Risk Management & Portfolio Protection

All right, welcome to our monthly meetup. We are excited, uh, to go through risk management and portfolio protection today. Um, this is obviously a big priority for anybody investing in commercial real estate. We want to preserve capital and, you know, protect, you know, hard-earned money. And so hopefully, um, this adds value to those listening. We just finished About 15 minutes of networking and conversation building. We typically do that for the first 15 minutes of our meetup. We meet on the 4th Monday of every month, and either I will do a topic or we'll bring in a guest speaker. But really, there's no agenda, no sales pitch, nothing other than getting to know our investors and prospective investors and try to educate, make everybody, you know, you know, stronger, more knowledgeable in the room. And so again, we meet on the 4th Monday of each month virtually. And feel free, please, if you think anybody might be interested in learning about multifamily investing or, you know, real estate investing in general, would love to invite them. A little bit about myself. So we have about $100 million assets under management, primarily in Texas. We have properties in Bryan, College Station, San Antonio, and Houston. We also have some properties in Alabama and Louisiana. Majority of our portfolio is apartments. I would say about 80%-ish, with the other 15 to 20% in more select developments, whether it's an RV, boat, and business storage or retail office. We're building a hotel as well. So there's different, you know, one-off projects based on, you know, some needs of the markets that we're investing in. but the bulk of our stuff is going to be Texas Triangle multifamily. Prior to my CRE Partners life, I was with CBRE for 16 years. So a lot of experience working with institutional investments and non-institutional clients over my career. I want to introduce Shelby. Shelby is our investor relations point of contact. She is going to be definitely heavily involved with Partnering with any of our investors going through the process of investing with us, and a great point of contact for our, um, for our investors. And especially as time goes on, there's always going to be questions on status updates, investment updates, the K-1s during accounting season, all that good stuff. So, um, definitely would love to have a further conversation with anybody, uh, interested in learning more about us and our investments. So, simple, what we do, before I go right into it, is, you know, we raise money to buy assets. And I'm going to— let's see, I'm just going to mute. All right, cool. So, we raise money to buy assets, and we do that through friends, family, investors, people that we meet through this type of setting. And then we'll go buy that property, primarily, like I said, multifamily. We'll execute the property business plan. We have in-house asset management. We work with our property management teams, provide monthly updates, do the full execution of the plan. And then our target is to do quarterly distributions for our stabilized deals. And then for our development deals, once they stabilize, the cash flow will come through them as well. And then we implement our exit strategy and distribute profits. All this sounds very easy. Nothing in real estate is easy, but we do all the heavy lift. I mean, I think that's a big point of this slide, and that way, you know, our passive investors can be passive. All right, so let's— enough about our company and what we're doing. Let's talk about risk management. So risk management is the process of identifying what could go wrong before capital is committed, and this could be You know, putting all your funds in the stock market. I had an investor who has majority of their portfolio in the stock market, and recently they're looking to diversify a portion of that stock portfolio and get it into, you know, physical hard assets such as multifamily. And so regardless of where you're investing, it could be oil and gas, it could be, like I said, Wall Street. In our case, we more invest in Main Street. But the number one goal is to protect investor capital. And so we're gonna go through a few items that will help protect your capital. Nothing's gonna be perfect in the sense of like, you know, there's gonna— there's always gonna be things that could pop up. But for the most part, if you're following some of this guidance, you know, it should help you in your journey. And I think it also, helps not always depend on base case assumptions. When we have an investment opportunity, we show a target of our investment, but we also show other scenarios if cap rates are different or rent escalations. So we do what's called a sensitivity analysis. And when somebody looks at a sensitivity analysis, you can see how The different returns will change based on what happens 5 years from now, or whenever that exit year is. And it can sort of help you determine, like, hey, is this something you have an appetite for? But it does create flexibility when conditions change. You're thinking more proactively, and from a passive investor standpoint, you're thinking more upfront before you invest to make sure it's the right fit. Because once you invest, Then you're wanting, you know, strong, strong jockey who's delivering for you, someone you can trust, someone who's executing and working in your interest. So, I've already mentioned this a little bit, but it's just something to repeat that, you know, risk cannot be eliminated. There's always going to be risk. There's always going to be things that we just don't think about. Like, I mean, a few years ago we had the pandemic. We didn't think, you know, that there was going to be a massive pandemic, that the government was going to shut things down and All that stuff. But, you know, there are things that we can protect and try to avoid. And so, you know, the Scout motto is be prepared. So I try to live the Scout motto. So discussion points, we're going to go through diversification, leverage and debt, liquidity and cash reserves, market and asset risk, sponsor and execution risk, stress testing, and then exit and refinancing risk. So there's a lot to cover, but we'll try to be pretty quick through this. So let's start with diversification. So diversification is as it sounds like. It's spreading capital across investments. So one outcome does not determine the performance of the entire portfolio. Um, you know, and again, I try to relate it to Wall Street or stock market because that most people understand that, especially when they're starting. You know, if you put all your money into one stock, you don't have a lot of diversification, and depending on what happens with that stock, it goes up and down, right? So Similar thing with real estate. If you're putting all your investment capital into real estate, there's going to be— there's more exposure to it, right? So, but you want to limit exposure to any single investment. Consider different markets and asset types. And I like to think of the markets of where you live. And some people, they live in certain cities and they're like, I would never invest here. I mean, Austin, I love Austin from being born there and raised there and, you know, all that, but it's not a market that I would invest in, uh, for different reasons. Um, but, you know, the biggest reason is it's not very landlord-friendly, right? But if you go on the outskirts of Austin, you know, those are great friendly, uh, landlord-friendly markets. So when you start from your backyard and determine like, hey, is this a good market to invest in? Then that's a starting point. And then if it's not a place you want to invest in, then find markets that you can, you can, you know, get information on. I mean, if you're out of state, even like Google Earth, you can, you get so much information on technology without getting on a plane and, or regarding a property before even investing, right? And Google Earth is a great tool to check out a property and sort of check the area, but consider different markets, asset types. One reason why we do other, you know, assets where, um, where we think we can do really well on, you know, we've got some medical office, some retail, mentioned the storage. It's for us, you know, we want to be, as a real estate investment company, we want to be really hyper-focused on one asset class and do it really well. And for us, that's multifamily. But there is, you know, like I said, a small percentage where we're like, hey, let's, um, do other, you know, asset types. But like, if you're investing only in multifamily, well, it does put you in that area where it's like, okay, you're not diversifying a lot, right? Um, and I've got thoughts on like the different real estate, um, asset classes and such, I'm happy to have those conversations too if anybody wants to reach out and talk through it. But another thing too is you want to avoid an overconcentration with one sponsor. As much as I want all investors to keep investing with us at CRA Partners, I do realize it is good for diversification within sponsors, and I think that's an important aspect. But you also want to build a portfolio that can withstand setbacks. And so this is, you know, you know, simply just not putting all your eggs in one basket, right? You just want to diversify out and, and see. Now, I also think, like, with multifamily and just in commercial real estate in general, like, as you invest more into commercial real estate and you're buying and investing into different properties, I mean, you're— you aren't You are diversifying in different asset— assets, especially if they're in different locations, if they're different sponsors and such. So really, we just don't want to be in a situation where everything's in one city, one market, one sponsor. You know, it starts over time. You know, there could be additional risk. So if you look at it from a leverage and debt standpoint, this is another thing where I think a lot of people, um, misused debt over the last 5 to 7 years, um, using a lot of bridge debt. And bridge debt is actually a very great tool. It bridges the gap from— for somebody to go buy a property that needs a lot of renovation. And so a lender will provide a bridge loan to help you get from, you know, where that property is today and to a future permanent loan down the road. And, you know, once it's stabilized and, and where it needs to be. But, you know, there is the risk of also like overpaying for a deal because you're using bridge debt because you can't get permanent financing. So you also just have to be mindful of the debt, the type of debt, and the loan-to-value or the loan-to-cost if it's a development, right? And so We at CRI Partners typically do 65%. Um, some of our deals we have 70%, but, you know, for the most part it's 65%. And, you know, there's interest only, um, you know, for a certain period, and then it starts amortizing. But if you've got a lot of debt, meaning like if you're going 75%, 80%, and, you know, people do that, and the reason why they do that is so that they don't have to bring as much equity in, right? Right? And so, and it also from that standpoint can juice the returns, uh, quite a bit, um, by bringing in debt because debt is cheaper on the capital stack. But if the market shifts or things happen, then it may be harder to pay for that debt service. And when it's harder for that debt service, it's more risk of that property foreclosing. So it's just that balance of when you're looking at a, a deal to invest in, you know, what is the debt on it and does it look like it's going to be a long-term, um, you know, solid type deal? And I'll give you an example. Like one of our apartments that we're developing in Bryan, Colony Landing, you know, that is a 40-year amortized fixed-rate loan through HUD and it's a market rent deal, uh, meaning there's, there's not subsidized housing, affordable housing for this particular one. It's market rent. It's a Class A apartment. But that loan took me about a year and a half to get. It took me a long time, but I waited it out because it was the right loan to reduce the risk on that type of deal, right? So just understanding the type of loan structures and, you know, I think is pretty big. We talked a little bit about this, like that floating rate debt, um, that typically happens with bridge debt. But also with that floating rate debt, you can get a rate cap. And several years ago, like when I had one bridge debt that I was able to get to a fixed rate debt, and that bridge debt though, I had a rate cap and I think I spent like $300,000. It was part of our underwriting to buy this rate cap for like $300,000. It was very expensive. But it was such a blessing because that— those rates during those years like skyrocketed and we were capped. And so that was a really good, um, good decision for us. And then we were able to get a fixed-rate debt. But if you've got a floating-rate debt, uh, if you're looking at a deal as floating-rate debt, if they don't have— if they're not paying for that rate cap, then You know, that could be a little risky. Like, I don't— like, I wouldn't want to be on a deal that you, that you had no control over the rates if the Fed or, you know, something geopolitically or global happened where rates spiked crazy and you didn't have a, you know, a rate cap. So that's something to think about as well. I mean, ideally, fixed rate is the way to go. That's the only type of loans that we do. At CREI, um, more so because that bridge debt aged me like 20 years. So it's like, I never want to do that again. I just want to get a fixed-rate debt. But, you know, hey, there are people that do floating-rate debts. It's not a bad thing. It's, it's a tool. It's just, is it used, um, conservatively? And, you know, could you potentially get a rate cap? It's, it's expensive, but it could save you and your capital. Pay attention to loan maturity dates. This is something important too. You know, on those floating rate bridge debts, a lot of times they're short-term, 2 to 3 year. You may get 2 1-year extensions, depends on how you negotiate it. But see, you know, what— how short a term period. Typically loans mature for the multifamily, usually mature 5, 7 years. And so there's a balloon payment at that time. And that's normal. Either we can refinance or exit. So it's not like scary, you know, when you think about a 30-year loan that you would have on your house. But, you know, those are just things you want to, you know, make sure you're comfortable with, that there's good runway for your loan maturity. And then obviously you want cash flow. You want cash flow to support the debt. And what I mean by that is— Like, for us on stabilized deal, we want to see at least a 1.3 DSCR. So for every dollar of debt service, there's 30 cents left over for bills and, you know, gives us room. Um, you know, when I had that bridge debt, you know, that DSCR was like less than 1. And the business plan— so we wouldn't even be able to hit the debt service, but we had the reserves. We're going in and we're going to fully reposition and renovate this property, which we did, and get it to a cash-flowing state, right? But, and, and that is many people's, um, investment strategy. They'll find properties that need a lot of work and they'll put bridge debt on it and they'll execute it, and hopefully they execute it well and they make a lot of money and they do really great things. I sort of view that as like home runs. And I guess I'm a little more boring because I like to sleep at night. I'm all about like second, third base hits. You know, if I get on base, that's great. We're moving towards, you know, scoring. Um, it just depends on what your risk tolerance is. And it's a similar thing as like in stocks. Like you have, you know, I mean, SpaceX, you know, several weeks ago went out and, you know, people were putting a bunch of money into SpaceX and I was one that did not. And You know, it started— people started selling off that were early investors. And, you know, but I'm sure it'll do well. But, you know, for me, I don't like the risk of just putting money into one company. I want to spread it over, you know, multiple things. So going back to like the cash flow, you just want to make sure that the cash flow is enough to support the debt and have money left over to pay the bills. And you can look at that from a debt service coverage ratio, typically 1.25. Is, you know, the loan requirement for DSCR. A lot of our loans, the requirement's only 1.0 DSCR, but I think one of our properties in Houston is over a 2, like 2.2 DSCR. And then I got another property is like 1.5 DSCR. So there's enough cushion there if needed. So liquidity, cash flow reserves. So this is something, I mean, it's not like your liquidity or your reserves that you have to think about in this sense, but like if you're investing into a property, like what is the reserves that are sitting there? And, you know, for the rainy day, there's every property I buy, there's usually always a boiler that needs to be replaced, and that boiler is like $60 grand. So now I just like budget $60 grand for a boiler. And hopefully I never use it, but if it comes up, it's there, right? And so what are the reserves? And things are going to happen, especially over a 5-year period. We try to raise capital for our CapEx. When I say try, we do raise money for our capital expenditures, but just because we have that bucket of money doesn't mean we're spending it, right? We're not going in and renovating a bunch of units. If the market isn't able to support rent increases and such. So it just depends, but that money can just be sitting there for when the market shifts or if there's something that, you know, breaks. It's like you would do with your personal budget, you know, just having those savings to cover repairs, capital needs, operations, et cetera. So, and what's the most important is nobody wants capital calls. If you've been in the business long enough, you've had a capital call. Like, it's just reality and of what we do. Like, going back to the first slide, there's risk. But, you know, what can you do to try to prevent those capital calls to the best of your ability, right? And try to avoid things that can be in your control before you buy the property. So let's look at market and asset risk. So market asset risk is the possibility that local conditions or property-specific issues negatively affect performance. So before you go buy into an area or a property, right, like what is the employment? What are the population trends? What— and you can find this, uh, bestplaces.net is a really good one. You can put in like your zip code of where you're investing and it will tell you what's happening with that market. You know, one of the things I really look at, like if I'm investing outside a big major market. And, you know, I want to go to like bestplaces.net, and it has access through the, the census and, uh, you know, this data where it can show you like how many— what's the percentage of people that are renters versus homeowners. And if the renters are like 20-30%, then majority of the people in that area are going to be homeowners. So to me, it's not a very renter-friendly area. I want to be in areas that have over 50% of the area as renters, right? It's all about the supply. What's the competition like? You know, there's certain pockets in San Antonio. I love San Antonio, and I think it's going to do really well, but I would never invest in West San Antonio. There's so much competition, so much new supply. But I love North San Antonio. There's not a lot of new supply coming on because it's already developed. There's a lot of things there, and, you know, it's surrounded by Good-paying jobs and good school districts. Want to evaluate the property condition and capital needs. So if you're a passive investor, you know, asking like, what are the capital improvements? You can even— our investors ask for the due diligence report, and we're happy to send those because the plumber, the electrician, the roofer, all of them provide a report. And there's nothing wrong of you asking for those reports. You're an investor. You're an owner in this deal once you invest. So asking for those is totally fine and very professional and something that I think is good to do. And then you just want to confirm the market supports the business plan. Typically, what you would want to see is sort of like a rent comp. When we go buy a property, we go to properties all around and we mystery shop or secret shop, and we figure out what are the 1-bedrooms going for? What are the 2-bedrooms? What are the amenities? Are they charging for parking or cable or, you know, all those little miscellaneous sundry charges, you know, they add up. And so you want to see what the area around you is doing to support the business plan. You know, what is the occupancy of that area? You know, and go back to like schools, you know, how's, you know, easily check the school and see, you know, how it's graded. And, you know, you know, people in good school districts will typically stay in the school district till their kids graduate. So a few more things. So sponsor and execution risk. So there's always— this is a really important one. And at CRI Partners, one of the things I really am blessed and feel very grateful for is that we grew to a size where we now have full-time asset management. And that's really important because if something were to happen to me as the main sponsor, those that are on this call and those that are future investors, you're fine because we have in-house asset management. We have somebody who already has access to our accounts, already running day-to-day asset management. I even have a key person life insurance policy where if something were to happen to me, the team still gets paid and we still continue on. And CREI Partners still delivers for our investors. These are things that you need to think about because if you're investing in somebody who's a one-man show, and even if they're a one-man show and they have other partners, right? Because general partners, it's a team sport. They may be other people, but if nobody really knows how to operate a multifamily other than the key principal, the main person, those are things you want to see who else is able to execute if something You know, heaven forbid it happened. And so, you know, that was something that was really important to me. Um, and you— when I was first starting out, I always had a general partner who was an operator join the team. So if something were to happen to me, we— there was a succession plan. There was already somebody else who was able to fly the plane and land it safely.

Right.

And so something to think about too when you're getting into deals? You know, what happens if something goes wrong? Or, you know, and, you know, you don't want to think the worst case, but life happens. So, and these are questions you should ask the sponsor, and they should have similar answers to me, meaning they either have team members who will continue the torch and likely are already doing heavy lifting of the asset management anyway, or they're going to have somebody on their team who has operation experience through the general partnership. But you want to evaluate experience through multiple market cycles. I will say very strongly that if they have been in the space long enough, they've had a black eye or two. And if they haven't, then they haven't been in the space a long time. I want to hear about like, what did you learn? What were your experiences? Like, what happened and how did you get through it, right? And so those are, uh, those are very important things. If somebody doesn't have the courage to say, hey, I learned a lesson here, you know, then, you know, maybe their pride is, you know, maybe that's somebody that I don't want to do business with. So just something to think about. Understand how the team makes decisions. Are there multiple team members on the general partnership that's making decisions? Is there voting? You know, what, who's, who, who's involved and who's making the decisions? You want to see consistent investor communication. Uh, you know, for us, for our deals that are executing, we do a monthly update. When I say executing, meaning like the loan is closed. Prior to that, you know, we're doing consistent updates until we get to closing, but it goes on a monthly basis. And then there's financials that are provided on a monthly basis for each of our properties. Um, and so, and, you know, and part of that investor communication too is like texting. Anybody can text me or Shelby. And get a timely response. And again, this isn't a sales pitch on CRE Partners. You just want that in a sponsor you're investing in, is the accessibility for someone to answer when you are asking questions. Because again, you're an owner, you have more than any— go there and check on the property if you ever want to. That is an opportunity for you, and part of that is investor communication. This last thing on the sponsor and execution risk is definitely confirm interests are aligned with investors. I think this is a very important piece. You know, our general partnership combined typically does 10% of the deal, the equity raise that we're contributing. So you want to make sure that there's alignment with investors. I really like the preferred return model, which means like the sponsorship doesn't get profit on the deal until the investors, the limited partners, get a certain preferred return threshold met, and then there's a waterfall from that. I'm seeing more sponsors do more of a 70/30 split or 75/25 with no preferred. I mean, for me, if I'm putting into a deal, you're taking the risk, it's your capital. You know, having that preferred return, I think is more in alignment to execution risk. And there's gonna be fees. I think, you know, from that standpoint, like acquisition fees, like, hey, we have payroll, we have office expenses, there are things that you want the sponsor to have so that they can execute the deal with the team. And I see a lot on social media where it's like, oh, you know, they're getting a 2% acquisition fee. It's like, You know, that acquisition fee, you want them to be motivated and being able to pay bills, right? And that just like you would your stockbroker or, you know, anyone else who's looking after your stuff. But I think it's important to just know what those fees are and that they're transparent and they should be brought up in the presentation and they should be put into the— the subscription documents and the company agreement, you know, so that there's pure clarity of, of the different expenses. So then you want to stress test, and I'm not expecting people to be experts at underwriting, but if you're going to invest $100,000 or so, like, feel free to, like, ask, like, ask to get on a call with the sponsor and stress test it. Like, what happens if rent growth is 0%? What if occupancy declines? What if expenses increase 10%? What if the exit takes 2 years longer? I mean, these are questions to ask about. I think that people feel like they're asking annoying questions, but I think it's important. Now, I have investors who are like, we have a deal, the moment it goes, they're wiring $500,000. And I'm so grateful for that because they trust me and they know that we're going to do good by them within our capabilities. I'm not promising a return. I'm not doing anything other than like, I'm a good human. I'm going to do my best to do what we can for our investors. But before you have all that trust in that relationship, feel free to challenge the underwriting. Talk to the sponsor or myself and be like, hey, what if things go wrong here? I mean, that's part of the risk. And hey, if everything is bad, like you do 0% and occupancy declines and expenses increase, yeah, it's not going to pencil well. There has to be some optimism that multifamily is going to improve, right? Or you wouldn't invest in multifamily or real estate in general. Um, it's a big reason why I invest in, you know, in S&P 500 and, you know, mutual funds, because I have a belief that America is going to grow. And if I didn't have a belief in that, then, you know, I would just, I guess, keep my money, uh, maybe in a treasury. And well, I don't know if the government— maybe under a pillow. But I don't have that, uh, half glass empty mentality. But you should still know, and this also goes with that sensitivity analysis, I think those are good things to stress test and look after. All right, on to one of my last slides, but exit and refinancing. So there's capital events that are going to happen at some point, and that's going to be an exit or it could be a refinancing. And so the risk is the possibility of what happens in a market that we're not in Currently, and so you know, you know if if if you're selling in year five, you know sixty months, right? That's when the loan balloons. As an example, you know we're looking to exit year four. We're looking to yes, our underwriting shows year five, but we're but towards the end of year four into early five, we're looking to exit. And on our portfolio, every single year we have. a broker opinion of value where we're getting feedback every single year on the valuations of our properties. And what that does to help us is that we can sort of, uh, well, we can use it as like a compass and figure out like, okay, what do we need to do to get back on track to what our pro forma was or where we need to be, you know, next year to be in line to exit or refinance. That business plan, that business strategy though, is typically, and it should be very well communicated to you. Because you need to know as an investor that, hey, this is a 5-year deal and then the plan is to exit. If it's a 5-year deal and the plan is to refinance and get a portion of your capital back and hold on, I mean, that's fine too. It's a great strategy. I get a lot of investors who don't want me to sell in 5 years because that means they have to go redeploy that money. They want to just have that cash flow, you know, for life. Depending on the strategy of that business though, and I call it a business because When you buy a multifamily or any commercial real estate, you're buying a business. You need to understand like what that timetable is and what's the exit plan. Is that refinancing? Is it a selling event? And there's no right or wrong.

You just have to—

what it has to fit with what you're doing. Um, and you know, like interest rates could remain elevated, property values can move lower, lending standards can tighten. Avoid relying on only one exit strategy. Like there are risks in real estate. But how can we extend or refinance or, um, be in a position where, you know, we don't have to do a fire sale? Like, we don't have to sell, uh, if we don't have to. Um, you know, if you're planning on selling year 5, there are groups out there that do a 7-year loan. I sort of have an issue a little bit with it because you could have big prepayment penalties. There's a— but, but then you have the peace of mind that you have a little longer runway.

Mm-hmm.

So again, there's not a right or wrong. It's just, you know, your comfort level, right? And so with that, I'm gonna pause there because there's so much more that we could talk about, but hopefully that was a pretty good overview of risk management and protecting your portfolio. But if you want to learn more about us, CREIpartners.com. We also have a daily podcast, Building Passive Income. You can check that out. It is AI. We run— we do with the scripts and we go through everything and it's read. by our team. But it's really cool, CRI calling and the information that's provided there. So building passive income. And then connect with us— Facebook, LinkedIn, Instagram, YouTube. Always trying to grow our base and hopefully help others with their journey in investing in real estate. So with that, I'm gonna stop sharing. Actually, before I do that, because I'm just going to show video of everybody, Any questions from anybody live on the, on the call? And if not, I'm going to stop the recording and then go back to the main room. But I just want to see if anybody had any questions or if you want to type your question in.

I have a question, Wayne.

Yeah, sure.

You went over having reserves, talking about like a boiler and stuff like that. Do the lenders require a certain amount, and is that based on, I don't know, months of mortgage payment? Do you deviate from what they do? Like, kind of how do you come up with your number?

Yeah, so it's a great question. So initially, we will walk— we have an in-house construction management team that will go walk properties and will We'll have like a very, very clear— I mean, we walk every single unit. We have roofers, we'll have our electrician, we'll run camera lines. We'll know everything about that property in like 2 days. People that need weeks and weeks of due diligence, just scratch my head. If you know what you're doing, like, you can flip that apartment upside down and know everything in 2 days. Uh, it's busy. There's a lot of different, uh, team members. You got lease audits, etc., but it definitely is doable. Um, and so based on those, how it comes back and what our team finds along with our external vendor partners, we will get a pretty good understanding of what needs to be done. And we typically would— and usually they give us their full Christmas list, and it's like, holy cow, like, no, I'm not going to spend $3 million to fully do everything on this thing. So you then break it down to like urgent items, maintenance items, not so urgent, you know. So just break it in buckets. And those are things internally that we would do. And then we would underwrite. Now if this property needed— you know, one of the properties we bought early on, and something I won't do again, is that we bought a property that needed a lot of work. New roofs, new HVACs, new siding, pool needed to be resurfaced. New gym equipment, new— I mean, the place was a dump, and we were going to go in and we're going to renovate it. And we did a really good job. It's a beautiful property. I'm very proud of it. But what I really learned during that process was that people expect to have an HVAC. They expect to not have roofs leak. They expect that their, you know, plumbing is going to not back up. And so yes, we can go in and make all these renovations, but it doesn't really move the needle on rent because they expect that, that is already in place, right? So it just, again, it goes into appetite. There are definitely groups out there that want to do a full gut and do a full renovation. I don't like that in my portfolio. Um, but yeah, you just get that number from your contractors and then you just have to determine like what is best, uh, for you and your hold period. And then you want to make sure there's also skin in the game or not skin in the game. Um, meat on the bone for the next buyer. So I wouldn't go in and do 100% of unit renovations, you know, have something for the next buyer to, to be able to continue that process. Lenders like Fannie Mae, Freddie Mac, absolutely, they are going to have their own inspector, they are going to have their own repairs, and those are things that you're going to have to do. Typically, those, they're already things that you've already budgeted and priced in because you've already done your due diligence. The lender due diligence comes way after, and if you're— if you don't really have those items already on your radar, then, you know, you might, uh, just make sure you've got the right due diligence team up front.

So, so the lenders, they're going to use the DSCR as their buffer. They're not going to make you hold, you know, a couple of months back for something else, um, unless it's like some sort of repair or something then.

Yeah, so if it's a lender-required repair and if it's Fannie and Freddie, then yeah, they'll hold— they will come up with what they think it's going to cost you and they will hold that in, um, in a reserve account. When that has happened for me, it's never really been an issue because I had already thought of those things and I've already raised capital to address them. So instead of it just being in my bucket of money, it's now in theirs. And then we just do what's a monthly draw. The other thing too, and, and some lenders require replacement reserves like $250 a door per year, and that's divided by 12 months. And so that's part of your mortgage. And then our team every quarter does a draw request. So if we do a make-ready or replace an HVAC, we'll just submit the draw request and get those funds back.

Gotcha. Thank you.

But then I also have lenders like debt funds that are not Fannie Freddie that, uh, no, they have not required us to have a bucket of money. Um, but I also, I mean, I, I don't know if they haven't required us because they just know we're professional real estate guys. So I don't know if they would require that if it's someone new. I don't know. But Just depends on the lender, I guess, is what I'm trying to say. But yeah, the boiler thing— not every property has a boiler, you know, in our portfolio, but the ones that do, there's always a boiler issue. Yeah, that's a great question. Anybody else have a question? And if you want to put in the chat Okay, so I'm going to stop the recording and sharing. For those that are listening to the recording, you know, feel free to reach out to me, wayne@creipartners.com. Again, wayne@creipartners.com, and love to connect and discuss your journey in passive investing.