Multifamily Real Estate Investing with Rob Beardsley

And even more interesting, you can kind of get a sense of the sponsors, disposition, or I guess, you know, their risk profile based on their underwriting assumptions. So are they generally a more risky person? Are they generally a conservative person, and you can kind of get some hints based on some of their assumptions. I’m Neil and I’m Brittany,

we are a family on a journey towards financial and location independence. Each week, we interview successful real estate entrepreneurs about their chosen investment strategy and rated based on how much money it took to get started, how long it took to educate themselves, how passive it is, and whether or not they could do it from anywhere in the world.

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Greetings, friends and families. I’m Neil. And I’m Brittany, you’re listening to the road to family freedom. With us today is Rob. How you doing Rob? doing very well. Thanks for having me. Oh, it’s great to have you. It’s great to have you. So a little bit about Rob. He’s the co founder of Lone Star capital, got a long family history in real estate and is now using that experience to build financial freedom for his family with multifamily investing. With all that said, Rob, you want to give our friends and families a quick intro into how you got into real estate and what you’re working on now.

Absolutely. So as you mentioned, grew up in a real estate family, my dad’s been involved in brokerage investment, and, you know, fix and flips. So he’s pretty much done it all. And the one thing he didn’t do was build a portfolio of long term wealth, it was always about the quick profits. And that certainly will and you know, I wouldn’t be here without those profits today. But I think one of the main goals of your listeners, and this show certainly is lasting family wealth, and that can only be achieved with as you guys know, passive cash flow. So that’s kind of our next mission, specifically mine and acquiring multifamily property, which in my opinion today has the most favorable risk adjusted return for passive cash flow assets. And, and hopefully, it takes us where we want to go.

Awesome. So is that kind of what is your ideal destination? Is it just that cash flow for financial independence or somewhere else you’re going with this.

So currently, my dad runs a residential brokerage firm in Silicon Valley. And our goal is to scale back that business or pretty much automate it and delegate it to the point where his involvement is pretty much zero. And that, of course, has to be achieved through a replacement of that income via passive investments. So our goal is to over the next couple years, build that passive portfolio to replace that income and then hopefully scale that to a million dollars tax deferred every year

to a million dollars tax deferred every year is is sort of what your is the number that you’ve got your your eyes set on right now.

Yeah, my dad and I do personally, my my personal near term goal is to acquire 100 million in multifamily assets over the next year and a half.

It’s a great destination. So most of our many people who get into real estate, have to spend some time getting educated. That’s a big part a big component of it. How did you go about getting yourself educated? I mean, you said that you sort of grew up in it. But have you spent any time getting yourself educated specifically in multifamily at all?

Yeah, so that’s a good question. The the process for me me to get myself educated was first just researching everything I could online and lucky for us these days, there’s a wealth of knowledge for pretty much anything you want to learn online. And so that’s something that anyone can take advantage of and, and really do 80% of their learning from free and online. However, there is some important stuff that is hard to learn online. And those are the tangible lessons. And I think the most lessons can be learned and accelerated via mentors, and just getting involved without the hesitation of Oh, I need to learn everything first. And then I’ll get involved. I think I’ve benefited from let’s just jump right in. And you know, the mistakes will be lessons, and hopefully, they won’t be too painful.

I like that a lot.

No, I think that’s a great, that’s an important thing to remember, I have to beat myself in the head, everyone. So I’ll remind myself that it’s okay to just get started, and learn and fail, and then iterate on what you learned.

And that mistakes are really important. And that’s your right, that’s how we learned those are our lessons. So it’s a good thing to be reminded of. All right, so let’s talk about money. How do you go about financing your? Or how did you go about financing your first deal?

Sure. So, you know, obviously, my family was in a major help with that. And not only providing seed capital, but also the experience, it would be really hard for me to go out to the world and raise capital all on my own. And so understanding that I tried to surround myself with experienced partners, whether it was through the property management company, we were working with my business partner, my family, and my mentors, and so just positioning myself as bringing them on to the to the deal and showing their experience and highlighting that that allowed us to raise money, nearly four and a half million on our first deal. Wow. And so yeah, like I said, we kind of just jumped into to a big deal and and learned all the mistakes along the way, or learn from our mistakes along the way. Which there were many. And and yeah, I think that was the best way to go, you know, saying Yeah, well, you know, through the competence of our mentor, we thought yeah, we could, we could raise 4 million bucks. And little did we know how difficult that truly is. But you know, it’s a really good experience. And it’s a great way to grow your your network, you know, dialing for dollars, and just reaching out to long shots, and you never know what relationships thick and grow. And so it’s all worth it.

Yeah, I want to dig into that a little bit in two aspects. One is how long did it take you to raise that 4.5 million?

About three months?

Gotcha. And did you have the property under contract already?

Yeah, in anticipation of putting the property under contract, we began reaching out to potential partners, people that we thought would be interested. And then once we did have the property under contract, we went through the process of putting together our legal documents and the appropriate marketing materials to effectively approach investors and send emails out to our list of prospective investors and say, Hey, we have a deal. This is what we’ve been looking for this is you know, how we found it, and how you know what our business plan is to effectively raise the value of the property.

So for people who don’t quite understand how multifamily syndication works, can you give someone a quick, quick overview of how that works?

gotcha. So, a $4.5 million capital raise, you’re probably looking at almost like an 18 $20 million deal.

Yeah, it was actually a $15.4 million purchase price with a nearly $2 million renovation budget. So it’s a classy deal with a with a very heavy lift, and we’re nearly done stabilizing the asset now. And yeah.

And how long ago was that?

Gotcha. And where’s it located? Houston. Okay. And what what drew you to invest in the Houston market?

Great. So your investors who invest with you are their passive investors. And it’s one of the more passive types of real estate investing you do pretty much the most passive, however, you’re an active investor, can you give us give us an indication of how much time per day that you spend on your real estate endeavors? Sure.

So this is my full time job. And on. On my own syndications, I think I’m spending roughly 50 to 60 Hour Workweek. And I mean, that is just because I do enjoy it. I think I could get away with less, but I’m spending time working on the business. I’m an active writer inside I send out a monthly newsletter to which is geared towards sophisticated real estate professionals. And some of my other time is spent on our families portfolio endeavors. So looking for other syndicated investments where where the passive investor and not the sponsor, and looking for ways that we can add value to other multifamily syndicators as well as other real estate opportunities like debt funds and other ways to diversify our personal portfolio.

Please spend a lot of time on this. Do you have any systems that you’ve created to help you automate your business in any way?

Yeah, I wish I feel like that’s my biggest, my biggest flaw right now. I would love to get more automation in my business. But I’ll let me think so. Well, I began the process of delegating some of our analysis and underwriting that we do internally for acquisitions. And right now it doesn’t feel like delegating or automating because I have to do a lot of hands on teaching and explaining, but the hope is that, eventually bring someone on to the team and they can then take a lot of responsibility off your hands.

And are they are they virtual assistants? So they people who are local to where you are? And they are they in person? Are they virtual?

I actually have a an intern that is currently in college. So it is it is virtual, partially virtual, partially in person.

Gotcha. I want to circle back for a second, because you mentioned that you and your family also invest in syndications passively. And we’re big believers in that. How do you go about underwriting and qualifying those investments for yourself?

Yeah, absolutely. It’s very similar to the process of us underwriting our own deals that we’re pursuing as sponsors. So I built my own financial model that’s catered specifically towards value add multifamily. And this is the model that we that we’ve run thousands properties through already. And certainly for the Houston market, we know the market well, and we can confidently underwrite and that market, to identify valuations and you know, the merit of a potential deal. But for other markets, as you may have alluded to, it gets a bit more complicated when you’re looking into a new market, and you don’t know the market and how do you underwrite it? And how do you price the exit cap? Or, you know, can you project a certain level of growth for that market? And, you know, so to answer your question I utilize when I’m looking at another sponsors deal, and were considering investing in it first asked to see their underwriting. So I would like to see their assumptions. And of course, I’m not going to take all those at face value and just plug it into my spreadsheet and say, I’m done. But it’s a good start to get an understanding of what are they assuming? How are they approaching this deal. And even more interesting, you can kind of get a sense of the sponsors, disposition, or I guess, you know, their their risk profile based on their underwriting assumptions. So are they generally a more risky person, either generally a conservative person, and you can kind of get some hints based on some of their assumptions. And for more practical data, I’ll use city data in odo. And you’re ready for for kind of gathering some of this more market data. And, and basically just plugging in all of that into my model. And if and if it shows a return that I think is fair for that market and the deal, then, then it’s something worth doing.

Gotcha. So we already spoke, we already know you invest long distance, you don’t do invest locally in the barrier Bay Area at all.

We’re looking into it, but as of right now, we haven’t made any bear investments in a long time. And I have never personally.

Yeah. And I think I understand why. But could you explain to people why you probably wouldn’t invest right now in the Bay Area?

Sure, sure. So as as cash flow investors, meaning we’re looking for a meaningful current yield out of our investments, we really have to buy in areas where there’s a there where the cap rate is higher than the cost of debt. And in a market like Silicon Valley, that is pretty much impossible with most properties, trading at you know, three to four caps. It’s, it basically means you’re going to have to lever at 50% LTV. And, you know, you’re lucky to get four to 5% cash on cash. And if our goal is to live off the cash flow that our investments produce, it’s a lot easier to achieve that goal if we’re buying investments that we can achieve closer to double digit cash on cash returns.

Gotcha. So since you do invest long distance, how often do you need to or want to visit your actual your properties?

Well, definitely don’t make it to Houston. Enough, but between my part, we are trying to be in Houston, once a month.

Okay. Even if you weren’t able to make it out there as much as you want to? Do you feel like you can do what you’re doing from anywhere in the states anywhere in the world? Or do you feel like you need to be at least a flight? A shortish for anyway.

Yeah, I think that’s another one of the big components of the business that really drew me is the fact that I can be wherever I want. And I’m not, I don’t have to go into an office, I don’t have to be at the properties at a moment’s notice. Like you said, I really do think I could be around the world and and still make these deals happen. And, of course, that wouldn’t be possible with really strong boots on the ground and partners. But But yeah, I think that’s a really, really important thing that I really do appreciate.

Yeah, get your team in place so that you can go on vacation.

410.

Exactly.

So what do you believe is the most critical skill for someone who is looking into getting into multifamily syndication for them to develop themselves?

Yeah, that’s an interesting question. Because I think there’s so many different skills necessary in order to be successful, or in order to create a successful syndication. And so there probably isn’t only one skill that is, you know, unlocks everything. Because there’s, there’s so many pieces of the puzzle that need to be brought forth. There’s the, the underwriting and the analysis, there’s the deal sourcing, so you need to talk to brokers and establish those relationships, need to have boots on the ground, you need to have a balance sheet to be able to qualify for these loans. You need to have the investor relationships fail to raise capital. So I think, well, being good at any one of those skills could lead you to be successful, because there’s plenty of people that their souls Well, I don’t wanna say, the sole skill, but their main skill is marketing, and their ability to raise capital, that can be leveraged to do a whole lot in this business. Because obviously, you can’t do deals without money. Additionally, you can, you can have a really strong analytical mind and be able to structure deals and analyze deals well, and and that’s kind of your ticket to success. So the overall, that one skill that you asked, I think, would be mindset. And that mindset is looking at deals and how to make them work and being able to bring on partners. It’s absolutely a team sport, and anyone trying to do everything themselves, is going to see their success come a whole lot slower than those who are looking to partner.

No, I think that’s a great point. There are different skills that someone’s going to need to develop if they’re on the raising capital side of the syndication versus someone who’s focused on market analysis or property underwriting. And you bring up a good point that syndication is very much a team sport. I don’t know if I can think of a single syndicated, that’s probably just doing it all. Right.

So if you could go back, maybe hit a magic magic reset button. If you could hit a magic reset button and go back to the beginning of your journey. What do you think you might do differently? Or maybe if you could give your you know, your younger self some advice? What might that be?

Yeah, that’s, that’s a tough one. I think the mistakes that I made were, were the common ones. And that’s doing due diligence and thinking long term. And being being more I mean, it’s it’s simple, but be more organized. And just understanding the process sees involved in something as simple as sounds as simple as getting alone. But you know, really, that that is a key aspect of the deal. I mean, I’ve heard it said that your lenders, your biggest investor in your deal, and dragging, for example, for us, we on our first deal, we dragged out the loan situation for a long time. And that’s delayed us that delayed our focus on the equity raising, and then we’re late to the game on raising capital and, and it just put us behind and stress this out. And so one thing that my dad has always said is, when you’re not under contract, the days are long and time is slow. But the second you get under contract Time goes by very quickly, and the days are limited. And so everything you can do prior to contract, well, everything that you can do well under contract, but also prior to do it prior to it’s that simple adage of do things when you cannot when you have to. And it’s something that’s so simple, but but really hard to do as you get caught up in the acquisition Chase.

Gotcha. What advice would you have for someone who was looking to get into multifamily investing? Who has a full time job and a family?

Yeah, that’s definitely a common a common question and and something that a lot of people are looking to do. And I think, unfortunately, the easiest way to get involved is through your own capital, and investing into syndications passively. So if people do have some some capital to get in the door that way, it’s very helpful. I think, going back to something I wish I had done earlier, I wish I would have done that earlier, I wish I would have raised capital for another sponsor earlier, I was stubborn and saying, Well, no, I want to do my own deal. And I want to raise capital for my own deal. But the you know, the first level would be investing passively in a syndication, and then the next level would be coming on to the general partnership as a capital razor. And, you know, that’s the next level and gives you more insight into the deal, obviously gives you more compensation, if you’re going to be bringing capital to the table more so than just your own. And I think that’s pretty much the most straightforward way people can get involved in syndications. Asking someone with a full time job to pound the pavement and look for off market deals, or to spend their nights running properties through an underwriting spreadsheet is less likely.

Yeah,

well, I think someone with a full time job probably, theoretically can start to build the network that would allow that to be a possibility and be successful doing that. So that makes sense. I think that’s great advice.

Yeah. What did you find when you were raising capital, what did you find was the best source of connecting with passive investors.

So existing relationships are obviously the first place to go. However, if, if no one has ever heard of, you say, multifamily syndication before, and then all of a sudden, they’re getting phone calls and emails from you saying, I’ve got a deal, give me your money, that can be a bit more difficult. So it’s, it’s really helpful to kind of lay the groundwork by starting to position yourself as a thought leader, or this is what I’m doing. This is what I’ve learned, you know, I want to share, I want to share this knowledge I want to share, share the things I’m working on with you. And that way, it’s a more natural progression when you actually have a deal to present to raise capital. So I mean, existing relationships, if groomed correctly, are the number one way to go, and then meetups conferences and just going to places where you’re going to meet like minded people who are already actively looking for these sorts of opportunities, I found to be extremely helpful for both meeting passive investors as well as meeting other sponsors to passively invest with.

Gotcha. Rob, thank you so much for sharing with us today. If any of our guests want to reach out to you, what’s the best way they can find you?

Sure. So you can shoot me an email at Rob at Lonestar cap group com. And if you want to email me asking for a copy of my Houston research report, or a copy of my underwriting model that I built from scratch, you’re welcome to do so if you want to learn more about Loeser. You can go to lodestar cap group com. That’s great.

Awesome. Well, thanks so much for joining us, Rob. Thank you. So that was Rob Beardsley from Lone Star capital. Great to talk to him and catch up and find out what he’s up to.

young whippersnapper, he is a young

he is he is a young whippersnapper, I think there was even a friend of mine at the best ever conference who met him. It’s like I want to adopt him. He already has a father who’s obviously taking very good care of him and and he’s learned a lot from So was there any key lessons learned that you you picked off from this interview?

Yeah, I kind of liked the your your failures or your lessons, I think that was just like a really good reminder that along the way, you’re going to have things go wrong or not do it quite right, or have to learn some kind of lesson. And then it’s really just to take it as a lesson. And rather than beating yourself up and and saying, well, I can’t do this until I know how to do it perfectly.

Yes. And that was absolutely. What I come away with was get just get started. Just start doing it. learn as you go. If you wait until you have you think you’ve got everything figured out, you’ll never get started.

Yeah, it’s impressive how quickly that he’s just gotten going, since he kind of jumped into this market. And you know, he’s done his first deal. And he’s kind of you know, he’s broke the seal now. So it sounds like he’s about ready to finish a second deal and working on a couple more, you know, during the rest of the year. So that’s, that’s really impressive. And that really just sounds like it just came from Okay, I’m just gonna start doing it.

So how did he go about acquiring us knowledge?

Well, I mean, obviously, he had that family background, which helps. And then it just sounds like he he kind of chose what he wanted to learn about. And then he did a lot of online research. And then from there found a mentor that sort of backed him up.

Yeah. And it sounds like from our discussions with him that he started with a mentor about a year and a half ago. And so he’s gone. He’s, he’s done really well, for somebody who started, you know, really dug into it about a year and a half ago. Yeah, he’s

definitely taken advantage of the knowledge that he’s been acquiring. Yes, fantastic. So how much money did it take for him to get started? Well, because

real estate syndication is a little bit different than the kind of real estate that most people might be familiar with. It involves other people’s mostly other people’s money, because the assets are so large, I mean, you’re talking 18 $20 million deal is his first deal. And they had to, they had to raise $4.5 million. So that was more about I don’t know, I don’t know if it’s fair to say, you know, how much money he got started with, but I don’t know, that’s maybe you know, it’s what we go with. You know, it takes it does take that much money, but it’s more about it’s not necessarily about how much money you’re bringing, but it’s how much money are you able to

find fun? Yeah. Yeah, that makes sense. And sounds like they I mean, maybe not him personally, but his family invested at least a small amount. Yeah. Moving forward. So having that can definitely be a good place to start. But if you really want to put the time and effort and and have the network, you don’t have to necessarily have any money of your own.

Yes, that’s a great point. And he even mentioned that a large part of their initial investor base came from their families network, who are people who are in real estate or have done deals, real estate deals before in the Bay Area, Silicon Valley. So there’s probably some money there. Oh, that’s definitely. That definitely helps. Yeah. Right. So how much time are we talking about on real estate, spend it on real estate in syndication, he’s doing this full time. He, I don’t know if he had another job before that. But he said 50 to 60 hours, he’s trying to bring on some people to sort of help them with that. Real Estate syndication is a full time job

yet? Well, I think it’s also important to note that part of if you want to be the person who’s putting together the syndication, that you kind of have to have some kind of thought leadership platform in in some way, or you have to be acknowledged as knowledgeable by other people on a thought leadership platform, you know, blog, newsletter podcast, those are the ways that you you, you express yourself as knowledgeable in a certain area. And so I you know, I would just mention that it’s probably not all real estate syndication work that he’s doing, he’s probably doing some thought leadership stuff there. And then we also have to mention that, you know, when he talked about where people might want to get started, if they are, you know, someone that has a full time job and a family, that you wouldn’t necessarily be starting with what he’s doing, you would be more coming on as either a passive investor or bringing in investors, not finding the deals, underwriting the deals, yada, yada, yada, because that’s the part that takes a long time is the probably more the finding?

Correct? And underwriting? So? So do you think he could do the strategy from anywhere in the world?

Yeah, as long as he has that team in place, and we kind of talked about that he just needs to get probably some things offloaded on to other people. And and that can be it sounded, he didn’t say it quite so. Clearly, but it sounded like he’s struggling a little bit with allowing, you know, like, I can do it better than anyone else can. And so trying to teach that and that’s actually, one of the hardest skills to learn is teaching someone else to do something the way that you want it done. And, and then letting go. In any line of work, you know, you’ve got those micro managers out there that no one likes. Good. He’s, I think he needs to get it done, and then go on a vacation with his dad once they get his dad out of there. That was so sweet. Like, it’s, it’s about getting his dad into retirement kind of

Yes. Yeah. Well, and that’s one of the great things about real estate investing, when you go into that mindset with my goal is to help others. And that’s a lot of where we’re coming from as well, which is we want to teach others to achieve financial freedom.

While we teach ourselves along the way,

yes. So well, thank you. And if you liked this podcast, we would really appreciate it if you take just a few minutes and leave a review for us on iTunes. It’s really simple to do. Just go to road to family freedom.com slash review for links and instructions. Thanks for listening. We’re doing this all again next week. Until then, safe travels.