The Fastest Way To Build A Six Or Even… Seven Figure Real Estate EMPIRE!
In the wake of our changing market, inflation, and rising interest rates, some operators are hurting. At the same time, there are many investors who couldn’t be more excited about the future. Even in tough economic times, with the right investments, your portfolio can not only weather the storm, but grow–and today’s guest is living proof.
Rob Beardsley is a founder and executive at Lone Star Capital. Focused on workforce housing in Dallas and Houston, he’s done acquisitions of over 2,500 units. In his new book, Structuring and Raising Debt & Equity for Real Estate, he walks readers through various types of lenders, equity investors, and deal structures to create better investments and how to attract debt and equity partners.
In our conversation, Rob and I get into what he’s done to protect his investments over the last year, important strategies that every operator needs to be thinking about right now (including how to spend your cash on hand), and what you need to know before you do your first syndication or joint venture with institutional capital at any level.
Key Takeaways with Rob Beardsley
- The importance of reading the fine print when doing debt deals.
- The four types of investors–and the one Rob likes to work with most.
- What you need to know before you underwrite your first deal.
- When is the best time to renovate, and when is the worst time to do it.
- How needing to sell or refi at the wrong time can do damage to your reputation–and how to de-risk your investments at every stage.
Rob Beardsley Tweetables
- Rob Beardsley
- Lone Star Capital
- Rob Beardsley on LinkedIn | Instagram | YouTube | Facebook
- Structuring and Raising Debt & Equity for Real Estate by Rob Beardsley
- The Definitive Guide to Underwriting Multifamily Acquisitions: Develop the skills to confidently analyze and invest in multifamily real estate by Rob Beardsley
- Ed Mylett
- The Power of One More: The Ultimate Guide to Happiness and Success by Ed Mylett
- Kolbe A Index
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Connect with Josh Cantwell
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Josh Cantwell: So, hey, guys, welcome back to Accelerated Investor. I’m your host, Josh Cantwell. And I always love it when I get an opportunity to kind of ham and nugget back and forth with another really successful syndicator and buyer, and so, I’ve invited a relatively new friend onto the show, some guy that I’ve been introduced to before, spoken with before, first time having him on the podcast. His name is Rob Beardsley, and he is one of the founders and one of the executives at Lone Star Capital. They have done acquisitions of over 2,500 units. They primarily focus on the Dallas and Houston markets. They own some fantastic assets, and I’m really excited to have him on the show because it’s just really fun to talk to another really successful operator who just is operating in the industry and a kind of ham and nugget back and forth.
So, here’s what we’re going to talk about today. Number one, we’re going to talk about Rob’s brand-new book, which is called Structuring and Raising Debt & Equity for Real Estate. And we’ll talk specifically about some of his favorite parts of the book, including on the debt side, why you need to read the fine print or have your attorney read the fine print of your debt to understand specifically debt service coverage ratios and your capital improvement draws. Also, in the book, we’re going to talk specifically about the equity. And Rob is going to mention four specific types of investors and which one is his favorite type of investor that he brings into his deals. Also, we’re going to talk about number two, Rob authored another book called The Definitive Guide to Underwriting and why you should pick up that book to understand how to underwrite your deals from A to Z.
We’re also going to have, number three, a fantastic conversation around today’s operations and the question of renovate or not renovate. We’re also going to talk about number four, when you are in a situation where your debt is basically terming out or ballooning out the risks of selling or refinancing at the wrong time and refinancing, selling, or even at worst, doing a capital call with your investors and how that can impact your reputation. And finally, number five, we’re going to talk about the risks in today’s market, and also, how to de-risk your investments from underwriting to operations to exit. You’re going to love this interview on the Accelerated Investor podcast with Rob Beardsley, one of the principals at Lone Star Capital. Here we go.
Josh Cantwell: So, Rob, listen, hey, welcome to Accelerated Investor. So excited to have you on the show. I know you’re traveling, so thanks for carving out a few minutes for us.
Rob Beardsley: Yeah, excited to be here.
Josh Cantwell: Absolutely. So, Rob, listen, let’s start off. We kind of introduce you to the audience, and I would love for you to tell us a little bit more about what’s going on in your world right now with your business and what you’re kind of most passionate for, what gets you up in the morning, what gets you going. Obviously, the market’s changed a lot in the last year and some operators are hurting. Other operators are salivating over future opportunities. What are you most passionate for? And what gets you excited when you get going every day?
Rob Beardsley: So, our main focus since my business partner I started our company is on Texas workforce housing. So, we focus on buying typically B class multifamily assets in Dallas and Houston. And that market has been very strong, as you know, over the last five, ten years. And so, only until recently has there been quite a bit of shake-up in the market with the unprecedented rise in interest rates. So, that’s been keeping us really busy as operators across the country, including ourselves, are focusing on making sure that our existing portfolio is safe and that we’re mitigating any potential risk in the portfolio.
And at the same time, looking at the market for potential opportunities for new acquisitions, like you said, potentially salivating for new deals. Some people think there’s going to be big discounts coming up for us. We’re kind of more or so just focusing on the day-to-day and looking at opportunities as they come in, not necessarily predicting what’s to come in the future.
Josh Cantwell: Yeah, I like it. So, yeah, there’s been a lot of webinars, podcasts, media that’s been coming out talking about obviously so many operators hitting interest rate caps and then having to buy new caps, those kind of things. And so, it just depends on which side of the table, which side of the coin you’re on. Some people are on both, where they have deals, where that’s a challenge, where the interest rates have gone up and the cost of the debt has gone up substantially. And that puts them a little bit at risk, especially if they have bad operations, and at the same time, could create opportunity to purchase buildings. You mentioned some of the risks. So, why don’t you just maybe add to what I just commented on about that particular risk, and what other risks are you seeing in the marketplace that you’re trying to de-risk?
Rob Beardsley: The many sponsors across the country were excited in 2021 and 2022 because that was some of the most hot real estate markets in history. We had a lot of buying and selling going on, and there was a lot of cheap debt fueling that buying. And the market was under the assumption that rates would stay low for longer. That was the guidance from the Fed. And so, people were using that as their go-forward assumption. And then as we know, that didn’t end up being the case.
So, the biggest issue that we’re seeing in the market is just this big rise in interest rates that was unpredicted. With that being said, rent growth in particular, where we focus in the workforce housing segment in strong markets in Texas continues to be very strong. So, we’re still seeing good rent growth. On the operational side of things, performance is great. All the issues are below the line as it relates to the capital structure on the debt side in particular with people who have floating rate loans on a bridge loan because those loans are higher leverage and they’re shorter in term. So, those owners have a looming maturity that they’re going to have to deal with either through a refinance or a sale or a capital call. And so, those are all the risks that many people, including ourselves, are working hard to avoid.
Obviously, a capital call is damaging to your reputation, and no investors want to go through that. A sale in the near term may be less than favorable because we’re not in the strongest of markets. So, if you bought recently and are trying to sell now, it’s unlikely that you’ll be able to really exit at a profit. So, really, the best way for an owner to move forward is to refi, but that’s not given because if you went in with a high-leverage bridge loan and values are down today and lenders are more conservative today, it means that it’s not necessarily likely that you’ll be able to refi with the same loan proceeds that you currently have, which will require a cash-in refinance, which again goes back to the capital call that investors will be asked to make.
So, as I’m sure you’ve seen, we’ve seen sponsors around the country already start to make capital calls, in particular, as you mentioned, on investments where the operations are also struggling. If you have a situation where the debt is causing a problem, at the same time as operations are causing a problem, that becomes a true potential opportunity for distress.
Josh Cantwell: Yeah, I love it. That’s exactly what we’re seeing as well. So, I appreciate the commentary on that and from your perspective, especially in those markets which are bellwether gateway type of markets for multifamily. So, let’s look at this from an operation’s perspective first. What do you think are some of the things that operators have done well or need to do well if their mortgage is putting pressure on them and they can mitigate some of that risks by operating at a super high level?
And I guess on the other side of the coin, that creates the commentary on what are people doing badly that are making the pain even worse. So, from what you can control, which is the operation of the business, often you cannot control the debt that you signed up for years ago. What from an operation’s perspective, are you looking at in your own business?
And then also, if you’re looking at an acquisition, maybe that’s where you’re looking for cracks to find a good deal is the bad operation of another seller. So, talk about operations for a second. What do you think is important right now?
Rob Beardsley: I think a fascinating discussion to have is to renovate or not to renovate because, especially if you have your renovation budget raised out of cash. So, that would mean that the property just has a million or $2 million in a bank account ready to be deployed for renovations. And the question becomes, well, do we use that cash that we have in the bank to complete the renovations in hopes of obviously pushing revenue? Or do we use that cash as a reserve to protect ourselves from a downside scenario?
And that may sound simple, but it’s actually pretty complicated because, in a normal, healthy environment, it would be very straightforward. You bought the deal with the business plan to renovate, and renovating is going to be the highest and best use of those funds because you’re going to get a strong return on investment for those renovation dollars. But in an uncertain environment like today, you may not get the same ROI on your renovations as you previously projected. And then that comes the question, well, if I’m spending money and depleting reserves to perform renovations and I’m not getting the rent increases that I’m hoping for, are those funds better used to protect the property in the near term? So, that’s an interesting conversation, but for now, it’s too early to say whether that’s the smart thing or the bad thing to be doing either decision, right?
I’m hearing of some groups that are ramping up their renovations in this time and they’re saying, well, we need to be ultra-efficient in this more difficult time. And it’s kind of a race to get their NOI up to a level enough to support their debt service. And that may sound good. And obviously, being excellent in your operations is never a bad thing, but to me, that seems a little risky to try to race forward, to try to get your NOI to catch up with your debt service. Maybe that’s your only option and maybe you’re forced into that position and you may be forced into that position because not everyone has the luxury of having their renovation budget held in cash. A lot of people on a bridge loan, the renovation budget is actually held back by the lender.
So, it’s not like you have $2 million sitting in a bank account that you can do whatever you want with. You have to actually perform the work and then put in a draw request to the lender for them to release those funds to you. And then that’s a cycle of performing the work, get the draw from the lender, use those funds to perform more work, and then draw, continuously draw down the budget from the lender.
So, in that case, it’s potentially a better argument to say, well, let’s just try to draw the funds down from the lender as quickly as possible because they’re just sitting there and we can’t use them anyway. But something that is adding more difficulty to the situation still is the fact that lenders are now kind of clamming up and not being so forthcoming with their CapEx draws. And the reason for that is because lenders are also feeling the pressure, right? They’re struggling with their portfolio and they have potentially cash crunches themselves.
So, lots of loans have covenants that state that if you don’t have a certain NOI to debt service relationship, which is the debt service coverage ratio, they’re not obligated to release funds to you, though we’re hearing of operators in really bad situations where they are making renovations and then asking the lender to reimburse them, and the lender is unwilling to do so. So, now, they’re caught, they’re stuck, they need to get their income up, they need to renovate units, but they just don’t have the cash, which puts the property in a very bad situation.
Josh Cantwell: Yeah. That’s a precarious situation, for sure, especially if you’re operating at a normal pace and you’re turning units the way your PPM and your business plan called for. And then your lender says, well, you haven’t raised the NOI because our debt service has gone up, because our interest rates have gone up. And we’ve hit this cap potentially, but the cost of our mortgage could have doubled. And obviously, the debt service coverage ratio now is significantly in jeopardy.
So, obviously, using hindsight 20/20, everyone would say, well, maybe we should have all just gone back and done fixed-rate financing. Everyone could say that, and we did a lot of fixed-rate financing. And so, we’re very fortunate there. But again, you can’t undo the past. So, that creates this new opportunity in the future to either recapitalize the deal or what a lot of people are thinking is, hey, the Fed’s going to keep rates high or maybe still increase the rates over the next year. Part of the challenge is the labor force is still strong, so people still have jobs. We still have lots and lots of people, job openings, and a shortage of labor, which is going to force wages up.
And so, the Fed has a new challenge, which is they thought that these raises of the interest rate would also cause some more unemployment, which would cause, again, a slower inflation rate. That has not happened because so many people are still employed. One way or another, I just don’t see how the Fed can keep rates high forever once there are true signs of recession or true signs of a slowdown, which I think is going to happen at the end of this year.
By the time 2025 rolls around, I believe those rates are going to come down substantially. They’re not going to go to where they were during COVID. Nobody’s going back to zero, but they’re going to come down. So, this is truly, in my opinion, and what we’re betting on, what our investment thesis is the next two years of managing through the next two years because, in 2025, rates come down. It could be a better time to sell, a better time to refi. And so, hopefully, those other operators have a lot of money sitting in reserve and can still operate and their lenders don’t screw up and do some of the things that you talked about. So, that’s what we’re kind of betting on.
In the meantime, acquisitions definitely are starting to ramp up. You’re starting to see some cracks. People bring properties to market. They probably didn’t want to do that. What’s your take, Rob, on the acquisition side of things? Are you guys seeing new opportunities pop up, more deals come out, more pocket listings from brokers? What are you just experiencing in the marketplace now?
Rob Beardsley: I think all of what you said is definitely true, especially about the fact of getting through 2024. That’s as far as your portfolio, the name of the game, and there will be a better time. There’s light at the end of the tunnel to sell and make money, right?
As far as acquisitions today, I still think it’s very slow. Transaction activity is down 75% as you talk to brokers and they’re trying to stay positive and upbeat because that’s a broker’s job, but they’re struggling, too. And the reason for that, as we’ve been discussing, is sellers are clinging to their pricing expectations of yesterday. And it’s this long psychological process for a seller to adjust their pricing expectations. So, that’s why real estate is not like the stock market and prices don’t just change second by second. It takes time for these changes to happen in the market.
So, while we have seen prices come down, there’s still not a lot of transaction activity because if an owner is sitting on a property where the value has gone down a lot, they’re not just running to sell, it’s actually the opposite. They’re just incentivized to sell. And that’s why transaction activity is so down.
When we were in 2020 and 2021 and things were booming, everyone was incentivized to sell because they could make a profit and everyone was excited to turn a profit and sponsors were excited to monetize their promote. And now, we have the opposite effect. Sponsors don’t have any promote and they don’t want to realize a sale to where they’re going to have a single-digit return for investors. So, why sell? There’s no reason to.
So, we are finding things to acquire. Thankfully, we’re very fortunate in that regard. It’s always hard to find good deals, but I do feel like it’s especially hard just because there are forces working against us, namely less deals on the market, less opportunities to look at, as well as just interest rates being so high, especially the recent run has been tremendous and we’ve seen interest rates go up about 70 basis points on the long end of the curve in the last month. And that has completely upset our underwriting. I mean, that’s a brutal sweep.
Josh Cantwell: Yeah, it is when people thought we’re going to get some, a little bit of slack in the market and a little bit of room. And the 10-year Treasury went down to 3%, 3.4%, 3.5%, and then now it’s shot right back up to 4%, definitely could upset the underwriting very quickly. And so, I think it’s super smart, really conservative, making offers on those deals that make sense but at your price, at your number. And although the seller and the broker have a whisper price, that’s X, everybody knows that they’re not going to trade at X in this market. There’s going to be some 10% probably in some cases, maybe 15% of X of where it probably should trade. And it’s just a matter of if that seller is willing to accept that number.
The longer-term owners, the people that have owned these properties for 10 and 20 years are probably the most likely sellers that are going to transact. Somebody that bought a property three or four years ago probably is not going to be in a position to sell at the price that they want. So, yeah, great, great commentary there.
So, Rob, you’ve written a lot of books. You’ve done some amazing things to promote not only your company but the industry. You’ve written a new book called Structuring and Raising Debt & Equity for Real Estate. It’s available to everybody, all my listeners, at StructuringandRaising.com/book. I love books and I love the podcast because we get to hear a high level of the book, and then the audience could do a deeper dive into the book if they want to and they all should do that. So, guys, go to StructuringandRaising.com/book, get the book. But Rob, tell us about some of your favorite parts. First of all, why did you write the book? Let’s start with that.
Rob Beardsley: So, the reason why I wrote this book was to really provide a sequel to my first book, which was called The Definitive Guide to Underwriting Multifamily Acquisitions. And that was for me, a really important book because when I started in the business, my main focus was on underwriting and I am a numbers guy, so I really took to mastering the art because it really is an art more than a science of underwriting. And when I got started learning this art myself, I was really surprised to find that there was no resource like this out in the market. And that’s what compelled me.
Josh Cantwell: Little there is in the market, like, thank you for writing the book. I haven’t read your particular book on underwriting, but there’s so little out there, like there needs to be more from guys that have a lot of experience like you and I to put this stuff out there, especially around underwriting and operations, right? And then the debt and equity side of thing, to me, funding equals freedom. If you want to retire early, be financially independent. You have to be good at recruiting and raising equity, especially from investors, but structuring the right debt as well. But there’s a lot more talk about debt and equity in the marketplace. There’s almost no talk about underwriting and operations. So, first of all, thank you for writing the first book. Again, this newest book, the sequel, tell us about that.
Rob Beardsley: Yeah, so after you kind of mastered the art of underwriting and you’ve been able to identify a good opportunity, what’s the next step? You don’t just magically acquire the property, you have to have structured the debt and the equity and you have to have relationships to go out and raise the debt and equity. So, that’s why I wanted to write the second book to kind of give readers those next tools in their tool belt to go out and structure deals and acquire them.
And I would say that is very fascinating. And I think we just had a very interesting discussion about fixed versus floating and long-term versus short-term debt. And those are all considerations that need to be had in your own investing goals and business plan for each deal. But a big focus of the book, as you can imagine, is on the equity side of things and actually equity structures, the different types of equity partners out there, as well as how to build relationships and go about raising equity, which is a very talked-about topic, but I wanted to add my own flavor into this book as well.
Josh Cantwell: Got it. So, obviously, we don’t have time to cover the whole book. What if there were maybe two or three or four sections of the book that are your favorite that you think you’ve learned over time that could have the biggest impact on a new reader or the biggest impact on an operator? Maybe something that they don’t know. Maybe a little bit of your secret sauce. What would be those maybe two or three things that you think stand out? Tell us about those and give us a little bit of– peel back the onion a little bit, a little bit of an insight into the book, and what you were thinking when you were writing on that topic.
Rob Beardsley: So, just to cover some things, high level, first, we’ll start on the debt side. Everybody knows about loan-to-value and interest rate, and so, certain simple metrics like that about debt. But what I think that this book provides that is unique is peeling back layers of the onion and talking about more complicated metrics, as well as the fine print in loans that you may not be aware of, but that you need to watch out for because they can be very material, just as we are discussing CapEx draw requests being subject to certain covenants, right? Those things are not talked about, but those are the things that I find very important and have written about in that book, specifically about springing lock boxes and different control rights that the lenders have and the covenants and things that you need to be aware of rather than just saying, “I’m going to pick the lender with the lowest interest rate.” That can get you into trouble because the lowest interest-rate lender may not be the best partner for you when things get sticky in the deal. So, that’s one part on the debt side that I think is less talked about, but super important.
On the equity side, the parts of the book that I really like are about discussing all the different types of investors out there from retail investors that invest $50,000 at a time to family offices, to co-GP partners, fund of funds, and institutional investors. So, a lot of people in their business, they focus on one single type of investor. Maybe they like to focus on putting syndications together with many investors or more institutional groups like to partner with private equity firms in a joint venture structure.
So, in the book, I lay out all the different ways that you can put a deal together from an equity perspective to give people the opportunity to see what resonates with them and how they want to go about building their business. And then specifically, on the institutional side, I talk about strategies to actually find a network with larger investors and how to go about building that relationship, really presenting yourself as a viable partner for them.
Josh Cantwell: Got it. Love it. Is there one of these types of investors that’s your particular favorite, retail versus institutional, family office, co-GP? And if there is one, why is that your favorite?
Rob Beardsley: Yeah, I would say if you can find the right family offices, they’re just such a great source of capital and they’re great partners because you’re not dealing with all the time. Sometimes you are, but hopefully, with the right family office, you’re not dealing with a very rigid investment committee and all this bureaucratic red tape, right? But at the same time, they’re very large and have lots of capital. So, it kind of blends the best of high-net-worth investor plus institutional investor because they have a lot of capital, but they’re also typically more nimble, more flexible.
And again, they don’t have this bureaucratic investment committee where if there’s one little thing that’s off with you or the deal, they pass. So, building relationships with family offices may be more challenging because they’re more private, they’re more potentially picky, more relationship-based. But when you do find that right relationship, it can be a total home run.
Josh Cantwell: Got it. Love it. Fantastic stuff. Listen, Rob, people will get your book and digest all of that stuff about those different structures. I appreciate writing the book. I’ll definitely pick it up. I’m sure there are a bunch of nuggets that I’ll learn as well.
Let’s peel back the onion a little bit further on your personal journey. I love entrepreneurship. I love people that just take life by the horns and get started with running their own business. My father was an entrepreneur. I was lucky to have entrepreneurship in my own house, so when I graduated from college, I’ve never had a job, I’ve never had a boss, I’ve only been an entrepreneur for 21 years. And so, I’m super proud of that. And I love to hear people’s entrepreneurial journey. So, how did you get started? And what were some of the early wins? And what were some of the early challenges?
Rob Beardsley: So, similar to your story, I grew up in a pretty entrepreneurial family as well. My parents ran a residential brokerage firm from home, so I got exposure to single-family real estate very early on through my family. But it wasn’t until college that I, for myself, began researching real estate and discovered multifamily as a nation. I found that that resonated with me much more. So, I was very fortunate to meet my business partner while still in college, and we started our company, Lone Star Capital, together, and once we put our first deal under contract, shortly thereafter, I dropped out of school and went full time into building this business.
Josh Cantwell: Love it. Love it. So, you were so convinced about multifamily in college, whether that’s naivete or whether it’s motivation or whether it’s, hey, I saw entrepreneurship in my own house and I saw some things that I liked and maybe some things that I didn’t like. And you just knew what you wanted, decide to roll from there. That’s often how entrepreneurship happens, right? It’s kind of a collision of go-forward plans and the past and history that we’ve been exposed to, the lessons that we’ve learned, and that kind of pushes us in a certain direction. Awesome stuff.
Rob, you got a deal under contract when you were in college and there were probably some early wins, some things that you were super excited about that convinced you that you made the right decision. And there were probably some days that you probably didn’t want to get out of that because something was not going right. Is there one or two of those experiences that stand out?
Rob Beardsley: Yeah, well, the gut-wrenching moments definitely stand out more than the wins.
Josh Cantwell: Sure.
Rob Beardsley: And there were a lot more difficult moments when starting out.
Josh Cantwell: What a better entrepreneur, if that wasn’t the case, right? The hard times, the losses is what we typically talk about a lot more than the wins, right?
Rob Beardsley: Absolutely, yeah. And that’s what sticks with you. And like you said, us being naïve kind of gave us the confidence, right or wrong, to dive in and do a big deal right off the bat. We didn’t know, we didn’t know, and we just threw ourselves in the deep end. And fortunately, we made it out alive with some bumps and bruises. So, some of the early challenges really were mainly focused on the capital raising side. We did encounter operational challenges, but that was quickly learned.
What takes a long time to build up in this business is the ability to raise capital. And that’s something we totally overlooked because we bought into the myth that if you find a good deal, the money will come. So, we were so focused on finding good deals that we completely neglected cultivating relationships with investors. So, that was our big mistake and it resulted in just really, really struggling to raise capital in our first couple of deals to the point where on our second deal, we had begged the seller for extension after extension, telling them we needed more time to raise the money. And eventually, we were out of extensions and we were just out of contract and we didn’t have the capital.
And so, there was a day where I just gave up and I said, “I’ve given it my all here and I give up. It’s okay. The seller can take my money. I’m going to walk away and I’ll recover from this somehow.” And that’s kind of the low, low, low bottom that I hit. And from there, I made one last phone call to a potential investor, and it worked. It turned it all around and I hit that bottom. And then from there, we were able to magically get the investor to come into the deal and turn it all around. We had a great partnership on that. They invested quite a bit of capital into the deal, and the deal ended up being a big home run for ourselves, for our investors, and in particular, for the large investor that came in and saved the day.
Josh Cantwell: Oh, man, that’s great. I just listened to Ed Mylett’s book maybe six months ago, The Power of One More. And that’s such a great example of, man, I’m about to give up, it’s extension after extension, I’m out of contract. It’s probably three or four or six months after the original proposed closing date. The seller gas been a little bit flexible, but the seller is probably upset. Once you make that one more phone call, man, like, that’s a really great story. Good for you, man.
So, yeah, I subscribe just like you do, Rob, to the funding equals freedom strategy, not the find the deal and the money will follow. And I learned the hard lessons younger as well trying to do residential deals and small multifamily, said I got to have the money. Otherwise, you had to get really creative in the financing to try to get that deal done. A lot of sellers didn’t want to be very creative.
So, I got to the point where after I was diagnosed, I’m actually a pancreatic cancer survivor, and I realized back in 2011, 11 years ago, I had made a huge mistake and I didn’t create enough cash flow from my old investments. And when I came out of that, I swore I would learn everything I could about raising capital. So, just like you going through that experience of maybe not doing that deal or almost losing a bunch of earnest money in a similar way, I had a challenge, a health challenge that proved to me that it had to be about the money first.
And if I could get the money, then I could look at cash-flowing A-class deals, I could look at B-class value add, I could look at C-class, D value add, it didn’t matter what my strategy was going to be. I had the money and I was confident in looking at everything it gave me. Got that huge monkey off my back and gave me a ton of confidence to know if I did get the deal, I could most likely get all the equity in the debt done. How does that make you feel now? You’ve done 2,500 units or more, last I looked on your website. Now, having that part of the business set aside and knowing that you can do it, has to give you a tremendous amount of confidence to go be able to stir the pot and look for deals.
Rob Beardsley: That’s exactly right, yeah. When you are looking at potential acquisitions with the confidence behind you that you have the equity, it’s a game changer. It gives you more ability to win the bid, get more aggressive, put up more earnest money with the seller because you know that you’ll find a way to close the deal one way or another. And that kind of speaks to our diversity of investors.
We don’t just have one investor, we don’t just have one type of investor. We pride ourselves on having syndication investors who are tech employees or entrepreneurs, doctors, as well as family offices. We have co-GP partners and we have big institutional investors that we have relationships with as well. So that gives us the added confidence that if we like the deal, there’s probably some subset of investors in our network that like the deal as well, kind of like you said, right? I’m sure that you have investors that like that classic cash flow or they don’t, and then they like the class B value add. So, there are different types of investors for different deals, and that gives you the flexibility to carry out more strategies than just one.
Josh Cantwell: Yeah, yeah. And when I talk to newer investors, whether it’s at events or on a podcast or whatever, and they said, “Well, I can’t find an investor for that deal,” all they’re really saying is they haven’t found enough investors or the right investor for that deal. And they’re like, well, I got outbid by this. You probably got outbid because the other guy was able to pay more because maybe he has an institutional investor or family office that’s willing to take less of a pref return and they want more equity on the back side. So, they’re able to pay a little bit more for it because they’re not requiring as much cash flow.
There’s always some reason why somebody can pay more, outside of them just being dumb and overpaying. That’s typically not the case, although I’ve seen a lot of dumb people in this industry, too. It’s not usually the case. Usually, it’s somebody pretty smart, but their debt and equity stack dictates what they can pay. And that’s exactly, I’m sure, what you cover in the book. So, I appreciate you sharing that.
Rob, as I kind of wrap up here with you, the advice that you just gave about not finding the deal and the money will follow and having lots of different types of investors, with all the success that you’ve had, what other pieces of advice stand out? Either advice that you’ve gotten or advice that you could give to our audience through your entrepreneurial journey and your journey specifically with multifamily, what are maybe one or two things that really stand out to you that you did well that you’d like to pass along to our audience?
Rob Beardsley: So, for my journey, I think we did kind of learn our lesson fairly early on. We should have absolutely been focusing on the investor relation part of the business even earlier. It’s never too early to start. And some people who are getting started to reach out to me and they struggle with this because they feel like they’re not credible yet to talk to investors because maybe they haven’t done a deal yet or they’ve only done one deal or they haven’t had an exit. There’s always some sort of excuse for why they shouldn’t be building relationships. And that is a big limiting belief that must be overcome. You have to start creating content. You have to start being able to tell your story and build relationships even before you potentially even buy your first deal. So, that is one big important piece.
Another important piece is, and this goes for any business, but it’s about building the right team. And that sounds simple, sounds cliché, but we all have our own skills that we need to focus on. And so, whatever you’re good at, you need to really lean into, and then delegate or outsource the rest. And so, that has become even more and more of a big part of our business as we’ve grown enough to actually be able to afford employees and scale up a team, right?
When you’re starting out, you naturally have to do everything yourself, and that’s perfectly fine because it’s very pedagogical. You learn all parts of the business and that helps you run the business down the road. But now, as we’ve grown the business, I’m now seeing just how important it is to be able to hire the right people, train them, build the right culture. So, something that I’ve been told by my mentor is hire in anticipation of the need, which is not easy to do when you look at your bank account and your cash flow and you say, “I’m not sure if I can afford this employee,” but you really want to do that in anticipation of the growth because when the growth is happening, you’re going to be overwhelmed that things break, and also, worst-case scenario, you overwhelm a team member and they quit.
Josh Cantwell: Yeah, that’s great, great advice. One of the tools, I’ll just tell our audience, that we use for team building is the Kolbe profile. I’m not sure if you’re familiar with Kolbe, but Kolbe profile measures your instincts. So, it’s not a personality test. It’s not like a what type of– are you an introvert? Are you an extrovert? It’s none of those. It actually measures your instincts.
And we’ve found, in this business, you need a lot of people that will follow systems and a lot of this business is based on the data. So, you need people who are kind of live in the history in the past, they live in the data, and then they live in the systems of systematizing the operations, the CapEx, the leasing, the evictions, and all those kind of things.
And then there’s what’s called a quick start, which is me and maybe someone like you who’s very comfortable with risk, who’s very comfortable in the unknown, who’s very comfortable pushing the needle, very comfortable in networking, very comfortable in starting something where you don’t have a lot of data, you don’t have a lot of information, you’re just willing to go. And you also realize that you don’t want too many of those high greens, quick starts on your team. I’ve done that before with partners and it was fun. We grew like crazy, and then we left a wake of chaos behind us because we went too fast.
And so, the Kolbe profile, Rob, I don’t know if you’re familiar, but that’s a tool that we use. We love it. It’s called the Kolbe A Index. We use it for years and years and years. It’s a fantastic tool for building teams. So, hopefully, our audience will enjoy that.
So, Rob, listen, I know we’ve got your book, StructuringandRaising.com/book. I know you also have your underwriting book, which is at LSCRE.com. You can see Rob’s portfolio there, some of his different underwriting tools and techniques. I know, Rob, you’re always probably recruiting capital, looking for investors. If anybody wants to invest, they can do that there as well. And then, Rob, I don’t know if you do any mentoring, coaching, partnering, anything like that, but is there anywhere else on the Internet that people should look you up other than those two websites?
Rob Beardsley: Yeah, the home base, the best place to learn more about what we have going on at Lone Star Capital is on our website, LSCRE.com. That just stands for Lone Star Capital Real Estate, so LSCRE.com. You can download our free underwriting model, you can get access to our books, and you can get in touch with us whether you want to be a potential co-GP partner or just be an investor with us on our future deals.
Josh Cantwell: Awesome stuff, Rob. Listen, thanks so much for carving out some time today. I know you’re traveling. Thanks for carving out some time for Accelerated Investor.
Rob Beardsley: My pleasure. Thanks.
Josh Cantwell: Well, guys, there you have it. I appreciate Rob for carving out some time. He is actually on his way to the rodeo in Houston and is in the process of some acquisitions. And so, even in a very competitive market, Dallas and Houston, I was able to talk to Rob before and after the show. And he still has deals under contract. He’s still in the process of acquiring deals. And so, I know if he can acquire deals in a very competitive market, so can you.
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