Month: May 2018

We Love Real Estate, You Should Too – EP. 07

Summary

We’re talking real estate today. Brad walks us through the ins and outs of finding a good deal in real estate — covering the basics and then diving deep further into the episode.

Everybody should have some real estate exposure outside of their current residency. You don’t want to think of your home as a real estate investment so you should get out there and look at some real estate deals!

This episode we discuss the three main reasons why real estate is a worthwhile asset class to be looking at, what cap rate is and why it’s an important determining factor when looking to invest, how to measure the risk of return, and when you should ultimately decide to “pull the trigger” in a deal.

Key Takeaways:

[:27] Why we’re talking real estate today and the three reasons why it’s a worthwhile asset class.

[7:17] As a sponsor, how do you know you’ve found a good real estate deal? What do you look for?

[8:25] Clarifying what ‘cap rate’ is and what it indicates.

[10:50] What other metrics does a sponsor look at when trying to find a good deal?

[14:13] The different real estate strategies and the opportunities you’ll see as a passive investor.

[15:42] How do you know how much you want to pay for something? And the right way to consider cap rate in a deal.

[19:03] How to decide when to ‘pull the trigger’?

[21:05] The most important but toughest aspect about looking at an investment: Figuring out what your annualized return on a deal will be and how certain you are that you’ll get that.

[22:20] Considering cap rate and measuring the risk of the return.

[23:40] Ultimately, it comes down what your annualized return is going to be and how risky it is.

[24:52] How to think about growth in real estate.

Letters of Intent: What They Are, How They Work, and Why You Should Care About Them

Summary

Today we’re talking about LOIs — Letters of Intent. LOIs are kind of like you and the seller are dating — you’re testing the waters and have the intent of moving forward with a relationship, but not the obligation — you’re still shopping. When you sign an LOI you don’t have inclusivity but it can help you lay out the basic business terms of the deal and get it moving forward.

This episode we discuss everything we know — and think you should know — about letters of intent! From the major points of the deal you should include in the LOI, the bullet points we make on our LOIs, and some of our real world examples using LOIs.

Key Takeaways:

[:28] What is an LOI? Information on the non-binding, legal document.

[2:27] The key part to an LOI for us, as buyers. And what’s the next step after a LOI?

[4:14] About the inclusivity of a LOI (from the both the real estate and private equity side), and when exclusivity is reached.

[7:19] So why should you care about a LOI as an investor?

[10:26] The major points of the deal you can include in the LOI.

[11:23] Key terms in the LOI; the price you’re going to pay, how and when you’re going to pay it, how much is going to be seller financing, debt, or equity.

[12:02] About the recent deal we got under LOI.

[13:55] The bullet points we make on our LOIs.

[14:38] Exclusivity in a LOI? The binding element we could put in an LOI.

[15:55] One of our first deals that we put under LOI, signed up the purchase contract — and the seller still backed out, proving that contracts are a step towards closing the deal — but they’re not set in stone.

[18:27] Summarizing LOIs: When you want to see them and when you’ll use them.

Mentioned in this Episode:

The Alternative Investors EP.05: Don’t Get Bernie Madoff’ed: Avoid Ponzi Schemes and Fraud