The Alternative Investor

Today, we take a deeper dive into looking at private equity. Private equity is Grayson’s world — so we switch the script and I ask him all of the questions I have about private equity.

We discuss how private equity can help grow businesses, get debt to help your returns, the high risk/high return nature of private equity, precise strategies, what to look for when you’re investing, how to know how much to invest, and more! 

Key Takeaways:

[:13] About today’s episode.

[:44] An overview about private equity, how Grayson defines it, and what sort of businesses he goes after.

[2:29] How do you grow the company with private equity?

[4:04] Are there any precise strategies that focus on particular markets in private equity firms?

[4:48] Who are the big private equity firms?

[5:30] Do smaller private equity firms do one-off deals in addition to funds (similarly to real estate)?

[6:28] Why does private equity have higher return (and in turn, a higher risk)?

[7:59] Can you get debt in private equity?

[9:12] High leverage, big buyout vs. the smaller deals.

[10:40] Multiple expansion and why it’s so great.

[12:41] What to look for when you’re investing in private equity.

[17:44] How do you know how much to invest?

[19:09] How do you pay a multiple on revenue?

[23:40] In an auction process on a deal, what would the variability between lowest bid and top bid be?

[24:50] A real world example of a private equity deal.

[29:06] What about exits? How do you make the most money in these deals?

Mentioned in this Episode:

KKR

Blackstone

Apollo

The Carlyle Group

Fortress

EBITDA 

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Today we’re going to talk about what goes on behind the glass curtain — what it actually looks like inside of a real estate private equity firm.

We go over the different types of teams within the firm, the importance of each of their roles, as well as their hierarchy; the two types of private equity funds; how these firms make money through the different types of fees they charge; and the general atmosphere and physical environment of the firms.

Tune in as we pull back the curtain on real estate private equity firms!

Key Takeaways:

[:13] About our topic for today: behind-the-scenes of the goings-on of a real estate private equity firm.

[1:09] The general atmosphere and physical environment of a real estate private equity firm.

[3:30] The teams that work inside the office and their roles. Firstly, the acquisition team and the hierarchy of the roles (the managing directors, directors, vice presidents, associates, and analysts.)

[11:59] The asset managing team’s role.

[12:58] The other teams in the office and the roles within them: the accounting team and the investor relations team.

[16:00] The difference between the two types of private equity funds.

[20:00] How these firms make money (through the acquisition fee, asset management fee, the disposition fee, and more).

[24:27] The biggest, most important fee of them all: ‘the promote.’

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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.

For More on The Alternate Investor, Check Out:

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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

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Today we’re talking about how not to lose your hard-earned money through fraud. One of the advantages of alternative investments are that they are less heavily regulated by the federal government — but that also means you have to do more work when you’re investing in alternative assets to make sure you’re investing in a legitimate opportunity.

This episode, we discuss a few things you can do to to minimize your chances of getting involved in a fraudulent scenario. We share our general tips and tricks to making well-informed decisions, what you should be looking for when initially investigating a sponsor on an alternative asset, and the actionable steps to take pre-close and post-close on a deal.

We hope you get access to many great deals — but don’t be a sucker. Before you put your money into a deal listen to this week’s episode. 

Key Takeaways:

[1:15] A few things you can do to minimize the chances that you’ll be getting into a fraudulent scenario, and the two ways of accessing alternative investments.

[1:54] Some things you should be looking for when you’re investigating a sponsor on an alternative asset.

[4:58] Pre-Close: What do on the deal before it closes (and before you wire that money over!) to help avoid fraud.

[11:03] Post-Close: Steps you should take after you’ve closed the deal to make sure you’re not being subjected to fraud.

[15:34] General tips and tricks to be smart while making these kinds of deals.

Mentioned in this Episode:

Bernie Madoff

For More on The Alternate Investor, Check Out:

TheAlternativeInvestorShow.com

Hosted on Acast. See acast.com/privacy for more information.

Hosted on Acast. See acast.com/privacy for more information.

Hosted on Acast. See acast.com/privacy for more information.

Hosted on Acast. See acast.com/privacy for more information.

Hosted on Acast. See acast.com/privacy for more information.