In this episode I talk about one of my favorite and effective real estate investment strategies. Whether or not you’re a seasoned investor or new to the game, one of the most important things to be able to do is sell to LPs, and it might seem counterintuitive, but don’t roll out the red carpet. This is real estate investing for beginners, but a lot of veterans in the industry forget about this. Don’t flower up your deals and conversations when talking with potential investors. In fact, I’ve found that the better approach is to talk about the downsides of a deal--to talk about what you're struggling with.

This approach and process has developed over the years, but I’ve learned that it is a unique way of gaining an LPs trust. It helps manage expectations, because if you really think about it, investors already have an idea of why they might want to invest in you. You are not their first stop in the research process! They’ve done their homework and if they are talking to you, they’re already serious about striking a deal somewhere.

So, what are the negatives? What are the risks I’m up front with when LPs approach me? First off, property tax risk. The towns I’m buying in are not growing. They were booming at one point, but they’ve had a drop off in growth. Not only is their tax base low because of this, their infrastructure costs are high which puts a bigger burden on the companies that are already there. The second thing that can scare the hell out of me goes hand in hand with the first, and that is the lack of population growth, but I’m thinking long term--5 to 7 years when buying up property and in that time, a lot can change in an economy. I then throw the question out of the worst case scenario. If interest rates rise, inflation goes nuts, and the economy is hurting, are they okay with a long term relationship? With all these negatives in mind, how does it make them feel? And then I leave it at that.

It seems counterintuitive, but investors appreciate it. When they’re looking at investing in real estate they’ve told me, and naturally, they begin talking about what they like about the deal--they tell me what they’re thinking. Which brings me to my final point. This is not only a process for me to be transparent with investors, but it allows me to vet anyone who approaches and wants to make a deal. Sometimes I scare the hell out of them, and that’s okay. I don’t want someone looking to do a quick, big flip because again, I’m thinking long term and looking for a good business partnership as a result.

In this episode of The Nick Huber Show I sit down with Chris Powers of Fort Capital who specializes in industrial real estate in the Dallas Fort Worth area. 

Chris is a serial entrepreneur with more than 16 years of real estate development and investment experience. He founded Fort Capital in 2005, and to date, the company has invested over $584M in Class B industrial, commercial, multifamily, student housing, and residential/land development projects throughout the state of Texas.

Chris’s ability to conceptualize, raise capital, and execute are only a small part of what Chris brings to the table. With a belief that investing time in people is the best investment that can be made, Chris has built a strong network that has helped catapult the industry of private equity investing to where it is today. Graduating with a BBA in Finance & Marketing from Texas Christian University in Fort Worth, TX, Chris is innovative, ethics-driven, people-focused, community-minded, and passionate about ideas that matter, and has the professional and personal philosophy: “Tell the truth and be nice to people.” Chris is a member of the Fort Worth YPO Chapter and lives in Fort Worth, TX with his wife, Mikal, and their daughters, Palmer and Connor.

As a mentor of mine, I have learned so much about what I do within the real estate private equity investing industry, and as we talk about the ways to do business, to raise money, and really the ways to become a successful real estate entrepreneur through simple real estate investment strategies, I hope you see the value this conversation has to offer.

Sponsor: junipersquare.com

Is real estate a good investment? The short answer is, yes! Now, when it comes to structuring a real estate private equity deal, there are some details that need to be considered. Here, I talk about how a real estate private equity firm is structured and give you some more good, need to know terminology.

Generally speaking, there are two key sets of players with these kinds of agreements: General Partners (GPs) and Limited Partners (LPs), and in a nutshell, GPs raise money from outside investors--LPs--and are in charge of organizing the details. The GPs goal is to make money for both the LPs and themselves, and there are a variety of ways to accomplish this.

Now, a big thing to keep in mind is what is termed as Waterfalls. Basically, this is an overflow of money that comes in from a private equity deal and there when it comes to dividing money for the deal, there are provisions stipulating where this overflow of cash goes: between the common shares and the preferred equity (LPs). In a preferred return this is like an interest rate promised to the LPs, because after all, they are the ones that fronted a bulk of the capital to begin with. Once that is met, The Promote is what goes to the GP.There are a lot of ways to structure a single deal, and knowing the difference between low risk and high risk deals is vital when organizing one, and fees are a major consideration. From Asset Under Management (AUM) fees to Acquisition and Disposition Fees all of these generally go to the GP to help them set up the deal for success. Structuring any deal really depends on the market and how aggressive or risky a specific deal is, which will also determine co-investing and debt sponsorship.

Sponsor: Juniper Square

Every industry has their own language with acronyms, industry terminology, and jargon. Real estate is no different. In this podcast for real estate investors, I go through the key terms anyone new to the market needs to know.

First and foremost you need to know what Net Operating Income (NOI) is. It is the almighty factor and standard profitability for a property. For the most part, it is consistent as it is your Top Line Revenue minus Property Expenses. Yes, these are affected by management and tenants, but it does not take into account the variety of other variables that COC does.

Now, Cash on Cash (COC) is the return on a property, which does depend on leverage, capital reserves, debt service payments, AUM fees, deal related fees, etc. In short, there are a lot of factors to consider when calculating the COC.

Second most important term is Cap Rate. Cap Rate a way to look at the yield on a property if it is unlevered? There are a ton of different terms when it comes to Cap Rate because of the various nuances that are simply based on what time you are looking at in a property’s life span. The two main types of Cap Rate you need to be concerned with are: In Place Cap Rate, which is what has happened within the last 12 months of a property, and Going in Cap Rate, which looks at the first year of operations as an estimate and projection.

An Unlevered Yield is when no debts are on a property and explains what the return percentage on a property is. In other words, it’s another way to look at Cap Rate, but in a percentage.

Pro Forma is the cash flow projection month by month and Underwriting is a way of creating a Pro Forma document. There are a lot of assumptions made in both these processes--any projection is and any bank and investor wants to see these numbers when considering a property.

Who are the Real Estate Actors when it comes to organizing and participating in a deal? There are two main players: the General Partner (GP) and Limited Partner (LP). The GP is the sponsor in real estate private equity. They find and organize the deal, executing it and doing the work, which is what I do. The LP are simply investors. They put their cash into the deal. GPs raise their money from LPs.

Debt Service is the principal and interest payments on a loan and any related expenses, while the Lease Up Period is the time it takes for tenants to rent up your space before you reach maximum occupancy--the time frame in which you get new customers.

Now, throughout the podcast we’ll be talking about Asset Classes, or the type of real estate investments. There are a number of them: self storage (which is what I’m involved in with my company Bolt Storage), mobile home parks, industrial real estate, family, single family, medical office, etc.. Every Asset Class has their pros and cons, so be aware of them when pursuing an Asset Class.

Debt Service Coverage Ratio (DSCR) is the last major term and is the relation of the NOI to the total debt-service obligation you have on a property with principal and interest. Most banks have a comfortable number they like to stay with when considering DSCR and is another variable to consider when planning out your real estate investment strategies.

Sponsor: Juniper Square

Is real estate a good investment? Yes! But why trust a random stranger on the internet? Well, you shouldn’t. I am just a 32 year old guy chasing some massive deals and learning as I go. With that being said, I have a unique background for real estate that I think is extremely valuable and worth sharing.

I come from an operations background of marketing, hiring, organizing and management oversight, all of which has given me a serious competitive advantage in real estate. In 2011, my buddy Dan and I started a small business called Storage Squad, a pick up and delivery student storage service. With 12 states, 30 college campuses and up to 300 part time employees during the busy season, this was a logistical nightmare to say the least. However, it was a huge learning experience and gave me some valuable insight into real estate.

Right now, I own a real estate private equity company called Bolt Storage. With 24 self storage facilities, 642,000 square feet, and almost 5,000 units (4, 930), Bolt Storage operates in four different states: Ohio, Pennsylvania, Connecticut and New York. Our operations division has 9 employees and our acquisitions division has 4 and we aren’t slowing down anytime soon. In 2021, my partner and I sold Storage Squad for seven figures, giving us the opportunity to rebrand under Bolt Storage, allowing us to grow at the rate we have been.

Although my background is unconventional for real estate, the principles and concepts are the same. They’re universal and can be applied to anyone's real estate investment strategies. This is a podcast for real estate investors, beginning and seasoned professionals to become better no matter what background they come from. Real estate is a lonely game, and I want to change that and create a community that is conducive to beginners looking to get into the game, bigger investors, and everyone in between. There is no reason you can’t make some big, financial changes and have massive success. You just gotta put in the work!