Tap into the mind of expert investor Rob Beardsley and how he utilizes the wonders of the underwriting process to navigate the shifts in multifamily real estate. Learn more about the value of understanding market dynamics and how to mitigate risks in your following deals by tuning in!

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A walkthrough on the imperfect science of underwriting deals
Tools to help you put better deals together
Changes you might see in the multifamily space during a market crash
2 frequently mentioned topics in conversations with investors
Why you should start being smart with debt


Vanguard https://investor.vanguard.com/corporate-portal/
Yardi https://www.yardi.com/
CoStar https://www.costar.com/

Do you want to invest in multifamily deals confidently? Get Rob’s books at underwritingmultifamily.com and structuringandraising.com to take control of your financial future today.


Rob founded, oversees acquisitions and capital markets for Lone Star Capital, and has acquired over $350 million of multifamily properties. He has evaluated thousands of opportunities using proprietary underwriting models and published the number one book on multifamily underwriting, The Definitive Guide to Underwriting Multifamily Acquisitions.


Website: Lone Star Capital https://lscre.com/
LinkedIn: Rob Beardsley https://www.linkedin.com/in/rob-beardsley/


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Full Transcript
Rob Beardsley  00:00
By the time your loan matures, you’re not going to be in the best position to refinance or take advantage or sell the property. Timing is very important. We still want to be active, we still want to buy deals, but how do we protect ourselves? So loan assumptions, fixed rate, debt, and long term debt are really great ways to approach the market today.
Greg Lyons  00:16
Welcome to the passive income brothers podcast.
Tim Lyons  00:18
Here we take the fear out of real estate investing using real life stories of everyday successful investors. Let’s go Welcome to another episode of the passive income brothers podcast. My name is Tim Lyons and today I’m joined by none other than my brother Greg. Hey, don’t say buddy.
Greg Lyons  00:32
Tim, it is a great day to be Alliance great day to be on the passive income brothers specifically, because we are not the smartest people on this podcast that I I can say that unequivocally. We got into the right room today. We have a fantastic guests. Yeah.
Tim Lyons  00:52
It’s not that hard to what not be the smartest person in the room. That’s great. And I bet that it gives us great pleasure to bring on one of the folks that we met in this space hasn’t been that long since we’ve operated in the multifamily space couple years. But it just when you’re aligned with the right folks in the right rooms, the right teams and the right people, it all makes sense. So I’m really excited to bring Rob Beardsley from Lonestar capital to you today. How you doing today, Rob? I’m doing great. Thanks for having me on the show. Yeah, thanks for making the time holiday week this week. So it’s always a grind. But Rob, what stood out to me before we even before we started to work together was you were younger, and you had a book about underwriting already on Amazon. And you had these multimillion dollar properties in your portfolio. I’m saying Who is this guy, man, I got to see what else is out there. And then I got to meet you at some conferences and people that we both knew together, you know, kind of conducted us. So it’s funny how it all works out. But I mean, it’s really impressive what you’ve been able to do in the multifamily space. So I’d love to you take a second, take a minute, whatever, and kind of just bring the listeners up to speed about maybe a little bit about your background, how you got into real estate, and then we’ll take it from there. Yep, that
Rob Beardsley  02:02
sounds good. So I’m the founder of Lonestar capital where a five year old multifamily investment firm focusing on Texas Workforce Housing, we take a very focused approach. So we only really are active in Dallas Fort Worth in Houston, we ignore everything else. And we really focus on our niche of that workforce housing segment with a value add strategy that’s done very well for us because we’ve been able to build strong relationships, build market expertise, as well as build a local team through our vertically integrated property management to execute on our plans. So that’s, that’s Lone Star in a nutshell. Prior to forming Lone Star I was actually in college studying computer science, I thought I would go into a tech startup or into tech consulting. But I caught the real estate blog while in school, started doing podcast started listening, going to meetups and conferences, and before I knew it, I met my business partner, Kent, and we took the leap of faith with each other to start Lonestar together. He quit his job as a tax attorney, and I dropped out of school. And we were off to the races from there.
Greg Lyons  03:06
Tim, how many people have we run across that either get going in a lot of times a lucrative profession, doctors lawyers, in Rob’s case, computer science baby go in the startup space, but just smart people finding their way into real estate. And you know, we’ve seen the time and again and Rob, you are a wonderful example of this. As someone that could have probably done a lot of different things. What drew you to real estate and multifamily real estate specifically?
Rob Beardsley  03:37
Yeah, like you said there about how a lot of smart people find their way into real estate. I think also, on top of that, it’s pragmatism, it’s very pragmatic, to look at real estate and identify it as really the most lucrative business to go into, especially when you consider on a post tax basis, when you factor in all the benefits of the long term building of your business, long term building of equity, the tax advantages, the scalability of the business, it’s really hard to not want to dedicate your full time effort to it. One thing that resonates with me deeply is I don’t want to be chasing a check, and then have to chase the next one and the next one, then the next one. I always want to be working. I don’t have a dream necessarily to retire. But I love the idea of my work, creating residual value. So the things we’re building the properties we’re acquiring, have long term value and bring long term value to me. Dude,
Tim Lyons  04:32
I love that too. Like that long term ism, right, the long term look, and honestly, that’s what really drew Greg and I into the space as well. I mean, I still work as a lieutenant in the New York City Fire Department, doing that almost 18 years used to be an ER nurse on the side, right? Yeah, listen, I worked 7080 90 hours a week. The bills got paid and put some money into the 457 took two vacations a year with the kids. I mean, what was that really after? Right? People were always questioning me, Tim, like, how much more do you need? I mean, you Are two nice cars, you get a nice house beautiful family, everybody’s healthy. And I would say yeah, yeah, no, absolutely. But I’m looking for more, I’m looking for something different. Like, I’m punching the clock, right. And when I was chasing that overtime or chasing that check, it just didn’t feel right, right until I went out on my own. I built my own company with Greg. And it’s now not really work, right? I love talking to investors, I love going to conferences, I love being on podcasts. And I can see myself doing this for a really, really long time. And so I love what you said there. And in the process, we get to have a front row seat to a number of different experienced operators, where we can see the underwriting and we can see the details and we can see the Site Reports and we can do due diligence alongside of our partners. So in a way to grow our business, right, but also have that long term view of real estate producing income, right, and then having some sort of multiple on our capital. So I totally agree with that. So Rob, you mentioned that you’ve started Lonestar capital, but why don’t you kind of go into Lonestar capital a little bit deeper. So what your portfolio has looked like so far, you mentioned vertically integrated if you can dive into what that exactly means for some of our listeners who may not know what a vertically integrated operation looks like, with some of the value that brings. So
Rob Beardsley  06:19
over the last four years or so we’ve acquired over 350 million and multifamily property. And those properties are usually around, I’d say 20 to 45 million in size. So that’s our sweet spot. We’d like to trend to buy nicer newer assets, maybe larger assets as we continue to grow. But I think where we started from is a really common place to start and a great way to grow your business kind of getting into more rougher assets, where there’s a little more meat on the bone can really add value to the property and show your investors some strong returns. So that’s been our strategy. But our strategy as a whole is more dynamic than that we don’t have to do a certain type of deal every single time we’re reactive to where the market is. And as you guys I’m sure are aware, the markets always changing. And we’re in a particularly interesting part, or interesting situation with the market right now with debt, where it’s at, and things like that. So adjusting our expectations, adjusting our strategy, given the market dynamics is how we approach it, we don’t have to have a certain way to go. So today, just as an example, leverage is much lower, the uncertainties about the future are higher. And so that’s leading us to look at deals from kind of a less risky perspective, you know, how can we take risk off the table? How can we set ourselves up to the right out of potential recession, and still be able to make money, but still be in the game? I don’t like to see people discouraged and say, Oh, well, there’s no good deals out there, that we’re just pencils down. There’s always good deals out there. And you just have to find them. Absolutely.
Greg Lyons  07:50
And I think when people are trying to find their way in real estate, whether it be a passive investor, kind of knowing people that are doing it like you, or if they become an active investor, you have to find your skill and find your way to add value in real estate. And I think one of your really strong skills is your underwriting. And underwriting is just kind of putting all the numbers together to say how do I think this project is going to perform over the ensuing four or five years, so investors can get an idea of what that will look like. underwriting, as we all know, is an imperfect science. And rarely does the performance that you spit out actually come true, it could be a little bit higher, it could be a little bit lower, and somewhere in between. But talk about that imperfect science that you’ve kind of mastered, you’ve written a book about, and how you kind of take the nuances of the market, interest rates and all the intangibles that go into underwriting. Yeah,
Rob Beardsley  08:54
so there’s the very straightforward part of underwriting, which would be just literally copy and pasting data from the seller’s financials into your model, and kind of building a picture of what the true current situation looks like. That’s really straightforward. You can’t screw that up very much. And there’s not that much gray area there. Now you take the inflation numbers, and then you layer on future assumptions. And that’s where the greatness comes in. Well, we think we can raise rent to x, we think that rents will grow at a certain pace, our expenses are going to be here, we’re going to opt to use this debt structure, which maybe is shorter term, longer term, right? There’s so many variables once you start projecting out into the future. And that’s only one part of the imperfect aspect of the science. The other imperfect part is what return are you even targeting, right? It’s not necessarily just you plug in the numbers and then it’s a good deal or not, right? That’s a sliding scale. You have to make a decision as a sponsor as an investor, to say that given this specific project, and it’s located Commission and its risk factors, I think that this level of return is appropriate. And to target for that is worthwhile. But you wouldn’t go and buy a classy property in the worst part of town and hope to shoot for the same return, as you would hope to get in a class a property that’s brand new has no issues and institutionally owned. That just doesn’t add up, right. So that is also the imperfection of deciding on a sliding scale, what returns you need for this certain project and that certain level of risk. So we spent a lot of time thinking about that. And comparing different deals, you can’t just look at deals in a vacuum, they all have to be rated against each other. So if we look at 100 deals, or 200, deals in a quarter, we’re looking to hopefully do one to two deals out of that bunch. And so we have the luxury of comparing and contrasting against all these different deals and the data that’s coming in. So that’s the imperfection about it. And you can really get over the imperfect science about it through law of large numbers, right? If you look at only one deal, how do you know if it’s a good deal or not? Right, you just have very limited sample size. But if you’re looking at 100 deals, now all of a sudden, it’s going to be easier to find one that sticks out. I
Greg Lyons  11:13
think you underwrite tons of deals. And I think your experience of not only underwriting but purchasing deals is really important. And since you are a vertically integrated company, meaning your property management firm, that takes care of the property is under your control, talking about how you’ve been able to really understand expenses, and what kind of impact expenses have on the value of a property.
Rob Beardsley  11:42
Yeah, expenses, impact the value of the property directly, right, because properties are valued based on their net operating income, and your expenses. factor that in. So you definitely don’t want to as a couple reasons, obviously, we want to be perfect everywhere. But especially when it comes to expenses, you really don’t want to undersell your expenses, because you’re going to experience that air. Rather immediately. If you go in with a certain assumption about payroll, then you take over and you go actually, that’s totally wrong, we need another person and your payroll is bigger, you’re going to start feeling the impact of that day one, and it’s going to for the rest of the investment, you’re going to feel that impact. Another thing that we are conservative about in our market is property taxes and property taxes, they often jump up on sale, they sometimes don’t jump until maybe a year or two after sale. So you don’t know when that jump happens. But it usually does, especially when you’re talking about value add properties, because in Texas, at least, the appraisers, the tax assessor office looks at the income of the property. So if they see that work is being done, they see rents going up, they’re gonna want to raise your taxes, and you could fight it, you can show them your p&l and say, well, actually, our income is lower than you think and whatnot. But at the end of the day, there’s some correlation there between value and plan, rising income with rising taxes. So we’re conscientious of that. And we always prefer to overshoot the taxes, and then end up on the right side of it. So and that’s what we see, for most of our deals, for at least the first couple of years, we assume a big jump, but actually, it doesn’t get quite there for at least a few years. So that gives us enough wiggle room, because we want to make sure that we’re able to hit our cash flow expectations early on in the project as much as possible. So expenses are extremely critical. The good side about expenses is actually one of the easier things to project. Obviously, inflation is a variable, but as far as your day one expenses, you can get those very drilled down. Because with our team, we can identify the payroll needs of the property, okay, for this 200 unit property. How do we staff it when the property manager, we need an assistant manager, we have a leasing agent, maintenance team, right, you could put that together, put and then build out of salary budget with benefits and the payroll burden, all that stuff, you can get that drill down. And then same with your repairs and maintenance. We can look at our portfolio and go okay, well, here’s the benchmarks of repairs and maintenance costs, contract services, things like that. So I would say expenses are actually pretty straightforward. When it comes to underwriting.
Tim Lyons  14:10
Yeah, then this is why at cityside capital, we have chosen to work with experienced operators who have been in the game and this case, Rob has written two books now one on underwriting one on equity, and structuring of deals. And when you have that level of granular knowledge about putting these deals together, there’s some certainty that you can kind of derive from an underwriting model or pro forma or past performance of the operators portfolio and stuff like that. So that’s what gives us the competence to work with groups like Rob’s is that they’ve been in the arena, right? They know how to structure a deal, they know how to get debt, and they know how to do the capital raise and whatnot. Rob, do you talk about right now? Maybe this is the middle of towards the end of December of 22 that we’re recording this. The Capital Markets seemed To be in a state of flux, right? There’s a dislocation between sellers and buyers about how much properties are worth both on residential. And I think it just filters right through the spectrum of real estate assets. How is that impacting your operations? How is that impacting your pencils being up and continuing to underwrite deals, and then the ability to actually execute on the prior deals they’ve already done.
Rob Beardsley  15:25
So the market right now, like you said, there’s a bit of a wider bid to ASCAP, I’d say on the average deal that we bid on, we’re usually around 10% off the price. But in today’s market, that’s exacerbated to about 15 to 20%. Off. So that just shows you there’s a not just a lone star specific bid ask app. But there’s also somewhat of market wide gap, and two totally right about that. But that being said, there are still unique opportunities out there to get deals done. One example would be loan assumptions, that’s a pretty straightforward way to make the numbers pencil. If the seller isn’t willing to come down on price to reflect the realities of today’s financing market. Well, if they can sell the property to subject to their loan that is more attractive than today’s debt, that they locked up maybe two years ago, or something like that a year ago, that’s a real way to make the numbers work. You might not be necessarily buying for this discount in today’s market. But the numbers given the creative debt you’re getting helped make the deal happen. So loan assumptions are something that we’re very interested in. I mean, we’ll look at everything, but we definitely spend more time on loan assumptions today. Real
Tim Lyons  16:34
quick loan assumptions in commercial real estate are possible, right? Because just exactly what you said, on the residential side, not so much, right? That’s why a residential mortgage for the single family focused investors, you can’t really assign a mortgage. And the value that Rob is talking about right now is that somebody two or three years ago may have gotten a multifamily, a 40 $50 million multifamily property with a two and three quarter 3% interest rate. And right now we’re staring at five and a half to probably seven, depending on the asset and the market and the proceeds, right. So you can see when you underwrite a property at a 3% interest rate on a 10 year note with a 30 year amortization. And then all of a sudden, it jumps to maybe say 6%. I mean, that torpedoes the deal, right? It just doesn’t pencil in anymore. So that’s really powerful. And I’ve only seen a handful come across my desk recently that are actually people are making that kind of deal happen. But it’s encouraging to see that it’s out there. Yeah, absolutely.
Rob Beardsley  17:33
It’s definitely not super common, but it’s out there, the making a deal work market rate is still possible as well, especially where the tenure is today, there’s been some relief there, the tenure has come down quite a bit, it was up around 425, as high as that, and now it’s down in the 350s. Or I should say three and a half percent range, right. That’s a big difference. That’s some savings right there. And so what that does is that helps make the numbers pencil for Fannie Mae and Freddie Mac debt, which, in my opinion, is kind of the some of the best that you can get today, if you rewind, a year ago, everyone was doing bridge loans, because interest rates were very low. And there was so much lender competition in the space lenders were bidding against each other. So interest rates were very low. And everyone, all lenders were willing to give really good terms that you could get a bridge loan with a lot of leverage, really low interest rate. And basically bridge lenders were out competing, more traditional long term lenders, because of such a frothy market, so everyone was in the bridge loan space. But now the opposite has happened where bridge lenders have kind of exited the market a lot, or they’re very cautious and their interest rates have gone crazy. So before when bridge that was almost cheaper, you can get more loan proceeds at a lower rate than a traditional agency lender, for example, which made it a no brainer. But then you look at today. Now, it’s kind of back to a more normal environment where bridge lenders are substantially more expensive than agents who lenders make it very, very difficult to make the numbers pencil in that regard. So I think there’s multiple reasons, that being one of them to focus on long term debt. The other one, obviously, is to mitigate your risk. If you’re looking at a loan that matures in let’s say, three years time, well, that could be very bad timing. If we, let’s say go into a recession at some point in 2023 that may delay or derail your business plan. And by the time your loan matures, you’re not going to be in the best position to refinance or take advantage or sell the property right. So timing is very important. And by locking in a seven year loan or a 10 year loan, you’re putting yourself in a much better situation to ride out a downturn, which is something that we’re focused on. Obviously, we won’t necessarily obviously but us personally, we don’t think that there’s going to be a major impact as far as values and performance goes in multifamily. But we do think that there’s going to be a slowdown in the economy just given the tightening that’s occurring in the economy from the Fed. So we’re looking at, okay, we still want to be active, we still want to buy deals, but how do we protect ourselves? So loan assumptions, fixed rate, debt, and long term debt are really great ways to approach the market today.
Greg Lyons  20:19
Yeah, and that’s that’s a great segue into kind of where we are right now, in the economy. Interest rates are high, the economic news is gloomy. You go on Yahoo, finance, whatever. It’s all doom and gloom, recession and these sorts of things. And this is a great opportunity for people to stick their head in the sand and go away. Right. But I think this is where investors can make money during a recession. There may be good advice out there. And while multifamily is pretty recession resistant, we are going to feel a recession in our multifamily properties. And I just wanted to talk to you about what is the outlook for multifamily in the coming recession if there is going to be a recession, quote, unquote, recession in 2023?
Rob Beardsley  21:08
Yeah, I like what you mentioned about doom and gloom. Just before we get into that, because Wouldn’t
Greg Lyons  21:12
you like that? Oh, no.
Rob Beardsley  21:17
Well, as cliche as it sounds, right, when others are greedy, be fearful when people are fearful be greedy, right? The big money is made in contrarian bets. And I would certainly say that buying multifamily today isn’t the most contrarian thing in the world, right? We’re not going to buy a shopping mall. But it’s still, like we were discussing, there’s still more pencils down today, there’s a lot of people who are kind of cautious. So well, I’m not trying to say that today, there’s the best deals in the world that there’s been a huge discount, there has been a discount prices have come down. And I think in long term, the prices today are going to look attractive, five years, 10 years from now. So that does require a lot of guts, and patience. But if you can pull deals off in a market like this, so I’m gonna have more doom and gloom sentiment, that is very interesting. funny anecdote is I have a friend who works at Vanguard, and he’s on the phone all day with people who are his clients. And they’re calling saying, it’s all going to zero sell it. All right. And it gives you an interesting, like, look into the mind of the average investor. And obviously, I don’t think it’s going to zero. But when you have enough negativity like that, that pushes the market down to an attractive level of pricing. Conversely, I have a friend whose family’s in the wealth management business, and you know, they’re texting him saying, oh, yeah, today’s a good day to buy stocks markets down, buy some stocks. So it’s just, I don’t know, see, so So that’s an interesting dynamic, as far as the market outlook for multifamily, because of all the inflationary pressures that we’ve been experiencing. And actually, if you analyze the inflation data, one of the biggest inputs of inflation is our rents. So when you’re seeing the CPI prints at 6% 8%, big portion of that is rent, it is also backward looking. So that data is a little bit stale. The rent rent growth is certainly slowing down today. But in the right markets, like where we are in Texas, for example, rent growth remains very strong. So I think that’s in part due to growth, true growth, also supply and demand imbalance in the right pockets that we own. And then also inflation, just simple inflation. So all those factors, I think, are going to contribute to still above average rent growth, even as we may head into a recession. So that bodes very positively for multifamily. Now, for values, I think we’re going to continue to see a slight expansion of cap rates. So it’s still very possible that if you buy a deal today, it may be worth less in six months or a year from now. So you have to be comfortable with the long term value and the long term business plan that you’re going to pursue. When you’re buying deals. Today. There’s no problem with buying a deal today at 50 million, and then it goes down to 45 million in a year. But then it bounces back to goes up to 55 in a couple years down the road. So that’s the long term. The longer term, your horizon less risk, the more your de risking your deal. So that’s what we’re seeing. We just acquired a property a month ago, and we underwrote 3% rent growth for the next three years. But yardie, for example, which is where we get some of our market data from is projecting 4% per year of rent growth for the next three years.
Tim Lyons  24:30
Yeah, there was so much in that last segment. But I mean, what it really comes down to is being educated as an investor to what the asset classes right and as a part of that education is if you’re not going to pay for a coach, you’re not going to pay for a mentor. Well, then you gotta get on podcasts and you gotta listen, you got to work on some of the data resources like Rob’s talk about Yardi and costar and there’s a whole bunch of them out there too, because you want to see where the puck is going. So you can skate over there. Right? You want to understand the process as well. So knowing the market Is there job growth? Is there? What’s the supply and demand of units for multifamily? If we talk about multifamily specifically, what’s in the pipeline, if we’re going to focus on classy housing, and there’s a bunch of class a product coming on the market, you’re probably still okay. Right? Because no one’s making the jump from C Class A class overnight. So it’s understanding market dynamics, where’s the job growth, the population growth, all those assumptions that gotta be tight, right. And I think that’s where the education piece really, really comes in. And at the end of the day, it supports Greg in my thesis that people need food, clothing and a place to live at night. When you have a bad day, where do you want to go? You want to go to back to work? No, you wanna go to the office? Now you want to go home, you want to go back to your couch? So with that being said, there was one more point I wanted to make on that. And that is, multifamily isn’t a real estate in general isn’t marked to market every second of every trading day, right? So Rob says some cap rates expanding, right? And when Cap rates expand, the value goes down, right? So but we have the luxury of saying, Look, this is going to take three to five years or five to seven years, whatever the hold period might be for one particular project. And you go into day one at 40 million, and it goes down to 35, in six months, because of whatever cap rate expansion? Well, guess what, we probably haven’t even gotten 10%, the way done of our business plan, right, of that repositioning of the assets. So long as the debt is right, right? The structure of the deal is correct. It’s in the right market, a lot of these things are very forgiving. So, Rob, with that being said, what are the top two issues that you’re talking to investors about right now, whether it’s with your own portfolio, or more of a macro type of look? So what are the top two issues that you’re addressing at the moment?
Rob Beardsley  26:47
Definitely, the number one issue is the rise in interest rates that we’ve experienced. And I’d say, most of 2022 At this point, the big problem is an increase in interest rates, doesn’t have to be a horrible thing. But the horrible thing is the fact that expectations were so wrong, the entire market predicted rates to stay flat. And that’s not necessarily their fault. There’s a lot that went into that. But basically, just as a recap the Fed to position that inflation was likely transitory and that it would go away on its own. And they also promised that they would keep rates near zero for the next couple of years. Well, they shifted their stance very rapidly, they recognized that inflation was not transitory that they needed to take massive action. And then they raised rates that was very different than what was projected. So now you have us and a lot of other people who had floating rate debt, where we had our projections, showing this for rates and then actually goes here, so that delta is causing a lot of issues. Fortunately, most people in the market like ourselves are in the near term protected by an interest rate cap, which puts a limit a ceiling on how far your interest rate can go, even though it’s floating. That’s very helpful. The problem is, that cap expires at some point, and you need to be prepared to buy a new cap to continue that protection. So that has been the conversations that we’ve been having with our investors is, hey, we’re protected now. But we need to make sure that we have the funds available for the future. So do we reduce distributions pause distributions, reallocate funds from our business plan, there’s so many different ways we can go in order to, I would say, toggle the risk. If you want to take maximum risk, you’d say, Oh, well, everything’s going to clear up, let’s keep renovating units, let’s push rents, everything’s to be fine. If you want to take minimum risk, you would pause all distributions, pause all renovation work and just hoard as much cash to try to make sure that the asset can make it through. So those are the conversations there’s no one right answer. And so you have to work with your investors to understand what their view of the market is. And at the end of the day, like I always say, we’re here to serve our investors. So we may have a recommendation, but we need to make sure that we’re doing what’s best for our investors and what they want. Another thing that is also at play, and the number one, I don’t want to call it a problem, but just a discussion point is refinances. Right, you might have a current loan in place that is floating. And it might be more attractive to actually refine to a fixed rate loan to take the future of rates off the table where you might be locking into a higher rate, fixing it into a higher rate today, and you’re going to miss out on the benefit of floating lower later, but you’re taking all future interest rate risk off the table. So again, it’s toggling that risk dial. So those are the conversations that we’re having. They’re not the easiest conversations, but I think they are absolutely necessary and we’re not shying away from them in difficult times square u to x, your communication to extra transparency. Yeah, I
Greg Lyons  29:51
mean, I think communication is the key and anything to do, really, if you want to have a good marriage if you want to have a good friendship if you want to have a good business. Communication is always is the key. And I think even when times are good, you’re always trying to de risk your investment, right for when interest rates go up and stuff like that. But I’m just wondering why you have chosen to stick with the Dallas Fort Worth and use scenario. What attracted you even when times are great, everyone’s printing money? Everyone’s a real estate investor. Why did you choose the DFW and Euston area as your kind of home base to do your value add multifamily investing?
Rob Beardsley  30:29
Yeah, there’s no secret that Texas as a whole has been booming. It’s very business friendly. It’s very landlord friendly. So those aren’t secrets. Dallas and Houston are both always at the top of the charts as far as population growth and job growth. So that makes it a very simply good place to invest in multifamily. The downsides of a lot of Texas is it’s very easy to build, there’s a lot of land. So there’s a lot of new supply. But that new supply does not apply equally across the entire market. There’s pockets of development, such as the very glitzy glamorous downtown’s and hottest suburbs and things like that. So we avoid those. And we like to buy in the more dead end pockets where there’s less new supply. And there’s more of a consistent stock of call it 80s Vintage property, which perfectly fits in our wheelhouse. So we kind of have that sweet spot of mitigating that the one negative of Texas markets, and getting all the benefits, where you have that supply and demand and balance, population growth, job growth, incomes are growing. And that one last thing that also we really like is just the size of the market, you can find a fantastic market. But if there’s only a handful of multifamily deals, or let’s say the culture in that market, is one in which there’s not a lot of trading activity, you have a few families that just own all the property and they never sell. And then what can you do? Right, so fortunately, Dallas, Fort Worth and Houston are markets with a lot of active transactions, there’s a ton of multifamily. I think there’s something like 630,000 units in the Houston MSA. That’s a ton of units. There’s a ton of transactions. So that can keep us busy underwriting so we can hit that goal of let’s say, looking at 100 deals in order to buy our favorite one.
Tim Lyons  32:19
I love that that’s a great explanation about why right. I mean, like thinking about that 630,000 units in a market that’s ripe for a lot of transactions. So one thing I want to stack on top of that, Rob, is that multifamily why we love it so much is that it’s even in a recession that staring us potentially in the face for 2023. It’s resilient in the fact that if you’re a B class renter, right, so you’re 1980s products, something like that with a pool, and you lose your job, or there’s a reduction in salary or something like that, well guess what the B class runs or can drop down to the C Class asset. And vice versa, right in good times a C Class renter could bump up into a B class. So it’s really that B and C Class apartment, multifamily asset that we love so much because of that resiliency. What Rob, I want to be mindful of your time. I know you’re traveling this week. So we thank you for coming on and making some time for us. So we’re going to transition to the last three questions that we ask every guest that comes down to the show. And the first one is, what do you tell investors, whether they’re new, or they’re newer to real estate? Maybe when they tell you we’re asking you, Rob, isn’t real investing in real estate risky?
Rob Beardsley  33:31
I would say that sure it is, but everything you do carries risk. And just because you can’t see the risk doesn’t mean it’s not there. So I think maybe that’s not necessarily what people are thinking in their head. But what I do think people are thinking in their head is if they don’t understand it, they think it’s risky. Right? The more you understand something, the less risky it is. So it’s our job to educate people and make them feel comfortable with the business model. And I think fortunately multifamily is something that people can wrap their heads around pretty easily, because a lot of us have experienced it in one form or another, if nothing else, where you live is some form of housing, right? And so it might not be multifamily housing, but it’s some form of housing. And if you can understand the dynamics of a single unit, you can certainly extrapolate that and understand the dynamics of 100 unit property. So fortunate, I think with multifamily the learning curve isn’t so so great. But still education is key to get over that that fear of Well, I don’t get it. It’s risky. If I’m investing in a property in Houston, I’ve never been to Houston, what’s it all about? Well, if you take a trip out there, check out the properties meet the team, it might completely change your perspective,
Greg Lyons  34:37
is the theory of being able to bury your head in the sand and be like, ah, that’s not for me. So, you know, when you gotta take action, you gotta learn and educate yourself. You You’re so right about that. Second question we have is from Robert Kiyosaki. And he said that savers are losers and debtors are winners. What does that I mean to you? Well,
Rob Beardsley  35:01
that’s very true for a long time and is going to continue to be true, especially in an inflationary environment. Because if you have debt, and there’s inflation, the value of your debt erodes. So if I borrowed $100, but the value that $100 via inflation goes down to $80. Well, when I pay that $100 back, I’m really only paying $80 Back in real dollars. So people who are debtors benefit from inflation. And unfortunately, we do have inflation right now. So that is, yeah, that’s a simple simple reality. Economics is not simple. There’s a lot of moving parts, but you can’t save your way to getting rich off
Tim Lyons  35:40
of that. Right. We’re starting to hear some of the same type of sentiments. I mean, I think we’re striking something here. I think one of our guests recently said he’s never met any millionaire or DECA millionaire that saved his way to wealth, right? So anyway, got to put the
Greg Lyons  35:54
bike to work. Gonna put your mind into work. That’s
Tim Lyons  35:57
right. All right. The third question Rob is from Jim Rohn. And Jim Rohn said, a formal education will make you a living and a self education can make you a fortune. What does that mean to you?
Rob Beardsley  36:08
Well, I’m a perfect example of Never Letting school get in the way of my education. I dropped out after two years. Shortly after starting Lonestar and putting our first deal under contract. I loved school, I loved I was a student athlete in high school, and I loved doing nothing but studying in college. So it wasn’t necessarily like I wanted to leave school, but I just felt like I had such a strong opportunity, and such a learning opportunity. Also, in speaking with my advisor, it was a very straightforward thought process. Well, if this fails, I come back to school and I’m armed with all this great experience. And if it succeeds, well, it succeeds. And I’m off to the races. So I think taking calculated risks like that, and having in my situation, fortunately, safety nets that allowed him to take such risks really allowed me to supercharge my learning my experience and education. Yeah, I mean,
Tim Lyons  37:00
really, that was a question that was perfectly teed up for you, in your experience, right. So Well, listen, I mean, I’ve heard Rob speak at a number of events on podcasts. I mean, he’s a really dynamic individual. I’ve heard him even say sometimes that he reads white papers on like, lending practices and stuff like that. And I guess it’s no secret that he has two books, right one on underwriting and then one on and he’s not even 30 years old yet. So listen, I highly recommend you guys research Lone Star for them on social media. Rob does a great job breaking down some of the tougher topics small bite sized chunk on LinkedIn especially. So, Rob, if people want to connect with you and find out more about you, and I’m sorry, how can they do that?
Rob Beardsley  37:42
You can learn more about us at Lone Star on our website. That’s LSC, R e.com that just stands for Lone Star capital real estate. So you go to LSC, r e.com. And if you want to connect with me, please connect with me on LinkedIn, I post like some set of posts every day on LinkedIn. And you can feel free to connect me and shoot me a message there. And yeah,
Tim Lyons  38:03
that’s pretty much it. And then Rob, where can they find your books?
Rob Beardsley  38:06
So the books are the first book about underwriting is on underwriting multifamily.com. And then the second book, which is called structuring and raising debt and equity for real estate is at structuring and raising.com. I love that.
Tim Lyons  38:22
Well, Rob, thank you, again, so much for creating the time to spend with the passive income brothers. We certainly appreciate it. And we’re grateful that we’re able to work alongside you and your team. And we’re also grateful to the listeners that were able to serve you this week, and we look forward to serving you again next week. Thank you for listening to another episode of the passive income brothers podcast. We would be grateful for your support of our podcast by giving our show a five star rating and review and subscribing to our show on your favorite podcast platform. Don’t forget to take inspired action after listening to this show, so that you can start building out your passive income streams. Finally, head on over to cityside cap.com to connect with us and find out more information about how to get started passively investing in real estate