May 13, 2020
Mike Taravella and co host Will Coleman interview Rob Beardsley founder and principal at Lonestar Capital.
Rob identifies three major levers of underwriting he is looking at in order to better prepare his underwriting on future acquisitions. Those three levers are:
Stabilization timeline - Having a realistic time frame of when you will make the improvements of the property, increase rents, and get your occupancy up. Don’t assume everything will be perfect in one year. Rob underwrites at 0% rent growth during the first 24 months of the stabilization timeline.
Going in Vacancy Rate - Things are uncertain in the market right now, there is a possibility of an increase in vacancy and it is important to stress test this number to see how it impacts your model.
Hold period - If you were underwriting at a 5 year hold period now stress test it to 7 years. Which will automatically impact your IRR.
Rob and his team have not changed the level of return they are looking for on a deal.
When underwriting make sure you understand how you are valuing the property upon sale and that you are not being over aggressive.
Make sure you understand your cap ex budget. Rob recommends doubling whatever the lender will require in reserves.
Expert Pro Tip: Build a ton of relationships and do lots of due diligence.
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