Multifamily Investing Made Simple

Investing in Apartments as Both An Active and Passive Investors with Randy Langenderfer

April 13, 2021 Anthony Vicino and Dan Krueger Episode 80
Multifamily Investing Made Simple
Investing in Apartments as Both An Active and Passive Investors with Randy Langenderfer
Show Notes Transcript

Our guest for today has been investing in real estate since his first primary residence purchase of a duplex. He got his commercial real estate start as a private money lender in the remodeling of single-family homes in South Florida, Ohio and Texas with a combined market value in excess of $2.5M. . He invested in several assets as a limited partner and progressed into the general partner role. 

Let’s dive right in and learn from Randy Langenderfer on how to achieve our goals in real estate. 

[00:01 – 08:38] Opening Segment 

  • We introduce our guest, Randy Langenderfer
  • Randy talks about his background

[08:39 – 14:56] Using The First Deal To Your Advantage 

  • Randy talks about his experience in the multifamily space.
  • How to be cautious as a passive investor

[14:57 – 24:35] Finding Your Sweet Spot Of How You Want To Invest 

  • Randy shares his experiences as a multifamily investor and mentor
  • Discovering that there is a route to getting rich slowly but surely plan

[24:36 – 37:49] Slow and Steady Wins the Race

  • Being in the position to step away from your W2 income 
  • Understanding a minimum of four of the five levers as an LP

[37:50 – 47:51] Closing Segment

  • Randy's bad investing advise
  • Final thoughts
  • Randy's book recommendations:

Mastering the Market Cycle

The Most Important Thing

Tweetable Quotes:

“I teach a lot of students about being an active passive investor, be involved. Don't just take somebody, don't take somebody's word for it, analyze it, look at their underwriting assumptions” – Randy Langenderfer

“what really, really got my maybe not an aha moment, but really intrigued me was the nonrecourse debt” – Randy Langenderfer

"find your sweet spot and chase it. Don't let someone else define your sweet spot for you, whether that's passive or active or a combination" - Randy Langenderfer

"the difference between an investor investing and speculation and investor is one that takes a look, understands the risk and says go speculators, one who says, I've got 50 K in my pocket, I need to invest. I'm going to plop it down with Dan and Anthony because I like them." - Randy Langenderfer

Connect with Randy! See the links below:

Go to their LinkedIn to connect. Visit their Website

Investing in Apartments as Both An Active and Passive Investors with Randy Langenderfer

Anthony Vicino: [00:00:15] Hello and welcome to Multifamily Investing Made Simple, the podcast, it's all about taking the complexity out of real estate investing so that you can take action today. I am your host, Anthony Fazzino of Invictus Capital, joined as always by Dan. He's wearing a black V-neck t-shirt.

Dan Kreuger: [00:00:30] Krueger actually is actually a tank top. Just came his job. So, yeah, no, only my Navy is not this deep, but it's a tank top. So for those of you listening, you don't have to look at it. But sorry. Oh, it's

Anthony Vicino: [00:00:42] Glorious. Honestly, it's a running joke. But Dan and I are I'm wearing a black hoodie next to you, so, you know, it's our uniform. So. But, Dan, how are you doing today?

Dan Kreuger: [00:00:52] I'm good. I'm a little tired. It's kind of cloudy and rainy, but I'm hanging in there.

Anthony Vicino: [00:00:56] Your energy levels just dip a little bit with the sun.

Dan Kreuger: [00:01:00] I have a seasonal affective disorder, as does everybody else.

Anthony Vicino: [00:01:03] I'm sure everybody in Minnesota, it's going to happen. But but today we are going to bring the energy. We're going to get darn psyched because we have a very awesome guest with us. And there's a couple of avenues today that we're going to explore with him. So on the show with us today is Randy Lynyrd Derfner. He is the president of Investor Properties, and he focuses on creating investor value in passive income returns for the busy pro.. He has been in multifamily real estate since 2014 as both a general partner and key principal in two hundred fifty doors, in a limited partner in over 4000 doors. So to break that down for people at home, he's been on both sides of the equation. If you're looking at investing in real estate or in multifamily, possibly for the first time he's been there, if you're looking to be on the active side, he's been there, too. So without further ado, Randy, come on out here, man. How are you doing today?

Randy Langenderfer: [00:01:52] I'm doing real good, Anthony. Thanks to both you and Dan. I have a comment. You know, I'm on the Black V neck. So are you guys Tony Robbins fans that just one you and then

Anthony Vicino: [00:02:04] I do like Tony.

Dan Kreuger: [00:02:05] I would say it's not correlated, but we do appreciate the Tony Robbins.

Anthony Vicino: [00:02:11] So, you know, this was actually

Randy Langenderfer: [00:02:13] On the other track.

Anthony Vicino: [00:02:16] I was going to say this is already a sidetrack, but I think we have a little bit of lag. So but when I was going to say is that a couple of years ago, I just decided to simplify the wardrobe, all Steve Jobs, and just go with a very monochrome color format so that I could grab anything and not put any thought into it. And it would probably look about right.

Randy Langenderfer: [00:02:34] Yeah, well, my my mentor, Rod Khalifa's the same way. He's a Tony Robbins guy and he just says, I've got 30 black T-shirts. He's every day

Dan Kreuger: [00:02:44] Another black spot on a black T-shirt. Yeah, that's great. You don't have to think about it. You just grab it. That's what he said.

Anthony Vicino: [00:02:50] But everything you're wearing a nice striped polo today. Like we got to get you on the on the neck train here.

Randy Langenderfer: [00:02:56] I've got some room for improvement, but it's a pleasure to be here, guys. Looking forward to it.

Anthony Vicino: [00:03:00] Yeah. So, Randy, just let's give our audience a little bit of a back story, give them some context of who you are, where you came from and how you got here.

Randy Langenderfer: [00:03:07] Thanks so much again. Randy Langham for Houston, Texas. Bass today, as you said, man in Malta since 2014. My back story is I'm an Ohio native, long term Ohioan and and relate to the winter gray skies since I came from Cleveland, Ohio, and came to Houston and A14 As I said prior to that, I was a hard money lender in a single family space. I had a I had a brother in law that got me into it. And I first went in kicking and screaming and came to Houston for business purposes, got real excited about the fourth largest metro area in the U.S., real excited about real estate, did several flips there from a hard money perspective and went to a lifestyles conference and heard about lifestyles. One of the educational groups here in Houston went to one of their sessions, heard about multifamily. Never turn back from there on, I was out of single families and start doing multifamily and it's just been a joy and, you know, it's just something that fits my personality. I'm just analytical nature. I enjoy it. And been doing, as you said, spent a lot of time on it, enjoy it.

Anthony Vicino: [00:04:24] And so from from your bio, I understand that you have a background in accounting information systems finance. Dan is our finance guru as well. So you're still working the W2 utilizing those skill sets. But I imagine that they come in real handy when it comes to the multifamily side of the equation, too.

Randy Langenderfer: [00:04:43] Well, I think so. I'm biased. I admit it. But yeah, I'm a I'm an MBA in finance, a CPA at least by training. And whenever I sign a financial statement today, but I am I have that background and I think it's it's very advantageous for both the GP and the LP side. I say that, you know, one of the things I encourage investors and I'm currently in the Radclyffe organization as a coach and I teach a lot of students about being an active passive investor, be involved. Don't just take somebody, don't take somebody's word for it, analyze it, look at their underwriting assumptions. Then I can probably create a spreadsheet that makes, you know, some very attractive returns. But the reality is, is are they achievable? And I really encourage passive investors really to talk to the sponsors. And you know what? If the sponsor doesn't want to take the time to answer your questions and then that's that's a red flag. Right. And so get to know

Dan Kreuger: [00:05:45] Each other a little bit about this. Before I actually started conservative underwriting thing, we're kind of joking that, you know, just about every operator out there says they do it. But that's one of the I think the low hanging fruit is that passive investors can can look at when they're, you know, without having to actually build a full model themselves and do the full underwriting exercise. All they have to do is really ask a ton of questions of the operator and really figure out, you know, if they have good answers for their underwriting assumptions. That's something that's you know, I'm sure you probably advise people to do that. They don't need to build the model. They just need to ask the question. And if you get a good answer, then that's kind of a that's your due diligence right

Randy Langenderfer: [00:06:22] Near the trigger points. What's your run growth assumptions? What's your expense growth assumptions? What's your reversion cap rates? What's the exit strategies? Yeah, those are. And, you know, I tell you the story I got on a call one time as a as an LP with a sponsor and it was very short with me and didn't want to answer the questions and had to run to another call. And so, you know, nothing against them. He's successful. But I just said that doesn't fit my criteria. If the person doesn't want to take the time and answer those questions and that gives you an indication and encourage people to develop their own strategies, everybody's everybody's a little bit different.

Dan Kreuger: [00:07:00] Yeah. And for LDP's, if they encounter that, I think it's important to note if that if that's the behavior, when that operator is theoretically trying to get your business, what happens when they actually have your money and don't need to, you know, sell you on the on the on the deal anymore? What happens then? You can imagine that best case scenario, it stays the same. More likely scenario is communication will probably get even worse.

Randy Langenderfer: [00:07:23] And it's cautious. The passive investors, you know, not to become overly analytical and burdensome with 30 questions on every monthly report. So there is a balance there. Yeah. From having served in the GP side as well. There is a balance there to have, but I just really like the phrase I didn't call it active passive investor that if you know, if you're just going to to me, investing is something that you understand the principles of and the underwriting assumptions. Otherwise it's just throwing money at something and hoping that it works. That's speculation, you know, and you speculate in some stocks, maybe sometimes some penny stocks or something, but an investor analyzes and determines the risk and the outcomes.

Dan Kreuger: [00:08:09] Yeah, we've said it before in our podcast, and I'll say it again here, because I think it's applicable that for the LPs on a deal, the active portion, even if they are an active passive investor, is largely on the front end, you know, doing the initial research on the operator and the deal. And then as soon as things are up and running, you know, you pretty much just, you know, check the financials and make sure that they're what you expect. And if they're not asked questions, but really the work is on the front end and from there it's pretty much passive after that point.

Randy Langenderfer: [00:08:39] And I'll take it even a step further as a passive, I mean, I'll ask questions periodically, why is why is this trending one way or another? Word vacances trending up or down? And what are you doing to build community? How are you making this? How are we making this use the term? We are we making this a tenant friendly place to live? And so those are some of the softer issues, right, that don't show up in the spreadsheet that but greatly affect returns.

Dan Kreuger: [00:09:06] Yeah, hundred percent, so I'm curious, from your experience in the multifamily space, you imagine you kind of did the hard moneylending thing, you did the flipping thing, and then it sounds like you discovered the multifamily asset class via a conference of some kind. One question I would have is, you know what? Made that would flip the switch for you. You decided that this was the way you were going to go and you didn't want to look back because he seemed very definitive when you made that decision. So I'm curious, what was it was a one thing or was a.

Randy Langenderfer: [00:09:39] I don't know that it was one thing, but I think the major thing at the time of my life is being a little bit older and maybe having a few assets, as I had looked at buying businesses, other business types over the years. And, you know, you have to have personal debt and sign for personal guarantees and and all that. And what really, really got my maybe not an aha moment, but really intrigued me was the nonrecourse debt. So as as a syndicator, yes. You're going to sign on the deal, but really the asset is stands for itself and guarantees unless you commit fraud as a syndicator or that they're not going to come after you, the bad boy carve outs, as you know. And for the passive investor, there's there's literally no risk of anything beyond your investment. And so that was the trigger for me. And then I was just I I enjoy the networking, the education got into the education. I was in a lifestyle, as I said, in Houston. I transferred to the summer. I grew up in Dallas for a couple of years, and now I'm in Radcliffe's organization. And so I've seen several different educational arms. There are great ones out there today. Each of them have a little bit different personality or culture, but they're all very good. And so I enjoyed the nonrecourse analytical type, the underwriting side and the networking side got me into it then.

Dan Kreuger: [00:11:04] Yeah, I think that's you. Go ahead. Anthony is going to know.

Anthony Vicino: [00:11:07] I just it's going to say let's let's spend a minute here and unpack the nonrecourse side, because I think that's an aspect of multifamily syndications that gets overlooked a little bit, especially when it becomes in terms of like the benefits to limited partners. I was having a conversation the other day on LinkedIn with the gentleman who was fundamentally of the mindset that the limited partners actually carry more risk than the general partners do. And I thought that was really interesting, you know, because going back to your point. But part of the the limited aspect of the partnership is that you have limited liability in terms you could always lose your initial investment. Right. That's a risk of any investment. And but beyond that, the recourse is very limited. So maybe we could just spend a moment just unpacking that a little bit further for somebody at home who's hearing that for the first time and thinking, wait a minute, that seems that seems too good to be true.

Randy Langenderfer: [00:12:01] Yeah, I mean, I'm happy to start out and then you guys have done this, too, so I would say from a from a GP perspective, if it's an agency that I should say agency Fannie or Freddie debt, the only risk for recourse would be is if you commit fraud, if there is a fire on the property and you take the insurance proceeds and run or something to that effect. They're referred to as the bad boy carve outs in the loan documents from Fannie and Freddie, from a from an LP side. The only really risk is your investment. So I don't I don't think I could think of it when when your LinkedIn friends said they have more risk as they're putting in their investment. Maybe the general partner doesn't have any money. And in the process property, that would be the only way that I would see an LP having more risk than a GP.

Dan Kreuger: [00:12:51] And was the logic behind that if there was there?

Anthony Vicino: [00:12:55] You know, the argument wasn't very strong in my in my eyes. I think I had a little bit to do with Randy's touching on there is that in some deals the GP's aren't putting in any of their own skin in the game, and so maybe they don't have their own money at play. I think there was also an aspect of lack of control equals more risk. In my counterargument to that is where we go to a surgeon and we get a complete control because they know what they're doing with a scalpel, whereas I really don't. And so in some situations, giving up control is a very good thing.

Randy Langenderfer: [00:13:28] And that's one of the things about being an LP, right, if you really you know, the reasons not to do an LP to be LP is, you know, several if you don't have capital. And one of those would be is if you want control, operating control. An LP is not for you because as an LP, you don't have any operating control. It's all at the sponsorship for the GP level. So, yeah, that's one of the one of the issues. If you're wanting to learn, I think you come alongside a GP and you ask them, you tell them I want to learn this. My first deal, I want to, you know, work. I did it myself. I'll work for free. I'll do due diligence with you. I'll run the comps, et cetera, et cetera, to kind of learn the ropes. But it's really more risk on the GOP side than the LP side.

Dan Kreuger: [00:14:18] Yeah, my brain is going towards the control aspect as well because I could see how somebody could perceive that as risky. But then, Anthy, the argument then it's it speaks for itself. So I think that makes a lot of sense. And really, I'm curious, since you kind of on both sides of the deal and various transactions here. You seem like the type of guy, at least I'm assuming that type of guy, just because you're kind of a finance guy like me, that you like to be in the weeds and and really be involved in the deal. And I'm curious why the LP component is still of interest to you while you're an active in so many deals. Why is there why are you both going on?

Randy Langenderfer: [00:14:57] That's a great question. So I told people I will always be an LP investor just because as a semi intelligent financial person, I think the cash flow, the returns, the risk the risk return model is just as very good. I think the LP side is attractive to me. Recognize that the two employees still I only have so many hours in the day, so it's it's easier to join in somebody else's deal than it is necessarily finding a new deal. Every time I found several sponsorship groups that I like and so I've done three or four investments to one. So I try to spread it across geographic regions and sponsors or GPS so that back to that. But yes, I am an analytical type. I spend a lot of nights, weekends looking at spreadsheets, every opportunity, talking to brokers on new deals, identifying potential JV partners and finding that mix of personnel. But I don't know why people wouldn't want to be and why they wouldn't want to be an LP, because I just it's less risk. And my assumptions are as if you got a good sponsor. You know, I'm sure you guys have heard about the the horse and the jockey illustration right at the horse. Yeah, the horse is the the GP and the jockey. I mean, the horse is the submarket and the is the is the is the horse is the jockey excuse me. The jockey there. The driver. And if you've got a good jockey they can take an average horse and make it succeed. And conversely, if you got a bad jockey they can take a good horse and it's kind of loose. So it's all about getting to know like and trust those GPS and.

Anthony Vicino: [00:16:51] Yeah, and the way that the way that I phrase that, because I love that analogy of like, you bet on the jockey, not the horse, because at the end of the day, the jockey, you know, a championship level jockey isn't going to get on a lame horse. You know, we could extend this out and say, like Tom Brady, you know, love him or hate him, like he's not going to go and play for a team that he doesn't think he could turn around and make it to like a championship caliber team. And so great operators, they're not bringing duds to the to the table, first of all. And so if they're bringing a deal, it's because they think that it's within their operational capacity to succeed. And that tells you a lot. So I love that example.

Randy Langenderfer: [00:17:29] And I think that's that's very spot on. And plus, those guys that are you know, they're they're big lenders, you know, like I can think of a couple I know that probably have got half a billion dollars of assets. They're getting the first looks from the brokers before you and I are. You know, they're calling them with true off market deals and stuff. And so, you know, we've talked about before, it's an unfair it's an unfair game, this whole business. It's a team sport, but it's also totally unfair. Those guys are getting a better look. They're getting a better rate on their from the lenders and we aspire to be them.

Anthony Vicino: [00:18:05] One day we we recently had that curtain kind of pulled back for us. We were potentially partnering with a pretty big operator in the space up here. And we saw the loan terms that they got versus the loan we get from the same bank. And we're like, well, those are very different

Dan Kreuger: [00:18:24] And very different.

Randy Langenderfer: [00:18:26] Yeah, I think going but different. Yeah.

Anthony Vicino: [00:18:30] Well, it makes you feel better asking for a bit more to because you know, the banks now have it within their capacity to give exactly those.

Dan Kreuger: [00:18:36] Right now I don't feel bad asking for twice as much as we're asking for before because I know they could do it. I think you brought up a really good concept. They're not directly, but maybe indirectly. That's something that we kind of stopped about before, just for people who are looking to get into the space and they're kind of grappling with whether or not they want to be going out, doing everything themselves or being an LP on a deal. And it doesn't necessarily need to be a binary decision where you're one or the other. You could do both. So I think it's important for people to realize that are kind of especially if they're in the W2 space and they're trying to figure out how they could be active and still maintain their job. I think the the easiest transition is probably to ease in through the door, do some small stuff on the side of your home and kind of do a little bit of both. But I think it's important for people to realize that it's you can do everything. You don't need to be active or passive. You could do both

Randy Langenderfer: [00:19:26] As people that jump in right away going after 200 or 300 unit apartments. And mine was a more I think because of my my risk adverse nature, given my education and my day job was more like I'm going to I'm going to get my toes in the water and understand this before I started throwing a lot of capital at it. And so I started out exactly as you said. I tried to educate myself and identified what I thought were good sponsors and good deals and put some money into it and then even tried to diversify my risk a little bit further by partnering with people rather than throwing the whole fifty K at it. I started out one of my early deals. I put it in half at twenty five and it was I wish I had bet the farm. It turned out to be a quadruple return but live and learn. So yeah, there's everybody's risk profile and everybody's objectives are different. So find your sweet spot and chase it. Don't let someone else define your sweet spot for you, whether that's passive or active or a combination. You know, I could talk for hours, you know, pref equity splits preferences from an investor perspective and etc., etc.. So find your own sweet spot.

Anthony Vicino: [00:20:48] This is something that we we harp on so much is that step one is figuring out your investment parameters, figuring out what's your risk tolerance, who are you as an investor and what are your goals. Figure out where you're trying to go and then work backwards to where you are, because too often if you just go on social media, you're going to see people going bigger, bigger, bigger and saying two hundred units on their first deal and like 10x, 10x, 10x. That might not be in alignment with your tolerance or just where you're trying it goes. So first step is like figure out what's your your dream investment and then start looking for it.

Dan Kreuger: [00:21:23] Ever so many conversations with people where I ask them, you know, what is it that you're actually trying to get to and, you know, 10, 15, 20 years. And they'd have out of they haven't thought about it. And then when they actually do think about it, it's not one hundred million dollars of assets. It's I just want to have some extra time. And so you don't need to go out and get a three hundred unit property for some extra time. You can stack a couple small things and build that up slowly and be an LP. You know, all these things can. Give you the thing you're looking for and for most people, they they see the grant Cardon's, they're like, oh, I got to go do what he's doing, Tenex. Yeah, but in reality, you don't need to go that big to get some time freedom.

Randy Langenderfer: [00:22:03] And it just goes back to what you want. I'm sorry, go ahead, Anthony.

Anthony Vicino: [00:22:07] No, no, I think there's just a little bit of lag, but you go for it. You're you're the guest. So I'd rather hear you.

Randy Langenderfer: [00:22:12] I was just going to say, you just goes back to what you really want out of it. I had a student one time and we were talking at that very point. I was starting with them. So what do you want out of this thing as well? I want to make I want to make six figures. I want to I want to win a hundred thousand dollars a year. OK, we can do that. Let's talk backwards about that. So so what kind of capital have to deploy. I've got about forty five fifty K to deploy. OK, good starting point. So basically, he came in with a get rich quick scheme idea, you know, because of the people that promised 25, 50 whatever percentage IRR, you know, great returns. And there are great returns in the space. But the assumption is, is that you can, you know, get rich quick. And so I think I had the level set this this gentleman to say you can get there, but it's going to have a longer hurdle rate with only forty thousand dollars capital to start with, unless you start partnering with people, unless you start networking like no other, et cetera, et cetera. It still can be done. How much time you want to put into it? Well, I don't have a lot of time put into it. I mean, he you know, he had a W-2 job, so we got around to passive investing. Wasn't a bad, bad option for him to get out. I said, you know, passive investment in property, see if you like this, if you got comfort with the sponsorship group and build on that. And that's ultimately the path he took. So it's not a get rich quick scheme. The quadruple returns are out there, but there are fewer and far between these days than there were three to five years ago.

Anthony Vicino: [00:23:45] Yeah, we say that is the best. Get rich slowly but surely plan that there is. So if you're planning on a lot of guys and you're going to do great, but you've really got to set those expectations realistically because again, social media has kind of program just a little bit to think like that. These insane results are the norm. And there's very, very good results, no doubt. But if you come into it expecting that you're going to forex everything every time, you're going to be very disappointed when you finally get to X into X is really good.

Randy Langenderfer: [00:24:15] So to X is very good. I started out when I was doing that. I was looking at, you know, them appreciate the rule of 70 twos. Right. I just want to double my money in seven and in six, seven years. And like you said, and you can achieve that if if you got a good sponsorship group with their conservative, et cetera, et cetera.

Anthony Vicino: [00:24:36] So, Randy, I'm super interested to figure out, because you have, from what I understand, like a big boy job. Right. And you're doing an LP stuff. You're doing stuff. What's your secret to making all this work that you're spending a lot of plates,

Randy Langenderfer: [00:24:51] High energy, low IQ. I think, generally speaking, I am I do have I do have a full time job and I I spend a lot of time, nights, weekends doing this. And but, you know, if you if you enjoy it, it's like anything, you know, my father told me a long time ago, if you do something to love, you never have to work a day in your life. And so that's kind of where I'm at, is I enjoy it. I don't really want to walk away from my W-2 job. I will someday. But right now I can do both. And that's the thing that and I'm fortunate enough to be in a position where I can I can step away from my day job for an hour or so here and there to take a call or to do something that I'm not on a manufacturing line or something like that where I can't I'm glued to it all day. So, you know, I tell people to step away from your W-2 job when you can replace your income and whether you're at fifty thousand or five hundred thousand dollars a year income, there's there's a big difference there. And again, it goes back to building your building your strategy, but it's nights and weekends and an enjoyment of what I'm doing.

Dan Kreuger: [00:25:59] Yeah, I think that's a big piece right there, is that you actually enjoy it. I mean, I would imagine that if you did leave your job right now, you'd probably be kind of bored.

Randy Langenderfer: [00:26:07] Well, I would have I would have a lot more hours in the day, I could say that my wife would have to say, you need to find something to get out of the house.

Anthony Vicino: [00:26:14] But it takes a lot of self-awareness, I think, to look at your W-2 and say, I like what I do. I don't really want to leave because I think a lot of a lot of people, they get into real estate as a vehicle to escape their W-2 or they think that's what they want to do. But it's really it's it's really refreshing that you found a job that you like and you don't necessarily want to leave it. And so the real estate is this nice supplement thing on the side, but it's also very fulfilling still and you get enjoyment out of it. So I think there's there's a level of self awareness there that a lot of people could stand to to reflect on and asking as they're setting their long term goals of like what's their outcome? Do you really actually want to leave your W-2 or are you just saying that you want to leave your W-2? Because that's what everybody's saying you should want.

Randy Langenderfer: [00:27:03] Yeah, and many of the educational programs teach that. Right. You don't leave your you know, leave your W-2 job, et cetera, et cetera, and become a millionaire in two years, three years, whatever. And and again, slow and steady wins the race. And my mind is the hair in the tortoise, slow and steady wins the race. I will step away from this from my W-2 job one day and do this full time. But I don't have an exact time frame in my mind at this point.

Anthony Vicino: [00:27:32] So I want to get really into the weeds real quick because we have to technical financial savvy fellows here on the call. So let's look at this from an LP perspective. And Randy, you kind of mentioned at the start of the show very, very briefly. But what are some of those levers that we should be looking at as LP's evaluating and underwriting underwriting to say this is conservative or this is aggressive? Because at the end of the day, spreadsheets can be really daunting and overwhelming. But if you understand just four or five of the levers, you you pretty much have the gist of what's going on.

Randy Langenderfer: [00:28:10] That's a yeah, it's a great question, and I think Dan may have a few different ones, I can I can start and add to it, but I think I think it's really starting with first and foremost, we talked about that jockey syndrome. First, forget the spreadsheet. First get the relationship with somebody and have a comfort that they're of equal mind with you, you know, so I start to go back to that, say, you know, there I'm sure you guys have heard the illustration personalities of ready, aim, fire. Right. So I'm a finance guy at heart. I'm a ready aim, aim,

Anthony Vicino: [00:28:42] Fire

Randy Langenderfer: [00:28:45] My mission

Anthony Vicino: [00:28:47] Four times once.

Randy Langenderfer: [00:28:51] And I had a partner in my last deal. He was a marketing guy and respect the heck out of him, but he was a fire aim. Ready guy. You know, just do the deal. Do the deal. Just do the deal. Do deal was an investor. You got you got to kind of get inside. And I think some of that does have to do with I like investing with people that come from a corporate discipline. That's my preference. They have some rigor. But once you get by that comfort level, the sponsorship and their integrity, you know, it's still we invest with those we know, like and trust. So do get to know them. You got to like them. And do you trust them, you're going to give them a lot of your hard earned money. But when it gets to the analytical side, I mean, I think, you know, as I see some GPS growing, they get less and less analytical as they do more deals and bigger deals. And so I still like to see myself. I still like to see the five year cash flow. What you start out with, really, what is the business plan of this? So it's you know, the bottom line is you get a grow net operating income and you're going to do that by increasing rents or reducing expenses.

Randy Langenderfer: [00:29:56] It's that simple. So what's the business plan from the sponsorship group? They can be. Raising rents, they can be making great amenity improvements, they can be adding additional income items, you know, understanding that, I think so. First and foremost, a business plan when you get into the analytics of it. I look at, as I mentioned, rent growth, expense growth, what's the buying cap rate? What's the reversion cap rate? Those have huge implications on the analytics. And there are a lot of people that will underwrite. My definition of conservative is one that is a sponsor friendly to the investors. They're not taking a lot of fees on the front end or the back end. You see models today with acquisition fees, liquidation fees. As sponsors grow in their sophistication and their awareness, they start to charge more fees. Is there is there a waterfall? You know, as they said to me, those add layers of complexity that investors need to understand before investing. And then, you know, my other pet peeve is, gosh darn it, read the PM and the operating agreement. You know, I tell people, what are the investor rights know for that person who's control oriented? What are the investor rights in the p.m.? Do you have any? So, again, my personal model, I have some friends that asked me to invest in their deal.

Randy Langenderfer: [00:31:31] I didn't have any investment investor rights at all. Zero, none, nada. It was all the it was all the sponsorship group. They decided when to sell it, what price to sell it for other models. You'll see where the investor group at least gets to vote on it for a majority or supermajority, the sell refinance or some of those large capital events. You know, how does the sponsor in the P.M. and the OEM have the ability to take loans from the property? Or lend money to the property. I've seen that, and that isn't published very often either. I know one sponsor that took a loan from one property to buy another property. It was within his rights of the agreements, but it wasn't till I actually asked him about it and have we do this? He came forth to do that. So it's an analytical approach. It's a legal approach. And again, the difference between an investor investing and speculation and investor is one that takes a look, understands the risk and says go speculators, one who says, I've got 50 K in my pocket, I need to invest. I'm going to plop it down with Dan and Anthony because I like them.

Anthony Vicino: [00:32:42] Let's roll the dice.

Dan Kreuger: [00:32:45] Yeah, I think sometimes people get so excited to get in that they just want to be in a deal and they just need to get in something so that they they can, you know, they've got flomo basically fear of missing out. I think a lot of people do. So I think that you nailed a lot of the levers there and some of the nuanced ones are some that we don't talk about quite as much because I'm so analytical. I get caught up in the numbers. But the the the what's the word I'm looking for? The due diligence on the operator is something that we've talked about so much. But I think it's paramount and I think that's one of the biggest things that people should be focusing on. But once they get past that, the ones that really stick out to us are Kapre. That was huge. Just a minor change in what that terminal cap rate, which is, you know, the cap rate when you sell at the end. Yeah, just a minor change in that. When we underwrite, we almost always have the cap rate going up. And I've seen a lot of operators that are banking on it, continuing to compress, which could happen. And it's great if it does because obviously that's inversely correlated to value. But if that's your base assumption, you know what happens if you just go to Flatt's? I think a lot of people's underwriting would blow up if they adjust that. I've actually got one of ours up right now. If I take our cap rate increasing at five basis points a year down to just being flat, it goes up a full point in Iraq. And that's just a little five basis point, Tweek. So that's a major lever. I don't think a lot of LPs really appreciate the power of.

Randy Langenderfer: [00:34:14] And there's one you just asked a simple question, what's the difference between the buying cap rate and aversion version cap rate for you as a as a as a sponsorship group? You know, the conservative ones, I would say, are taking five at least five basis points a year, if not 10 basis points a year increase. You're right. If if the rates stay low, it'll be more money. The other one I would add to that is the sponsorship showing you in their pitch décor and the material sensitivity analysis. So it just as you said, they are they've shown the sensitivity analysis of what happens to the cap rate changes. Reversion cap rate changes. Yeah. Where is the where is the break even point? Where is the break even point if the market goes to heck and people start walking away from your property from the vacancy perspective.

Dan Kreuger: [00:34:58] Yeah, that's another key one that I don't I've only been asked by, I think two individuals what the breakevens breakeven occupancy is something we look at and we haven't really put it in a lot of our marketing packages just for in the interest of trying to keep it as concise and and user-friendly as possible. But it's surprising that not many people have asked, you know, how many people could leave before this thing goes. Cash flow negative.

Randy Langenderfer: [00:35:23] Mm hmm. And I'm sure you've got it on the tip of your tongue, it sounds like, right there. So you're willing to share. Not many people put that in there, but they do show I mean, the good sponsors I see show a show graphs about sensitivity analysis around cap rates and and vacances as to where it drops as it's in the pitch deck for transparency purposes.

Dan Kreuger: [00:35:45] Yeah, we'll say that it is kind of from the operators perspective, it is kind of a balancing act of trying to provide enough information for people to let them make an educated decision, but at the same time not bombarding the spreadsheets because I would love just all the spreadsheets. That's all I need are really pretty pictures or anything. But a lot of the people that invest as LPs get a bit intimidated by too many numbers. So it's kind of a balancing act of sharing enough info to illustrate the deal, but not so much that people look at it and say this is so beyond me. I'm just confused looking right.

Anthony Vicino: [00:36:18] So this is the way that I look at it, which is, you know, there's a difference between the full detailed underwriting and then the marketing package. And quite often I would say the marketing package is trying to provide enough information for somebody to make a generally educated guess. But as an LP, if you're looking to invest in a deal and you don't see the sensitivity analysis in the marketing package, ask for it. You know, that's part of the questioning. And if you have that good relationship with the GP, they should have already done it. They maybe just didn't put into the marketing package. So it shouldn't be it shouldn't be a stretch for them to provide it. Now, if they look at you and they're like, no, I don't have that, that's a red flag. Right.

Dan Kreuger: [00:36:57] Or the oversensitivity.

Anthony Vicino: [00:36:58] And I just want to be an honest broker. There's quite a few players in the game where you're probably going to get that response. So but but it just goes to that relationship that you have with the GP and feeling comfortable asking those questions, because at the end of the day, you need to feel very confident and comfortable working with these people because it's a bit like a marriage. It's easy to get into, really hard to get out of. And it's going to last for a while. So make sure that you like the people

Randy Langenderfer: [00:37:26] You know, like that marriage illustration. Easy to get into, hard to get out of. And and they do last and, you know, the trees don't grow to the sky. Right. So there are there is an end point, some point for this this bull market we're in. And also, you know, there are there are some bad deals that happen. So it's not all roses on this. And that's where it comes back to them. Answer.

Dan Kreuger: [00:37:50] I feel like since we just hit on, like, all of these kind of things that people need to be aware of, this might be a good spot to throw in our bad investing, typically because we did not hit that it's.

Anthony Vicino: [00:38:02] Well, I think we really we didn't ever actually, like, set it, but we've talked to almost a lot about it because we knew what it was coming in. So we we just kind of went there. But, Randi, what is your bad investing advice of the week?

Randy Langenderfer: [00:38:17] The bad investment advice of the week is that I go back to do the things I want to first say, that illustration of we underwrite very conservatively. That's kind of like saying I love you. It means a lot of different things to a lot of different. That means a lot of different things, a lot of different people. And the other one I would give is so, you know, what can go wrong is a bad investment advice is my first property I got in as an LP was a new sponsor who I know liked and trust the guy immensely. And, you know, and so what happened over the ensuing six years is he bought it on a bridge loan. He refinanced it after 18 months. I got a 60 percent of our money back. And, you know, I'm kind of pumping my chest and I'm thinking I'm a really wise investor. You know, this is this is gravy train. And then he proceeded to have a hurricane which flooded all the first unit floors of of the two hundred and twenty hundred and ten of them were taken out offline immediately start to rebuild from that. And then there was a fire. Two kids died. And as they start to recover from that, it it got hit by the global pandemic. And we just saw that actually last last summer. And really after all that, I was tickled pink to get my principal back. I didn't lose a dime, but I didn't make any money. And so that's my worst case. Investment advice. Things can go wrong. Kudos to the sponsor and this one. Now back to the horse and the jockey. This guy had over a half million dollars in the property himself that he was ready to write off at the expense of giving the investors their share first. And he had the rights within the operating agreement to pay himself first. Yeah, he elected not to. I'll invest with this guy every time, all day for the next 20 years just because of that. Yeah.

Dan Kreuger: [00:40:09] Yeah. And that's the difference between a a great sponsor and even just a pretty good one. Pretty good one. Probably would have done everything in his legal rights and done capital calls on the investors and done all that stuff, which is all perfectly legitimate for the PM. Sure. But if you find the right guy, it's going to end up as good as it possibly could be. Mm hmm.

Anthony Vicino: [00:40:33] That's something I want to add here, because we talk a lot about knowing, liking and trusting people, especially when it comes to operators and doing deals with them. But, you know, if you if you just stopped there, that might not be good enough. I know. And I like and I trust my brother, but my brother is not competent at running an asset. And so we need to add in that fourth variable, which is we know like trust them and that they are capable and sound like you're a guy who is very capable, you know, knew him, liked him and trusted him. And I could trust only goes deeper now. But the tie back to your bad investment advice of everybody always says we underwrite conservatively and we're guilty of it, too. Everybody says it, but we also poke holes in it and say, you know, hey, everybody says this. But here's what we mean by conservative. And then actually walking through it like, hey, here's the five year cash flow. Here's what we're assuming on the rent and expense growth. Here's our exit cap rates versus our acquisition cap rates and like going through point by point to paint that narrative of what does it mean to be conservative? And if you haven't if you have an operator and you're sitting and looking at a deal and they say we underwrite conservatively and you say, OK, can you show me those conservative assumptions? And they just kind of stare back at you, all them out. Yeah. Like actually ask them point to point to what is conservative about this. And let's again, the sensitivity analysis is helpful in that case, because then you can say, well, it seems like that's still pretty close to break even here. So I don't know. Does it seem conservative to me?

Dan Kreuger: [00:42:04] At very good point. Book recommendation. I am going on a trip at the end of this week, going to be on a plane, I need reading materials,

Anthony Vicino: [00:42:14] Randy and is desperate for his books.

Randy Langenderfer: [00:42:17] There, I'm there. I'm back. Can you guys hear me now?

Anthony Vicino: [00:42:21] Yep, yep, yep. We disappeared for him, I'm

Randy Langenderfer: [00:42:24] Sorry about that. That's OK. Yes, I did. Incognito.

Anthony Vicino: [00:42:32] So I don't know if you heard him, Randi,

Randy Langenderfer: [00:42:33] But I'm sorry.

Anthony Vicino: [00:42:34] Yeah, Dad's going gone on vacation this week and he needs a good book recommendation, something to read or listen to on the plane.

Randy Langenderfer: [00:42:44] The one I'm really the one I really talk about is the like a lot I read in the last couple of months is Mastering the Market Cycles by Howard Marks. Oh, yes. If you haven't read that one, he regrets he doesn't give you a lot of how tos, but he gives you a lot of indications of, you know, just mastering the market cycles. And everything is a cycle. Some are longer and shorter. But Mastering the market cycles by Howard Marks, I would highly recommend.

Anthony Vicino: [00:43:10] I just love everything from Howard Marks, from this high level guys, they very rarely give you tactics that give you really good strategies and they have to kind of figure out the tactics for yourself. So, Dan, have you read that one?

Dan Kreuger: [00:43:23] I have it, but it came up recently on another episode.

Anthony Vicino: [00:43:26] Yeah, that is other book. The most important thing, both like must read if you take yourself seriously as an investor, which Randi's pointed out multiple times, there's a difference between it being an investor and being a speculator. And, you know, take take the time to brush up on the skills necessary to become a good investor. It'll pay dividends for the rest of your life.

Dan Kreuger: [00:43:47] Yeah.

Anthony Vicino: [00:43:48] And so with that, Randi, I really, really appreciate your time. We went a little bit long on this episode, but that's just because there is just so much to dig into. There's so much good stuff.

Dan Kreuger: [00:43:57] So that's a good sign. Yeah, I mean, we like it because that's how, you know, we don't like you.

Anthony Vicino: [00:44:03] Yeah, we like. Oh no. Now, now people are going to go and say, I'm going to

Dan Kreuger: [00:44:08] Do a 30 minute one. That's why I said it.

Anthony Vicino: [00:44:11] We're long winded. But where can where can people get a hold of you, Randy, if they're looking to connect?

Randy Langenderfer: [00:44:16] I appreciate Anthony and Dan. It's really been a pleasure. This is a way to get a hold of me as go to my West website, invest investee hyphen, ask R.K. Invest Typhon dot com. There's a contact list there. Love to chat with anybody. And you know, if we can add any value to you, we don't ever have to do business. But I just want to really try and give back to so many people have built into my investment, success and careers that once you see that value in giving back, you never turn back. So happy to talk to you. I love it.

Anthony Vicino: [00:44:52] So, dear listeners, we appreciate you taking some time out of your day to join us on this conversation. And we're going to look forward to seeing you next week. And.