WS1988 Financial Management For Real Estate Investing | Highlights Julian Vogel & Ted Rose

Are you interested in achieving higher returns through real estate syndication? Then you need to master the art of structuring your capital stack. In this information-packed episode of The  Real Estate Syndication Show, host Whitney Sewell chats with Julian Vogel, Fund Manager at Colonial Hills Capital, and Ted Rose from Rose Financial Solutions.


Julian Vogel and Ted Rose share insights on real estate syndication and back-office management. Julian discusses strategies for aligning capital stacks and navigating market challenges with creative debt and equity solutions, emphasizing neutral leverage for cash flow. Ted underscores the importance of robust back-office operations, covering financial management to technology, and touches on strategic decisions like hiring a CFO or engaging third-party services. Their combined expertise offers a blueprint for success in real estate investments and business growth.


3 Key Takeaways:

1. Strategic Capital Stack Design: Align your debt and equity structure with each deal's unique requirements to maximize profitability.
2. Creative Solutions for Challenging Markets: Leverage innovative financing options like agency debt to maintain deal viability in a competitive environment.
3. Optimizing Back Office Operations: Implement a robust FAS system or utilize a third-party service to streamline back-office functions for business growth.

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Transcript

Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, we've packed a number of shows together to give you some highlights. I know you're going to enjoy the show. Thank you for being with us today. Julian, welcome to the show.

Julian Vogel : Thanks for having me, Whitney. Pleasure to be here.

Whitney Sewell: Honored to have you. And so tell us a little bit about yourself. Obviously, you know, Colonial Hills Capital. Who are you? What's your all's focus? And let's jump in.

Julian Vogel : Sure. So I'll start with Colony and then I'll get to myself. So Colony is a private real estate company. We're based in Western Massachusetts. And we focus solely on the acquisition and repositioning of garden style multifamily real estate. Probably a story you've come across many a time before. We've been doing it since 2008. And to date, we've done over $1.2 billion in total capitalization, a little over 12,000 units. We just completed our 36th transaction. And on deals that we've taken full cycle, meaning from purchase to sale, we've had an average gross levered IRR of 36%. We've had a lot of growth in the last four years as a company. And it's exciting time for, for the company, even, even with the markets up and down, um, you know, colonies doing well. And then as far as my role, um, I'm technically I'm, my title is the fund manager for the company, but I actually wear two different hats, similar, similar activities. The first hat as the fund manager is I determine all of the fund strategies. We're on our, about to launch our third fund. And also I oversee the capital raise for those funds. And then the other hat I wear is I structure and source the debt and equity on a transaction by transaction basis. Prior to joining Colony Hills Capital four and a half years ago and change, I spent my whole career working as a commercial mortgage and equity broker. I had my own business. I worked for a top 15 firm based out of Angle Cliffs, New Jersey. I worked for a family office. But basically all those roles I was doing you know, similar thing. I was structuring debt or equity for multifamily, self storage, office, construction, acquisition, refinance, you know, single family, family rental portfolios, uh, self storage, et cetera. So a lot of fun, a lot of exposure. Um, and I'm excited about what I do and what, where we're going to call it.

Whitney Sewell: It's incredible. I, You know, he Julian and I were talking about before we started recording is how he loves what he does. And it's such a blessing to be able to do that every day. There's never a bad Monday morning, right? You know, so but I want to jump into that. And how many deals full cycle, would you say, an average IRR, levered IRR of 36 percent over?

Julian Vogel : Sixteen. Sixteen deals.

Whitney Sewell: Congratulations. Thank you. That's a great track record, right? Thank you. I love that. But so you determine fund strategies and oversee the capital raise debt. I'm sourcing the debt equity. That's that's a lot of the deal. I mean, you are you're doing a lot to make the make the deal happen, right? Get it to the closing table. And but let's let's dive in on the on your superpower. And I'm sure we're going to talk about a number of other things, most likely, but know, structuring this capital, you know, why don't you give us a high level, like, what does that mean exactly? Maybe for certain listeners who may not have syndicated a deal yet, many, most of them probably have or have invested passively in enough deals, they know what you're talking about. But just in case, give us a high level, what are you talking about? What does that encompass exactly? And let's jump in.

Julian Vogel : Sure. So Before we talk about structuring capital, I have to talk about the actual deal. So, because typically the capital is really just to facilitate the deal and what the deal needs. So, you can have a deal that is mismanaged and 60 or 70% occupied, but in a great market, you're not going to put long-term financing on it, right? So, as far as structuring the capital, I'm starting with the debt, right? Because the debt is the largest percentage of the stack, right? Even low leverage is 50%. high leverage is 75, 80, right? So that's a huge part of the stack, right? You got to talk about that. And depending on the debt really can make or break the deal. So if I have, like I was just saying, if I have a deal that's sort of disheveled and needs to be set back on course and needs renovation dollars spent and is going to be a quick hold, I'm not going to put perm financing or long-term debt on it. I'm going to put bridge financing, one to three-year term, maybe with two one-year extension options. And those pieces of debt are usually variable rates, sometimes fixed, meaning there's a floating rate interest rate. And typically the leverage is higher. It's 70 to 75% of the cost. Or if I have a deal that's already stabilized, it's 90% plus occupied. and is a high cap rate deal, meaning it has strong cashflow going in, I'm probably going to put five to 10 year fixed rate debt on it with modest leverage, something like 65, maybe 60 to 70% loan to value or loan to purchase. Okay. So now I have the debt set. I'm now going to figure out what sort of equity do I need to fill in the rest of the stack. Do I need pref equity? Do I need LP equity? Typical LP equity, traditional LP equity. So pref equity is a lot of times people look at it as just additional leverage because it's equity.

Whitney Sewell: So I guess I want you to even break that down a little more, even layman's terms. Like you say, pref equity, a lot of people are not going to or a few may not have a clue what you're talking about. And so what does that mean just in layman terms? And then we'll move on.

Julian Vogel : Sure. So preferred equity is a piece of equity. It's not debt and it's typically 50% of the equity requirement. Um, and it's a position that has limited or capped upside. So it gets first dibs on the available cashflow to a certain priority return or current pay. So let's say 6 to 7%. So 6 to 7%, the first cashflow off the property after the debt is paid goes towards paying this preferred equity partner. Um, and then after that, you know, seven to 8% preferred return is met. The rest of the cash flows goes to the GP equity or the rest of the equity. Um, and then on sale, this pref equity piece has a limited upside. So it got its current pay throughout the ownership period. And then on sale, it gets its capital back. plus a little bit of an accrual. Let's say if it was getting 8% during the ownership period, maybe it's got a 4% accruing throughout the ownership period that it gets in the back end, maybe 5%. But it's capped. And in that way, it's similar to debt. And it's also similar to debt in that it gets priority of the cash flow. The alternative to that is LP equity. which is, Hey, I'm the GP, you're the LP. I'm the general partner. I'm running the deal. You're the LP, you're the passive partner who's bringing in the lion's share of the equity. Um, you're going to bring 80% of the equity. I'm going to bring 20% and we're going to split the cashflow available from the property based on our percentage ownerships in the deal. So I'm going to get 20% of the available cashflow. You're going to get 80%. Uh, and then on sale, right, that's where, um, you know, the interesting stuff happens between the GPLP, um, through what's called a waterfall structure. Um, so it really depends to answer your question, how we're structuring. It really depends on the strategy of that deal, what that deal needs and what I'm looking for out of that deal. Is it a high risk value add heavy lift deal? Okay. I'm like I said, I'm putting short term debt on it. Maybe I'm even putting pref equity on it. Is it a coupon clipper? Is it just a stabilized deal that's throwing off cash? I'm going to put on perm financing. I'm probably going to use LP equity, the traditional LP equity that I just described to you. So first you have to understand the deal, what the strategy is, and then you source and structure the capital around that.

Whitney Sewell: Yeah, I love this. Just talking through this, I think often, you know, especially newer passive investors, they're confused when you start talking about the capital stack and what that entails. And ultimately, they want to know where they're at in that, right? What does this mean for me, the passive investor or limited partner? And I've seen, you know, we all put these diagrams, I think, in our marketing now, you know, like kind of showing that capital stack, right? and showing where the debt lives and where the LPs are, right? And then where the GPs live, you know, in this stack. And I love, you know, how you talk through just the typical, say, percentages of how much is there, you know, in a deal, you know, of each of those. And no doubt the debt can make or break a deal. I think, you know, so many, all of us are feeling that at the moment, right? You know, as we're looking at some of your projects now that we can't make work because of the debt often. But what are some creative structures that you've seen, Julian, or that you all have come up with to make deals work? Or how have you maybe moved that capital stack in ways that are different than the norm? Often we see that, say, 50 60% debt, you know, or more, right, you know, and then, you know, and then obviously, the LP, the prep equity and the, you know, the GP on top of that, in those kind of percentages, roughly, but any, any different ways that you all have come up with that. So you know what, we did this thing this time, and we're able to get a deal done because we changed it around like this.

Julian Vogel : Yeah, good question. So I'll, I'll answer based off what we've been doing recently. Um, so like you mentioned Whitney with the debt being a struggle these days, um, really the cheapest financing available is probably agency debt, right? From Freddie Mac or Fannie Mae, uh, government, um, agency financing. And that financing ranges from, you know, 55 to 65% on purchase. And typically the interest rates for that debt is. these days, five and a half to 6%, right? It depends on where the property is and what the cashflow is. And it's long-term financing. It's five to 10 years, um, term fixed. So we've been using that. Um, and then to supplement the missing leverage from that debt, we have been using pref equity. Um, and there's basically two different types of pref equity. There's the pref equity that I just described before the preferred equity that just described. And then there's what's called also, uh, a participating pref equity where you have the same structure I just described, but on the backs on the, on the sale, they have a little more participation. And for that extra extra participation, they'll write a larger check out of the gate. So instead of maybe providing 45 or 40 or 50% of the equity, they'll provide 60 or 65%. And now the deal for the GP is starting to look pretty, very attractive, right? Cause it has attractive leverage. It has solid low leverage fixed rate debt, and then it has some soft participating pref equity on top of that, which only leaves us having to bring, you know, 30, 35% of the equity in a deal. And it really helps and increases and improves our forecasted returns to the GP. Um, so that's what we've been doing. We've done that, uh, on two deals recently. Um, The tough part on that structure, there's a lot of pros, but there's also the con. The con of that structure is that when we approach GP equity or co-GP equity partners to come in alongside Colony Hills on top of that pref equity that I just described, that last 35 to 30% of the equity, they look at the deal and they say, hey, great market, great sponsorship, returns look very nice, but I don't want to be behind preferred equity. Um, I want to be pro rata. I want to be like more of a typical GPLP equity position, which by the way, Whitney, I'd like to describe at some point, I think it will be helpful to, uh, to the listeners. But, um, basically that's the, that's the resistance. They say, Hey, I don't want to be behind this, this structure. So at colony, what do we have to do? Um, well, we basically make our carried interest or our take of the upside, very modest. Um, because we're asking investors to come alongside us behind a preferred position. And so when they look at that modest take that we're, we're the colony has, and they're really in a position where they're pro rata alongside us, where they're, um, even Steven with us, right in the GP, uh, they, they soften up to that structure. And then they really get on board with the deal and the forecasted returns, right? Because the term risk adjusted returns means. I have to get a higher return if there's more risk, and I'm satisfied with a lower return if there's less risk. If I'm asking a Code GP to come in and do a deal with me on top of pref, they're going to perceive that as high risk they want and need high reward. So we structure that, and that's the way that we've been structuring it, and it's worked.

Whitney Sewell: Okay, so that's interesting. And so ultimately, they're just aligning more with the GP

Julian Vogel : Yeah. Yeah. And their forecasted returns are, you know, 20 to 25 percent net IRR, you know, with some cash flow also with some yield. So we'll have usually an average yield of somewhere between 6 to 8 percent. So it's good. Good deal. Good, good structuring.

Whitney Sewell: Yeah. Is that say lessening, say, maybe the pref that they would typically get early in the deal?

Julian Vogel : Um, is it lessening the prep though?

Whitney Sewell: Well, just like lessening the cashflow to them early in the deal for a bigger back.

Julian Vogel : It is, it is. That's a great, great question. Yes, it is. Um, we've occasionally funded some distribution reserves to supplement that what they're missing in the front end. Um, some investors say, Hey, I'm what they like to call drinking my own blood, right? I'm putting my money in and then just getting it back. So, It depends on on our investor base, some don't care, and they still want to see that yield in the first couple of years. As the property catches up and goes through its value add strategy and throws off more organic cash flow.

Whitney Sewell: Yeah. What are you all? What's it look like on the on the debt front for you all say right now? You mentioned, you know, as we briefly mentioned that it's harder right now to find, you know, or to make deals work because of the debt right now. Are you all making deals work right now? And what kind of debt, you know, I mean, outside of maybe what we've already talked about?

Julian Vogel : So really only agency, we've continued to explore some, you know, bridge financing options, but they're never Recently, they have not been compelling enough for us. And we also, in 2021, we had five deals. We did, and we put bridge financing on, right? Floating rate variable debt on. And they're great looking deals at the time, right? But thankfully we bought rate caps, right? And we manufactured a ceiling for that floating rate debt. But, you know, as everyone experienced April 2022, that was the first rate hike that I can remember. And then swiftly we hit that ceiling of our rate cap on those deals and the interest rate, you know, along with insurance and taxes sort of just strangled the cashflow. So we learned our lesson and now we're just doing agency, you know, debt, fixed rate, low leverage. And then also the other thing we're looking for on the acquisition side, is a term called neutral leverage. So what that means is that our going in cap rate needs to be based on our purchase price or our offer on the deal. Our cap rate needs to be at the amount we're borrowing or higher. So if we can borrow at 5.5%, we want to see that our going in cap rate is also 5.5%. we'd prefer it to be even higher, right? If we can borrow at five and a half percent, we want our cap rate to be five and three quarters to 6%, right? Um, cause a lot of listeners maybe don't know what cap rate is. It's a simple equation. It's just the NOI divided by the purchase price. It shows you what your yield is for this property. And so if you compare that to your cost of capital, your, your interest rate gives you a good sense of like how healthy is this property going to be, um, based on my financing, based on my, my, uh, interest rate,

Whitney Sewell: Yeah, no, I appreciate you mentioning that. Even, no doubt, I think many, including us, have learned a lot from the deals purchased in 2021, right? You know, during that time frame. Any, any thing you all are doing specific there to, to help those deals to perform, even though they may have, you know, you said it may be a limited cash flow or expected cash flow.

Julian Vogel : We've had to feed some of those deals cash to cover shortfalls because they're value-add deals. Thankfully, we bought those deals though in strong markets where the average median incomes are high and industry is strong and people want to live there. One of the markets where we own a few deals where we're experiencing that is in Houston. So the expense side of the equation is, like I said, uncontrollable expenses, tax, debt, and insurance clobbering the cash flow. But on the income side of things, thankfully, there's demand. And so we're outperforming our target premiums for rental income because we bought in those strong markets. So now we're just kind of seeing through the storm. And we're just keeping our plan going. We're increasing occupancy. We're increasing rent. And then hopefully, the idea is that the income becomes positive, takes care of those shortfalls. And then sometime between now and the next five years, hopefully interest rates come down as inflation is put at bay. and then hopefully cap rates follow and values increase, and then we'll be in a position to sell those assets.

Ted Rose: My name's Ted Rose, founder of Rose Financial Solutions. Started my career at Pricewaterhouse in the audit world, so that's where I cut my teeth. Then became the controller of a publicly traded biotech firm where I really learned all the operational accounting and finance types of activities. And then ultimately I brought that together, the public and private aspects of accounting that I loved, into Rose Financial. And back in 1994, we were founded, we coined the term accounting outsourcing in 1995, and we really have evolved that business model into what we call finance as a service, where we bring the people, the process, the technology, the organization, and the data that companies need to manage their back offices.

Whitney Sewell: That's awesome, Ted. I, yeah, we, it's been a, you know, I think anybody that gets in business or like you start, a lot of people get in real estate specifically and they don't have a business background. Right. And they really struggle on what you called the, you know, the back office stuff. Right. That's very important. Right. And it's most often maybe doesn't get done, you know, until they figure out, oh man, this is a big problem. Right. And then they, they have to find somebody that's an expert, uh, You know, elaborate on maybe some of the skills required to manage that back office and what that looks like.

Ted Rose: Well, I mean, it's really, it's a broad range of accounting, tax and finance skills. And nowadays it's a lot of technology skills are embedded into that. And then, you know, out of that technology, the integration of that technology really creates a lot of data. and the ability to really understand and mine that data as well. And so the skill sets are becoming broader and broader. And that's really where the concept of finance as a service has really started to catch on. And I could go into a presentation about that and just give an update of that.

Whitney Sewell: Yeah, let's do that. Yeah, Ted's gonna share his screen. So if you're listening, no, you can see this on YouTube, but he's gonna try to talk through it in a way to that you can, you know, you'll understand, even if you're just listening, because it's a, it's important, right, as you're operating a business that you understand a few of these things, or all of it, really.

Ted Rose: And I think, you know, I've been been doing this now for 28, almost 29 years. And I enjoy working with entrepreneurs in a wide range of industries, including real estate, and really helping them focus on their business and what they know and love, and really just helping take the lack of clarity out of the financial aspect of running the business. Ultimately, this industry, finance as a service, is really designed to help entrepreneurs do that and help them to really future-proof their back office. So what's really happening today is there's more scrutiny that's happening in the marketplace. There's a need for more and better data to really understand your business. And then ultimately, there's more accountability out there, which is, I think, it's a good thing, but it just creates that additional platform that you have to get over. And all the changes in technology that are happening across the board, whether it's in your specific industry or in the finance function, all of these technologies are creating additional disruptions to companies' business models. but also to the ability for them to manage their back offices. So there's things like OCR, there's reporting automation, there's RPA, chatbots, AI, ERPs, all of these changes that have to make the decision. Do they want to borrow? and buy or do they want to build and maintain? And so that's part of the whole idea of finance as a service is you can borrow and buy what you need, but you don't have to build and maintain that whole structure over time. And part of what happens in a business as it grows and scales, it starts off as an idea with an entrepreneur who's working to satisfy the needs of a couple of customers. And then as they start to grow, something's going to happen within the organization that's going to cause them to be disrupted. We're not able to track our receivables the way we want to. We're not able to bill on time. We're not able to understand the financial condition of the business. That disruption occurs. And then ultimately, you need to manage your way through that disruption in order to get to the other side and get back onto the growth curve. And unfortunately, a lot of organizations, as they're going back up that growth curve, they're unable to sustain the level of growth as a result of the disruption not being fully addressed in their approach. And unfortunately, as businesses continue to grow and scale, These disruptions continue to happen. These disruptions can be internal disruptions that are things that are happening within your organization, or they could be external. Right now, in the real estate market, we're dealing with rising interest rates. That's an external disruption that's impacting your business, so you have to be able to adapt and deal with that additional pressure and scrutiny.

Whitney Sewell: It says there the number of disruptions increases as the company grows. Ted, I always expected it to go the other way, right?

Ted Rose: No, it keeps on going up and that's all part of it. As you keep on bifurcating the organization and growing inside, it just creates more and more havoc. What we've identified in FAS and really coined as part of the definition of FAS is really helping to manage the five pillars of finance transformation, and that includes the people, the process, the technology, and organization, and the data. All of these pieces are connected as you change one, you have to change all the rest. If you change one and don't change the rest, then you end up, again, creating additional disruptions downstream. To get to your question about what skills are required to really manage the back office of an organization, first, you need that leader, that CFO, who leads the charge, who sees the future, but also makes sure that they're tracking information accurately, going backwards and connecting that business model to the numbers. So an entrepreneur has that vision of what they're trying to create, and the CFO is the one that is supposed to take that vision and turn it into a story about numbers, about where they are now and where they expect to go and how is that actually going to occur. And so in order for a CFO to be effective, they have to have a team to support them underneath. That team includes the P2P, which is like the payables and payments process. How do you pay your bills? It also includes payroll. You have to pay your employees and manage all the HR information around that. You have your project controls and billing. So if you're managing projects and understanding how the profitability of your projects are proceeding, and you also need to understand how to bill and collect. The treasury managing cash, which is really a critical attribute nowadays, especially And then accounting, being able to turn all of those activities, financial activities, into numbers that make sense, that show your profitability. Are you improving your margins? Are your margins decreasing? That's an important aspect of what you get out of that accounting activity. And then ultimately, that needs to be supported with your network support, IT support, your system of engagement, as we come to call it. and then your compliance. So that could be tax compliance, or if you're in the government space, DCAA types of compliance.

Whitney Sewell: It seems like to me, and you correct me here if I'm wrong, almost no matter how big your organization is, you're having to have these things done, right? You're having to get these things done. I mean, all those things you just listed, from payroll to compliance or accounting, You may not be able to, say, afford that CFO position yet, but all that's still having to be done by somebody, right?

Ted Rose: Yeah, and this is really where I think smaller organizations get themselves in a little bit of trouble is that they misclassify who it is that they're hiring. So they may call their bookkeeper a controller, and then that bookkeeper is really just processing transactions. They're not putting it into a meaningful format. Or they call their controller a CFO, and then they're trying to rely on guidance from someone who is really just focused on getting the books closed and giving you good you know, information about the past. And so with the finance as a service, you really get access to all of those different skill sets that are required, including tax. And, you know, a lot of companies, I think, you know, think of tax as something that happens outside their organization, you know, in a vacuum at their CPA's office. And the ability to understand that the tax implications of transactions is an important attribute of running a growing business. So I brought up the term system of engagement, and the system of engagement is really different than the system of record. So most companies have a system of record, which is their accounting software. That could be QuickBooks or Costpoint for a government contractor. And that's what gets audited by the financial statement audit or the IRS or any type of audit agency. But the system of engagement is how do you interact with that financial data and information in order to get it processed in a cost-effective and timely and accurate manner. The other key softwares that companies have to interact with are payroll, their time tracking systems, and other types of FP&A systems. And then the ability to connect all of those activities occurring in these disparate systems is really the basis of the system of engagement. And so the types of activities that occur in a system of engagement could include include visibility into your projects, the deliverables that are occurring in those projects, transaction processing, like your payables and payments, your bills and cash receipts coming in, approvals of those transactions, support tickets requesting information that you need within your financial system from the people who are supporting you. the client information requests that are required from you in order to keep the financial engine running. And then, of course, the ability to have good reviews of the work being performed and then, you know, manage all that communication that's going back and forth. And I think the communication piece is where a lot of financial organizations get tripped up because there's a lot of email and chats that occur where, you know, that data needs to be really captured and understood and resolved in a meaningful way. And again, the importance of better information and outcomes is leveraging a connected system for better visibility, gives you faster access to that data, allows you to harness and transform that data into information, allows you to have faster feedback loops when things are going well or things are not going well. And then it really empowers higher level guidance and better decision making so that business owners can really achieve financial confidence. And that's really what our goal is.

Whitney Sewell: Financial confidence. We need some more of that.

Ted Rose: Yes, absolutely, especially in today's market. And so what do you look for in a fast solution is really an outcomes-based agreement for measurable results, intelligent workflows for streamlining all of those processes and activities that we were talking about, and then really supporting a company through the full life cycle. When you implement a system, like a system of engagement, you want it to be something that you can stick with throughout the full lifecycle of your organization. It's not something you want to swap in and out on a routine basis. And so FAST is a cost-effective and scalable solution for financial success because it promotes results-oriented solutions and encourages businesses to thrive amidst disruptions and complexity and empowers businesses to succeed with financial confidence. And again, it provides that full lifecycle support from startup to exit, whether you're on QuickBooks online or have moved into a full ERP. It allows for the hybrid ERP experience for some legacy type systems. And then again, provides that stable system of engagement, minimizing future disruptions.

Whitney Sewell: Yeah, no, Ted, that's that's great. I obviously, you know, we we've been working through this recently, too, as far as what this looks like for LifeBridge and and whatnot. But I, you know, I feel like we should have we've had different services that's helped us in a few of those ways, like you mentioned on there earlier. But I feel like we would have been further ahead now if we'd have had you know, expertise, you know, like you on the team years ago. Right. You know, and really thought through the importance of that. I think we are guilty of exactly what you were saying earlier, as far as, you know, you call your control or your would you say a bookkeeper, your controller and your controller or CFO. And that's not you know, you may have the wrong roles, right, for that individual. But then again, they may not really be CFO

Ted Rose: Candidate yet, right, you know and you have them kind of in that seat when maybe they are controlled or their bookkeeper or you know But I don't know any thoughts on that Yeah, I think we see we see that routinely and you know, even if you have let's just say you have a you have a solid bookkeeper you know, they may not have the skills of the controller and you know, regardless of what you call them and And in a properly positioned fast solution, you should be able to fill in the gaps that you have within your system. It might be, hey, I need a part-time CFO support. I need someone who can close the books. But we're covered on this transaction processing. We're covered on this part of our processing activities. And I think there's A lot of flexibility now with the types of technologies out there where it doesn't have to be an all or nothing type of solution.

Whitney Sewell: Yeah, yeah, for sure. Any more in your presentation? Do you have some more here or keep going?

Ted Rose: No, no, I think that's it for the presentation portion of it.

Whitney Sewell: Yeah, no, that's helpful. And even that, I just think even the one slide that lays out all the things that need to be done, you know, it's like, you know, I need some help, right, to be able to do those things. And I think it's a, it's a skill set I've learned that I don't have, right. And it's but it's not something that, that like, energizes me accounting, right. But The importance of having it done right does energize me. Does that make sense? It's like, I don't want to be in the books every day and looking at every transaction. However, We need somebody that is doing that and does care about that to a very detailed degree. And that's where somebody like Ted and his group can help in a massive way. When have you seen or what are your thoughts on how big an organization typically is before they do hire? say an internal CFO, right? You know, when does that typically happen? When do you see that, you know, versus a third party, you know, like you all, or maybe, you know, they will stay with somebody like you as their say, fractional CFO long term.

Ted Rose: I think, you know, each organization is a little bit different. Each industry is a little bit different. I think there's, you know, the key, it really comes down to, like, some key attributes. And that is, if you need a CFO to go out and raise, you know, raise capital, you need a CFO to, you know, you expect that to be a full-time effort. based upon routine capital raises that you need to be involved with. I think that's really where more of a dedicated CFO makes a lot of sense. If the organization, if the focus is the business model itself is going to be fairly stable, But it's going to be growing. Really what it comes down to is how are we going to make sure that our financial systems are producing the information that we need. I think a fast solution can be adequate for companies as they grow. you know, well past 100 million in revenue. So, you know, one example of that is, you know, we have a client that started with us about five to six years ago, and it was, you know, two or three sales people who said, listen, we're going to start a company we know how to sell, but we know we need a solid back office. And, you know, we've seen companies get sideways when they don't have that back office. So we want to make sure it's done right from day one. And so they came on board five, six years ago, and they just went out and started selling. And they didn't have to worry about having a back office. And we kept on adapting to their growth. And this year, they're expected to do about $250 million in revenue. And so while that's not the normal story of a client of ours, it's certainly an opportunity for the right people who are able to take guidance and understand the importance of having that financial discipline and how that complements their skill sets on the sales and business development side.

Whitney Sewell: You know, Ted, I get questions often, too, about I love your thoughts on this. As far as, you know, is my, you know, is my CPA, my tax advisor as well, right? And oftentimes, you know, for so many people, it's the same, right? Do you see that as the same? Or, you know, how many people should have one of both? You know, or even if we have, say, a fractional CFO, you know, tax advisors as well from a third party, how do you see that working best?

Ted Rose: So I think that is another important skill set of whoever the financial leader of the organization is, is someone who can manage the tax strategy, which is different than create the tax strategy. And so the important aspect is there does need to be someone who is a tax professional who understands what the outcome is going to look like you know, given a certain set of inputs. And they need to, you know, they need to be well-versed in, you know, in building tax strategies. And each industry is a little bit different, and sometimes there are some specialties you need to bring in. You know, that's what CPAs and, you know, tax accounts are there for, and even in some cases, tax attorneys. So, you know when to bring in the right professional i think is an important attribute of a CFO is knowing what you know and knowing what you don't know but being able to like hold those complex ideas and then make sure implementation you throughout the year is you know that's a a financial discipline that's part of what an organization needs to have. But absolutely having a solid tax professional, sometimes that does need to be an expert outside of the fast solution. And again, we work with all sorts of CPA firms to do the audits of our clients and also to do the tax work as well.

Whitney Sewell: Yeah, speak to that. You know, when do we need an audit? And, you know, who's the candidate for an audit? Or is it everybody? And I mean, obviously, we're in the commercial real estate business specifically, but like, should we be getting an audit done by somebody? And what does that mean exactly?

Ted Rose: So, you know, again, I think there's a couple different avenues this comes into play. So the first is going to be, you know, if your bank requires it for the debt that's coming in. And so that would be the requirement. What we have is we've built relationships with lots of banks. So we know we have those relationships. They know our work. They understand the credibility that our financials bring to the table. So sometimes that allows an organization to defer the requirement of an audit from their bank. But at some point, the bank is, when you get to a certain size line of credit or loan, they're going to want to have that audit. If it is real estate solely, then usually the appraisal is going to help defer the requirement of the audit. But if you start to get into going out for institutional funds, high net worth or family offices, sometimes that audit is going to create, be a requirement and or create that additional credibility that you'll need. And then again, working with an organization that a full fast solution, they're going to have all the tools and skills necessary to ensure that things are being managed to so that they are auditable. And then ultimately, as you're going out and trying to bring in investors, even if they are high net worth individuals that might not have an audit requirement, having that independence on the back office, I think, creates additional financial credibility, which I think ultimately reduces the cost of capital over time.

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.