// HOW TO FIND AN "EDGE" WHILE KEEPING YOUR BUSINESS MODEL SIMPLE //
A lot of people watch Billions or Suits and get conned into thinking they need to come up with some incredibly clever business strategy to succeed
Couldn't be farther from the truth
My mentor started off...
...investing in office buildings. Purely by happenstance he ended up buying a medical office building
During this acquisition and subsequent asset management process, he realized there was an under-served market
Many doctors were dissatisfied with their current real estate situation. They were tired of landlords and wanted to own their buildings.
However, they were severely capital-constrained (many of them still with medical school debt) and knew next to nothing about real estate
Mentor proposed that they form a joint venture and buy the buildings together. The docs would own a large portion of the building and be the LPs while he would own a small portion and be the GP. They would stay as tenants in the building
A simple solution that benefited everyone
The doctors got to be their own landlords and reap the reward of any potential appreciation
My mentor got to acquire quality medical buildings for a decent basis (lot of negotiating leverage if the current tenant is buying with you) with high caliber tenants who will never leave
Does this strategy allow you to niche down? Absolutely
Is this strategy complex? Not at all
Does this give you an "edge" over the market that will lead to outsized returns? You'd better believe it (aside from the good acquisition basis, you know building vacancy will be 0%)
So, in addition to the obvious, there are a few takeaways I want you to walk away with
As strange as it sounds, typically you don't find niches. Niches find you
A lot of "edges" in RE aren't even "RE" related. They have more to do with creative deal structure and people skills
Since I’ve started this twitter account, blog and email list, I’ve received tons of requests on a weekly basis to assist you guys with everything ranging from buying your first property to starting a career. Previously I’ve declined all phone call...
requests since they’re incredibly time-intensive, but have answered (nearly) all serious DMs. Even the DMs, however, are taking up a large portion of my time and I’ve spent a while thinking of a better way to handle it. I decided on a structure that answers most of the questions
you all have been asking me on a daily basis. Starting this Sunday (the 22nd), I’ll be offering a monthly course that includes a phone call with me that addresses the most common questions I've received as well as a tons of other real estate info (full breakout is below)
Since we focus on value add, the entry cap doesn’t matter at all, as long as we can service our debt
We typically need to get to a 6.5%+ stabilized for a deal to pencil. How quickly we get there plays a role as well (quicker the better for IRR)
4. Unlevered vs levered returns:
This is basically just a gut check to make sure that our leverage isn’t out of control
5. Equity Multiple:
We only check this to make sure that they’ll be enough promote for the deal to be worth our time (no point in 20% IRR and 1.2x EM)
6. Cash-on-cash:
We essentially ignore this metric and expect cashflow to be very low during the hold period (unless we’re working with a specific LP who needs cashflow). Often even have to make (planned) capital calls and have earn-outs built into debt covenants to inject