Not all deals or sponsors are built the same. If you’re looking to maximize the benefits and returns of private alternative investments, doing due diligence yourself is crucial. This is the perfect primer on how to vet deals and give yourself the best chance at making good returns.
In today’s conversation, Pasha Esfandiary and Cody Littlewood chat with Hans Box, co-founder of real estate investment and private equity firm, Box Wilson Equity. Hans has deep expertise in passive and active investing. Learn what to look for when vetting deals and finding the value add component in every deal.
Here are some power takeaways from today’s conversation:
Episode Highlights:
[13:24] What to Look For When Vetting a Deal
The first step to vetting a deal is to vet your sponsor. Look into who they are and what their track record is. They have to be 100% transparent. You also have to ask questions on things that you need more clarity on. How they respond is also very critical. Are they quick to respond? Are their answers clear or do they beat around the bush? Play with a sponsor that's in it for the long game.
You also don't want to invest in a deal that they're not investing their own money in because that tells you that either they're not successful enough to have enough money to invest in their own deal, or they've got a better place to put their money than their own deal.
[28:06] What to Look for in a Value-Add
When you're looking for value-add, there needs to be some way to increase income from the current, or historical operating P&L (profit and loss) of the property, to now. Typically, the way to increase income is by raising the rent. Another way is to buy properties that are already under market that you don’t even have to do upgrades.
[38:15] The Importance of Trust in Your Operators
People can make their numbers look really good. This is why you have to ask questions about their entry cap rate and exit cap rate, or how they're financing. You have to see that they have a plan and they're being conservative.
[55:18] Other Things to Look For in Sponsors
Look for longer-term strategy players that are there for the long haul. A lot of sponsors make a ton of money on compressing cap rates or flipping properties without doing much. If you're investing in a long-duration asset, you also have to have a long-duration strategy. Finally, if you see a deal and get really excited about it, and then you see some red flags, just let it go. There will always be deals out there, so be patient.
Resources Mentioned:
Email: hbox@boxwilson.com
