From Scientist To Real Estate Investor – George Roberts

Applying your acquired skills from your previous profession can be a valuable asset in real estate. When science and business get mixed, you will create a whole new concoction of success. In this episode, George Roberts, the host of The Foundery, shares his insights on how the data scientist navigates into real estate as he repurposes his skills. He also uses his analytical firepower to dive into macroeconomics and share his take on the cyclical nature of real estate. George also shares what he sees with the market in the future and his advice for real estate investors. Join Ava, August, and George Roberts and gaze into the analytical firepower the data scientist possessed in today’s conversation. Tune in now so you won’t miss this episode.

If you are interested in learning more about passively investing in multifamily & Build-to-Rent properties, click here to schedule a call with the CPI Capital Team or contact us at info@cpicapital.ca. If you like to Co-Syndicate and close on larger deal as a General Partner, click here. You can read more about CPI Capital at https://www.cpicapital.ca/.

Get in touch with George Roberts

Robert’s Capital: https://robertscapitalenterprises.com/

LinkedIn: https://www.linkedin.com/in/georgerobertsiii/

The Foundery: https://www.youtube.com/playlist?list=PL-ExxDHlDx0F3z52XBAcLkqkeUCwTYteg

#avabenesocky #augustbiniaz #cpicapital

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Watch the episode here

 

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Important Links

• George Roberts
• Roberts Capital Enterprises
• The Foundery – Where Leaders are Forged Daily!
• George@RobertsCapitalEnterprises.com
• LinkedIn – George Roberts III, PhD
• YouTube – George Roberts III, PhD
• City-Data.com
• How to Win Friends & Influence People
• The 7 Habits of Highly Effective People
• Think and Grow Rich

 

About George Roberts

Before devoting himself to commercial real estate full-time, George worked as an award-winning data scientist and bioscientist with over 700 citations in the fields of genomics, microbiology, and physiology. Deciding that he didn’t look handsome in a lab coat, he turned his attention to the dashing world of entrepreneurship. George repurposed his analytical firepower to make housing economics, macroeconomics, and finance fun and exciting as “The Data Scientist of Real Estate” on his YouTube channel. George is also a Principal at Roberts Capital Enterprises which sponsors value-add multifamily opportunities in the Southeast and Midwest for qualified passive investors. In addition to his over 300 units as an active multifamily investor, he is also an avid passive investor. His passive investments include 547 multifamily units as well as a series of carwashes, early-stage companies, and a drug rehab facility. When he is not running one of his active investments, you can find George hosting “The Foundery – Where Leaders are Forged Daily!”, a podcast devoted to the role that entrepreneurship, leadership, and mindset play in success in the commercial real estate space. He also hosts the weekly “CRE Network at Noon Eastern” Zoom meetup for investors and other commercial real estate players every Wednesday at noon Eastern.

You can reach out to George at george@horizonmultifamily.com or through LinkedIn to learn more about passive investing, or to find more information about his online or in-person events. Fun facts George enjoys public speaking and is an award-winning Toastmaster at the Club and Area level. He has nine scientific research publications to his credit. He has an Erdős number of 5 which is a sort of “Degrees of Kevin Bacon” for scientists. He is a recipient of the 2019 Transforming Data With Intelligence award. When he is not attending to one of his business entities in the Midwest, he can be found sailing Lake Erie with his wife Mary and his two sons.

 

From Scientist To Real Estate Investor – George Roberts

Welcome back to the show. We have another great show for you. We’re going to be talking all about data when it comes to real estate.

A lot of times, we have guests on our show. We talk about their journey and how they got involved in real estate. What really intrigues us, and you can tune in to our show, is you can see a lot of people have come from different sectors and different spaces. They were academics, physicians, and scientists. In our case, we have a scientist with us who comes from this different space. The fascinating question is always, what was it about real estate that interested them?

Our space, the real estate private equity space, this idea of raising money from investors, buying real estate, and sharing the profits is much more intricate than your conventional buy a property and rent it out. It brings in a certain type of sophisticated mind to get involved in this world. That’s my thesis about it. That’s my idea. Should we get our show going? Is there anything you want to quickly chat about, like anything happening in the world?

We’re in Florida. We set up our personal life and our headquarters here in Naples, Florida. We’re loving it. It’s beautiful. We’re headed back to Vancouver, Canada for the month of March 2024, so it will be nice to get some skiing in. You get the sun and then you get the ski. That’s on a personal level.

We’re looking at deals. Deals are still not truly penciling out yet. We’ll get into all that fun stuff on the show as well, a little bit about market predictions. We can have a nice dialogue. Go ahead and introduce our guest.

We’re joined by George Roberts. George Roberts is a data scientist and a bioscientist with over 700 citations in genomics, microbiology, and physiology. George is also a Principal at Roberts Capital Enterprises, which sponsors value-added multifamily opportunities in the Southwest and Midwest. He hosts The Foundery – Where Leaders are Forged Daily!, a podcast devoted to the role that entrepreneurship, leadership, and mindset play in success in the commercial real estate space.

 

 

Welcome to the show, George. We’re happy to have you here.

Welcome, George.

Thank you. It’s a pleasure to be here.

I’m going to be a guest on George’s podcast. I’m looking forward to that and in anticipation.

Let’s get things started by please tell us more about your background and how you got your start in real estate.

I did come from tech. I had a long and happy career there but realized that it’s much more exciting to be the captain of your own ship. I had the opportunity to become a landlord in the depths of the Great Recession. It didn’t make sense to sell a family home. It made a whole lot of sense to move up and buy a new family home, so what to do? I became a landlord and realized that the cashflow was great.

My sister came to me in 2016 and said, “Let’s start a construction company.” It sounded like fun. That’s what I do. When I find a new adventure, I jump into it maybe without thinking a whole lot. Maybe that describes a lot of entrepreneurs. They’re like, “That sounds exciting. Let’s do it.” From there, I realized, “I want to have my own gig. I know how to be a landlord, so why not be a landlord at scale? Let’s go buy apartments now.” Around 2020, I did my first deal. I’m in six deals actively and also invest passively. I love the whole private equity space.

 

 

In that switch from being a single-family real estate investor and development to multifamily syndication particularly, did you join a mentorship, a coaching program, or a mastermind?

No. I formed my own mastermind with people that I thought were at or above my level. We got together, discussed, and found deals, and it worked. We started with smaller deals. I know a lot of people go into a coaching program. They push you to go for $100,000 and above. That’s great because your coach or your leader of the program can sign on that loan and provide the credibility to do that. I built it up maybe a little slower, but it was very much rewarding. A lot of that money that I might’ve spent on a coaching program got to go into deals.

We always talk about how when we started, if we would’ve gone back, the advice we give to people is getting that mentorship. It’s difficult because there are so many moving parts when you get into real estate. You want to have somebody guide you and lead the way.

In retrospect, we would’ve probably joined a mentorship or a coaching program because it’s a fast lane in learning having a coach. We learned it the hard way, but that’s the best way to learn, blood, sweat, and tears on the job.

 

 

Good for you, George, because you said your money went right into deals. I’m sure that you also learned doing that as well. It all worked out. Next question., George. What skills were you able to bring to real estate investing from your academic and science background?

How To Repurpose Myself

First of all, it wasn’t as easy as you might think. I had to figure out how to repurpose myself. It felt like my last career was so different. I was an award-winning data scientist. I had a lot of fun. I was in FinTech. I know you mentioned outside of the show that this is a field that attracts a lot of people who are more savvy. This is where finance and real estate come together. In the syndication space, we’re buying larger properties. It’s a very sophisticated space to be in.

Real estate is a very sophisticated space to be in. Click To Tweet

I did spend a lot of time figuring out how to repurpose myself. I realized that I love talking about data. That’s something that hasn’t changed. I love teaching. That’s something that I haven’t been able to do since I’ve been in the academic space. Taking a look at that whole long career that I’ve had at first feeling like it’s completely different and then finding ways to make it fun and interesting.

A lot of people talk about data being boring. You also have some places where data is discussed in a very entertaining way, like on cable TV. You can have some really geeky discussions on a show like this. I mean that in a good way geeky. At the same time, who’s out there making it fun?

I invented a persona, The Data Scientist of Real Estate. I had somebody make a cartoon of me where I fly around like a superhero. I want to make it exciting. Why can’t we have something in the middle, something that’s substantive but still entertaining? I was eventually able to figure out how to bring the two together and have a great time doing it.

What is a data scientist? What does a data scientist do?

Data Scientist

It’s a really broad field. It’s such an exciting field and such a highly paid field. Everybody wants to be a data scientist, whether you’re an engineer and you’re handling big data and building those pipelines. You might be in data science, somebody who’s working in AI, or someone who builds models, predictive models, and statistical models. All of this is data science.

To me, at the end of the day, whether you’re building a predictive model or whether you are building the data pipeline, it all comes down to telling a story with data. That’s what’s missing. I see a lot of people, even experienced people, put out a deal and say, “17% IRR. 8% cash-on-cash,” mumbo jumbo. I have no idea whether I believe your 17% IRR at all. I don’t want to see that.

Whether you're building a predictive model or the data pipeline, it all comes down to telling a story with data. Click To Tweet

It’s 100% a prediction. Keep going.

Garbage in, garbage out. Exactly. August, that’s the way I look at it. I’m like, “Don’t tell me what your IRR is predicted to be. Show me a picture of the property. Tell me about the neighborhood. Tell me why you bought it.” Let’s take a bigger step back. What is a narrative? A narrative brings together all of the important facts. If you tell the history, it’s not everything that happened. What you do is you leave out all of the unimportant details so that you can see the linear path even though that may not be how history happens. You have to distill it.

People send you straight into the spreadsheet. They’re like, “Look at all these numbers.” It’s like, “Stop it already. Why is the seller selling? Why is this a good deal? Is this a buy-and-hold? Is this a cashflow play? Are we doing value-add? Why does it make sense? How did you come into the deal also?” I get a lot of people who are new and it’s like, “I got the best deal in the world.” I’m like, “What did you do? Did you plug in the broker’s numbers? Is that why it looks good? Why is this good?”

On your first deal, you have to ask yourself how it comes to you?” You are experienced. I understand how deals come to you, but when you’re new, I had to convince myself, “If this is such a good deal, are we having the opportunity?” We had some deal fatigue. Two deals fell through, and it was also smaller. All the properties around us had been repositioned, but they were all bigger. They were 100 or 200 units.

It made sense to me. The seller is finally ready to deal because they’re sick and tired of being jerked around. I’m getting a good price because we have a validated business plan. Everybody around us has done it. This is an area to buy in. It made sense to me. Fourteen units were big for me. I owned a single-family home, but it was small to the bigger players. That’s what I’m looking for. When somebody comes to me with a deal, I’m like, “Give me the narrative. Why does this deal make sense? Then, we’ll talk about IRR.”

It’s great that you said that. What we say here internally as CPI Capital to others and our team internally is that we’re storytellers. As general partners, we’re storytellers. It’s not the financial and the economics. It’s, “Why are we buying this deal? Where is the competitive advantage?” We’re storytellers.

We’re like, “Why do we love the market? How do we get to these numbers?” We dive deep into that as well so investors can understand it on a high level.

Tell us something else. With your data science background and using it in real estate, I’m sure, you are using it more in selecting the market. Data science could be helpful at KPIs in a certain market and growth metrics in a certain market to want to invest in. Are you using it on an asset level to concepts of what type of economics the property is producing, what type of cap rates, and what type of rent growth? How are you using this data science background in the business?

All of the above. I chart things like rent growth. I even chart my own health and my blood work. Charting things is amazing because that’s where you get to see things. People think I’m a data scientist or I have a Statistics degree so I’m so smart. They’re like, “Show me the numbers.” Forget about it. Don’t look at numbers. Plot it. Visualize your data. I visualize everything, even underwriting, for example.

A lot of people say, “You’re a data guy. You must be the underwriter.” I’m the people guy. I would prefer to go on amazing shows like yours, reach people, educate people about what I’m doing, and let them sift through the numbers and send me things that have already passed the first pass. I love underwriting and all those other things.

You really hit it in the last segment. It’s all about telling the story. It is about finding the right market. The first thing people do is send me a deal. I know they haven’t done demographic research because I’ll ask, “What are the demographics there?” and there’s nothing. Crickets. I’m like, “Let’s do a quick Google search. Are we growing here? Are we growing or are we shrinking? What does the neighborhood look like?”

You should know the name of the neighborhood. You should know what it feels like to be there at night even before you go there. Go there on Google. Go there on City-Data.com. Take a look at each of those census blocks. There’s so much you can learn. Where I start out my journey with a property or with a market is feeling the market. I want to feel what it looks like before I go there. Otherwise, I can’t go to 3,000 markets, but I can very easily see dozens or hundreds of markets through the computer. Make sure you make the most of it. What do you think you’re going to see? Is poverty 25%? What do you expect when you get there? Forget that. Cross it off the list.

George, what are the top metrics that you look for when selecting a market? For example, at CPI capital, here, we’re looking for certain growth metrics such as rent growth, population growth, income growth, and job growth. We dive into those numbers first, and then that can tell us if we’re even interested in that market. We’d love to learn a little bit about your top metrics.

We look at the diversity of the market’s employers. We make sure there are no more than 20% employers. There are a lot of different metrics. Our director of acquisitions, Paul Hopkins, has the scorecard for cities that we look at. I’m sure you and your team do similar things, right?

Absolutely. A couple of things. First of all, I look at all those things. Everybody’s looking at the same thing. To me, it’s all a matter of pulling into the integrative picture. It’s not about what’s the employment rate. It’s about what’s the diversification among employers. What’s the likelihood of employment staying at the same level?

To use an example from my favorite investor, Warren Buffett, he likes to look at the quality of earnings, not just what a company is earning. Is it steady and improving? What’s the likelihood of it being so high next year? Take Houston, for example. There was a time when Houston was completely a cyclical market. It was 100% driven by the oil industry. That’s not so much the case now. You got to bring everything into a story.

The other thing is to remember what’s not priced in the market. The knowledge that other people aren’t seeking is the knowledge that’s not priced into the market. Did you find out that there’s going to be an airport expansion or something like that? Are you going three steps behind the numbers? It’s not just looking at the employment rate, how quickly home prices or rents are increasing, occupancy, and things like that. Are you reading articles, particularly for a small town? I like smaller towns because I feel that if you go to a place where there are fewer people looking, it’s much easier to dominate the scene. It’s much easier to be able to put in a lowball offer and have it accepted. Look for that competitive advantage and information.

 

Do you use data analytics platforms like CoStar or Yardi Matrix?

I do. I love these places. I love CoStar. CoStar is great. I talk to a lot of investors and they’ll say, “We don’t have CoStar.” I’m like, “What do you mean you don’t have CoStar? Is there a lender involved in this transaction? Talk to your lender. Is there a broker involved in the transaction? Do you have a good rapport with a broker? Can you get a CoStar report from the broker?” If you don’t mind, I’d love to dive into CoStar because a lot of people get this idea that there’s a thing called a CoStar report. There are many types. You can get an underwriting report focused on that address and that will give you amazing comps.

Do you want to talk about underwriting? Everybody’s underwriting, but I see 9 times out of 10, if there’s something wrong, it’s the comps. People will say, “We’re going to get a $300 rent increase.” I’m like, “Why? Don’t show me properties that are much better. That’s what the OM does.” I always say that if you look at the OM, you’re going to get five comps at least. 3 of them are going to be far better than the subject property and 2 of them are going to be somewhat better.

Throw out the OM. You’ve got to go out and pull your own comps. You can get an underwriting report. You can also get a market report which will help you understand the rate down to the neighborhood level. It’s very valuable. What are you trying to do? What are you trying to accomplish? Don’t say, “I don’t have CoStar.” You have access to CoStar if you have deal flow.

That’s right. Another thing good about CoStar, and this leads into our next topic we want to discuss, is the market cap in the certain market that you’re purchasing in, the cap rate.

There are also predictions for the continued cap rate in that market over the years. You can cross-check that with the cap rate you’re assuming. Let’s discuss cap rates. I was watching one of your interviews that you’ve done. You were talking about the exit cap. Talk to us about the difference between a market cap, like a neighborhood market cap, and a property-level cap rate. Tell us what a cap rate is.

If you can first talk about what a cap rate is and then we can break it down.

Cap Rate Is A Mystical Thing

The cap rate is a mystical thing. What do you really have? You have the sale price, and then you have the income that the property produces. This is the number that you use to relate the two. What is it? People will give you a mathematical definition, but it’s an idea of what the market sees as the risks in the property. If you have a new investor, they like properties with a high cap rate because you get a high cash-on-cash, but that’s dangerous.

Those properties wouldn’t generate high cash-on-cash unless A) The quality of earnings is low. I don’t want to pick on anybody, but the higher you go up the economic chain, it seems like it’s a little more difficult to lose your job or it’s a little easier to repurpose your skills. If you look at people who are more working class, when those people are out and the plant shuts down, that can be very serious. That could be one reason why you have a high cap rate. You have people that are paying late or an older property.

 

I showed a property. It’s 19th century. I said, “I’m looking this up on Zillow. Is this real? Is this really in the 19th century? This has got to be 1982. Somebody transposed the digits.” You’re going to have different types of problems with an older property. You’re going to have a higher cap rate because of the likelihood of you discovering something tremendous. I say, “This is interesting, but I have no idea what goes wrong in a building built in the 19th century.”

The confusion is also a lot of people that are newer people in the space is a cap rate is also looked at as a cash-on-cash return that a property produces. You talked about risk. You look at it from a risk aspect as well. A property at a 10 cap is going to take you 10 years to pay out the property. If it’s at a 5 cap, it takes 20 years. That’s a risk. The lower the risk the property has, it’s going to lower the cap rate. It’s the same thing with regions. Lower cap rate regions have lower risk and a higher chance of appreciation.

If I could stop you right there. I want to say lower perceived risk. I know you know that, but it’s always important to keep that top of mind. It’s what the market thinks is the risk.

That’s right, and what the track record of the market has proven as far as risk. We’re originally based out of Vancouver. Commercial real estate cap rates there are between 2 and 3 caps. Since there’s so much weight put on the appreciation in the last couple of years, the market has appreciated 500%. People invest in that capital preservation in the hope of appreciation and more speculation. The cap rates are very compressed. It’s the same thing in California, New York, and Toronto.

When it comes to cap rates, let’s also talk about the metrics and the underwriting model. When we are looking at underwriting a deal and we’re making certain assumptions, one of those assumptions is when we sell this property, what cap rate we’re going to be selling it at. That will constitute the price we’re going to be able to get for the property.

Can I piggyback on something you said? It is the unlevered rate of return. I did call it a mystical thing, and there is some deep reality to what the cap rate is, but you have to understand. I really want to speak to the beginners in your audience. It is the unlevered rate of return. One of the things that impacts the value of real estate or how we value it is the lending environment. That’s one of the things that makes cap rate good because you’re taking that out of the equation. You can’t take it out of the equation because it determines our returns and the safety of what we’re doing. Overnight, that changes your returns.

You can't take the cap rate out of the equation because it determines our returns and the safety of what we're doing. Overnight, that changes your return. Click To Tweet

I feel people are a little too dependent on the cap rate. You mentioned there are many different types of cap rates. That’s true. People talk about the cap rate. What do you mean by the cap rate? Are we talking about the seller’s cap rate? Are we talking about the cap rate and the OM? That’s like the seller’s cap rate, only it probably includes about one year of work that you are supposed to do but not get paid for.

There’s the stabilization cap rate, pro forma cap rate, and exit cap rate.

We could talk about the cap rate all day. They’re all different. Is it the cap rate you’re buying at? Is it the cap rate you’re going to operate at after you have a refinance? At what rates that’s in the future? We don’t know. Is it the cap rate that you expect to sell at? What you’re hinting at is that a lot of these operators, what they’re going to do is they’re going to say, “We’re going to get into this cap rate. We’re going to get out of the same cap rate or maybe a quarter above it.” That’s dangerous.

If you take that NOI divided by the cap rate and say, “That’s what this place is worth,” a lot of things can happen in 1, 2, 3, or 5 years. The lending environment can change. Perceptions of commercial real estate could change. Neighborhoods get better, but they also get worse. If you don’t put in the work and turn it into a C plus or a B minus as you said you were going to do and you don’t execute, you’re not going to get there.

Hypersupply in certain neighborhoods will bring competition for your property and a lot of those things. That’s fascinating stuff. Let’s move on.

Fascinating and confusing stuff for a lot of people with a cap rate.

Exactly. If you’re not a little confused, there are layers and layers of complexity to this. It’s not the stuff the gurus slap on a blackboard and say, “This is it. You can value commercial real estate.”

Macroeconomics

Let’s talk about macroeconomics. I was watching your presentation with our good friend Stefan Tsvetkov. You were talking about recessions over the years. I take it that you are in the belief that real estate is cyclical. We had a guest on our show who didn’t believe real estate was cyclical, but who is an expert? Do you believe that real estate goes in these cycles? Is that fair to say?

Sure. Real estate goes in cycles. It’s not acyclical. It’s less cyclical than the stock market. It’s not as liquid. If you have to get money out, where are you going to take it first? You’re not going to go to a broker, put it on the market, and sell it at a probably bad time. You’re going to liquidate the stocks. It’s an advantage and a disadvantage.

 

On the one hand, you should have your money in different places. I’m a huge fan of diversification. You don’t have all your money in real estate or all in the stock market. You need some in cash too, maybe precious metals. I’m not going to tell people what to do with your money. I’m going to say, “Don’t put it all in one place.” Take advantage of those cycles. We’re in a really weird part of the cycle. Where are we in the cycle? We’re waiting for this recession. It’s like the Damocles. We’ve been waiting since The Great Recession. How many years is that? Are we talking sixteen years?

We’ve had three quarters in which there has been negative GDP growth and the yield curve has inverted. Your 10-year treasury relative to the 2-year treasury is inverted. People rather take a 10-year treasury over a 2-year treasury. That yield curve has inverted. That’s a telltale sign that we’re in a recession. The officials are saying we’re not in a recession because the job markets are strong and we don’t have large amounts of unemployment. That’s why they’re not calling it a recession yet. Jerome Powell was saying he’s going to need 1 million unemployment, meaning 1 million in job loss. People are like, “I thought your job was supposed to be to create jobs.”

Where’s the dual mandate when you need it?

Exactly. The job is more price stability. I am excited to hear your input on this. I believe we’re in a recession cycle. My belief is that real estate goes through this cyclical cycle, but it goes on an incline line. The real estate continuously goes up because you have inflation. The value of money reduces over the years. It makes it more difficult for people to own properties. The price of property goes up over the years, but it goes through these cycles, recession, recovery, expansion, and hypersupply. I believe we’re coming out of the recession phase of the cycle or somewhere there.

Some scholars that I’ve been listening to and reading the literature say that real estate cycles go in approximately 18 or 26-year cycles. We haven’t even gone into recession. They’re saying that we’re going to hit a recession in 2026. I believe we’re already in recession, particularly in multifamily. Single-family is a bit different. If you could visualize it as a clock where 12:00 is the top of the market and 6:00 is the bottom of the market, where are we when it comes to at least multifamily?

It’s a great question. I love the visual too. That’s a beautiful metaphor. I’m going to say maybe about 8:00 because we’re going to have another upswing. I want to come back to that recession because the general economy is very important. You mentioned the expansion, oversupply, etc. This is a huge story. We are hugely undersupplied in the United States in terms of housing units. If we’re going to talk about multifamily, it’s going to take us years to catch up. We are maybe 5-plus million units behind where we would’ve been if we would’ve continued to build 1.5 million each year since the Great Recession.

We had a month where we were above 1.5 million, but our leading indicators are below 1.5 million. I’m talking about the housing permits and starts. We’re not going to sustain that. We’re not even replacing what we need. We have a lot of immigration too. That’s another thing to take a look at. If you look at the official statistics, we’ve never had less or we haven’t had less for many years, but we all know that we probably have more. We probably have even greater housing needs than we’ve had in the past couple of years.

This is a true crisis. This is the only thing that’s really holding the cart together. We have interest rates going up like crazy. If you try to finance something, not only do you have the issue of the interest rate, but these lenders are all skittish. They’ll pull the rug out at the last second. If you’re lucky enough to get the thing to go through, you never know how the numbers might get changed around at the last instant. Lenders are really nervous.

What’s holding it together is the fact that people need a place to stay and we can’t build it. That’s why I’m going to say that we are going to recover. Interest rates are coming down. That’s why I do say the cap rate is a little bit mystical. It has a mathematical definition, but it ignores certain other things. It’s very unstable because it can change on a dime as soon as investors’ impressions change or as soon as the lending landscape changes. We do have good ways to go, but we’re only being saved because builders got knocked flat on their backs in that last recession.

I want to start to focus on LP investing because you’ve invested as an LP and a GP. What advice do you have for LPs who presented a deal but don’t have the financial expertise to even comprehend the underwriting of the deal? It’s so many numbers. It’s so comprehensive.

Even ask for it. LPs don’t even know to ask a general partner, “Can I see your underwriting model? You have a team that you told us about that helps you with your underwriting and analysis.”

That’s right, but LPs don’t even understand that even changing the exit cap or the rent growth can substantially change the returns. That’s why I’m saying that we get lots of syndicators and they put these numbers in the underwriting. It makes it look like there are these 20% average annualized returns in the economic environment that we’re in, but it’s only 15%.

 

 

Even on some deals that we look at, we know other people end up taking those deals. We’re like, “When we plug in the purchase price that they purchased the property at into our model, we’re getting single-digit returns for our LPs.”

It’s 8% and they’re advertising 20%. We’re thinking, “We got to start educating LPs a little bit here to ask for, “What’s the exit cap? What’s the rent growth that you guys have used?” and try to dive into seeing if they were conservative. A lot of GPs throw out, “We’ve been very conservative in our underwriting.” It builds a lot of trust with LPs, but a lot of LPs are doctors, lawyers, and accountants. They’re not real estate people.

They’re not analysts. Also, this idea of syndication investing and syndications and funds is 100% passive with this passive option. It’s not really passive. The due diligence you do on the GP, the due diligence you do on the deal, and the questions you ask, have a friend or advisors you can reach out to about the deal. Is that work you have to put in? It’s not 100% a passive option.

That’s right. On my calls with investors, as I’m focused on the equity side of the business, I do tell investors, “These are some important things that you got to look out for.” I always tell them, “Try to find three great GPs to work with, but these are also some things that you have to look out for.”

We haven’t done a deal in nineteen months.

We proudly haven’t done a deal in nineteen months.

I like that.

George, let’s get back to the question. What advice do you give LPs?

Real Estate Investing Is Not Really Passive

Ava, you hit on it. You said it isn’t really easy and it isn’t passive. Passive investing is a lie. This is hard work. Even if you’re investing in the stock market, you need to read the financial statements. That’s something most people don’t do. Warren Buffet will tell you, “If you don’t read the financial statements, don’t invest in individual equities.” It’s the same thing here. You got to start educating yourself. You can say, “Maybe I’m not ready to invest.” People do the same thing, like shadow investing. What would you do if you had invested in that stock on that day and you only had X dollars? Start looking at deals.

Passive investing is a lie because that's hard work. Click To Tweet

It was also mentioned a moment ago we’re going to have to ask for the underwriting. Ask and you shall receive. Knocking the doors will be open to you. I love this because not only is it true, but it’s so much truer the more you practice it. Always ask for the underwriting. There’s no reason why you should ever be denied looking at the original underwriting.

Sometimes, that’s a red flag right there. When the GP is not being opaque and is not giving you certain information, that’s enough to know that this is not somebody you want to be married to for 5 or 10 years.

100%. I want to get to that in a minute. There are at least three things you have to look at. You have to look at the operators. You have to look at the deal. You need to understand the market, but you have to understand yourself. That’s the missing piece. Whatever you invest in, your disposition has to match it. A lot of people look at investing as an intellectual pursuit, and it is. What’s most important here is that if you’re not a patient person, syndication is going to drive you nuts. Your money’s going to be locked up for years.

If you’re not comfortable with the twists and turns of investing in new construction or something like conversion, the more value add you’re doing and the more that you are repurposing and redeveloping a property, that’s going to drive you nuts. Make sure that your investment really makes sense to you. Is this something you want to be committed to?

To get back to the numbers, start. There’s never a better time than the present to start. Look at deals. Go look through the underwriting. It’s like marriage. Test it out. If you start asking for things and you’re getting stonewalled, forget about it if you’re not comfortable with the response you’re getting or who you’re talking to. If you deal with some of the gurus that have a lot of units, this is wonderful. You’re going to have an investor relations team you’re dealing with.

I have six active deals. If you call up investor relations at Roberts Capital, you’re going to get me. There are advantages to both, but make sure you’re comfortable with that. Are you comfortable talking to someone who talks to the person in charge or do you say, “I need that track record. I’m not going to invest with somebody who has less than 5,000 units.” You really have to understand yourself. I don’t hear people talking enough about that. I hear everybody talk about the team, but on the jockey, not the horse. You’re along for the ride.

That’s right.

Thank you for all the wisdom and transparency. Let’s get to a few questions. They’re not Rapid-fire, but some quick questions before we get to the next segment of our show. Let’s talk about predictions. Where are the interest rates going, George?

I’ll tell you something. I’m a man who has made predictions for a living as a data scientist. I don’t really like to make predictions though. I’ve heard it said that intelligent people make conditional predictions. I think interest rates are going down. It makes sense given that inflation is going down. To make conditional predictions, we don’t know where inflation is going. Keep an eye on that. Keep an eye on where inflation is at.

We’ve got these job reports that show, “Things are good. We can’t call a recession.” How much do you trust the job report? When the official statistics tell us that inflation is at such and such a point, do you believe that? If we have a second run of inflation like we had in the 1970s, I have news for you. Those interest rates are going straight back up. I think we’re headed down, but watch out. We don’t want to get too cocky. The first thing I learned about making predictions is that you don’t simply trust your own predictions. You need to think about all the ways you’re going to pivot if that prediction turns out false.

Don't simply trust your own predictions. Think about all the ways you would pivot if that prediction turned out false. Click To Tweet

Fair enough. By summer 2024, the Fed’s fund rate is at 5.25%. Where are we going to be approximately?

How about this? Can I answer with a question? How many times has the dot plot changed? We could say the last time they said they were going to have three drops over that timeframe, like 75 basis points or so. If you want to have any idea what’s going on, don’t look at those dot plots. Ask yourself how that dot plot of 2026 has changed 3, 4, or 5 times practically every quarter. Certainly, we’re going to be down maybe 1%.

Rather than trying to nail it and say that I know where interest rates are going to be, I look for nice step-downs. I’ve got an agency loan, and I paid maybe 80 basis points to get a 3-2-1-1-1 step down. That’s worth it because I don’t want the yield maintenance. I don’t want to be stuck in a situation where I can’t get out of it. Expect that rates are probably going down, but be ready to pivot.

Do you want to go ahead and ask that, Ava?

Yeah. George, what are your top states to invest in? What’s the top state?

Certainly, I like the best states to invest in. Tennessee and Kentucky are great. I like Ohio, certain parts of it. I really like that middle band of the latitudes. I love it. If I am in the state already, that’s a bonus. I got 1 deal in Tennessee and 2 in Kentucky. I’ve got a couple in Kansas City. I love those states. These are great markets. They’re not overdone. You don’t want something that’s overheated.

We talked a lot about demographics. Take a look at the volatility of a market. I don’t want to go to these markets like Miami, Las Vegas, and Boise, Idaho. These are some crazy places, things that have gotten way ahead of themselves. The Midwest is a lot calmer. It might be fair to lay back. You proudly haven’t done a deal for nineteen months. That’s the attitude you want to have.

 

 

If you are doing deals, do it where things are stable. I really like the Midwest. I like Kansas City, Cincinnati, Indianapolis, and Louisville. These are some places I like. I particularly like East Tennessee because it’s growing. It’s not like West Tennessee, which has some problems. It’s losing some population. It’s not like central Tennessee which is way too hot to touch. There are certain parts, but I like to go where there are fewer players on the field.

Where are you based out of, George?

I’m based out of Michigan, which is another reason why I like Ohio. I’m in Ohio, I feel like, half the weekends of the summer because that’s where I sail my boat out of. Sailing is a big part of my life. Down I-75, I could get to Knoxville in about eight hours, at least theoretically if I don’t have the kids in the car.

That’s very cool.

I-75 makes a lot of sense to me. I can jump right on that and I can be to a lot of nice destinations that are strong that I can still potentially get out there and see without a whole lot of trouble. A place like Cincinnati or somewhere I can get to in 4 or 5 hours is a lot easier.

That’s why he appreciates our sailboat.

I greatly appreciate that. That’s beautiful. You got to cut her out there. You got two gib sails. It’s beautiful. This is nothing like a great old wooden boat. You were remarking about how sailing is something people think about when they get rich, but I believe that the game is about where you’re at economically. You got to live life.

I bought myself a $5,000 sailboat even before I went hugely into real estate. I’ve still got it. I put another $5,000 into it. I’m not going to tell you that it’s a cheap hobby, but you don’t have to wait until you can buy the yacht. Go out there. It’s a beautiful thing. It’s 25 feet. I can single-hand it. Don’t be the person who accumulates a giant pile of poker chips and then says, “Now what do I do with my life? I don’t feel a sense of purpose.” Go out and live it. You have to ask yourself, “How do I feel when I take my foot off the gas or downshift a little bit?”

 

We’re getting into the philosophical stuff right here, George. Ava, go ahead.

Thank you for all of that, George, but we’re going to head to the next segment of our show, The 10 Championship Rounds to Financial Freedom. I’m going to ask you a series of questions. Whatever comes top of mind. Are you ready?

Let’s do it.

Here we go. First question, George. Who’s been the most influential person in your life?

I’m going to start with investing. Benjamin Graham. He was the founder of value investing. All investing at some level is value investing. Otherwise, you’re speculating. My answer is Benjamin Graham.

George, what’s the number one book you’d recommend?

How about Dale Carnegie’s How to Win Friends & Influence People? It’s great for communication. It’s great for business. It’s great for your personal life. Realize that taking an interest in people makes people more interesting.

Give us one more. It doesn’t have to be investing or economics, but it can be any book.

Stephen Covey’s The 7 Habits of Highly Effective People. Always sharpen the saw. You have to put some time on your calendar, and I do it every day. The first three hours of the day, I should be writing my book. I make sure that at the end of the day, every day, that I get some time to exercise. I even put time to appreciate literature. You have to work on your mind. Exercise the body. Exercise your mind. Sharpen the saw. I love that book, 7 Habits. It’s a beautiful thing.

Can we have one more?

Here’s another one. It’s a little bit philosophical, but it’s Think and Grow Rich. I love it because it’s a book about wealth, but how does it start? It gives you twelve things that are more important than wealth. Your friends, relationships, and integrity, all these things are more important than wealth. I’m thinking, “Why am I continuing to read this book about wealth?” You have to have a field to operate in. That’s what I’m doing. I operate in the field of wealth, but I have that same philosophy that it’s not about wealth. That’s what we’re doing with our time. It’s how you do it.

Thank you for that.

Next question, if you had the opportunity to travel back in time, what advice would you give your younger self?

It’s, “Don’t worry. Be happy. It’s going to be all right.” I always worried about everything. That was huge in academics and PhD. I worried for so many years. Somebody told me once, you know, “This test is not going to change your life.” I thought about it, and it’s so true, so I stopped worrying about things. If I had known how well things were going to turn out, I would’ve worried half as much and I might’ve done 50% more. Don’t worry. It’s going to be okay. Don’t focus on the scoreboard. Focus on how you’re training.

Don't focus on the scoreboard. Focus on how you're training. Click To Tweet

I love that. Next question. What’s the best investment you’ve ever made?

Other than myself? That’s a throwaway answer.

A lot of people say that but keep going.

I hate to say it, but that is a throwaway answer. The best investment is my health. It has taken me 50 years to figure out my health. I’ve been in great shape multiple times in my life, but to finally figured out my weight. I am never overweight, but to figure out what it took. For me, it’s exercising throughout the day.

You look great. You’ve got to tell us some of your secrets.

I could go in the back. I can show you what I’m eating. The next book I want to write will be about the chocolate diet. I know that you can eat chocolate because you’re eating sugar. You already have fruit in your diet. Pair it with some chocolate. Pour that chocolate on there. No sugar added. You can find creative ways. I exercise throughout the day. I did 730-pound dumbbell presses. I did 600 dips. Can I do that with a regular job? No. I get down there at 8:00 AM, 10:00, or noon. Figure out that health. That was the best thing. It’s changed my life.

 

Good for you. I eat dark chocolate every day. Next question. George, what’s the worst investment you’ve ever made and what lessons did you learn from it?

Anytime you’re doing something new, there’s danger. Realize that danger is okay. If you don’t have other people’s money and you’re doing something different, invest it in a Class-D property. It took about fourteen months to turn it around. I had two really bad property managers. A third one could have sunk us. You have to understand that when you do something new, it’s dangerous. Don’t put someone else’s money into it, which we didn’t.

Understand the pain because it’s not just money. We’re probably going to make a decent chunk of change on that, but how much brain damage do you have to go through to get there? When you have two bad property managers and you have to fire them and threaten legal action to get them out of your life, that’s brain damage. You don’t want to suffer that. What do you learn when you try something new and you don’t like it? Stick to investment-grade properties.

George, how much would you need in the bank to retire? What’s your number?

That’s why I went into philosophy earlier. I don’t have a number. I could say, “I want at least $10,000 coming out each month. To think of it like a cap rate, I better have this much.” It’s going to change. Even if I say I could come up with that, I found that the more freedom I have in my life, the more my imagination grows. That’s why I insist you have to live.

Every day, I dance tango. I got my mate gourd. This is what they drink in Argentina. I have my Spanish teacher. I call her directly to Buenos Aires. Every week, it is three hours. That’s what it looks like for me to take my foot off the gas a little bit. Do I still feel like I’m contributing to society? If I took the foot off the gas a little more, I’d need ten times more. I don’t have a number. My answer is to live as you can and then grow. You’re going to build it up. It’s not stop-and-go. It’s building it up.

If you could have dinner with someone dead or alive, who would it be?

Warren Buffet. It’s not just because people pay $1 million to have lunch with Warren Buffet. He’s famous for saying that value is what you get and the price is what you pay. There’s got to be a lot of value in that. He’s amazing and interesting. I love all his wisdom. I really respect his career. I respect how the man has grown. Look at his interviews from the 1960s to 1980s. I remember there was that bank takeover. The man has grown personally. To talk to somebody like that who’s had such a long career and who never stopped growing would be the best.

George, if you weren’t doing what you’re doing, what would you be doing?

I really loved my data science career, and I went back to it. I can’t talk about details, but I started freelancing. It’s fun to solve scientific problems and help computers do that. I don’t know, but I could be happy solving technical problems.

Book smarts or street smarts?

Street smarts always because you can get the book smarts later. If you have street smarts, your head’s on straight, and you have the right values, you’re going to learn what you need to know. Book smart is important, but street smart is 100%.

Last question, George. If you had $1 million in cash and you had to make 1 investment, what would it be?

I love Kansas City. I love apartments. I do love the multifamily market. It’s really hard. If I had to own one thing, I have to love the market and still love multifamily when it’s chosen properly.

Nice answer. George, thank you so much for bringing so much value to all of our readers. Quickly let everybody know what’s the best way that they can reach you.

George@RobertsCapitalEnterprises.com. Send me an email. I’m on LinkedIn all the time. If you want to learn about me, go to YouTube. I’m the Data Scientist of Real Estate. I love to talk.

Thank you so much. I really appreciate you coming here.

Thanks, George.

It’s my pleasure. Thank you so much.