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When reviewing an offering, we should look beyond the IRR, AAR, cash on cash, equity multiplier, to understand the assumptions made to achieve those returns.
So the sponsors would almost always say the deal was underwritten conservatively, but the assumptions tell the story.
For example, how much capital reserves are put aside? What is the natural rent growth assumption? What’s the year-one value add rent growth projection? How aggressive is the loan to value (LTV) leverage? What is the exit cap rate assumption? Is the economic vacancy true to the market, etc.?
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Patrick Grimes is a design engineer and CEO and Founder of Invest on Main Street, LLC. His real estate holdings include general partner ownership of a multifamily and single-family real estate portfolio valued over $146M, including 1,950+ units across the southeastern United States and Texas.
He has been active in real estate investment since 2007, including purchasing land and distressed assets, renovating them, and stabilizing them for long-term cash flow. To scale his real estate portfolio, Patrick moved from single-family to multifamily investing and founded Invest on Main Street, a private equity firm specializing in multifamily value-add projects in emerging markets.