Underwriting During A Recession with Rob Beardsley

What goes into the making of a wise investment decision? In this episode, underwriting expert Rob Beardsley joins us to discuss evaluating investment opportunities and protection against Ponzi schemes. We look into the fraudulent nature of the Ponzi scheme involving Freedom Impact Consulting LLC and how it collapses when new investors slow down. Rob delves into the underwriting process, emphasizing the need to trust the sponsor or operator. He tells us that underwriters evaluate investment opportunities by analyzing financials, projections, and factors like renovations, management practices, and expenses. The conversation also touches on the relationship between interest rates and cap rates in the multifamily market, as well as the benefits of interest-only debt for cash flow enhancement. We also discuss other metrics and considerations in evaluating investment properties. The importance of understanding the source and sustainability of cash flow is highlighted, and investors are advised to ask the right questions and assess the legitimacy of deals. Rob urges investors to focus on their areas of expertise, practice diversification, and thoroughly understand investment opportunities to make informed decisions and mitigate risks. Key Takeaways Ponzi schemes are fraudulent investment schemes that promise high returns with little risk. Thorough underwriting is essential to protect against such schemes. 2. Return on cost (yield on cost) is an important metric in underwriting real estate deals, but it should be analyzed in conjunction with risk factors. 3. Leverage can enhance returns if the return on cost exceeds the cost of debt, but it also magnifies negative outcomes. 4. Interest rates and cap rates in the multifamily market are interconnected, impacting property prices and transactions. 5. Interest-only debt increases cash flow but has limited impact on total returns, making it favorable from a cash flow standpoint. 6. Internal rate of return (IRR) calculations are subject to manipulation and assumptions about reinvesting cash flow. Practical implications may not align with mathematical outcomes. 7. Metrics like cash flow, equity multiple, and IRR are important in evaluating investment opportunities, but understanding the source and sustainability of cash flow is crucial. 8. Balancing risk and return is essential when assessing investment properties, and diversification and understanding are key in making informed decisions. “The essential core practice of underwriting is looking at an opportunity and analyzing, either if you would pay the asking price, or what price you would pay for that asset. And that's based on again, the future projections as well as more subjective risk analysis and deciding well, are these potential returns worth the effort and risk that I'm going to have to take in order to potentially achieve those returns?” - Rob Beardsley Free Real Estate Terminology ebook: https://go.vikingcapllc.com/optin57sucwlm Connect with Rob LinkedIn - https://www.linkedin.com/in/rob-beardsley/ Connect with Viking Capital Website - https://www.vikingcapllc.com