Welcome to RealCrowd University! This is an in-depth 6 week course that will utilize podcasts, eBooks, webinars, and articles to teach you the important fundamentals behind commercial real estate investing. The course material will be coming directly from real estate experts who include: Chief Investment Officers, Real Estate Attorney's, Economists, Real Estate Sponsors, Academics and more.
We take education seriously at RealCrowd and it is being noticed by real estate experts and novices alike. Our podcast has even recently become required listening for real estate students at a major west coast University.
Each week of the course I will send you an email that involves three elements:(1) Terminology Used This Week, (2) Required Learning Material, and (3) Application. This course is 100% free but I do ask one thing from you as you go through the course. If you come across a word, term, or concept you don't understand please send me an email and ask for clarification. I will be happy to answer any questions you have and your questions will help us to continue to evolve the course to make sure we provide the best possible education.
Start With Risk
Learn common terminology, real estate basics, risk-adjusted returns, the cycle of commercial real estate, risk profiles of deals and the capital stack.
Evaluating Real Estate Sponsors
Learn what to look for in a real estate sponsor, the advantage a sponsor can bring, and what questions to ask.
Evaluating Real Estate Deals
Learn what to look for in a real estate deal, where to find additional information, and what questions to ask.
Understanding The Legal Documents
Learn about Private Placement Memorandums, Operating Agreements, Subscription Agreements, and how to quickly find important information in these documents.
Tax Implications And Benefits
Learn what the new tax bill means means for commercial real estate, how to take advantage of tax benefits, and self-directed IRA investing.
The Real Estate Market
Learn what is currently happening in the real estate market on both a macro and micro level, and how coming capital events might impact real estate.
Know The Story
As an investor, a high net worth investor at that, you probably see quite a few investment opportunities come across your desk. Some opportunities may pop out at you and others may get lost in the shuffle. Odds are, if you're like most individual investors, the opportunities that pop the most are opportunities that showcase the highest potential return. In real estate, the return number a lot of investors key in on is IRR and the higher IRR the more interest an investor would have in the opportunity. These investors are called IRR chasers... you don't want to be an IRR chaser! Making investment decisions based solely on the return number is a bit like judging a book by it's cover with little to no concept of the underlying story.
Why is the seller selling the property? What are the risks involved? What assumptions are being made on the market? Who is the real estate sponsor? Does the sponsor have an extensive track record? Why is the real estate sponsor buying this property?
Understanding the story behind the numbers is what we call the Start With Risk approach. Start With Risk doesn't discount the targeted returns of an opportunity, but it views them in their proper perspective, as the cover on a book. By Starting With Risk you are committing to yourself that you will uncover the story of the opportunity.
Real Estate Sponsor: A sponsor is the investment manager responsible for finding the deals, financing the transaction, performing the financial and risk analysis and ultimately closing the transaction. After the property is owned, the sponsor will be the hands on manager to maximize the value of the opportunity.
Capitalization Rate (Cap Rate): Rate of return on commercial real estate based on Net Operating Income (NOI) divided by Current Market Value. (Example: 100,000 NOI / 1,000,000 Market Value = 10% Cap Rate).
Core Property: Lower Risk/Lower Returns. The most conservative and lowest risk of the four classifications, core property investments utilize lower leverage and tend to generate predictable cash flows. The properties are often positioned in strong markets, like thriving metropolitan areas, and are easily financed. There is a lower probability of sustaining loss of investment on core properties, but this also means the potential for outsized returns is also on the lower end of the spectrum. As such, this category of real estate investment is the wheelhouse of conservative income seekers.
Core Plus: Moderate Risk/Moderate Return. A core-plus investment has some similar attributes as a Core investment. Like Core investments, Core-Plus properties generally have few to no issues with securing financing, are well located and typically have a strong tenant base. The difference is found in a limited elevation of risk and potential for increased NOI, like upcoming lease rollover or light value-add opportunity. Core-Plus will appeal to much the same investor as Core opportunities — mostly conservative, with lower risk tolerance.
Value Add: Medium-to-High Risk/Medium-to-High Return. This class of investment is characterized by the opportunity to improve the investment in some way. In other words, to add value to it. This improvement often comes in the form of enhancing the physical property itself or increasing the operational efficiency. The increased risk of Value Add opportunities stems from the expectation that this improvement will generate higher cash flows and returns.
Opportunistic: Higher Risk/Higher Return. These properties require the most enhancement in order to generate the expected level of returns. What this entails depends on the specific property, but can range from ground-up development to redeployment of existing structures. The potential for outsized returns here is very high, but accordingly the risk is highest as well.
Capital Stack: Describes where the money comes from to buy a deal. The capital stack is typically made up of senior debt (typically a bank or traditional loan), possibly mezzanine financing or preferred equity, then limited partnership, or "LP", equity and finally the equity contributed by the Sponsor, often referred to as General Partner, or "GP" equity. Generally, the bottom of the capital stack (debt) has the lowest return and lowest risk profile and as you move up the capital stack to Equity and GP, the return and risk potential will both increase.
Required Learning Material
Start With Risk
5 Minute Read - This eBook will teach the Start With Risk Approach
Discovering Your Allocation Mix
1:10:29 Listen - Paul Kaseburg, Chief Investment Officer at MG Properties Group, dives into what to consider before investing in real estate.
The Art of Going Full Cycle
1:40:29 Listen - Pat Poling, CEO and Founder of Mara Poling, discusses how real estate buy right, invest right and exit a deal right.
Application (Reply to this email)
1 - Tell me in 2-3 sentences what risk-adjusted returns means to you.
2 - Go to RealCrowd.com/offerings and tell me how many core, core plus, value add and opportunistic opportunities are currently listed (Hint: check the asset profile on the deal cards).
Be on the lookout for Part 2 of RealCrowd University which will be available next week. In Part 2, you will learn what to look for in a real estate sponsor, what real estate sponsors bring to the table, and what questions to ask.
Let me know if you have any questions and see you next week!
Tyler Stewart // VP of Investor Relations // RealCrowd // (800) 286-1602