Kevin Bupp - Choosing a sponsor to help you invest in real estate

Updated: Apr 15, 2020

Kevin is one of the top and one of the first real real estate podcasts called Real Estate Investing for Cash Flow. And he also has one called Mobile Home Park Investing podcast. Kevin has done over a hundred million dollars in transactions. He currently owns 17 parks with over 1900 lots. Kevin's got a lot of experience with over 13 years in real estate.

Kevin Bupp:

First and foremost, most important is to do due diligence. Forget about the economic conditions, forget about the deal. But you want to do your due diligence on the actual sponsor and your team.

What's their track record look like?

Have they are they what I would classify as new investors that have started after great recession of 2008 which is nothing wrong with that or are they investors that have been through the downturn? If so, how did they, how did they fare, you know, were they able to keep their shop up and keep their lights on?

How did they handle the different challenges that came their way?

Who is going to be in charge of investment that you're placing your harder and capital into. If there's multiple people in the general partnership side, who are they and what's her background look like?

I've got my own investments, passive investments with other sponsors. I do background checks. I want to make sure that if I don't know them personally, I want to make sure that they're not like convicted felons or they didn't get charged with like securities fraud like 10 years ago or something like that.

Now everyone's making money. And I'm not gonna say it's easy to make money, but it's surely easier to make money in times like today than it was in times like 2007 when things start going the opposite direction and become a lot more challenging.

So you just want to know what the true character is of the folks that you're about to put your hard earned money with. Take into account for the economic conditions and changes there of the economic conditions. We're cash flow real estate investors. So first and foremost, we're looking at deals that we feel comfortable that will maintain a cash flow positive status both in good times and in bad.

And how we get comfortable with that notion is by putting each one of our deals when we're in the evaluation stage through very stressed test. Every deal is a little different. So I'm gonna try to speak in generalities. speaking to our intent is to get in and refinance in the three to five year span into a cash out refinance so that we can get investors X amount of their original capital back.

Let's say that my original projections were based on giving our investors a certain IRR return. And that all is hinged on that three to five year refinance and us hitting certain metrics and numbers.

What happens is we run our scenario of like if the intent was to do a cash out refinance? And give 70% loan to value in place and I was gonna give to X amount of dollars back from our investors.

What happens if we can get 65% cash out refinance?...

What happens if during that refinance the banks aren't doing cash out refinances and it's a rate and term and I can tell you that happened. And in that situation you have to be prepared to maybe have your investment held for a stay in there.

Absolutely know, I can tell you in 2008, 2009, 2010, it was very, very difficult to do cash out refinances if anything. And the banks would maybe let you do a rate and term.

Hundreds or millions of hundreds of thousands or millions of dollars out and investment wasn't very easy like it is today. And so things change, times change. Another stress test is rents. I see quite often pro formas and projections that show two to three to four to 5% annualized rent increases for like a 10 year span.

We've had a long run of rents increasing and that's wonderful to think that times will continue on. But I can promise you that back, personally speaking back in 2008, 2009 2010 rents actually went down in Florida where I owned a lot of property. So there was periods of see a lot more rent concession rent. It depends on the supply that you have in the market. That's what really drew drove it in Florida.

There was oversupply of certain product types and it drove rents down. So we had to make a lot of concessions and basically give things away in order to get them occupied. We'll run a stress test and we'll say, okay, well what happens at year four and five? We're going to see, you know, no rent increases whatsoever.

We might win money and play with it. Let's say that we'll do a concession for that year. You know, normally we don't do that, but um, you know, we'll show like maybe two years of flat rent increases and how does it perform?

So again, just different variables there. Occupancies another one. Certain markets might not be oversupplied today, but how many new products are coming out of the ground? Is there a point in time to where there's an oversupply of the rental product that you're investing into where again. What happens to that deal? How does it perform overall? No matter what happened isn't that deal. A lot of it comes down to the character of the sponsors.

It's a marriage. I mean, it's very much a marriage that you're getting involved in. So how are they going to deal when times get tough? How are they going to deal with it? How are they going to manage your money when times get tough? Are they still going to put you first when times get tough when they've got a trade in their Lamborghini or what have you? Are they gonna still give you your check every month? Are they going to, you know, take that instead? Pay their Lamborghini and pay their mansion mortgage payment?

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