In today’s episode we chatted with Jeremy Roll. Jeremy is founder and president of Roll Investment Group. He shares his insights on investing in real estate and businesses. He discusses his reasons for starting in 2002, the importance of conservative underwriting, and the qualities to look for in sponsors. Jeremy also emphasizes the need for thorough due diligence, including running background checks on sponsors. He provides advice on communication, response time, and the pros and cons of capital raisers and the fund model.
Listen To The Podcast Here
Watch The Episode Here
What’s Covered In This Episode
- Consider investing in real estate and businesses for stability and predictability.
- Vet sponsors carefully, looking for conservative underwriting and a track record of success.
- Run background checks on sponsors to identify any red flags.
- Communicate with sponsors and evaluate their response time and level of transparency.
- Evaluate the pros and cons of capital raisers and the fund model.
- Focus on cash flow and analyze projected returns when considering investments.
Connect with Jeremy:
- Email: jroll@rollInvestments.com
Resources
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Read The Transcript Here
Trevor Oldham (00:06.026)
Hey everybody, welcome back to the REI Marketing Secrets Podcast. Today on the show, we have Jeremy Rohl. Jeremy started investing in real estate and businesses in 2002 and left the corporate world in 2007 to become a full-time passive cashflow investor. He is an investor in more than 70 opportunities across more than 1 billion with a real estate and business assets. As founder and president of Rohl Investment Group, Jeremy manages a group of over a thousand investors who
seek passive managed cash flowing investments in real estate and business. Jeremy super excited to have you on the show today.
Jeremy Roll (00:41.932)
Thanks for having me on. I appreciate everyone who’s listening. Hopefully this will be helpful for everyone who’s with us.
Trevor Oldham (00:46.502)
And Jeremy for our audience out there that’s learning about yourself for the first time, can you go back to yourself back in 2002? Why did you decide, Hey, I want to start investing in real estate and businesses. What led you down that path?
Jeremy Roll (01:00.448)
Sure, yeah. Boy, that goes back a ways now. For those of you who are old enough, after the dot com crash in 2001, I was just really sick and tired of the stock market for two reasons. One was the lack of volatility. I didn’t like watching my portfolio go up or down 30% in a year. It just was not the right fit for me. I’m just more about stability. Two was really lack of predictability. Not knowing where my retirement account would be in a year, five years, 10 years, 20 years, that really bothered me.
I started looking for different ways to invest, came across the concept of syndications and with a focus of cash flow and kind of lower risk, more stabilized cash flow and syndications and I thought that was going to be a really good fit for me. So I started to rotate my money out of stocks and bonds in early 2002 into syndications and I did that for several years. I was in the corporate world and I eventually got out of the corporate world thanks to the cash flow back in 2007. So I’ve been investing in this stuff for about 20, actually in February now, yeah, so it’s actually exactly.
22 years, but I’ve been doing it full-time since 2007. So what is that now? Almost 17 years.
Trevor Oldham (02:07.742)
Yeah, that’s awesome. And I think going along those lines, I feel like syndications, I don’t know if it’s because of the pandemic, but I’ve seen just a ton of new syndicators coming into the space and taking on additional capital. So for being investing into it, going back 17 years or getting that financial freedom from 17 years ago, that’s pretty great. And I agree with you there. I always just invested 401k, IRA, and then I sat down, I was like,
I don’t know if I want to wait until I’m like 60 or whatever, 59 and a half to access those accounts. There’s got to be a better way. And that’s what, you know, I know we were talking before the show. That’s what led me to the left field investors group and that passive investing. I was like, there’s just got to be a better way. And then it’s like, oh, like, I can actually invest in an asset where it’s not tied to the stock market.
Jeremy Roll (02:57.14)
Yeah, and it’s funny you mentioned that whole like, being trapped in that account. So keep in mind that you can do these types of investments through retirement accounts, and then you are still locked into that timeline. I purposely didn’t actually do any of them through the retirement accounts so that I would have access to the cashflow if I needed it. And so that’s the approach I’ve taken. It has the pros and cons. Obviously, if you invest in real estate even passively, you get a lot of different tax advantages.
like depreciation flow through expense flow through that type of thing. So that’s very, very helpful. But I personally, just like you, I’ve not done anything on the, on the retirement side, but I know a lot of people do.
Trevor Oldham (03:35.598)
Yeah, I think that’s super helpful for our audience too, because I know for me, I was looking at like a solo 401k, I was looking at like a self-directed IRA, and I haven’t pulled the trigger, I just have my cash on hand, I keep it in a high yield savings account when I’m ready for the next investment, I’ll go put it in there, and like you mentioned, like a lot of that depreciation and what you get of it, you’re not necessarily paying as much, as that ordinary income, but going along those lines that I know I mentioned in your bio, full-time passive investor.
What does that mean to you? Is that someone that now you have this financial freedom where, let’s say hypothetically speaking, your bills are $5,000 a month, you have $5,000 a month in passive income coming through, or is it $10,000 a month? How does that, like what is really that definition for you of a full-time passive investor?
Jeremy Roll (04:20.968)
Yeah, great question. Well, so when I left the corporate in 2007, the one thing that gave me comfort in leaving, because I’d never left the corporate, I was highly conservative, I spent over 10 years in the corporate, I worked for big companies, like I was just going on the regular corporate track. The last company I worked for was Toyota headquarters, and previously that was Disney headquarters, right? And I have an MBA from the Wharton School, and so I was going down a whole corporate path. What gave me the comfort to do it, is I had a two times cashflow coverage compared to my living expenses at the time.
And my optimal target was always three times cost of living compared to the, sorry, income compared to living expenses. And if someone chooses to do it like where they’re making 5,000 and then their living and their expenses are 5,000, all I would caution you on is that things happen, right? And you don’t always, things don’t necessarily go as projected sometimes. And so I would recommend, I’m not a financial advisor or anything, so this is just my perspective as an investor, but I always recommend having a cushion.
For sure. So to me, the really comfortable cushions like two to one, the ultimate cushions three to one, if you can get there.
Trevor Oldham (05:26.03)
Yeah, I think that’s super helpful for audience and I agree with that. I wouldn’t I don’t know if I’d be leaving my day job, even though it’d be nice to have the 5k coming in the expenses being 5k, but you never know is going to be a capital call is there going to be a pause distributions like what we’ve seen the last year or so. But with that said, when it comes to your passive investing, how have you vetted your sponsors? Is there certain qualities you look for in them as a track record? What does that look like before you really
even really dig deep into their deals.
Jeremy Roll (05:56.668)
Yeah, I can’t stress how important the sponsor is. I mean, I tell people that I kind of consider the sponsor to be slightly more important than the property even, with the property being a close second, because you are giving control to somebody else and you are just putting the, literally the success of the opportunity in their hands, right, because they have full control over it. And so I’m looking for someone who’s conservative, who’s looking to kind of under promise and over deliver as far as just a general mentality and who will, you know,
essentially is very similar to my personality, actually, what it comes down to. And when I read what I’m trying to avoid is someone who’s over promising using like flashy market materials with really big numbers, and then may under perform in the end. That’s who I’m really trying to avoid. You know, if you really want to break it down to that. I personally have a requirement to invest with someone who’s experienced. And I try to avoid people who invest in many different asset classes. I’m talking about the sponsors. To me, I’d prefer to have someone focus on one asset class.
If it’s two, it might be okay, but that’s probably the limit at which I’m comfortable with, and especially if they’re complementary asset classes, that’s a little bit easier. I obviously wanted to see a track record. It’s very difficult to gauge a track record these days because there was so much momentum and with this record long cycle that if someone’s been in business for 10 years, except for the past couple years, they almost certainly made money unless something went really, really wrong. So it doesn’t fully tell you how good of an operator they are.
And right now at this particular time, because we’re recording this beginning of 2024, very, very critical because it’s a very tricky period right now. I’m trying to avoid people who have any distress. And I certainly want to make sure that no one’s had a foreclosure because what a lot of people don’t realize, and I saw this in 2008, nine, 10, is that if you just have one foreclosure as a sponsor, your interest rate for years will be higher than if you didn’t have that. And so as an investor, all other things being equal, if I invest in to be able to hire interest rate.
there’s actually a lower return to the same amount of risk than the next person. Right. So it’s a very tricky time right now. You do not want to invest with someone who’s got the stress and who may be distracted by that and or who may be, you know, dealing with other challenges because of that investor lawsuits, et cetera. So it’s a very, very challenging time when you’re vetting the sponsors right now.
Trevor Oldham (08:11.314)
Yeah, and I think that’s really excellent. I would agree with you there. Before I even look at a deal, I’ll check out the sponsor, talk to the sponsor, and then if I like what they have to say, and then I’ll maybe start to go a little bit deeper into the deal. But something that you mentioned about, and something I found when talking to different sponsors is it’s almost every single sponsor I talk to, they say our underwriting is conservative. And I think for a new passive investor, for me,
I just took it as early on when I was passing testing, that sounds great, they must have done their due diligence, they are what they say, they say they are conservative. I think what I’m trying to get to is, when someone says that to you, are there certain benchmarks that you look at, is it the deal itself or say, hey, they’re actually underwriting this conservative, or are they just saying that because 99.9% of sponsors are saying they underwrite conservatively?
Jeremy Roll (09:02.576)
Yeah, great question. So my whole philosophy in looking at an opportunity is trust but verify. What I mean by that is I’m gonna take all the information the sponsor’s giving me, trust that they did some due diligence, trust that they know what they’re doing of their experience, but I have to verify. And one of the portions of verifying is verifying how conservative they’ve been. And so there’s a few key things you can look at just to start off, like just as a starting point, then you can dig in further. One would be an expense ratio on a property. So, you know, I actually saw a deal recently.
think it was a retail deal. Let’s say conservative typical expense ratio might be 40 to 45%. There’s a lot of, that depends on the leases, are they tripling out or they gross, it depends on whether it’s a cold weather area or not. There’s a lot of factors, okay, but I’m just giving you a generalization. And the expense ratio for this deal was like 20 or 25%. So honestly, based on my experience, I literally almost couldn’t care why they would tell me that was the case.
It just could not have been conservative. It’s really not possible. So you have to look at key things like the expense ratios, the inflation assumptions for revenue and expenses. The assumptions for rent, rent increases. You have to look at the exit cap rate assumption, what they’re assuming they’re going to sell for in the future. The vacancy and occupancy assumptions are absolutely key. And it’s funny because a lot of these numbers I’m giving you are the ways that a sponsor can manipulate a pro forma to look better in subtle ways as well.
Then there’s like a second layer you can go into looking at every single line item. But that’s a good starting point.
Trevor Oldham (10:35.238)
Yeah, it’s pretty crazy. I’ve seen probably the one I’ve seen manipulated the most, at least the deals I’ve been looking at, has definitely been the vacancy rate. Where they’re, you know, they’re saying we’re gonna have a 1% vacancy rate. So we’re gonna get, you know, it bumps up. Yeah, yeah, I’ve seen that. And I’ve seen I’ve seen things where it’s been like, heavy value add, you know, class C property, 50% vacancy within six months, they’re going to turn around to 90% vacancy. And then I want to say that I’m like, okay, I’m not gonna, you know, that’s just up here.
Jeremy Roll (10:45.176)
Oh, you’ve seen that? 1%? Oh, God.
Jeremy Roll (10:57.918)
Oh, yeah.
Trevor Oldham (11:03.278)
If you’re optimistic, yeah, it’s crazy when some of these deals, I think a lot of it has come from these newer syndicators that have come up in the last, you know, probably two or three years, you know, but with going along those lines and talking about syndicators that are, you know, maybe not the best to work with. I know you mentioned it in other podcasts and I was actually doing it before I heard you on a podcast, but I was running background checks on sponsors and I found it interesting and I was curious like…
the red flags that you look for when you’re doing it. And the reason I say that is like one guy, he had a bunch of tax liens on himself. So I was like, nope, that’s a red flag. But then another guy, he ran, you know, two or three red lights over the course of like five years. So I’m like, you know, is that one that I’m, you know, fine investing in or definitely the tax lien guy? I’m like, nope, that’s too scary. But curiously, are there, when you’re running these background checks and like the red flags that you see, does it like, you know, like that guy running the stoplight or is it something else?
Jeremy Roll (11:38.607)
Yup.
Jeremy Roll (12:02.484)
Great question. So before you even get to that, one thing I’d strongly recommend is that you ask somebody before you run the background check and each person you’re running it on, before I run the check, is there anything I should know that you wanna explain upfront? Because I’ve seen instances, I remember very distinctly, like there was one person who had a gun in their trunk and it was licensed to them, but they didn’t realize they couldn’t have it in their trunk in their car at the time, whatever it was. They told me in advance, right? That you’re gonna see that. But I’ve also seen the flip side where somebody had a bankruptcy.
Okay, but it was more than seven years old. And on your credit, it gets removed, but on your background check, it doesn’t. They probably didn’t know that. They had bankruptcy like 10 years ago, and they said, no, you’re not gonna find anything. And of course, there was a bankruptcy. And good Lord, if they’re forgetting about their bankruptcy 10 years ago, that’s pretty unlikely. So that means they’re hiding it, right? So you wanna give them a chance to tell you and then test them and see what happens. Now, going into the more detailed stuff you’re talking about, because each scenario is different, right? So your tax liens, for example, you see them from time to time.
But sometimes I’ll see a tax lien from 2004 for $240 and either was paid off the next year or it hasn’t been paid off. And I literally say to them, I see a tax lien for 240, this is a person who has millions of dollars of property, and I say, I see you have a tax lien in 2004, are you even aware of it? They’re like, oh my God, I didn’t know I had that, give me the case number. That can happen because they moved that year and it didn’t get to them. So each situation’s different. Obviously,
a much larger tax lien, even if it’s older and they claim they didn’t know about that, that’s gonna be more concerning. Also, sometimes someone may have a tax lien paid off very quickly. So each scenario is different, right? So you’re looking at liens, judgments, bankruptcies, criminal. To your point, speeding is fine. Is speeding okay if they’re getting caught every, I’m gonna use an extreme example, but if they’re getting caught speeding every two months for the last 20 years, there’s something about their personality.
And I don’t know what that means, but it’d be something to think about, right? It’s just something standing out. Um, and so. You really have to look at each individual and what you find for each one and, and think about it hard. But background checks to me are absolutely essential. They’re very, um, mandatory. Um, and they’ve saved me multiple times for sure.
Trevor Oldham (14:16.442)
That’s excellent. I couldn’t agree more with just talking to the person about what I find too. Have them explain themselves and see how they explain that like in different background checks. Like I’ve noticed like different things and like hey what was going on and you know a couple times they said hey I was going through like a divorce that’s why this showed up and I was like okay like you know that makes sense glad you glad you could clarify it but I’m glad I already asked them and to do that due diligence on the background. Yeah continuing to speaking with talking about the different sponsors.
When you’ve invested in a deal, what do you think the adequate client communication should be? I have some folks that will send a monthly report, some of them send a quarterly report. I don’t have a preference right now as long as it’s… I mean, I haven’t had any distributions paused, so it’s been very consistent, but curious on your end when it comes to how they handle communication, or how often, if you reach out to them, how quickly should they get back to you, and that as well.
Jeremy Roll (15:11.08)
Yeah, great question. So on the reporting side, so what I’ve noticed is that as of about 2015, 16, when a lot of new sponsors came in, where there was a lot of money chasing these types of deals, some of the new ones ended up doing monthly reports where all of the older ones were doing quarterly. And the thing that bothered me about monthly reports, actually, I like getting them, but the thing that bothered me about them is that I like to have a balance between what’s fair to me as an investor and what’s fair to the sponsor as well. I don’t think it’s, does anybody any good if they’re overwhelmed, either because they have two
big of a preferred return, they’re not gonna make any money. Or if they’re trying to report every month and trying to send checks every month, and it’s very difficult operationally, right? So my take on it is that I’m totally fine doing quarterly. Do I like getting monthly? Yes. But honestly, monthly is almost a little concerning to me because monthly is asking a lot when they’re focused, especially if it’s a larger operator, they have a lot of properties. So that’s my take on that. I would caution everybody though, please do yourself a favor if you’re looking at a new sponsor.
Don’t make any assumptions about what the content of that report is gonna look like. Ask them for a, if you have to, redacted sample quarterly report. And just so you know what to expect, because there are way too many times where I hear someone complaining about a lack of information in a quarterly report, because they didn’t look at a quarterly report before, and now they don’t like what they’re getting, and they could have made a decision to pass because they wouldn’t have been satisfied with what they were gonna get, right? So that’s on the investor, in my opinion.
As far as communication, so a lot of the companies are different. Some of the larger ones have dedicated investor relations purposes. Some of them don’t. I would say that if there is a problem with the deal, so cash flow stop, whatever, it’s fairly common and I think probably necessary for a sponsor to report monthly, even if they normally report quarterly to give monthly updates as to what’s going on. I think that always helps a lot with helping investors understand what’s going on. And then I’ve actually…
I’d been in a deal a long time ago before, and it was quarterly, it went to monthly, and then once they got past the challenge, they went back to quarterly, which totally reasonable. As far as response time goes, I mean, that’s very subjective. You know, like in business, I would hope somebody responds to me within three business days. I’m very patient with that. I will only fall up with someone after five or six business days. So where I get annoyed is if I have to fall up with someone every second time I’m emailing them twice or that type of thing, then you start to question.
Jeremy Roll (17:31.688)
what’s going on, but I want to point something out that I learned very early on in my investing career that a lot of people don’t think about. I worked at Disney headquarters in 2002 and that’s when I started investing. And I was used to having to create buttoned up presentations to executives and they had to be perfect, right? And they had to look perfect and you were very careful with them. So when I started looking at deals, I would be attracted to the ones that looked really good and very polished and I would kind of dismiss the ones that looked a little bit more amateur. But what I learned over the years is that I would much rather
invest with the person with the worst documents with the best operations, then the best documents with the worst operations and I eventually shifted that thought, right. And I kind of feel the same, right. So someone who’s communicating responding immediately, that’s a plus. But their operation so you know, you can have the worst communicator, but the best operations, sometimes to the point where people don’t want to invest with them again, but at least you’re getting good return and a good outcome as an investor, right. What you don’t want is someone who’s responding every two minutes and you’re foreclosed and you’re getting foreclosed on the property.
Truly, I’d rather take the other. So please keep that in mind when you’re trying to evaluate all this.
Trevor Oldham (18:35.41)
Yeah, I think that I think that’s excellent. I think something that I’ve done just to test out the communication style of like, of a syndicator, or an operator is when I send over a deal, I’ll just go through it, I’ll just ask them a question. And I want to see how long they get back to me. And usually, the majority of them get back to me, you know, like you mentioned about three business days, on the rare occasion, I’ll find one that gets back to me two weeks, I’ll respond to them, they get back to me two weeks later. And then that’s just like, that’s usually when that gives me a good
Not a good feeling, but the feeling, okay, I’m just gonna pass on this. Cause if I haven’t even invested say 50 K, 100 K with you, and now your, you know, your communication is delayed. What’s going to happen once I give you that money and, and then getting, you know, not to say not a good deal, but definitely makes me leery of investing with them.
Jeremy Roll (19:19.72)
Yeah, but so for those who are listening, what I really like about what you’re doing is you’re testing. Like what I love about what you’re saying is you’re testing because most investors don’t think to do that. Most investors don’t think to ask for the quarterly report. And then they get surprised after the fact when they’re not getting what they want, when they could have tested stuff, right? So to Trevor’s point, do these tests and understand who you’re going with because one of the challenges and downsides with this type of investing is that as soon as you invest,
your money is locked in, it’s e-liquid, and it’s very difficult to exit out of that deal, and it could be for 10 or 15 years, right? So do as much due diligence testing as possible upfront before moving forward.
Trevor Oldham (19:54.798)
I don’t think we can say enough about having that due diligence up in front. But I want to talk about capital raisers and it’s something I had to learn as a passive investor and I’ve seen a lot of them come up in the space where I think that this particular and I’m not singling out any particular capital raiser but just capital raisers within themselves. I think that they’re the ones that are promoting the deal. They’re the ones finding the deal. But I find that a lot of these investment firms, they just have these capital raisers helping them out to.
you know, bring capital into the deal. I was curious what your take is on it, because I’ve heard some good things about having these capital erasers, you know, getting potentially better terms, and then I’ve heard bad things where the communication isn’t as good because the person putting together the deal is talking through the capital eraser and the capital eraser is talking to the people or the investors from there. Just curious what your take is on it, because I’m still, I’m hesitant to invest with the capital eraser, but I do know that there are some people that do like investing through them.
Jeremy Roll (20:51.644)
Yeah, so first thing is, you know, I’m one person’s opinion, but I personally don’t invest through Capital Razor. And the only reason is because I do this full time. So I’m able to network and find the sponsors directly. And that means I don’t have to go through an intermediary who often is taking a portion of the profits or spread and or some type of management fee. So my return would be lower, possibly going through an intermediary. That’s why I don’t do it. That being said.
First of all, I think that capital raisers can be helpful because it can get people access to deals they wouldn’t normally have access to. They can get people minimum investment amounts they wouldn’t have access to, and maybe even better terms they wouldn’t have access to. There are some positives for sure. That being said, like everything else in life, there’s going to be good and bad of that type. One side of the spectrum is someone who’s very thorough, who is being very careful, and who’s doing very low volume and being very, very careful what they send to their group.
And the other side of the spectrum is someone who’s trying to make as much money and isn’t really doing any due deals at all. And frankly, I have seen both and I’m not exaggerating. I have seen people, I have been blown away. I mean, I have literally seen capital raisers who after they were in a deal a year or two later, I’m discussing the deal because I’m invested in it myself through the sponsor and they don’t even know the loan terms. I’m not exaggerating. And I so you so to the point of what we’re talking about before about doing your due deals and testing.
If you’re going to go through a group, you absolutely need to understand and determine how much you’re doing is they’re really doing it, get comfortable with them. And the truth is, if someone’s really, really thorough, getting better terms, and you feel like they could do a better job than you of weeding the deal out, even though you’re going to do it yourself as well, that could be a plus. Some people might want to go through a capital raise for that. So there’s a right place for them, and they are helpful for some people. I just don’t like going through an intermediary myself. I’d be very, very careful. And by the way,
and this applies to sponsors too right now, just because of current timing, be very, very careful about people who are launching new funds or new deals right now, because in some cases, some sponsors have deals that are failing or distressed, they’re making no money off of them, they have 100 employees, 50 employees, and they have to keep the lights on. So they’re launching a fund, even though they’re dealing with that, and they’re probably gonna get some acquisition fees and other fees from those deals that they’re raising money on right now, possibly to literally keep…
Jeremy Roll (23:07.24)
their employees there and their lights on. I’m not exaggerating. And so be very careful. That’s why I was saying before, it’s a very tricky landscape right now, and it could be happening with investor groups as well. That’s why I mentioned it.
Trevor Oldham (23:18.578)
Yeah, I think that that’s excellent to keep in mind and not to backtrack, but just something I was thinking about while we were talking about capital raises, but just the sponsors themselves, when it comes to investing in the deal, what should someone be looking for? How much skin in the game should the sponsor have? Because I don’t like for me, I don’t want to invest in the deal if the sponsor hasn’t invested anything in the deal because you know, what’s the potential risk to them if the deal goes bad when it’s my money being put? So just curious, like how when you’re looking at a deal, what you’re looking for the sponsor for them putting their own money into it.
Jeremy Roll (23:48.636)
Yeah, so I would say as a general rule, I think it’s more reasonable to expect a smaller sponsor to put more money in and less reasonable to expect a bigger sponsor to put more money in or a lot of money in, which almost sounds counterintuitive because a bigger sponsor is probably gonna be higher net worth because a lot of the bigger sponsors, and I mean really big sponsors, don’t have the bandwidth, like millions and millions of dollars, so I invested with a top, who is now a top 20 self-storage operator in the US, right? And they own 60, 70, 80 properties, whatever the number is.
They are putting up earnest money every time in the millions. They have to have so much money liquid to be able to even just transact stuff that if they can’t do it, co-invest on your one deal. It doesn’t mean they’re not involved in a deal. It just means literally they have millions of dollars put aside and forget about the operations cost and everything just to be able to buy the properties.
Everyone has a different opinion on this. I know that some people like to have, it’s like a rule for them. They have to have skin in the game. That’s actually not mandatory for me, for the most experienced operators, but for the smaller operators or less experienced operators, absolutely. And I think that what’s reasonable, typically the target would be 10% in my experience. I’ve seen as high as 20 or more, and you see sometimes 5%. And really, some of it has to do with someone’s net worth. If they’re relatively new, they may not have more than 5% to put in. So it’s a tough question. It’s very subjective.
But I don’t have a hard rule that like, it has to be that case where I’m not gonna invest with someone depends on their level of experience.
Trevor Oldham (25:13.186)
Yeah, I think it’s just looking at like a case by case, like you mentioned, the smaller syndicator, probably putting that money in versus the larger syndicator, you know, maybe not putting in but they’ve done it in other deals. And obviously, they have, you know, more net worth and whatnot. But something I want to touch on, they talked about before was, when it came to the capillaries, is about the fund model. And something I’ve seen, where you have like a single asset allocation. So let’s say it’s a multifamily apartment complex, and that’s just the deal by itself.
and then you might have a triple net lease fund where, say it has five properties, and do you have any sort of preference versus a fund model versus a single asset allocation? Just curious to get your thoughts on that structure.
Jeremy Roll (25:55.004)
Yeah, so my personal preference is individual property for the most part. And that’s just because I like to be able to analyze exactly what I’m investing in, right? Because often with the fund model, you’re investing in a fully blind pool or semi blind pool where you can’t analyze all the assets. Like when you give your money, it’s not the last money that’s going in, they’re gonna require more stuff in the future. That’s a lot of trust, not knowing what it’s necessarily going into. That being said, if I’ve invested with someone for a whole number of years and I have a hundred percent confidence in them, to a degree, the fund model is interesting because then I get more diversified with them for the same amount of money, right?
So it could depend. But on average, I prefer individual properties. And in all my conversations with investors over the years, I think on average, people do prefer individual properties. I will say though, that a lot of people don’t realize that whether you’re gonna see individual properties or funds is actually cyclical. So at the end of a cycle, back in 2018 to 23, call it, there was a lot of funds and fewer individual deals because there was a lot of capital chasing deals. It’s easier for a sponsor to…
execute on a fund and just pull money together and buy a bunch of properties and go one by one. And when they’re in a driver’s seat with a capital raising, that’s typically what they choose. And so now that things are changing, you’re going to see a lot more individual properties and less funds, both because the sponsors won’t have the confidence they’ll be able to raise the funds on a larger fund versus an individual property, but also because it’s harder for them to raise capital in general. And they know that investors would prefer individual properties. They’re going to have to cater to what investors want. Right?
We are now seeing a reversion back to individual properties from the funds the past few years and expect more of that in the short term.
Trevor Oldham (27:27.886)
Yeah, that definitely makes sense going forward into the future. And then talking along these assets as well, where you could have, sometimes I like to think of it, and I don’t know if it’s exact, but you have like a cash flow plays where it might be again, like a triple net lease, very stable. Then you might get your more of your, I don’t know, say class B multifamily where you’re coming in. Maybe it’s a value add less distribution upfront, more equity play on the back end. When it comes to these investments, is there a certain
you know, cashflow equity that you’re looking towards, or you’re more on the cashflow slide, just curious, because I find that’s a really a hot topic whenever I’m talking to other past investors, where, you know, either one’s going for cashflow, one’s going for equity, where it’s kind of hard to potentially bridge those two worlds together.
Jeremy Roll (28:09.212)
Yeah, good question. So this is a very subjective topic. I tell people there’s a thousand ways to invest and none of them are wrong. Some people only invest in land deals. I’ve never done one after all these deals. And so my personal profile is stabilized cashflow, 80 to 100% occupied, mirror minimum any value at upside. I wanna go to sleep tonight, wake up tomorrow, and not much has changed because I live off the cashflow. So I got into this for that predictability that we talked about before. That’s been my focus the whole time. So for me, I have a strong preference for cashflow when I’m analyzing a deal.
I will sooner analyze the year one projected returns net to investors in terms of cash flow and the average annualized return projected net to investors on the cash flow. I look at that versus the IRR. I don’t even pay that much attention to the IRR because I’m all about the cash flow. Of course, if a deal ends up lining up with certain cash flows, it ends up being in a certain IRR range typically. The point is that that’s my focus, whereas a lot of investors will focus more on the IRR and more on value add.
Yeah, and I want to point something else out as well, which most people don’t realize, and it kills me. So what’s fascinating is that at the end of a cycle, it’s almost impossible for a sponsor to buy a stabilized deal and attract investors because cash flows are too low because the prices are too high. They’re paying multiples that are too high. And so they have to pivot to higher and higher value, which is actually how we got to the floating rate bridge loan problem, because that actually became necessary to keep the cost of debt low enough to keep.
the projected returns high enough to attract investors. It’s just like the progression until it gets too expensive. So that is the riskiest time to do that type of deal because like an airplane on a runway, when you have the most amount of runway to take off at the beginning of a cycle, doing a value ideal is the least risky because you can course correct and then take off. At the end of a cycle, you have the least amount of runway left before it stops. And that’s the riskiest time to do a value ideal. But ironically, that’s when you will find the most amount of value ideals available and that’s what sponsors are trying to.
to raise money for. So it’s the opposite. So now with this timing, I mentioned this because of the specific timing, the cycles resetting, it’s actually lower risk to do value add at this point in time, technically speaking, maybe just after a recession and going forward for the next few years versus at the end of a cycle. So just keep that in mind, it’s the opposite of what sponsors are providing for you.
Trevor Oldham (30:22.818)
I think that’s super helpful. Jeremy, I just want to say I really enjoyed our time today. And one last question for you today is, is if our audience is looking to learn more about you, get in contact with you, how should they go about that?
Jeremy Roll (30:35.164)
Yeah, so I’m very low key. I have no website, no social media, no marketing or anything. So people are welcome to email me if there’s any way I can help. It’s jroll, J-R-O-L-L, at Roll Investments, R-O-L-L, inve So jroll, at RollInvestments.com. And don’t hesitate to reach out if there’s any way I can help you.
Trevor Oldham (30:55.038)
Awesome, I’ll make sure to include that in the show notes of today’s episode. And again, Jeremy, thanks for coming onto the show.
Jeremy Roll (31:00.016)
Oh, no problem. Thank you for having me. Hopefully this was helpful for everyone who stayed with us here.
