Cash Flow Champs Real Estate Podcast
Jeremy Roll started investing in real estate and businesses in 2002 and left the corporate world in 2007 to become a full-time passive cash flow investor. He is currently an investor in more than 60 opportunities across more than $1 Billion worth of real estate and business assets. As Founder and President of Roll Investment Group, Jeremy manages a group of over 1,500 investors who seek passive/managed cash-flowing investments in real estate and businesses. Jeremy is also the co-founder of For Investors By Investors (FIBI), a non-profit organization that was launched in 2007 with the goal of facilitating networking and learning among real estate investors in a strict no-sales pitch environment.
What You’re Going to Learn:
- The Best Ways to Discover Various Investment Opportunities in Multifamily
- Inspiring and Encouraging Investors to Take Advantage of Investment Opportunities
- Positive Experiences and Surprises in Investing Journey
- Experiences of Investment Gone Wrong
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The Best Ways to Discover Various Investment Opportunities in Multifamily
The Best Ways to Discover Various Investment Opportunities in Multifamily
Jeremy Roll- Finding investment opportunities can be challenging for two reasons. Firstly, to access most opportunities, you need to be an accredited investor, which can limit available options for non-accredited investors. Secondly, building a network and searching for deals requires a significant amount of time and effort.
To overcome these challenges, some investors focus on building their network full-time, attending meetings, and conferences to meet potential sponsors. However, not everyone has the time or interest to do this. In such cases, other ways to access opportunities include crowdfunding sites, investor groups, or intermediaries, where the risk is the same, but the return may be slightly lower. While there are several options to find sponsors directly, listening to podcasts or attending conferences can help vet potential sponsors. Additionally, online forums and websites provide a platform to discuss opportunities and connect with other investors in an accredited investor environment. Networking and effort are crucial elements to finding opportunities. But, even if you’re not interested, you can still invest. However, you may have to use intermediaries, which could impact your return on investment.
Prashant Kumar- Great! I really like what you said about going to conferences as a way to meet hundreds or even thousands of different operators and have the opportunity to talk to them. If you had to do it all yourself, one by one in a forum or online, it would take a lot of time. So, I definitely agree that attending conferences is a fantastic way to find those different opportunities.
Jeremy Roll- Sure, I agree. It’s definitely an efficient way to network. Another strategy that worked well for me, but may not be feasible for most people due to time constraints or lack of interest, is creating my own investor groups here in Los Angeles. By avoiding any sales pitches and simply connecting with people, I was able to meet hundreds and thousands of individuals this way.
I even co-organized a conference, which provided additional networking opportunities. Of course, I understand that starting such initiatives can be challenging, particularly for those who are already working full-time. Personally, I began organizing these in-person investor meetings after finishing my previous job. It was the first thing I did with my newfound time.
Nevertheless, networking is a crucial aspect of investing, and if you’re not keen on networking or have limited time, you may need to consider alternative approaches.
Prashant Kumar- What were the challenges you faced during the early stages of your real estate investment journey if any, and how did you overcome them?
Jeremy Roll- When I first started investing, I not only faced challenges, but I was also new to the US. I’m originally from Montreal, Canada, where I’ve spent half my life. After completing my MBA at Upen or Wharton, I began working in Los Angeles in 2000. In early 2002, I started exploring different types of investments.
The biggest challenge I faced at the time in the US was that I hadn’t yet built a large network here. I didn’t know who to trust, especially when it came to investing. Trust is essential when you’re giving someone control over the major decisions and daily operations of your investment.
To overcome this challenge, I was fortunate to have lifelong family friends from Montreal who had been sponsors for over 10-15 years. Despite the different currencies and countries, I started with them because I knew I could learn a lot from them. I went on on-site visits, had a lot of conversations, and reviewed pro formas. We focused on asset classes of retail, office, and industrial, but I knew the fundamentals could be transferred to other asset classes.
I leveraged the relationship with my family and friends to build trust and learn from them. I also attended a lot of in-person meetings, which were more common at the time. I took advantage of the time and put in the work, attending 2-3 meetings a week for years, especially after work in LA traffic.
When I left the corporate world, I was motivated to start a nonprofit because many of the meetings were sales pitches. Sometimes you had to sit through an entire sales pitch to network with a large group of people. I sat in the back row of many meetings, brought my work, and didn’t listen to the meeting, working for two hours before networking at the end. I did a lot of in-person meetings and networking to build a network and learn about other asset classes.
Prashant Kumar- That’s truly inspiring. It’s amazing to think that just 15 to 20 years ago, online resources like Zoom weren’t available, and you had to put in the time and effort to attend in-person meetings to build your network.
Jeremy Roll- Yes, exactly. There were no online platforms, podcasts, conferences, crowdfunding websites, or apps. It was a completely different world back then, and it was frankly much more difficult to navigate.
Prashant Kumar- And I must tell you, even though we have a lot of online options nowadays to connect quickly, I have found that most of my investors are those whom I have met in person and shaken hands with. In fact, I would say that about 75% of my investors fall into this category.
In terms of the time value of money, I feel that I get more value for my efforts when I raise equity for projects by meeting people in person, looking them in the eye, shaking their hand, and talking to them for 15-20 minutes, rather than just talking to them online. What is your take on this?
Jeremy Roll- Certainly. To be honest, I have attended some conferences virtually as a panelist or speaker. I’m actually speaking at one tomorrow, but it’s virtual. I’ve also tried some online networking after the end of those sessions. While there is networking available online, it’s not the same, not even close to being the same. You just don’t get the same sense of the character of a person, which I think is very important before you invest with them if you can. Although there is a lot of cool software that enables networking, it’s not perfect. Being in a circle of, say, 4, 5, 6, or 7 people in person where you can learn a lot and talk right there is very difficult to do online. It’s usually a one-on-one conversation. So while there is networking online and value to it, I believe that it’s a better version in person.
Prashant Kumar- Yes, that is absolutely true. If there are seven people standing in a circle, you can talk to almost all of them at the same time.
Jeremy Roll- Sometimes you get the benefit of standing when someone is very knowledgeable, listening, and everyone’s paying attention to this person. And you cannot replicate that in virtual networking. It’s very difficult. So again, this goes back to whether the person has time to network or if they are too busy with their job. Some people don’t enjoy networking and don’t have an interest in doing it. In this case, they could take the other path of going through intermediaries and finding opportunities.
Inspiring and Encouraging Investors to Take Advantage of Investment Opportunities
Inspiring and Encouraging Investors to Take Advantage of Investment Opportunities
Jeremy Roll- Well, it’s interesting because usually, it’s the other way around for me. I have done so much networking over time that I receive a lot of people sending me opportunities, and I might discuss them with them. However, now I am so constrained by my busy schedule that I usually can’t review something and just give consulting feedback. If I look at something and it looks good, I’ll start digging into it. The best part about networking to me, other than investing, is that it’s a team sport, and you can benefit from the knowledge and perspective of others. For instance, I recently invested in a deal in Dallas. I’ve invested in many deals in Dallas over time, but someone I know there is not only the largest mortgage broker in Texas but also drove by both properties and sent me a video of it. Getting his expertise and perspective on the lending side, coupled with my understanding of the sponsor and real estate for over ten years, is just an example of how one plus one can equal three. Often, when you approach other investors with this mindset, it can be very powerful. I also like to exchange information with investors or investor groups about feedback on sponsors. What has their experience been? How do we avoid the pitfalls and landmines?
And that’s an excellent point. Another thing that I believe is essential is conducting background checks on past investors. Even when reinvesting with someone, I redo the background check at least once a year, and it has saved me from fraud or dealing with someone who is not trustworthy. I find that most past investors do not prioritize this, but it should be a mandatory addition to their list. However, I make it a point to network with many investors and provide feedback. I take calls from new investors who are trying to understand the real estate landscape, and I don’t charge them for my time. It’s one of the benefits of having free time, and I’m always happy to give back by sharing my experiences. I’m not a professional advisor, but I can provide a perspective and offer feedback.
Prashant Kumar- This is great! While I know many people conduct a breakdown check, I personally have never implemented it in my business. It’s impressive that you believe in doing it at least once a year, even if you’re reinvesting with the same operator. That’s powerful information.
Jeremy Roll- I want to be clear that I don’t conduct in-person due diligence every year for investments I’ve already made. That would be very onerous and time-consuming. For example, I’m about to invest in a new fund that’s launching for ATM investments (not real estate). I’ve already done my background checks from last year, but I’m now redoing my in-person due diligence on-site because it’s been a couple of years since I last visited before the pandemic. This involves going through the head office, looking at the documentation and terminals in person, and examining the ATMs in retail locations. I’m starting from scratch again because you never know. Background checks are easy and can be done on a computer in a few minutes. While it may cost the sponsor some money, it could save me a lot of money in the long run. The cost-benefit analysis makes it a worthwhile investment.
Prashant Kumar- What else do you do besides due diligence? I know you visit the offices, go to the location, review documentation, and conduct background checks. That is truly impressive, and I believe many busy people may not have the time or knowledge to do all that.
Jeremy Roll- Yes, I agree. Meeting someone in person and having that gut check is really important before investing with them. Even if it’s just one time, it can help decrease the risk.
In terms of analyzing opportunities, there are now some books available that can help you gain a sponsor’s or consultant’s perspective on how to vet and think about opportunities. These resources can be helpful in making informed investment decisions.
If someone is starting from scratch, I would recommend going through the process a number of times to gain an understanding of how performers work and what to look for. Key factors such as expense ratios, cap rates, and loan details are important things to consider. Once you have mastered these skills, you can easily transfer them to other asset classes with some minor adjustments. This is the beauty of diversification – while you still need to learn the specifics of each asset class, you won’t need to start from scratch every time you vet a new investment opportunity.
Prashant Kumar- Well, I agree that it’s important to protect your assets and do your due diligence before investing. And you’re right, a lot of the principles that apply to one asset class can be applied to others. So it’s always good to continue learning and expanding your knowledge. And finding the right operator or sponsor can definitely save you a lot of money in the long run.
Jeremy Roll- Yes, I would also like to emphasize that it’s important for people to start with one asset class and focus on it. It’s easier to understand and learn the basics of one asset class before moving on to others. If someone has experience living in a mobile home park, for example, they should start with that asset class since it will be easier for them to understand and vet. Similarly, many people start with apartments because they have lived in one, and it’s easier to find opportunities in that asset class. However, it’s crucial to focus on one asset class and learn its basics before diversifying into others.
Prashant Kumar- This is a valuable piece of advice, folks. Don’t switch from storage to multifamily to mobile home parks and ATMs in search of a gold rush. There’s no such thing. You might end up harming yourself. Stick with one for a while, and once you’ve mastered it, then maybe try another because your knowledge is yours. Nobody can take it from you. By gaining more knowledge in one asset class, you will make better decisions for yourself and be able to protect your money. I believe that’s what you’re saying, Jeremy.
Positive Experiences and Surprises in Investing Journey
Positive Experiences and Surprises in Investing Journey
Jeremy Roll- I have made many successful investments in my career, but one thing that comes to mind is my focus on low-risk passive cash flow. Although only 1% of my portfolio is in startups, I have been fortunate enough to have some amazing multiple returns in some well-known companies that fit within certain criteria I have created for myself. I have been able to reinvest these returns into more cash flow, which has been fantastic. One of my favorite consistent cash flow sources is the fifth-largest operator of ATMs in the US, in which I have invested since 2008. I have averaged around 30% cash on cash per year, and the compounding returns have been amazing. Additionally, I have invested with the largest private owners of mobile home parks in the US since 2009. They have done an incredible job, adding over 2,000 homes to their portfolio during the pandemic, and mobile home parks have one of the lowest turnover rates, making it one of my favorite asset classes.
Most people are not aware of the potential risks associated with investing in the wrong asset class at the wrong time. The real estate and economic cycles play a significant role in determining when it’s a good time to invest. Therefore, it’s crucial to have an opinion about these cycles before making any investment decisions. For instance, if someone had invested in real estate in January 2007, they would have suffered significant losses due to the market crash that followed. Currently, we are in a period of price adjustment, which makes it a challenging time to invest. Hence, it’s essential to invest wisely and at the right time to avoid negative consequences.
Interest rates are continuing to rise, and prices have decreased. In my opinion, prices will probably continue to fall, and there’s a high chance of a recession in the second half of this year. When you combine all of these factors, investing now may result in owning an asset that is worth less by the end of the year, which is counterproductive. Therefore, you must look for unique opportunities at this time. I advise people that it’s a great time to learn because while you’re learning, you’re not missing out on much. You may even get in at the perfect time, just like those who started investing in 2009. However, don’t be too eager to invest at the same time. It’s subjective, and you may find that it’s a good time to invest. That’s okay, but make sure that you’ve taken the time to understand where we are in these cycles. Don’t make the mistake of jumping in without a clear understanding and accidentally shooting yourself in the foot. That’s my advice.
Prashant Kumar- Jeremy, what you just said is invaluable advice for many people. A lot of newcomers to investing may end up hurting themselves because they don’t have the necessary knowledge to understand the market cycle. As a fellow CCCM, I completely understand where you’re coming from. It’s currently February 2023, and it’s crucial to be patient at this time. Take a step back, learn, and prepare yourself for the opportunity that’s coming down the pipeline, hopefully within the next twelve months. If you get in now, you won’t be able to back out of the deal. It’s important to heed your warning and wait for the right opportunity that can take you for a ride.
Jeremy Roll- That’s correct. The risk has increased at the moment. The best part is that we are discussing this at the right time, as it seems we won’t have to wait long to see how much the interest rates increase. Additionally, it doesn’t seem like it will be a long wait until we find out if there will be a recession and what its impact will be. So, while the risk is high, the timeline to avoid it is short, which is a really good situation for someone at the moment.
Prashant Kumar- In my opinion, we may start seeing a lot of opportunities in the next twelve months or so that could potentially yield great returns if you get in at the right time. It could be a ride of a lifetime.
Jeremy Roll- Yes, that’s definitely a possibility. Although we did get sidetracked in my previous answer, I’ve been fortunate to invest in a variety of opportunities, including with an apartment operator who specializes in low-income housing, tax credit, and tax-abated investments. While it’s been challenging for me to feel comfortable investing in anything, even multifamily, in the last couple of years, these tax-abated opportunities have provided a lot of value at closing with no execution or operational risk. I could share some numbers if you’re interested. Finding good operators during difficult times has been crucial to my success. In my opinion, the operator is more important than the opportunity. Both are crucial, of course, but if I had to choose, I’d say the operator is the most important factor. To illustrate this, I like to give a simple example. Let’s say you invest in the best building on Rodeo Drive in Beverly Hills with great tenants, but the operator runs the building to the ground. You’ll lose your equity and end up with nothing. On the other hand, if you invest in the worst building with the best operator who executes flawlessly, you can make a lot of money even in a bad area. I’m not saying you should do either of those, but it’s an easy example to understand how important the operator is in your investment success.
Prashant Kumar- This is really valuable advice. It’s important to seek out loans from experienced real estate professionals rather than someone who is new to the industry and may not have as much knowledge or expertise. Those who have been in the industry for over 20 years have seen it all and can provide valuable insights and guidance.
Experiences of Investment Gone Wrong
Experiences of Investment Gone Wrong
Jeremy Roll- Yeah, when you take enough swings, it’s impossible to avoid 100% of the failures, even though I like to think I can. But the reality is, you can’t. That’s why diversification is so important. I have had some interesting stories that I would like to share as a lesson for people. It might take a minute, but I always tell everybody that there are countless ways a deal can go bad in creative ways. You could be investing in a 300-unit apartment building in the best location that’s 100% occupied and has been managed well by great managers, but then a fire breaks out, half the building has to close, the insurance company refuses to pay, and then you have to fight them in court for four years. Now, you can’t afford to pay the debt service, the property gets foreclosed, and you end up losing money.
Taking enough swings in investing means that even if you try to anticipate every possible risk, it’s impossible to account for every single one. Diversification, therefore, becomes essential. Let me share a lesson that highlights this point. I often say that there are at least 20 creative ways a deal can go bad. You could own a 300-unit apartment building in a prime location with 100% occupancy and great management, but then disaster strikes. For example, there’s a fire that forces half the building to close, but the insurance company refuses to pay, leaving you to fight a lengthy court battle. You end up spending a fortune on legal fees for five years only to lose the case. While this is a pessimistic scenario, it’s a 1% risk that’s still very real.
Now let me tell you about a 1% risk that I actually encountered. In January 2008, I invested in a 303-unit student housing building right across the street from a state university campus. At the time, I was worried about the upcoming recession. However, my theory was that when the economy suffers, people tend to go back to school, and that turned out to be 100% true. So, the building was 100% occupied throughout 2008, and we had a very experienced sponsor who owned 17 different properties. We assumed a loan at very favorable terms, which was due in May or June of 2012. However, in the spring of that year, the city sent a letter to all the residents and the owner, stating that they had to shut down the bridge to campus over the summer for repairs, as they were not going to do them in the winter time due to the Michigan weather. They reassured everyone that it would be done in time for the school year. Unfortunately, the students became worried that they wouldn’t be able to get to school next year, causing our occupancy to drop from 100% to around 60 or 65%. This was problem number one, and it was manageable for a year. Despite this setback, we were able to break even, which was actually really good, thanks to the favorable loan and other factors.
They sponsored a few of them but they owned most of them. They actually transferred all of us out of their own equity to another property, which was the first property across from a state university in Texas and the whole process took about a year with legal documents and accounting and all this stuff. But I’m still cash-flowing today as a result of that foreclosure having been transferred because the sponsor thought that was the right thing to do. They felt really bad. So they lost millions in recourse loans, and they lost millions in equity to transfer to people. But that’s what I talk about, making a bet on the person. So so many lessons there, right? Because you’re making a bet on a person and even though they had the wealth, they didn’t necessarily need to choose to transfer everybody because none of it was their fault.
They wouldn’t have been found any negligence or anything or mismanagement. Right. But they chose to do that, which is important. So that was their personality. They had the wealth to do. Which is an interesting lesson too. Those are 1% risks and normally when you invest in a 100% occupied building, I tell people it’s like a new airplane, six dominoes have to fall before you crash. It’s not like one system that fails, they’re backup systems. So that’s why I was mentioning all these dominoes fell and all these 1% risks aligned, right? And so that sounds almost as far-fetched as the burning bill building burns down, the insurance doesn’t pay. Like really it’s those four dominoes that have to fall. So you have to be diversified even if it looks like the most obvious deal. And this is a really good example of that and also an example of how important is to make a bet on the right person.
Prashant Kumar- Wow, this really highlights that success isn’t just about the opportunity itself. This example serves as proof that it’s ultimately the operator who can make all the difference, even in the worst of circumstances. After ten or even fifteen years, you can still see positive cash flow from it because the operator made the right call.
Jeremy Roll- That’s absolutely correct. The lesson here is that investing in a more affluent operator can provide greater flexibility, such as offering short-term loans to the property instead of requiring a cash call in case of unexpected expenses like legal fees. While it’s not necessary to cover every single 1% risk when making an investment, diversification is absolutely essential.
Prashant Kumar- Wow, that’s great. Jeremy, we’re running short on time and I want to respect your schedule, so let’s do some quickfire questions. What’s one piece of advice that has had a significant impact on your life, and how do you think it could benefit others?
Jeremy Roll- Absolutely. This investment philosophy is based on slow and steady growth. I would discourage anyone who’s looking for quick cash to pursue it. Delayed gratification is essential in life, and it’s a key factor in consistently building up a cash flow snowball. Although it requires effort and patience, it’s truly worth it in the long run.
Prashant Kumar- Share one of your personal habits, that contributes to your success that you think will benefit our audience.
Jeremy Roll- Yeah, I am highly organized, focused, and diligent in my work. In fact, I would say that I work even harder now than I did in the corporate world, putting in more hours and maintaining greater focus. However, I firmly believe that hard work, the proper focus, and excellent organizational skills are essential for success. Without a doubt, these traits have played a significant role in bringing me to where I am today.
Prashant Kumar- Any book that you would recommend on passive investing to listeners and why?
Jeremy Roll- Absolutely. I have two book recommendations that I would suggest reading in this order if you are new to apartment investing. Brian Burke has a great book that provides a higher-level perspective from a sponsor’s point of view, which is really beneficial. Then, there is Rob Beardsley’s book which delves into the underwriting process with a more in-depth focus on what you should be looking at. You can find these books on Amazon, but I don’t know their names. These two books, in that order, are highly recommended.
One more book that I’m a huge fan of is Robert Kiyosaki’s “Rich Dad, Poor Dad” and “Cash Flow Quadrant,” in that order. If you haven’t started investing yet and are still figuring out what to do, I recommend starting with these two books. Many people are not familiar with the second book, but reading both of them in that order can be very helpful. Begin with “Rich Dad, Poor Dad,” followed by “Cash Flow Quadrant.
Prashant Kumar- By the way, when my daughter was ten years old, I gave her both of my books, “Rich Dad, Poor Dad” and “Cash Flow Quadrant.” She still remembers and references them to this day. Also, both Brian Burke and Rob Beards, who you mentioned, are good friends of mine. I have met and interviewed them multiple times, so you made great choices there. Do you have any other parting advice or thoughts for our audience?
Jeremy Roll- Yeah, I cannot stress enough what we discussed earlier, which is the importance of being extremely cautious right now. Investing is not a bad idea, as everyone has their own opinion. However, it is crucial to have a well-formed opinion about both the economic cycle and the real estate cycle before making any moves. This is especially true if you are just starting out, as it’s a great time to learn. I believe that the next year or two will be an excellent time to invest, and if anyone wants to reach out to me, they are welcome to do so. Whether you’re a new investor, an existing investor seeking to network, an investment group, or a sponsor with an opportunity, my email address is email@example.com.
Prashant Kumar- Is there any social media or any place that I can connect you with?
Jeremy Roll- I literally have no social media presence, website, or anything of that sort. I prefer to remain under the radar as I am extremely busy. Unfortunately, email is the only means of contacting me. However, I do have a profile on LinkedIn, where you can view my work history and profile. I am not very active on the platform, though.
That’s perfectly fine. It’s not necessary to be present everywhere. You have been doing great work while staying under the radar, and we have read about it. I have personally met you, although I don’t recall where. This world is vast, and I am grateful and honored that you took the time to speak with us today and provide valuable information to our audience. I am humbled. Thank you so much, Jeremy.
Jeremy Roll- I just hope it was helpful for everybody who’s listening and for those who are still with us thank you for watching.
Prashant Kumar- Awesome Jeremy. Thank you so much.