Senate Eskridge was born and raised in Twin Falls, Idaho. He and his wife Cari have raised five children in the valley. They are business owners, and Senate is also a Student Success Coach for Jake and Gino’s Wheelbarrow Profits Academy and an active Multi Family Real Estate Investor. In today’s episode, Senate will share his tips for analyzing deals in real estate and syndication, what to look out for, and how to keep yourself safe when making investments.
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Analyzing Deals 101 with Senate Eskridge
Shannon Robnett 00:45
Hey, everybody, welcome to season three of the Real Estate Rundown. You know, today we’ve got something that’s a treat for me, I’ve only ever done it once before on my show. But I get the opportunity to interview and talk with a fellow Idahoan. In fact, this guy is actually more Idahoan than I am because he was born here. And I wasn’t I moved here when I was eight, but I’ve been here the whole time. But you know, the thing is, when you start talking about a particular state, you start talking about the roots, you start talking about how things grew up, you start talking about all the reality that becomes what your hometown is. So I have the opportunity to privilege today to talk to somebody that knew my hometown and knew this state back when it was super small. And so with that, I want to welcome Senate Eskridge to the show. Good morning, Senate.
Senate Eskridge 01:34
Morning Shannon, thanks for having me on here. I appreciate it.
Shannon Robnett 01:38
So you know, the funny thing is, we were just talking before the show about how the very first job I ever did was in Twin Falls, Idaho, which is where you’re from. And for those of you that don’t know, Boise is the capital city, the next biggest city down the line is Twin Falls, that’s about well, with the new speed limit change. It’s now about an hour, 20 minutes down the road, 30 minutes down the road. But you know, Senate you’ve grown up here, you’ve been a business owner here, you’ve found all of your success as an Idahoan which for a long time people thought of Idaho is just this Podunk little place. Right. Right. But what has been your journey that has allowed you to go from small town Idahoan to successful business owner to successful coach to having over 500 doors in multifamily? I mean, what was that journey? Like?
Senate Eskridge 02:31
You know, this definitely has its ups and its downs, for sure. And especially, you know, being in a small town, like Twin Falls, Idaho, you know, you’ve got to really think outside the box and think outside of, you know, the limiting factors of this of this area. I do love Twin Falls, it’s a great place, there’s a lot of advantages. So when I talk about that and talk about the limiting beliefs of the people in the area, I don’t want to sound like I’m talking bad about it, because I really do love it here. But I, I grew up always wanting to be an entrepreneur, always focused on the entrepreneurial mindset. I told a story recently where I was I was the kid that was selling things out of their locker in grade school. You know, like, I’ve always known that, if I wanted to achieve my goals, I had to blaze my own journey, my own path on my training. And that’s really what I always strive to do. Now, I’ve had…
Shannon Robnett 03:28
Just to be clear, though, the things you were selling on your locker were totally legal, right?
Senate Eskridge 03:34
Yeah, actually, they were totally legal. But there weren’t without controversy. I actually got suspended from school in the fourth grade. I was selling condoms. Yeah, perfectly legal to have. But the principal didn’t think that it was appropriate. So I got in trouble for that.
Shannon Robnett 03:56
I how things have changed, haven’t they? Yeah.
Senate Eskridge 04:00
Funny story. I actually got those for free from the Health District. Infinite rate of return, I went to the Health District, got them, and then started selling them. Right. So I’ve always been…
Shannon Robnett 04:10
…your market probably a couple years early, you know?
Senate Eskridge 04:13
Yeah, well, actually, I sold them to a lot of older kids, right? Because I was the kid that wasn’t shy, I could walk in there and get them and wasn’t afraid to do it. Right. There you go. Some of these other kids that were a little bit more embarrassed and that kind of stuff. So that’s an example of the types of things that I had to do to really, to blaze that journey. And I moved on into other types of entrepreneurialism. I’ve done a little bit of the network marketing and that kind of stuff. But that was really not my thing, either, because I really wanted to be able to design my own path, as I just mentioned, right? I’ve been an employee a couple of times. I’m a horrible employee, right. So just for the record, right, like I never never loved having a strict schedule or specific rules I had to follow or anything like that. So when I found real estate, it was like a perfect fit for me. Because I can work on the properties I want to work on, I can do them the way I want to do them, I can blaze my own my own trail as as, as I’ve said, Now three or four times that I absolutely love real estate in every aspect.
Shannon Robnett 05:22
Well, and you know, you got me beat. I quit, I gave up on trying to be an employee after high school, right? I had to get my summer job. But after that I wasn’t down for that. But you know, you’re so correct. And there’s so much that people want to understand about being an entrepreneur, right? But there’s so little out there for walking alongside an entrepreneur, you know, there’s really not a place for you to go. Okay, wait a minute. What was that? How did that work? What am I doing here? Why am I supposed to be doing this? What’s next? There’s really, I mean, there’s books, right? But there’s not really this, Hey, come here. Let’s do this together. Let me show you how to do it. Except real estate syndication really kind of has that inner work and that framework to it. If that’s what you’re looking for. And you’ve used that because you’ve actually become a coach with Jake and Gino. Because you found the value in that I’m assuming and then and then now became the coach that shows, Hey, this is how I did what I was shown to do. What was that process like for you? I mean, you know, you found single family, and then you’ve elevated that game, you’ve got some coaching now you’re a coach, what was that? Like?
Senate Eskridge 06:44
Yeah, so the, it was a struggle becoming a real estate investor nn the very beginning. I made a lot of mistakes. You know, if you if you ever meet someone in business that says they never screwed up, I wouldn’t, I wouldn’t. I wouldn’t do a deal with them. Right? So I got into single family back when it was really hard. 2009, and I screwed up a lot. I’ve had I’ve had small lessons and and big lessons. And, you know, thankfully, to this point, I’ve never had a lesson that involves someone else’s money, all of my mistakes where I was on my own dime. But, you know, I struggled all the way through. And of course, as you mentioned, I read some books, spent a lot of time on bigger pockets. I read every book I could possibly find. But and I finally scraped and in scrounge to build this big portfolio of single family houses. And I ran out of I ran out of time, I ran out of money, and I ran out of resources, right specifically lending, there’s a lot of struggles if we need to have several multi single family loans, right, a lot of regulations. And so I had to do something different. So I decided to buy multifamily, after lots of research and looking at self storage and triple net I, I like all those things, and they’re great assets for the right operator, but for me, apartments made the most sense. So I decided I’m gonna buy one of these. What do I do actually called my residential realtor, I found this property on loop net. And I called my residential realtor and I said, Hey, I want to buy this $10 million apartment building, we put an offer in for me. And she said, Well, I’ve never done a deal that big, but we can learn together. And so my residential realtor used the single family residential offering template, right? To submit an offer for a $10 million apartment building. We’ve basically got laughed off the, off the computer screen, right? Because that’s not how that’s not how the business works.
Shannon Robnett 08:43
That’s not how it works. No.
Senate Eskridge 08:47
So when I when I got that rejection email, basically was Call me when you’re a grown up is what he said, basically.
Shannon Robnett 08:55
Wow. He was really gentle, wasn’t he?
Senate Eskridge 08:58
Yeah. So I had to do something different, right. And that’s the reason I found mentorship. And I found Jake and Gino. And I go full on into this mentorship, ecosystem. And I learned and they helped me so much that I felt obligated to pay it forward and help other people. And so that’s the reason I became a coach was because these people, they held my hand. They helped me they helped me come along. And now what they asked for me was now go and help somebody else. Right. And that plays right into I really believe in the Go Giver concept. The more I give to the universe, the more I get, right.
Shannon Robnett 09:39
So, you know, and it’s funny because my upbringing, you know, I’ve been in construction and develop my whole life. I mean, I’m second generation in that and I’ve just never seen where there’s camaraderie where there’s participation where there’s, you know, this attitude of, hey, we can do it together, you know, in development. I mean, you never you never tell anybody what you’ve got under call contractor what’s coming or what you’re going to do, because it’s just a different game. When I got involved in multifamily real estate, on the syndication side, I’d already developed several large multifamily projects. I just had not gotten into the capital raised part, then I start getting around this environment. And you can imagine how foreign it was to me just like your, you know, instead of writing an LOI, you put it on a on a, probably an RA 23. And, and you submitted that, where, you know, I came into this whole thing, and I see these people trying to mentor each other, I’m immediately suspect, right, I’m immediately like, what are these guys, they’re trying to, they’re trying to, they’re trying to steal my deal, right. But seeing how that’s this this opportunity in syndication really can be a team sport, and should be, because you’ve got people with different skill sets, you’ve got people at different levels of the game, you’ve got people that are able to do more, some of them are able to do less, but you’re all looking at the common goal, and raising everybody up. So everybody’s on a on a set of stairs, everybody goes up one step with the deal. Everybody goes up one step with the next deal. At the end of the day, you’ve got an amazing group, and a network of people that can take down way bigger deals than $10 million deals now. And that came from that giving forward mentality. And, you know, so for me coming out this 28 years into my business life, I was just like, you bunch of weirdos, man. I mean, it was it was, it was a trip. But I’ve really learned to embrace that and to be part of a tribe, and to learn from other people. Where, you know, my skill set may have been a little lacking in the fundraising department. You know, the rest of it I’ve been doing for years, but the fundraising department was always a different kind of a thing for me, you know. But let’s talk about that. Let’s talk about what’s going on in the world right now. Because you’re you’re involved in mentoring other people, I’m sure you’re having people come to you and go, Hey, you know, is real estate still a good thing to get into? How do you know, where are we going? Isn’t this just like ’08 right? And you’re starting to get that you’re plugged into Jake and Gino, you’re plugging to the guys who’ve been doing this for a long time. So you’ve got a downstream connection of information and insight that you know, is pretty high level. And you’re able to pass that on to people. What are you saying to people right now when they say Is now a good time to get into real estate and is syndication still a thing?
Senate Eskridge 12:37
So you’re absolutely right, I get, I get a lot of information from a lot of different areas, right. And being a coach and I have people in multiple different markets, right. So I get to see things from the west coast, the East Coast central areas, these people are bringing me deals and asking me my opinions on them. So I get to see that. And I want to answer your question from two different angles, right. So the first one is as a buyer and operator, but then also I want to follow up and come back as an investor and ask those questions as how to whether it’s a good time to invest as a passive investor, because they’re, they’re really two different things, even though at the same time, the concept is the same, but they’re different, right? So I would say today, now, in my opinion, is the best time to buy. I honestly believe it’s better now to buy multifamily than it was a year ago, or even two years ago. And that sounds counterintuitive, right? Because people talk about what the interest rates have been doing. And you know, all this stuff keeps climbing and the Fed’s trying to fight inflation and things like that. Well, someone else said one time, you know, you marry the property, but you date the rate. Right? Right. So really, really what that means is, I don’t really care what the interest rate is, if the property works at 8%. Yep, it’ll work when the rates come back down. And it will, as long as you’re doing a certain kind of debt, it will work long term with where you’re at. And you can let nature take its course on inflation helping you out with your rent with your rents. Right? Exactly. So that’s what’s really important is making sure that you understand the type of debt that you’re getting into, you understand that the property can make money as is right, and the debts not going to change later. Right. So there’s a lot of people that have gotten in trouble recently with with floating rate or bridge debt that’s going to have a really short term. I’m doing I’m doing a deal right now in Idaho, that I’ve got a five year locked rate with a local credit union. And it’s absolutely amazing. You know, this thing is locked for five years. But I always said what’s going to happen at the end of that five years? Right, right. Five years pretty long time, right? Okay, but I need to know what my exit strategy is at the end of that five years. Yep. So I’ve talked to some people that bring me deals, and they’re looking at, you know, 18 months or two years. Right. And quite frankly, I don’t care how good the deal is. If you have to sell the property in two years, I’d be pretty scared.
Shannon Robnett 15:19
Yeah. Well, and you know, that’s the funny thing, too, because as we’ve seen in the last 30 months, it hasn’t really been a real market. Right. I mean, it’s been an overheated market. You know, I heard somebody tell me the other day, would you rather spend… overpay for something by 4% 5% 10%? Which was our market a year ago, and get a 2% interest rate or be the only bidder or one have to had time to do due diligence weren’t putting up hard money? Day one, right? How many people? How many people? How many deals? Did you see? Where was a million dollars? non refundable. Day one?
Senate Eskridge 16:00
Oh, yeah, a lot all the time.
Shannon Robnett 16:02
I couldn’t stomach doing that. I didn’t do any deals like that, because I just couldn’t put my, my mindset there to go. This is I’m losing a million bucks. If I walk away from this deal, no questions asked. This can’t be that good. Right. And some people got through that. I get that. But you know, when you’re looking at how you pull this together, you’re you’re so correct. Because if it’ll cash flow today, it’ll cash flow in three years. Right. But where people were looking at it going Holy crap, we got a we got a 30% IRR in, you know, two and a half years. Right. Congratulations, right. Congratulations. Everybody had that opportunity in the last two years to do that. Now? Where what are you going to be able to do right now? How are you underwriting that? And that brings me back, you are going to answer that question from the other side of the coin too.
Senate Eskridge 17:03
Yeah, yeah. Thanks for circling back to that. So as a limited partner, right, is this a good time to invest into syndications in general, private placements, but multifamily specifically? I, again, I want to repeat the answer is yes. Because if you have an operator that you trust that their underwriting you have vetted, that you’ve done your due diligence on them. And that property makes money today, in today’s difficult environment, what’s it going to be like when the market turns around in five years? But chances are, it is long, as long as they’re not pencil whipping the deal, right? Because that does happen. Right? But if you have a good solid operator that you’ve done your due diligence on and you’re getting, I don’t know, call it 8%. Yeah, my crystal ball, my crystal ball, which I admit, it’s got a big crack in it, right? My crystal ball says that’s not really going to be 8%. It’s gonna be more like 10 or 12.
Shannon Robnett 18:01
Right. And there’s that opportunity, right. But the good news is, if it’s 8%, you have room for things to go wrong, before you’re stepping into a capital call situation, right? And we’re hearing those rumors through all over that people are having issues with that capital calls, right? So when you talk about analyzing the deals, let’s let’s get into that a little bit more, because there’s, there’s so much that goes in analyzing a deal. But there’s really some basic, basic components, right? So if you’re analyzing a deal, obviously, your journey may be a little bit different than a lot of people, most people, they, they maybe buy three or four or five single family homes realize that that’s too much to manage themselves. All they did was buy themselves a job that took their nights and their weekends. So then they sell those and they become an LP a limited partner with somebody who with a lot of experience, and they just sit on the sidelines and watch. And they do that three or four times until they feel comfortable to then jump into the pool at some point. Doesn’t sound like you did that you went from a fairly large portfolio of single family to well, if I can do single family, I can do multifamily. Yeah. And you’re still alive. So the answer is yes. But but the reality is, there were some things you learned along the way that made you look at how you analyze those deals. You got the mentorship that helped you analyze those deals, what are some of the key points that you’re breaking down when you’re analyzing that deal from the LP’s point of view.
Senate Eskridge 19:38
From an LP point of view… So I actually say I advise people not to look at the deal first. And I know that doesn’t make any sense, right. But I think that the first thing that you need to look at is is the partner you’re working with. Right? Who, who are you talking to about this deal? And the reason behind that is a, a good operator can take an average deal and make it perform. But a bad operator can take a great deal and run it into the ground. Yep. You know…
Shannon Robnett 20:13
We were talking about that before. And we were talking about how in 2008, things started to come apart. And a lot of people just froze like deers in the headlights, because they, they’d never seen anything adverse in the real estate market, because they just got in at ’05. Now they’re looking at this at ’08 and they don’t know what to do. But you got in at ’09. 2009, you started buying real estate. So you had been working through the problems, which is what you have to be that’s that good operator making it great because you see the problems, and you’re not looking necessarily at a bottom line number and following a spreadsheet and go, Oh, this cell needs to change to this. So I’m going to change it on my computer. So it does that you actually know how to solve the problem to make that happen. And that’s, that’s the secret sauce.
Senate Eskridge 20:59
Right. And I would say that’s something that I pride myself on is being able to identify a problem, and then find a solution. Right. And so and I’ve done that in several different businesses, not just real estate, but if I find a problem, I pretty good at thinking outside the box and finding that solution. And I think, I attribute a lot of my success to that. And to your to your point, right? No, I wasn’t doing 100 unit multifamily in 2009 and 2010. But I was doing, I had multiple single family, some duplexes and triplexes. And there’s a lot of learnings there that correlate over. And so I’ve been tested, I’ve been through that fire, and I’ve screwed up a few times, right. And so now, when we were in the last few years, where everyone was shining, I was shining, too, but I actually believe I shined even more, because I had all those other experiences write down the opportunity, I saw the time to sell things that I needed to sell them exit some deals that type that type of thing. So yeah.
Shannon Robnett 22:01
And that’s true. You know, when you I mean, you were in a difficult lending situation, right, where there was not a lot of capital available. So you had to be creative with that. But you know, so now you’ve underwritten, the general partner, you’ve underwritten, the people that you’re doing business with, and you understand that they have the experience. And you understand that they know what they’re doing. And they’ve got the track record and you’ve seen their past deals and you’ve vetted them, right? What do you do next? What’s your next step is a limited partner?
Senate Eskridge 22:30
Well, so you’ve got to, you’ve got to make sure that you understand what your criteria are. Right? What is it that you want out of a deal, right? Because there’s a couple of different methodologies in these, these limited partnerships. These syndications. Are you looking for cash flow? Right? Do you want X amount of cash flow every single month to live on? You know, maybe for that you’re a little bit of into retirement or something or this is your income stream? You’re going live on this? Right? Whatever that is. Or are you looking for equity place, you’re okay with no cash flow, we want that big pop at the end, right? So you need to know what your expectations are. So you can choose which type of property you want. Or maybe it’s a combination of them. Personally, I like to put… to mix up my portfolio, right? So one deal I have will be a higher cash on cash return, maybe in a cash flowing market, and then the next deal I have will be a high appreciation return in more of an appreciation market. The next thing after that when you start diving into the deal itself, which I do recommend that you do right, there’s a few things you need to look at. Number one, does it cashflow today, right. Cuz, you know, there’s another thing that I’ve heard recently is, you know, if it doesn’t cashflow, let the grass grow.
Shannon Robnett 23:50
Yeah. Well, and you know, what this market is proving that that phrase to be very, very true, right. deals that didn’t cashflow 18 months ago, they’ve got bridge money that’s coming up. They’re smoked, there’s nothing they can do about it. And now you’re trying to pick up somebody else’s mess. And maybe there’s other opportunities out there. So that’s, that’s really fantastic advice.
Senate Eskridge 24:17
Yeah, I that’s the first thing I would look at. The second thing I would ask about is the debt because you just alluded to bridge debt. Right, which basically, for the listeners, for the limited partners, all they need to understand what that is. Bridge debt is basically short term debt, you know, anything that’s under five years, I would consider short term. Right. So when is the first debt payment change going to happen? You know, and really, that could be a lot of things. That could be it’s a short term loan. It could be it’s an interest only loan, which means they’re not paying any principal on the loan. They’re just paying the interest. And if that changes in 18 months, that means the payment is going to shoot up in 18 months. Right? So tell me about the debt? That would be what I want to know. And what you’re looking for in there is when are they going to change interest only payments, that they have to refinance that type of thing? Because if you ever forced to sell a property, you’re in a bad position, right? Well, you want to sell when you want to, not when you have to.
Shannon Robnett 25:22
And you know, here’s the funny thing. I mean, we’re going up at a fast at the fastest rate, in 40 years of interest increasing, just in January, you could have got 3% money. Now you’re up over 4%. If you take that and go from now to next January, if that same thing happened, you could be at 10% on your money. If you’re at 10% on your money, and you don’t, and you are going to have to take that out there, did you account for that? Right? If you did, fantastic. But if you didn’t think about refinancing out of this bridge debt at 10%, I would say you’ve got some problems, Houston, you know, you need to reevaluate that. Because if you’re not taking that into your control, and this is the environment, like you said, You’ve got to be able to control the deal. You got to be able to make sure that all the variables are are taken care of. So that, hey, I got a deal that I got a five year window on, I got five year debt on. Now I know my exit is planned for five years, if I wind up in a situation that I get 6% money and replace my 8% debt in three years. Great. My horizon just moved, right. But I have choices instead of being the guy that says, wait 18 months from now we’re gonna refinance out of the 6% money into 6% money.
Senate Eskridge 26:50
Yeah, right. Good luck. Yeah.
Shannon Robnett 26:53
But you know, what we’re seeing those deals come across our desk all the time. Yeah, we are. And that’s the inexperience that you’re talking about being able to analyze prior, rather than penalizing panickizing. Right, you’re in the middle of this thing you’re trying to get out of it because you didn’t see that part of it. Right. So key, such a key point there.
Senate Eskridge 27:15
Yeah, the next point I would talk about is, you know, how did you come up with your, your performance, your projections, you know, and I’d be happy to go through all of them in detail. But just ask that question, right? How did you come up with that? You know, there’s a few key points, things like rent, rent assumptions, or taxes, these things, these things that are changing all the time and have changed dramatically over the last several years. For example, rents rents have risen the most in the last two to three years, and they’ve risen in the last 20 years on a percentage basis. Is it possible that they’re going to continue to rise at that rate? Probably not. So. So you need to ask how did you come up with these projections? Right, same thing with taxes. Did you account for the tax increases? Right? And I actually have a checklist on my website, you know, we’ve talked about that beforehand, where there’s all of these questions…
Shannon Robnett 28:12
…you’re gonna get to that. So guys, if you want, and this is, as you guys can tell, Senate knows his stuff, right? I mean, he’s really got this figured out, if you want to get to his checklist, send me an email at [email protected], in the subject line, put Senate on there, Senate’s checklist, and I’ll send that to you. And you can have, he’s got over 20 items on here that you’re going to want to go through, but these are the top five, these are the top things that are gonna get you, if you if you’ve got Senate, agree with me here, or disagree. But if you if you have a checkmark on all five of those that they have gotten those five, then it’s okay to keep going. If one of those five that we just talked about doesn’t meet the mark, there’s no sense in going on. Right? If you don’t have your debt analyzed, if you don’t have, you know, if you’re talking about 8% 9% 10% rent increases, you know, I’d love to get those because they make me look like a genius, but at the same time, how can I expect that that 10% is going to increase? And what does that do to my deal? If I get 3%? What does it do to my deal if I flatline? Right? So these are the things guys that experience will tell you, these are the things that will help you not get in trouble. Now, Senate I’m going to ask you, did you ever get in trouble on debt?
Senate Eskridge 29:35
Oh, yeah. Yeah, a couple of different times. Yeah.
Shannon Robnett 29:38
That’s how that’s how you learned. Did you guys see how his eyelashes fluttered for a minute because he remembered that pain on the same thing, right? You didn’t anticipate that, Well, I’m gonna have this thing done in a year. I don’t need I don’t need 24 month money. I don’t want to pay the extra point for 24 month money. Now you’re sitting here in an environment where you can’t get another 12 months. That was my problem, I was looking at it short term, I didn’t see it coming. This was back in ’05 actually. And I couldn’t get a renewal on it, you know, and it forced me to sell an asset I didn’t want to sell, I made money, but barely, you know, all those things that you were saying. I’m completely resonating with, because I saw how in my world, all of those things I’ve lived through, right? I mean, I got the scars to prove it, right? Absolutely. So. So if you’re underwriting and you’re analyzing, and you’re doing that, and you get all the green lights, and everything’s checking out, what do you do next? You like the deal. You like the deal, you liked the operator, you like everything about it. What do you think people should be doing, if it’s all green lights, and everything looks wonderful to them? They just got the PPM. They’ve just got paper at this point. What’s your next step really?
Senate Eskridge 30:58
Well, most people, most people don’t actually do this. But I definitely think that it’s important to actually read the PPM right, read what it is that you’re signing. And I know that that’s a daunting document. You know, I’ve read hundreds of them at this point. Well, 10s… 10s… probably close to 100. Anyway, and I know that they’re confusing and can be daunting to read, but read it, ask questions, if something seems odd to you ask the person about it. Right? Because that would be the next thing that would maybe cause a red flag. If they don’t know what it is they’re having you sign. Right? There’s probably there’s probably a problem there. Right?
Shannon Robnett 31:37
And then you wind up with situations like, Okay, how does the principal get returned? Right? How does… how does the cash on cash work? Are you getting paid back? Is that going to principle first reducing that? I mean, those are important things that could that could lead to hundreds of 1000s of dollars different in a deal, right? When you look at, you know, the PPM and how it comes together and who’s involved, right. You know, all of those kinds of things. It really is important. And I agree, I think my attorney gets paid by the pound for these things, right. But there are things that you have to understand there are things that you need to know because, you know, I have one unhappy investor, and he was really unhappy. But he didn’t read the PPM thought he was getting into cashflow deal, got it in appreciation deal, right? And he looked at he said, the numbers look great. I did my due diligence on you. I’m good to go sign the PPM, called me up four months later go? Where’s my money? Yeah. Because he hadn’t read the document. Right? Yeah. So it definitely has a lot of value in that.
Senate Eskridge 32:49
I do a lot of coaching, as we talked about. And I’ve coached several limited partners through this process before they sign up for a deal. And this is probably the… I don’t know if it’s the biggest, but it’s at least the second or third area where a deal could fall apart. You know, when I read through the deal, and I say so did you know, did you know this is a return of capital or return on capital? Did you know that, you know, the Promote changes from 7030 to 5050? Like and I say, did you know these things? Which, again, there’s nothing wrong with any of these one or two things, as long as it fits your model, and you’re okay with it. So all I’m doing is asking, Did you know X, Y and Z? And if they say yes, great, you can have my blessing, right. But…
Shannon Robnett 33:34
Let’s do that. Let’s do this real quick, because you brought up a really key point. Yeah, return of capital versus return on capital. Right. Now. First of all, explain the difference between the two. And then secondly, tell us what that will do to the returns.
Senate Eskridge 33:52
Yeah, so this is an interesting thing that most people don’t even understand. In fact, a lot of syndicators, I’ve talked to you didn’t understand it. Yeah. Yeah. And so…
Shannon Robnett 34:02
Whch is why I brought it up, because I’ve, I’ve heard a lot of people, and you can really tell who a sophisticated LP is because this is usually one of the first questions they ask.
Senate Eskridge 34:09
Yeah, the sophistic… You’re right. It’s the sophisticated ones for sure. So in a nutshell, if it’s a return of capital, every dollar that you get back, every every time they send you a check, then it’s going to lower the amount of money that you have invested. So let’s make up a number. Let’s just say let’s use, let’s use $100, for easy math. So if you get if you get a $10, check in the mail, that will you think that’s a 10% cash on cash return. Right? Well, okay, that makes sense. But in the return of capital deal, it’s still actually a 0% return. And what it’s doing is it’s lowering the amount of money that you have invested. Right, and so now you only have 90 $90 invested not $100. Which, when you go put that into the underwriting spreadsheet, now you have a smaller cost basis, which that now makes the total return seem a lot higher. Right? So it can, it can artificially inflate the returns of a deal. And I mean, when I say artificially, I’m not trying to point fingers and say, you know, somebody’s being devious about it. I don’t think most of these people are even doing it on purpose. I just think that they maybe don’t understand what they’re doing.
Shannon Robnett 35:31
Right. Well, and so so you know, the thing is, if you’re getting, you know, if your most deals have a pref, right, they’ve got a preferred return. So if I’m giving you a 7%, preferred return on that $100, it means that every year I owe you seven bucks. But if every month I paid you $2, that means by the end of the year, I paid you back, and my 7% pref has reduced down. So I may only owe you five and a half dollars of pref equity, or pref payment on that return. Yeah. Which is helped my deal out one and a half percent, to look better and juicier. And you’re right, I would say that 50% of the people that have that in their in their OM, or their PPM do not realize that that’s what they’re doing. And a lot of times I’ve seen where the underwriting doesn’t match the the verbal documentation, right? Because when the attorney looks at it, he looks at a spreadsheet, he does his stuff, right? He’s not really looking at how did this calculate, right. And that’s a little thing, that when you get to be a sophisticated or a more sophisticated investor, you’ve seen a couple of these because you’re going wait a minute, that didn’t quite add up, that didn’t go the way I wanted it to. But it’s that return of capital, instead of the return on capital, that then changes the matrix and changes how much you’re paid out. And at the end of the day, that definitely affects returns, right.
Senate Eskridge 37:02
And again, I want to reiterate, it’s not that it’s a bad thing, if you understand and you have the deal set up properly. If the LP understands and the GP understands it can be great. One of the one of the best deals I think I’ve ever seen was a return of capital deal. And the way it worked was the general partner didn’t get any, any money until 100% of the capital was returned. Right? Then it went to 50-50. Right? Now I don’t invest in this deal. It wasn’t my deal. It’s just I read one of these PPMs for a potential investor. And it was amazing. I thought it was great idea.
Shannon Robnett 37:39
Ken McElroy does that in his infinite deals. So he, he you get he gets an asset management fee. All the money goes back to the investor until they’re paid off. And but this is based on he wants to own stuff for 40 years. Right? So if I get you all your money back, and then we split profits from there, 50-50. That makes a lot of sense, right? But you’ve got to have again, back to analyzing what kind of investor are you… Are you the guy that wants your money tied up in this deal forever? Your equity tied up in this deal forever? You made you got your original principal back, that’s fantastic. But you’re in this deal for the we’re never selling this thing. Right. Yeah. So again, analyzing the deals, especially in the market right now, where it’s not just falling off a truck to make this deal a 20% IRR. Right.
Senate Eskridge 38:33
Yeah, you just like you said, understand the deal. Make sure it fits your Buy Box. Yeah.
Shannon Robnett 38:38
So as people, as you guys are looking at that, again, send me an email at [email protected]. We’ll get you connected just in the four lines, subject line there, put Senate investor checklist, and we will get you that checklist so that you can go through this and understand what is important to make sure that you’re getting the right kind of thing. And as you guys can tell, Senate really knows his stuff. Because he’s been doing it. He’s been coached by some of the best in the business. There’s nobody out there can can deny the fact that Jake and Gino have built a great business, they built a great system. They are good coaches, and they can really, really help you grow your business and grow your mindset. So it… you know, Senate, I want to thank you for showing up today. Is there anything you want to say in closing real quick before we sign off?
Senate Eskridge 39:32
You know, just happy to happy to connect and help in any way I can. I love helping people. So, you know, whatever I can do to help you don’t hesitate to ask.
Shannon Robnett 39:40
Awesome. You know, guys, that’s really why I do this podcast. I don’t, I don’t need to spend my time talking to really awesome, interesting people. I can just call Senate because he’s right down the road. But I do that because I agree with Senate 100%. Helping people get what they want out of life, like Jim Rohn says we’ll get you what you want out of life. And that is 100% of why I do this podcast why I do a lot of the things I do. And you could tell guys that that’s why Senate does what he’s doing. So I want to thank you for coming by. Thank you for tuning into the Real Estate Rundown. Don’t forget to like, share, and subscribe to the Real Estate Rundown wherever you get your podcasts. Leave a review, I’d like to hear from you and I’d love your feedback. Also, I’d love you to send me a list of guests you’d like to see on the show. If you know somebody that you’d like to hear on the Real Estate Rundown. We’d love to see that. Once again. Thanks for stopping by Senate.
Senate Eskridge 40:31
Thanks Shannon, see you later.
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About Senate Eskridge:
Senate Eskridge was born and raised in Twin Falls, Idaho. He and his wife Cari have raised five children in the valley. They are business owners, and Senate is also a Student Success Coach for Jake and Gino’s Wheelbarrow Profits Academy and an active Multi Family Real Estate Investor.
Being from Twin Falls, Senate has worked with several industries in the area. His vast experience made him a perfect fit for Multi-Family Real Estate investing. Currently, he owns 513 units and has helped nearly 100 people from all walks of life invest in Multi-Family Real Estate.
One of Senate’s many passions is to solve problems for people. He truly enjoys looking at issues in a new way and utilizing his connections to identify solutions for others. He is active in the community, and he currently heads the Magic Valley Real Estate Investors Meetup and is involved in the Twin Falls Chamber Ambassadors and Snake River Business Network.
Website – https://senateeskridge.com/
Facebook – https://www.facebook.com/senateeskridge
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LinkedIn – https://www.linkedin.com/in/senateeskridge/