How to Underwrite a $50 Million Dollar Real Estate Deal

Earth is one of the best investments that you can make. If it has a building attached to it that produces cash, even better. In real estate you can invest in old, value-add, and new. I usually don’t invest in new but it’s a good time to do it when the price of old and value-add is going up. I’m working on a $50,000,000 deal right now and I’ll tell you that if you cannot underwrite a deal like this, you have no business investing in a $50,000 deal. Don’t let the numbers and the process confuse you—stick around and become an expert at this game. Learn your market and get around people that are doing what you want to do. Never trust the pro forma and get accurate numbers for the trailing 12 and trailing 3. When you’re trying to get wealthy, don’t cut corners! Learn to play a professional game by looking at bigger deals. The bigger the property the better—you’ll always get a premium when you scale out. If you collect cash flow over an extended period of time—appreciation is bound to happen. Market corrections will also happen. When they do, it’s the little deals that will get whacked. In 2007 and 2008, it wasn’t the big deals that stopped producing income. It was the small deals. My huge deals continued to pay me every month. Look at your exit strategy before you invest in any deal. Understand that when you are putting more money down, it acts like a debt paydown. On small deals, on the other hand, the deposit is not enough to act as a debt paydown. For my deal, I already know who will be my buyer when I sell it and my expected return. It’s a good strategy to pay yourself a value-add when you exceed your projects returns. For example, I’m expecting a 6% return on my deal and will pay myself 35% of the amount that exceeds that 6% return. I don’t need the money so if you’re writing up your agreement with other partners, you could ask for 50% value add. When it comes to real estate investing, I like to say— “Stick and stay. It’s bound to pay.”