Have you ever considered investing in real estate? We have a special episode where RealCrowd CEO, Adam Hooper, is a guest on the Main Street Business podcast. Hosted by Matt Sorensen founder and CEO of Directed IRA and Directed Trust Company.
On this episode, Adam discusses the five key areas of risk found in real estate.
Connect with Mat
Adam Hooper: (00:03) Hello and welcome. I’m RealCrowd, CEO, Adam Hooper, and this is the Real Estate Investing For Your Future Podcast. Here we explore the latest in commercial real estate trends, insights and investment strategies that passive investors can use to build real estate portfolios that last.
Disclaimer (00:20) All opinions expressed by Adam, Tyler and podcast guests are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions, to gain a better understanding of the risks associated with commercial real estate investing. Please consult your advisors.
Tyler Stewart (00:45) Hello everybody. Tyler here today. We have a special episode where Adam is in the hot seat as a guest on the Main Street Business podcast, hosted by directed IRA CEO, Matt Sorenson, and today’s episode, Adam discusses, RealCrowd sister company ReAllocate the registered investment advisor that helps you build a diversified real estate portfolio based on your risk tolerance and financial goals. If you’re interested in learning how ReAllocate can help you, head to buildmyroadmap.com, that’s buildmyroadmap.com. We hope you enjoy this episode with RealCrowd and ReAllocate CEO, Adam Hooper.
Mat Sorensen: (01:28) All right. Welcome everyone to the Main Street Business podcast with Matt Sorensen and Mark Kohler. We’re excited to be with you today and we even have a guest.
Mark Kohler: (01:40) Wow. This is special. And his microphone looks better than ours too. So that’s intimidating.
Mat Sorensen: (01:48) Yeah. Uh, you know, this is Adam Hooper, he’s the CEO of RealCrowd. He also has a podcast himself and apparently, he’s got better podcasting gear than we do.
Adam Hooper: (01:58) Uh, I don’t know. You guys have to, we’re just saying you’re, you’re far more ambitious doing, uh, doing video and remote. So we just, we just head out in the podcast studio and try to keep it simple.
Mat Sorensen: (02:08) Okay. Well, you can see, you know, we’re just working from our offices and Mark’s on the patio there.
Adam Hooper: (02:16) Yeah. A little bit on location.
Mat Sorensen: (02:19) That’s right. Because you know, there’s, there’s no vacations from the podcast. All right. There’s no such thing, you must show up. Well, today we’re talking about a cool topic. The five factors to consider when investing in real estate. And so Adam has been the CEO of RealCrowd.
They’re essentially funding portal for people who want to invest into real estate deals, , or people, investment sponsors raising money for real estate deals. And this is usually bigger than the duplex down the street. You know, these are usually larger real estate offerings, of course. And so I think he’s got a lot of great insights from there and growing out that business, , they’re also, they are an RIA now. working with other RAs who want to get their clients into real estate. So I’m interested in his perspective there on, , just, you know, helping other RAs get over the real estate hp. Right. They just want to sell them a mutual fund or a whole life policy or something, you know? So why don’t you tell us that I’m, I’m just curious on the outset, like.
What, how are you guys working with RAs and what’s the conversation like on getting them to be engaged in real
Right? So the core business, real crowds started that almost eight years ago. Now $7 billion of real estate through the platform. All self-directed with individual investors. Throughout that time, we would see people making investment decision based on a target return, right? That was really their primary investment criteria was which one has the highest return.
And I’m just going to put all my money into that deal, , which we didn’t think is necessarily the best investment philosophy. And at the same time, having a, of RAs that were investing their own capital into these deals, but they couldn’t invest our client’s capital because Hey, I found a cool deal on the internet.
Didn’t really meet their fiduciary standards. And so we saw a need. Oh, yeah, go ahead.
Mark Kohler: (04:24) I’ve got to ask you to do this, too, because there’s a lot of listeners of ours out there that don’t you know what an RIA is? Could you define that for us? That might be a good starting point, too, if you don’t mind.
Adam Hooper: (04:34) Sure. Sure. So, Sue, in RIA, not an IRA. RIA is a is a registered investment advisor. Right, a wealth manager, a financial adviser. We choose to work with independent RIA’s. Right. So not there not with a big brokerage house. They’re typically a fee only. So they charge just a flat percentage on on assets under management. You’re not charging commissions for trades and tend to look at things through a more holistic financial picture than just a a product pusher. Right. So so when we looked at how we wanted to change our business and we formed, again, a wholly owned subsidiary, it’s called ReAllocate, pretty simple. Just Reallocate.com, trying to figure out who we wanted to work within that space. And going with the independent advisors with that fiduciary standard was a better fit for how we wanted to help people make better decisions, like in the context of their whole portfolio. Right. Not looking at just their real estate market in a silo, but really working with professionals that have you know, they have the planning tools, they have the tax optimization strategies. They have more of a holistic plan with their their financial picture in total. And then we can work with them at ReAllocate to figure out where does real estate fit into that and then how do we make sure that we’re putting the right portfolio of risk into their into their investments rather than looking at a real estate investment just through a return lens or without any context for the rest of their financial picture.
Mat Sorensen: (06:00) Now, Mark and I, it’s funny, I was just up in Mark’s house in Idaho last weekend complaining about financial advisers who, if I can get some that can like talk about a self directed IRA that can talk about investing in real estate, like how does someone find a financial adviser? We find them very hard to come by that can find a financial adviser that talk to you about your real estate deal. Talk to you about your business. Talk to you about self directing. Are those out there? Are they like unicorns?
Adam Hooper: (06:34) Yeah. There hard to find for sure. Right. And I think the distinction between, again, a fee only independent RIA, right?
They have the latitude to be more custom in how they approach things. They’re not being, they’re not being pushed product from the top down and saying, you can only sell these. The investment vehicles, so independent RA’s generally, you know, they’re, they’re their own small business owners. They have much more flexibility in how they can look at a retirement portfolio or just overall investible assets.
We’ve actually partnered with one of the bigger ones in the country called Mariner Wealth Advisors. We have a partnership with them for people that are interested in getting you. Maybe they’re not working with an advisor right now, but they want to have a more holistic financial picture. They understand private investments.
They understand. Uh, we work very closely with them to, to help get those people, access to someone that can look at it holistically and then figure out with us, where does real estate fit into there? How can that fit into their portfolio? , but I agree. It is, it can be challenging to find someone in and we were just talking on our show, Matt of, of the, yeah.
Legacy financial services are so locked into those cookie cutter products because it’s, it’s more work, right? I mean, it’s more work to try to figure out how to include that in your portfolio than just here. Take this bucket of mutual funds. It’s a lot easier for the advisor. They’re getting paid the same thing.
So, so a lot of them don’t want to take on that extra work. And that’s where we see. We can kind of slot in there as those real estate experts use a lot of this methodology that we’ve created living at the intersection of client risk and real estate risk, , and, and make it much more accessible and easy to understand for them and, and how that can work with their clients versus the traditional, you know, publicly available REITs and other, other vehicles.
Mark Kohler: (08:14) All right, so you have some referral sources that if a client came through your office and said, I want real estate, I don’t have an RIA, I would really like someone to help me with budgeting and help me with Social Security allocation and really look at my overall investment portfolio, whether or not sold the next coolest thing for the month, that we shouldn’t mention any broker’s name, should we?
Mat Sorensen: (08:41) So that’s life policy so that that guy can qualify for the truth. Yeah, yeah.
Mark Kohler: (08:48) So you can send us referrals and clients to interview some RA’s. Also, I just encourage our listeners to start Googling in your local city, your local area. They can also be nationally helping clients.
So don’t feel like they have to be down the street gratefully with COVID. We’ve all learned how to use Zoom better. So I encourage all of you to look outside your normal circle of friends or clients in a local area. So when someone says, I want to find an RIA and buy some real estate, we really want those two people on the same page, the person that’s going to be selling us real estate and the RA, so they can help guide us.
Is that, what’s your perspective on that?
Adam Hooper: (09:34) Yeah, and I think that’s, that’s, what’s so important to us is again, looking at looking at the real estate company. As it, as it is a component of the overall portfolio. Right. And so making sure that that is in line with the rest of their goals and the rest of their financial picture, that’s, that’s why we find so much importance in working with an advisor that understands that full picture. And then digging in a little bit more about what we’re doing at ReAllocate is, is really, again, that intersection of client risk and real estate risk. Right? So part of our process is an interview with the clients in an interview with their advisor. You know, what are this client, what is their need for liquidity, right?
What is their need for current yield? , are they, are they higher risk? You know, are they more aggressive? Are they more conservative? What stage of their life? And are they more for capital preservation or wealth creation? Understanding what their financial goals are. And then we can fit that into one of our portfolios.
And then it gets into the real estate risk side, which is, you know, what Mat led off with, which are these, these five factors that we look at in our, in our methodology. And it really started around, I think it’s funny, or our industry in the real estate space, we talk about risk adjusted returns. But how can you have that conversation if you don’t actually understand how much risk you’re taking?
Right. So, so our, our starting point was how can we actually quantify the amount of risks that people are taking in there in these real estate investments, put a framework and a methodology around that. And then we can build a portfolio of appropriate risk for these clients, rather than just you kind of the gut feel that we’re going to buy something that’s 85% occupied spend 12,000 a door to renovate.
We’ll target a 16% return. So we’ll call it value add, right? That, that was about as scientific as it had gotten our space. And so really focusing on a methodology where we can figure out where on the X axis of risk, how much risk are we actually taking in these investments? And then how does that fit into the overall picture?
Right? And so the five major factors that we settled on are the market, the manager, the physical asset itself, how the investment is capitalized in the partnership structure. And so across those five different categories, there’s, I don’t know, 350 400 different metrics that we look at and we analyze. And then we distill that down into the more, I guess, industry standard terms of core, core plus value add opportunistic.
So based on our methodology, we figure out. Which, which risk category does this asset really fit into, right? How much risk are you taking in this investment? And then we build a portfolio model around that. And that’s what then the decision making process is, is, is making sure that there’s a correct allocation to risk rather than just focusing on those target returns and that, that works really well. Yeah.
Mat Sorensen: (12:09) Sorry, let you finish. I was like, oh
yeah, let me, let me go back. So I think on this to tie off the RA comment, , so you mentioned RIA, you know, and, and that is like, you know, in Tony Robbins’ book, people, you know, read his book. , what’s it, , on, on, on, what was that last one on unshakeable? Something like that. Yeah. Something like that. But anyway, Tony Robbins, but of course he goes after the financial services industry, but he comes out and says, RA’s are fiduciaries, right?
This is the one that’s like, are you a fiduciary? You know where they’re not. Forced to sell you certain product like Adam said. So if you’re out there and like mark said, doing the Google search, RAs are more likely to be kind of no conflict of interest. They’re more likely to allow you to do real estate because they’re not forced to sell you an insurance product.
If they’re like, you know, if you’re, if you’re a financial advisor is at New York life, you know, no offense, but what do you think they’re going to sell you as an invest? A bunch of New York life policies. Okay. So whole lives and communities. And so there’s no shocker. They’re going to not be like there.
You’re in like, oh, I want to invest in this, in this fund, that’s buying in this apartment building. Nah, they ain’t going to do that. So let me smarize those five things though. I, I wrote them down quick cause you rattled them off pretty fast. So the five factors and let’s walk through each of them, the market, which makes sense.
I want to talk about that. How do you know you’re in a good market demand? Who’s running that deal. The physical asset itself obviously would make sense. Now, what was the fifth? The fourth one, the capital
Adam Hooper: (13:55) Capitalization. So how, how has that project capitalized from, you know, debt and equity and then some of the more typical financial metrics is what we look out there.
Mat Sorensen: (14:03) And then the partnership stuff.
Adam Hooper: (14:06) Exactly.
Mat Sorensen: (14:08) OK, this fine structure here, what’s the. What’s the structure for you have?
Adam Hooper: (14:13) Structure or even an individual deal, right, so that individual assets. And this is this is more generally investing in a in a, you know, typically syndicated investment. This isn’t if someone’s going out and buying their own property on their own. Right. This would be more if you’re partnering with a with a professional manager as an LLC or a limited partnership is what we typically see in our space.
Mark Kohler: (14:35) Got it. Okay. How large are these projects too?
Adam Hooper: (14:40) You know, on the, on the marketplace side, I think, right. Average deal size is 25 million, 25 to 30 million. , a lot of multi-family we’ve seen a lot of value in multifamily, especially in the last 12, 13 months.
Right. The multifamily space has held up a lot more. Uh, robustly than some of the other asset classes, uh, industrial obviously has done very well also, , on the, on the advisory side with reallocate though, the first, the first two deals we, uh, we worked on, it was about a $340 million portfolio of two assets, one in Bellevue, Washington, one in Phoenix, Arizona.
So those were pretty big, pretty big deals. , and again, I think it’s the, you know, the caliber of manager that we want to work with on that side. These are our. Still sub institutional in size generally is what we’ll see, because there’s still inefficiencies in that capital markets. Right? , once you start dealing with the bigger 50, $60 million plus properties, you’re competing with institutional capital and a lot of times the yield on those does get compressed just because there’s so much capital chasing those deals.
So the sweet spot again, I would say under 50 million is kind of the typical deal size that we’ll see sub institutional in size, but beyond maybe the mom and pop local regional buyers, uh, is where we see most of the, the. Facets in our, in our space.
Mat Sorensen: (15:52) OK. Well, let’s let’s go to one so we just start number one
Adam Hooper: (15:58) Start it, start there at the market, the market.
Mat Sorensen: (16:03) Phoenix, Arizona,
Adam Hooper: (16:05) Phenix, Arizona, Bellevue, Washington, right. So it’s with a market, a lot of it we look at there is centered around employment. And unfortunately, given everything that’s been going on the last the last year plus with with the pandemic, the employment’s been hit pretty much across the board. So the market is one that’s been interesting to watch, isn’t it? It’s coming back as an elevated risk pretty much across the board. So we look at things like historical employment. Right. What is the what is your recent employment growth? What is current employment? Look, relative to historical employment stats in the market, things like units are under construction. Right. What is the what is the new supply coming online relative to the current supply in the market? Right. Or we if there is one hundred units under construction and you have a ten thousand unit marketplace, that’s less risk than if there’s another 5000 units being deployed or coming online in the next 12 to 18 months or so. And it guess how we how we approach this model is really trying to look at based on what we know today and based on these factors, how they look historically. What is our assessment of risk at this point today rather than a predictor of future returns or a predictor of future risk? Right. So we’re looking at this based on all of these factors that we look at that we know of, that we can quantify today. What’s our snapshot of risk right now and then? How do we think that fits in relative to the historical picture of risk within those different those different factors that we look at?
Mat Sorensen: (17:29) What about are you guys looking at population growth? Is that a factor there, too? I mean, obviously, I think you want to be a place where population is growing, there’s demand for housing. This is whether you’re a single family rental here or you’re buying a big multifamily deal and you want you don’t want unemployments. You want strong employment.
Adam Hooper: just kind of strong employment, you know. And also, what is the nature of that employment rate? Is it where there is one major employer that that has the bulk of the employment in that in that area? Right. If you lose one employer and all of a sudden you’ve got a massive spike in unemployment, again, that’s going to be more high risk than if you have a well diversified economy right within jobs. So, again, those just kind of like the major factors that we look at. There’s there’s a whole bunch of different sub factors to that. And again, population growth is a big one. Migration patterns, you know, some of the the the coasts are seeing some you’re seeing some exodus from some of the major metros into more, you know, Southwest and some of those the states. So definitely population migration patterns are another factor in that for sure.
Mark Kohler: (18:34) And I presume that in this. These five quadrants that you’re looking at, if you. Give up on a market that might be really strong rental market and marketability, but you’re looking at the market. But we might have a bigger shot for appreciation, so we’re going to look at pros and cons of those five. And say someone’s more interested in long term growth versus cash flow, that’s going to change what type of project you might look for them, I presume.
Adam Hooper: (19:07) Yeah, and that’s so, so part of the model. And the methodologies that we really tried to focus in on was to the extent we can, discounting any future projections. Right. Underwriting performance. It’s a set of guesses. Right. I mean, let’s let’s be honest. There’s a bunch of assumptions and we’re just kind of making a best guess at what we think the market might do in the future. And that’s really hard to quantify objectively. Right. That’s a lot of the kind of art that still comes into real estate underwriting. And so with the modeling methodology, we tried to we tried to separate out as much as we can. Now, some of the financial metrics, of course, we look at at projections, but they’re very low weight relative to some of the other ones that are more kind of concrete metrics that we know today, like loan to value at closing. Right. That’s that is a fact. What a target IRR, what a stabilized cash on cash return is. That’s more of a guess, right? That that’s that’s kind of this future prediction based on these assumptions. So within the methodology, we really try to look at what are those more concrete factors that we can quantify today objectively without assumptions and then and then base our decisions around that. So in the appreciation side, again, that comes into somewhat of the capitalization. Right. We look at some of the metrics that closing relative to stabilization, relative to exit, that would come into the partnership structure. Right. Where we look at what percentage of returns are coming from cash flow versus appreciation. Generally, if you have a higher percentage of the returns coming from cash flow, that’s going to be less risk than like a ground up development where almost all of your returns are going to be coming from this this kind of capital event at the end of that asset versus a, you know, a 25 year absolute net lease to Walgreens. That’s almost entirely cash flow. Right. So just different different risk. Specter’s there when you’re when you’re looking at the composition of those returns as well. I think maybe that’s that’s kind of what you’re getting to.
Mark Kohler: (20:52) Yeah, yeah, yeah, yeah. What’s the minimum investment for someone to. I just want to get that out there too. Like if someone says, hey, I want to use my IRA, my 401k or personal money. How can they?
Adam Hooper: (21:03) Yeah, it varies. , you know, sometimes down to $25,000, you usually 25 to $50,000 is where we see the sweet spot. Some of the investments, again, if it’s a larger investment, could be up near a hundred thousand. Some of the funds that we’ve seen have been at a hundred thousand, uh, but generally between 25 and 50,000, is that sweet spot of where we see those investments, uh, minimum investments, which is, which is what’s really exciting is that we can leverage.
All the efficiencies and everything that we’ve built in on the marketplace at real crowd, we can leverage that same technology, that efficiency to bring that into this advisory space. So instead of, you know, one investment of $250,000, and that’s, that’s, someone’s total allocation to the asset class, you can build a portfolio of, you know, five to eight investments within that same 250,000 and get a much more diversified pool of risk, rather than kind of going all in on one deal, which historically, you know, 250,000 was, was kind of the minim ticket.
Mat Sorensen: (21:57) Okay. All right. Anything else you want to say on, on a market? Or should we start talking about the manager?
Adam Hooper: (22:04) Yeah, we can talk about the management in the market. That’s a really interesting one, especially given what we’ve seen with jobs right now and these migration patterns. Right? So that’s one that we’re definitely paying attention to and, , has thrown models.
Mat Sorensen: (22:17) that you think are like under, looked at are appreciated, like you know. I mean.
Adam Hooper: (22:23) Yeah. I mean, I think it’s it’s it’s the things that you mentioned. Right. Where where are the more you we’ve talked about on the podcast and these kind of transition economies. Right. Economies and markets that have gone from more of your kind of manufacturing jobs to more of the knowledge based jobs. Right. Pittsburgh is one that’s been talked about. You know, there’s some markets in Florida, Texas, Austin, obviously, Denver, Salt Lake. Right. Some of those markets that are seeing the transition of the composition of their jobs, that’ll be more, you know, being more insulated going forward. And obviously, caveat all of this with, you know, we’re not providing investment advice here. Some of those markets, it will be insulated from these disruptions going forward and ones that are seeing influx of people with this kind of urban migration, urban exodus that we saw obviously with with the health crisis, but quality of living, cost of living, some of those areas that are attracting younger people that are going to have more of that, I think more insulation from some of these job disruptions going forward. Think those are some of the better markets to look for out there.
Mark Kohler: If I could throw this out to. When you come to markets, you’re looking at residential versus commercial as well, because some of your projects are one or the other. Right. And commercial has been, I have to presume, a little bit impacted by this covid thing. So many businesses are going to saying, man, I can send my employees home. We’re not up this. How does that play into some of your analysis?
Adam Hooper: (23:52) Yeah, and that’s, you know, on on the advisory side right now, we’re just focused on multifamily. That’s been no commercial. That’s well, I mean, we consider multifamily as commercial, right. Bigger apartment complexes. So no single family residential. Yeah. But, yeah, you know, retail obviously has been pretty impacted throughout the health crisis. Industrial has done really well, has been for a long time, and I think we’ll continue to do so. Multifamily has held up extremely well and there’s been a lot of resiliency in the multifamily space. When you look at rent collections and certainly capital, that’s that’s going after multifamily. But office is a really interesting one, right? That’s when we don’t know yet how that will play out. Right. You’ve got these you’ve got these competing narratives. You’ve got remote work. You know, is this the is this the kick that finally makes remote work and work from home more commonplace? There’s probably some of that. So so you could argue that the companies will need less office space, but then you look at what is you know, how do you use an office in a post covid environment and do you actually need more space per employee to make up for some of that social distancing or whatever that might look like? So office is a really that’s that’s an unknown right now, I guess, in terms of how that recovers or what that looks like coming out of this, I think the nature of how we use the space will definitely change. Right. More looking at the office as a place where that’s more for collaborative work, that’s more team and then having a space where you can go and certainly get some more focused time, independent, more like that, work from home, remote space. It’ll be interesting to see how that one I don’t I don’t have an answer for you yet, but yeah, it’ll be interesting to see how it plays out. Yeah.
Mark Kohler: (25:32) Yeah. I thought commercial meant office versus multifamily, but you consider those within commercial and that’s good for people to know that.
Adam Hooper: Yeah. Generally we look at commercial as investments. You know, assets that are held for investment is generally commercial REITs, that we would include multifamily office industrial retail in that we make a distinction again between single family residential. Then you’ve got a blurred line between some of these build different communities of single family rentals. Right. So we’ve got some people that are looking at building housing a single family community where they would normally look at those as for sale product, but they’re going to retain the whole portfolio and rent them out as single family homes. That’s something that we’ve seen as kind of a new asset category. That’s coming up kind of between those lines of single family and multifamily.
Mat Sorensen: (26:20) Huh, interesting. We’ve seen you see a little bit of that in Arizona. I’ve heard about those. So tell us about manager. Let’s get to number two. We got to start working at the list here.
Adam Hooper: (26:30) Yeah, we got some ground to cover. Yes. The manager is one of the most important. Right. That’s one of the most heavily weighted in the in the model. And a lot of that is down to their their past experience. Right. If you’ve got a manager that’s done two billion dollars of multifamily projects and now they’re all a sudden they’re going to try to raise money for a ground up retail construction. Right. That’s a very different risk profile than if they’re going to buy another stabilized multifamily unit. So a lot of the manager, again, it’s who is actually running the project. Right. What is their experience historically? What is their background look like in terms of of executing on deals like this, both within that market, within that strategy, within that asset class, even within multifamily? Have they you know, they only bought units that are complex, that are 50 units or less, and they’re buying a 500 unit complex. Right. So really trying to match up their historical experience with with the current investment and then looking at their track record. Right. Have they lost capital in the past? What’s their litigation history look like? Do they have any bankruptcies or foreclosures? How many principals are there? How long have they been in business? So really trying to get an understanding of the qualifications and the experience of that operating entity. And how does that compare with this subject property that they’re looking at entering a new market? Right. That’s that’s going to be more risky for someone than if they’ve had, you know, their entire experience in Charlotte, North Carolina. They’re going to go buy something down in Orlando that’s going to be inherently more risky than if they’re buying another property in Charlotte. Right. So so a lot of those things, again, relative to what is their historical track record look like or what we’re looking for in the manager?
Mat Sorensen: (28:05) Okay. All right.
Mark Kohler: (28:07) Three
Adam Hooper: (28:09) Number three, the physical asset itself, right, this one’s pretty straightforward. When was a property built, when was the last time it was renovated? You know, some of the standard metrics, what’s your your acquisition price replacement cost or two appraised value? If you look at what is your capital improvement expense relative to how much you’re buying the asset for. Right. If you’re buying something for 40 million and you only need to spend half a million on capital improvements, that’s less risk than if you buy something for 40 million and you’re going to spend 20 million on capital improvements, even more granular. What percent of those capital improvements are deferred maintenance? Right. Are you just fixing issues at the prior owner didn’t fix or you actually going to be adding value in the asset? You know, is it lead certified? We look at the walk score issues, like where is it? Actually in the neighborhood in that submarket, we look at things again, trying to get an indication of what is a business strategy. Right. What is your one of those forecasts that we look at is how much are they trying to grow the net operating income to get to stabilization? So if you’re buying something and you’re going to grow rents at two percent per year, kind of keep pace with inflation, that’s less risk than if you’re trying to juice the rent seven or eight percent per year to get to that goal. Right. So trying to look at some of the business strategy there, is this more of a stabilized asset that’s a much more lighter touch? Or would this be a ground up development where your your growth from acquisition income to stabilize income is is infinite? Right. Because you have no income at the beginning. So we try to get to kind of some of those underlying factors about what’s the business strategy of the asset and how much value is trying to be added at the asset level as an indicator of the risk with the actual execution, execution risk in that strategy.
Mat Sorensen: (29:52) On the replacement cost, are you seeing that is, you know, prices have probably gone up, you know, in multifamily, as has in many other real estate classes. But have you seen, like, the replacement cost and people just being like, man, I can build this cheaper, although building costs, I hear like insanely high building kind of crazy.
Adam Hooper: (30:14) Yeah
Mat Sorensen: (30:17) So the replacement cost analysis like gone up significantly is that.
Adam Hooper: (30:23) it has, construction prices have gone, have gone up huge. Right. I mean you just look at the material costs. I mean a lot of the the DIY is out there listening to the show will know that a sheet of plywood is like 50 or 60 bucks now. And it used to be twenty. Right. You you know, two by four is eight to nine bucks where it used to be, too. Right. So just the hard cost of construction have gone up. Incredibly, you look at land costs, you look at the permitting and regulatory costs, and you look at just the time of holding until you can get through a permitting process. So replacement cost has definitely skyrocketed, which makes existing products actually look more attractive when you consider all those factors and what it takes to actually replace that. I think that’s generally a challenge within certainly when we talk about affordable housing, right. It’s it’s near impossible to build new products at any rents that will that will justify that for for any kind of less than, you know, ultra high end class, a luxury apartments. Right. That’s where that’s a lot of the pipeline that’s coming to the market is that luxury class product, because you just can’t make anything less than that pencil from a return on what those construction costs have been. So your definitely replacement costs go up incredibly over the last handful of years. And I don’t I don’t know that we’ll see that come down anytime soon, especially with all the supply chain disruption that we saw from from the pandemic. I think that replacement cost is still going to be pretty high, and I don’t see that coming down any time soon.
Mat Sorensen: (31:50) OK, OK, so I mean, and in the analysis of a property, I mean, I presume you guys are doing a you know, I think most investors are familiar with buying a home or a single family rental, let’s say. And, you know, they’re used to the home inspection process. You know, like what’s a good inspection process? I mean, for someone doing, like, looking at a multifamily deal, like how much analysis is going into that? And are people investing before the deal is bought? Typically. So the money’s being raised before it closes.
Adam Hooper: (32:30) Yes, a few questions there. So first, on the inspection side, again, the managers that are actually there, they’re buying the property, right. They’re going to coordinate all those inspections as part of their due diligence process. A number of inspections. Right. You’re going to do you’re part to do seismic, depending on what what part of the country you’re in. You’re going to do general property condition report. You’re going to get roofs checked. You’re going to get mechanical HVAC, you’re going to get all those checked out. So there’s a pretty extensive suite of inspections that go through go through this process. And that’s, again, that’s kind of standard due diligence for for the manager that the sponsor that’s actually buying the asset. They’ve always got their due diligence process that they go through. And, you know, we get a we get a report that’s hundreds of pages with the property condition report and all those findings. Environmental, too. That’s a really big one. Is there any remediation you can do different level one, level two, environmental reports to kind of see what they’re if there’s any issues underground? Right. So that’s on the kind of inspection and due diligence side. And then in terms of the timing of the capital raise. Yeah. So typically we’ll work with the manager when they’re they have the property in escrow, they’re going through their due diligence phase. They’re going to be lining up their senior loan. Right. And we’ll talk about that in the capitalization piece. They’ll be lining up their debt and then also raising equity concurrent with that. So usually they won’t call for funds until after they’ve gone hard. Right. That earnest money deposit is going hard. They’re going to close that transaction. Then they’ll usually call for funds, you know, a week, 10 days before they actually close the asset and then they’ll use those funds to to purchase the property. We’ve seen a number of deals, though, where the sponsor will close a portion of it on their balance sheet so they’ll use their own capital or they have a warehouse line with a financial institution or just their own their own balance sheet. Come in and close the asset and they can syndicate that post close release some of the time. Pressure again, six and one half dozen the other. It’s it kind of goes goes both ways on that one.
Mark Kohler: (34:29) Now, as you’re talking about raising capital, how did how does the average person that’s like, hey, I do want to get into these multi units, we’re raising capital, what should people expect? On the flip side, distributions or those monthly? Quarterly, what is a cash on cash return that’s average. A lot of people just look at cash and cash, you know, and I don’t know if that’s realistic in these larger deals.
Adam Hooper: (34:57) Yeah, so that’s. You were at an interesting time right now in terms of of where yields are going, right? We’ve seen them compress pretty substantially over the last 12 months, which is certainly again in the multifamily space, which is counter to what most people would think. Right. We just went through we went through the the one of the greatest health crises our country in world has ever seen. Still going through it. You would think that that would create a higher return expectation. But actually, we’ve seen we’ve seen cap rates compress. We’ve seen those yields compress. Debt has come down. You know, debt is still super, super cheap to get leverage right now, which is then increasing the value of these assets. So we’ve actually seen cash on cash returns come in and tighten a little bit. And again, again, it varies depending on what spectrum of the risk categories you’re going into. You’re right, a core asset is going to have a lower cash return than something that’s a value add or more of a kind of a core plus investment. Right. So it’s it’s hard to to say unless we’re talking about a specific opportunity, generally core properties, you know, cash on cash returns anywhere from kind of mid single digit range. And then you work to some of the higher cash on cash returns, a value add deal where you go in and you renovate the units and you increase those rents. Those are maybe stabilized to a high single high single digit, low double digit leverage, cash on cash return and then again, variability all within there. So returns are still one that we’re trying to again. Trying to understand what’s the appropriate amount of risk to take in the returns. I mean, they’ll work out what they will be, right? We can have an expectation of what those will be. But really, that’s one of the things we’re trying to shift, is making these decisions based on are you taking the right amount of risk in your portfolio based on what you’re trying to achieve in building the portfolio around that, rather than the historical notion of just the cash on cash that is the primary focus, right. Or equity multiple or IRR trying to bring in some other decision factors beyond just a target return to help make a better decision by understanding those risks?
Mat Sorensen: (36:58) Yeah.
Mark Kohler: (36:58) just to follow up on that. So is the average investor going, hey, I like this. These guys are so thorough, it’s so hard to find the single family world or duplexes or fourplex. Is that. Management always begins to be concerned, so being a part of a bigger group that is doing this type of work is so powerful. But as we try to as I talk to clients and try to bring them across that bridge and go, OK, come over, look at this other side of the field. The grass is pretty green over here. Should they expect also that return upon the sale of the asset sale, say, OK, I’ve got my cash on cash? You’ll talk about distribution’s a moment, but then we sold, you know, the property. There’s an exit strategy or they want out. They’re going to play in the equity or the appreciation piece on top of the cash flow.
Adam Hooper: (37:53) Absolutely. Yeah. And that so that’ll come into the partnership structure. Part of our our model methodology. That’s one of the big things that we look at is what’s that gross to net. Right. What is the what’s the delta between the actual gross returns at the property level and the net returns to investor? So that’s going to come into the structure, which is how how is the house cash flow treated both from your normal operations and also what’s how is that capital treated on a capital event? And that’s where we talk about that partnership structure, which is the preferred return, and then any kind of a promoter waterfall structure beyond that again, and it’s all across the board in terms of the structures that we see out there for the project project. Generally the project, my project 100 percent. Generally, though, we’ll see a preferred return. So so all the investors will get, you know, eight percent. Right. So they’ll get eight percent before the manager takes any kind of an outsized share of that, which is called a promote in the in the real estate space or a carry in the venture space. So prefer to return that rate. Generally, I’d say between seven and nine percent is what we see most of the time as a preferred return. And then beyond that, if the manager exceeds that, they’re going to get in kind of a disproportionate share of the profits beyond that. Right. So the manager is going to get an extra 20 percent of everything beyond that. And so that’s where, again, we look at what is that percentage, what does that profit share that’s going back to the manager versus the investor, both in a, again, kind of gross to net at the property level and then just the numbers of, you know, again, getting a bit a bit into the weeds. But, you know, we’ve seen waterfall structures where there’s three or four or five tiers of promotes. Right. So from an 8 to a 10, the manager gets 20 percent from a 10 to 15. The advantage is going to get 30 percent of that so they can get really complex. Generally, the more simple, though, if you can keep it to just a simple promote, it’s an 80 20 over an eight percent preferred return. That’s going to be easier for investors to understand. Right. And we think you’re generally less risk than if you have a multitiered waterfall and you get to that final promote. That’s maybe a 50 50 over a twenty five IRR. So there’s a lot of nuances in how those structures come together. And unfortunately, there isn’t. There isn’t what I would consider a market standard. They’re there as unique as the investments themselves, unfortunately, which makes it a little bit complex at times to understand.
Mat Sorensen: (40:17) What’s the time horizon on that, though? Typical in a in a fund of or buying a new asset, you’re going to get some cash on cash and then there’s going to be an event down the road when we sell it. Sort of typical timeline of that?
Adam Hooper: (40:31) Most of the deals, I think, of the forty five or forty six deals that we’ve seen exit on the marketplace, I think the average holder somewhere in that two is a little over two year range. This was a lot of those were earlier in the cycle. Right. So those ones that are being held longer haven’t exited yet. Most of the underwriting we see these days, you’re three to five years is probably on the more standard or shorter end for some of those value add projects. And then you look at some of the core core plus deals that are going to be more cash flow driven. Those will be anywhere from even seven to 10 years. And so so the time horizon and the illiquidity of those and you mentioned that before, the illiquidity of these is something that’s definitely needed to be considered going into. This is if you if you’re going to invest in a property that has a seven year business plan, you kind of have to assume that your money is going to be locked up for that full seven years. Right. There’s not a lot of ability to create liquidity prior to that capital event at the end, which is where it’s great for retirement accounts. Right. The timing of not needing to touch that money for a longer period of time matches very well with what we would typically see as a longer term horizon on these real estate projects.
Mat Sorensen: (41:39) OK, let’s hit capitalization. That’s number four.
Adam Hooper: (41:44) Number four, and we kind of you we kind of cover we jump partnership structures. We kind of cover that one. Capitalization is, again, some of your standard financial metrics. Right. Loan to value. What’s your debt service coverage ratio? What’s your debt yield? We look at a stress test, which is, again, financial speak. Your stress test is basically how much of your gross income can you lose until you get to one point zero debt coverage ratio. So if you can lose 20 percent of your income at the property level until, you know, you just barely cover your mortgage payments, that’s going to be less risk than if you only have five percent of your of your income to lose before you get to that one point, no debt coverage ratio. So capitalization, again, fairly standard financial metrics. And that’s really, again, a lot of that centered around the loan, the loan terms. Right. A 80 percent loan to value is just inherently more risky than thirty five, which is more risky than buying something all cash. So capitalization, again, pretty straightforward, more of the kind of typical financial underwriting metrics that we look at in the real estate space, both looking at the acquisition and then to a lesser extent, what are some of those factors at stabilization and at exit, which again, as we talked about with those forecasting in the proforma, we kind of discount those future values and look at it more at acquisition in terms of what those metrics are.
Mat Sorensen: (43:03) OK, what about rate are you looking at rate much, whether it’s variable or fixed, I mean, is that something in this kind of multifamily space that common is to have variable rates? You can have a rate change and super low now.
Adam Hooper: (43:20) Yeah. So we both, we will look at what kind of loan, right. Is it a fixed, is it a fixed rate or a variable rate?
We look at whether or not it’s interest only or fully amortizing or if there’s a period of interest only. We look at what kind of a loan is it? Is it from a mortgage rate? Is it from a private equity private equity mortgage lender? Or is it from a, you know, a senior bank? Is it from a life insurance company? Right. So the kind of loan is the CMBS loan? The kind of loan can impact the risk. And certainly, again, one of the bigger ones is the interest only period. And we’ve seen we’ve seen some pretty crazy loan quotes out there. We had one that was the rate I think it ended up at like under two point seven percent for a sixty six sixty seven percent loan to value two point seven percent full 10 year term interest only, which is just insane. Absolutely insane. How the mortgage market is a super, super competitive advantage uses the cash flow. So, yes, all of those factors that we look at in terms of the type of mortgage, what some of those terms, again, the interest rate risk is definitely you know, that’s that’s a concern right now. Right. We have to assume that we’re going to be going into a rising interest rate market. We’ve been saying that for seven years. At some point it’s going to come true. But, you know, there’s been there’s been a lot of money pumped into the financial system. And at some point someone’s going have to pay that right. So we think there’s getting longer term fixed rate debt is super attractive right now, and that’ll help ride through any of those those waves that might we might see fluctuations in the market on a longer term horizon get fixed rate debt is far, far less risk than variable, certainly in an environment generally.
Mark Kohler: (45:02) All right. Now, the question was to so. That cash flow I wanted to get back to that we didn’t we got off and that was my fault is. If I’m getting an eight percent cash on cash, then I’m seeing cash at eight percent per annum going into my retirement account. Quarterly, monthly, whatever the distribution frequency is, I’m sure it’s going to be project by project. And then when there’s a capital event, they sell like, OK, sweet, I’m out. What what else do I get on top of my eight percent and my original investment back? Can we really distill it down to that simple of an analysis?
Adam Hooper: (45:38) Exactly. Exactly. Yeah. And that’s that’s why we’ve done what we’ve done. Right. The number one question and if you can if you go to buildmyroadmap.com, that’s our kind of site where you can learn more about the advisory piece that is without that is the number one question that we get is what should I invest in? Right. Is this the right deal for me? And historically, prior to launching ReAllocate, we couldn’t answer that question as a marketplace. Right. We weren’t allowed to answer that question for people. And so so a lot of this was driven by. Constantly getting that question of should I invest in this, right, and that’s I think a lot of the the the opportunity that we saw is we understand it, right? We get all these different components. We’ve built this ridiculously complex model to be able to simplify it into these categories. And we want to be able to help people make a better decision. Right. We don’t, we don’t want them to have to be able to recite everything that I just gave to you guys. We just want to help them make that decision and to make sure that their portfolio matches what they need out of their out of their investment. So simplifying it down and distilling that into this intersection again of what they’re doing at the client level with their risk and how that interplays with a real estate at risk. We take care of all that and then we make that investment recommendation that their adviser will sign off on. And then we go we deploy that that capital into the into the deals.
Mark Kohler: (47:00) All right. Now the question was too, so that cashflow, I wanted to get back to that we didn’t, we got off and that was my fault is. If I’m getting an 8% cash on cash, then I’m seeing cash at 8% per ann going into my retirement account, quarterly, monthly, whatever the distribution frequency is, I’m sure it’s going to be project by project.
And then when there’s the capital event they sell, you’re like, okay, sweet. I’m out. What else do I get on top of my 8% and my original investment back? Can we really distill it down to that simple of an analysis?
Adam Hooper: (47:37) It’s it can be that simple. Yeah. And again, you’re looking at so you’re looking at assumptions, right? You’re looking at projections. So there’s a target and think that is one of the challenges that we’ve seen in the marketplace is people will often they’ll look at those targets and they’ll think that’s a guarantee. Right. They’ll think that that’s a that’s what they’re going to get. We’ve seen deals dramatically underperform that, right? Yeah, exactly.
Mat Sorensen: (48:01) You want to guarantee you’re going to see me.
Adam Hooper: (48:04) I mean, I can’t, I can’t
Mark Kohler: (48:06) tell you in a box. And promise a guarantee, but oh, you got us an extra
Adam Hooper: (48:11) So see. So generally, you know, cash flow will be distributed mostly quarterly. And that’s why we’ve seen some some managers will do monthly. But most of the time we see quarterly distributions for cash flow and then at the at the end. Right. So there’s there’s two other triggers that can return capital. Right. One would be a refinancing. And so if you if you develop a property or if you do a value add, you go through and the value has jumped from 40 million to 55 million. Oftentimes the manager will put longer term fixed debt on that project and then return a portion of the capital to the investors from that refinancing from the proceeds of that debt, which will come out typically tax free or at the end of the property when they sell that asset. If there’s you 10 million of profit investors would get the first eight percent of that profit and then the rest of that would be split with that 80/20. Right. So they’ll get a check at the end of the day that will go into their account. And then they can kind of again, if it’s an attack or a qualified account, no taxes do on that unless there’s the debt, the leverage that that’s obviously you guys talk about a bunch and then they get the money and they can go forward and do what they want. They can reinvest that into another project in their account, do whatever they choose with with those proceeds after that investment is sold.
Mark Kohler: (49:24) Okay. Cool. Thanks. And number ber five where I know we’re short on time. We did hit it.
Adam Hooper: (49:31) that partnership structure? Yeah, so that’s partnership structure. Again, things like, you know, what’s the actual sponsors co-invest, right? What is their net co-invest? How much of that money is actually coming from their balance sheet versus other money? That’s a big one. Again, the composition of the returns, that’s one of the higher weighted factors is
Mat Sorensen: (49:50) When you say coming that you mean how much of their own money here they put in. Do they have some of their own skin in the game right now? What you mean?
Adam Hooper: (49:55) Yeah. So if a property you’re gonna buy a property for 30 million, $15 million loan, there’s 15 million of equity.
How much of that is coming from the sponsor’s balance sheet? Right. Are they going to put in half a million? Are they putting in 5 million and then peeling that back in earlier further of that $5 million? Is that actually their money or is that money that they’re raising from other people? Right. So really getting to how much skin do they have in the game?
After fees. Right? So if, if a sponsor says I’m going to put in a million dollars, but I’m taking $1.2 million in fees, they just made $200,000 on that acquisition. Right. Versus actually having a million dollars in thereafter fees. Right. So those are the things that we look at on the, on the structure side, again, preferred return, gross to net.
What that difference is, waterfall structure, composition of the returns, uh, you know, all those, all those factors that we talked. Super, super complex, right? Like, and that’s that’s I think what we bring to the table is we have all of that. Right. We, we figure all that out and then we distill it down so that the investors, they don’t have to worry.
They don’t have to think about that. Right. Like, it’s great to understand. And, and we have a ton of education about our methodology, and obviously we want people to understand. The work and the thought and the care that goes into coming up with that, that rating of risk. But once they understand how our methodology works and they trust that, then they can look at what that output is and then see how that fits within their portfolio.
So really trying to simplify it. That’s a lot of what we, what we see the challenge in this space is.
Mark Kohler: (51:23) Okay. And I’m sorry, I was going to ask one hard question.
Adam Hooper: (51:27) Go for it.
Mark Kohler: (51:30) OK. And I’m sorry, I was going to ask one hard question before, I think. As people that get fed up with single family homes and their like and they’ve made more money and they’re trying to figure out how to deploy it, you become a perfect fit. I get it makes sense. In the single family home model, an investor. Makes a lot more than the manager, they own either 100 percent of the project or there’s three or four or five partners, but the manager role and their profit is minor. But in these deals, I think some of the concerns as well, the managers with their fees and their management in this, that and their share, they’re making more than me and they give me eight percent and I should be happy with that. But they’re making more. Is that a false assumption? How should someone look at the role of the manager in relation to my share of the profit as the 50 percent of equity, we raised 15 million in that example. So normally we don’t it and we’ll hire a manager. Well, the manager is like, well, we put the deal together. We’re going make more than you. Is that a false assumption? I think it’s a concern people have.
Adam Hooper: (52:33) Yeah, and I think there’s maybe conflating a property manager with the real estate manager, right, the operating company that’s actually finding the deals, doing the construction management, they will hire a property manager or they’ll be vertically integrated and have a property management firm internally. But there’s a there’s a big difference in a property manager that’s going to deal with the tenants in a single family home and a real estate manager. That’s their business is adding value in the real estate. So that I think that’s the first distinction. And the second part, again, is when you look at the at the profit splits. The manager is getting 20 percent, you’re getting 80 percent, right? So so, yes, they will get they will get a if they put in 10 percent of the money, you know, there might be an extra 10 percent, but you’re still getting 80 percent of the profits. Right. And so that’s one of the things that we look at. As I said, that gross to net comparison. How much how much of that value are they actually taking at the end of the day? So if the property sells for a gross IRR of 20 percent and as an investor after fees, after the promote, you get 17 percent IRR, that three percent difference, that’s less risk than if it’s, you know, a 12 percent IRR net to the investor. Right. So what does that delta between at the property level, what does that sell for and how much of that value as a manager actually taking versus going back to the investors certainly comes into the equation there. So I think the again, long answer, maybe that’s a little bit of a different role that you’re thinking of with the property manager that’s kind of doing the
Mark Kohler: (54:06) and manager. I meant the promoter. Yeah, yeah, guy, to put this deal together, it’s making more than me and controls the destiny of this, because there’s a PPM and I think people are like, I get nervous about going into deals like that, can you somehow tell them not to be nervous, or where they should be looking at?
Adam Hooper: (54:27) I think it’s, it’s, it’s what gets into the alignment, right? I mean, you have to look at the alignment. Are they in that case where we said, you know, if they’re putting a million dollars in, on paper, but they’re actually taking a million, two out.
Like, that’s not very much aligned right there. They have nothing in the deals. So they’re all profit at that point. , versus some of the managers that we look at, you know, they’ll put 10, 15, 20% of their own cash into the deal. , and they’ll have, you know, they’ll have a 20% profit promote, but they have, you know, have that 15 million, maybe they’ve got 5 million of that or 3 million of their actual, their own money into that deal. So you have to kind of look at the alignment of what those co-invest pieces are and also with the fees. Right. They have an operating company. They need to keep the lights on. So there’s going to be some kind of asset management fee that’s going to come out of that to kind of keep the operations going. So that’s all part of it. Again, trying to make sure that there’s alignment between the manager and the investor. And I think that’s something that I think can be a little bit misaligned. Right. And feels it feels like you’re on the opposite side of the table. And I think that’s what we’re really looking for in managers, is how do they know you’re on the same team? Right. Like making sure that everybody is incented for this property to make as much money as possible because everybody’s you can make more money that way. Right. So so trying to make sure that there’s alignment both in the structure, both in how they’ve how they in the case that there was an impairment on a property in the past or if they lost money, what did they do on behalf of investors to try to maximize what they could get out of that? Right. You are on the same team, right? They are getting a promoted share of the profits, but they’re incentivized to make as much money as possible because you make more money, too. So, again, it’s a comfort thing. It doesn’t come natural to everybody. I think there is this perception that you’re on other sides of the table, but at the end of the day, know you want to make as much money in those assets as you can, and they’re the ones that are making those decisions. So how do you build that trust with them that they’re going to do that? And that’s that’s a lot of it.
Mat Sorensen: (56:20) Yeah. I always used to tell clients that are kind of like a cash partner in a real estate deal that make sure that that other person you’re working with is making money with you, not making money off of you. And so one thing one thing I tell clients to look for is when they’re making money, you’re making money. Yeah. And so obviously they have skin in the game. That’s good. But if they’re getting paid out money for this property, so should you, you know, so you want to be making money with them, not them making money off you.
Adam Hooper: (56:54) Totally agree.
Mark Kohler: (56:56) Mat. That was so good. I’m going to needle point that this weekend.
Mat Sorensen: (57:01) well, can you make it up? Put it on a pillow for me.
Mark Kohler: (57:04) Yep. You can put your little head on that pillow and sleep at night.
Adam Hooper: (57:10) That’s the other other podcast you guys, crafting hour.
Mat Sorensen: (57:14) we do some fun stuff on our podcast, you know, good deal. Well, thanks so much, Adam, for your insights.
You’ve got a couple of websites. People can hit RealCrowd.com. That’s your marketplace for people looking for deals to invest in. We talked quite a bit too about ReAllocate.com. And I think you gave out buildmyroadmap.com, buildmyroadmap.com
Adam Hooper: (57:37) Buildmyroadmap.com. Yeah. So that’s that’s for clients that again, if they if they’re maybe working with a financial advisor or don’t have a financial advisor and want an introduction to work with one of our partners, that’s buildmyroadmap.com and they can again look at their their kind of financial picture holistically and figure out where real estate fits into that.
Mat Sorensen: (57:56) Okay, cool. Anything else? Any other resources or places you want us to send you?
Adam Hooper: (58:02) I mean I mean, we got our podcast. If you guys want to listen, Mat, we just we just did back to back here, so we’ll be launching that one soon. That’s the Real Estate Investing For Your Future podcast. You can find it on all of the the podcast apps out there, iTunes, Spotify, wherever you listen to. And so Mat will be on their here pretty quick. And a lot of really good information. Again, kind of foundational foundational real estate knowledge is what we bring to that podcast. So definitely recommend a listen there as well.
Mat Sorensen: (58:32) OK, well, thanks so much, Adam, and thanks everyone for tuning in to this week’s Main Street Business podcast. If you’re listening to the show and you’re still listening now, I think that means you like that. So go give his five stars on iTunes or Spotify or thumbs up or you know, however you can tell us this podcast rocks. Just do that on your podcast channel, please. We’d appreciate it. And we’ll be back next week. Is it open form, Mark? What do we got? Coming up? We think so. OK, that’s the podcast where we take your questions so you can go to Main Street Business Dotcom and submit your questions just if you want pops in your head and thinking of how this would be good for the mainstream business podcast. Throw it in there and Mark and I will hit it on next week’s Open Forum podcast. We’ll see you there.