This is part 2 of a series with Colm McEvilly
Colm McEvilly works with an internal team and directly with prospective and current investors to guide them to the projects that best fit their needs and their goals. In 2018, he took the plunge out of the corporate world and into full-time real estate investing, where he heard he leveraged his engineering background and the data-driven investing methodology that he had learned.
Show summary:
In this episode, Colm discusses the importance of a systematic approach to real estate investing. He introduces a four-step decision-making process and emphasizes the importance of vetting sponsors, analyzing the market, evaluating the investment, and understanding deal numbers. He also shares resources for gathering market information and understanding laws and risks. He further explains different types of investors and the importance of understanding lending information and deal numbers. He advises thorough vetting of sponsors and emphasizes the value of quality asset management. He also recommends asking for underwriting screenshots and having a direct conversation with the investor.
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Intro [00:00:00]
The Decision Making Process [00:03:03]
Vetting the Sponsor and Partners [00:07:32]
Analyzing the MSA and Submarket KPIs [00:09:05]
The average income growth and neighborhood analysis [00:09:41]
Schools and their importance in real estate investment [00:10:40]
Understanding investment strategies and deal numbers [00:16:59]
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Connect with Colm:
Instagram: https://www.instagram.com/tga_ip/
Web: tgaip.com
Linkedin: https://www.linkedin.com/in/colm-mcevilly-1480b94a/
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
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Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Colm McEvilly ([00:00:00]) – If you have a process, it puts you in the driver’s seat with a clear checklist. It demystifies the process, it gives you control, it saves you headache and heartache. And you know that you’re investing for the right reasons.
Intro ([00:00:12]) – Welcome to the how to Scale Commercial Real Estate show. Whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big.
Sam Wilson ([00:00:25]) – This is part two of a series with Colm Machiavelli. If you want to pronounce his last name correctly. For those of you that don’t know, Colm has gone from an engineer to an investor advocate, and his journey has gone from serving himself to want to serve a community. Part two of this. I’m excited to have you back on the show here today. Colm, how’s it going?
Colm McEvilly ([00:00:43]) – It’s going fantastic. We’re going to dive into this quickly and we’re going to have in the show notes, a place for you to reach out to me if you want to dive in to your own personal investing journey to talk about the process we’re going to go through, why don’t you let me share my screen for those that are able to see what we’re looking at and so share screen.
Sam Wilson ([00:01:03]) – Yep. You should be able to to share that. Yeah. If you’re watching this on YouTube, this would be a great one if even if you don’t watch the show on YouTube, this would be a good episode to go and actually see. See what Colm is sharing with us here today, because this is going to be great.
Colm McEvilly ([00:01:16]) – So you see the screen, right?
Sam Wilson ([00:01:18]) – I do.
Colm McEvilly ([00:01:18]) – Okay. So this is building off part one. Part one talked about investor biases. And so these are the three different biases that investors have when they’re going into every decision. We talked about that at length. If you haven’t heard about it go the other podcast. If you want more information I would recommend these books. Thinking in Bets how to decide. This is a professional poker player. She talked extensively about the decisions that we make and how everything’s a gamble and how when you’re an investor, one of the things that you could do to provide a sense of momentum is decide what level of risk certain numbers and certain decisions are for you, and then you can create a matrix and decide that way.
Colm McEvilly ([00:01:59]) – And the whole purpose is to have consistency with your investor making podcast investor making decisions. Episode 245 on Cash Flow Connections with Hunter Thompson is an episode where he interviewed this poker player, Annie Duke. And when I heard that episode years ago, this was probably 2 or 3 years ago. We? I just thought, wow, this applies so much to the investors that I was serving at the time. And I noticed that when I talked to software engineers that they had a real process that was tangible. But when I talk to investors that were more emotional, let’s say usually physicians are pretty. They’re making a lot of emotional decisions. They would go back and forth on the progress of their decision, and the result was that they never made a decision. So they’re sitting on the sidelines. They weren’t happy, they weren’t getting anything done. And I had to come up with a tangible process for them to actually feel like they were in control of their decision making process. And just recapping. If you have a process, it puts you in the driver’s seat with a clear checklist.
Colm McEvilly ([00:03:03]) – It demystifies the process, it gives you control, it saves you headache and heartache. And you know that you’re investing for the right reasons. So this is the process that I teach my investors to go through. And there’s four different key columns, key quadrants. Think of it like a submarine. And you need and you need to fill up each level of the submarine, each room of the submarine before you move to the next. And the key thing I want to call out is notice that deal numbers is all the way at the end. It’s not at the beginning. And so there’s a couple of reasons for that. One, what if the investment strategy doesn’t even work with what you’re looking for? The deal numbers don’t matter. What if the market has laws or developments or big, big, you know, units nearby that doesn’t align with what you think is best for your the use of your money, then the deal numbers doesn’t matter. And then what about the sponsor? What if the sponsors unethical.
Colm McEvilly ([00:04:01]) – You know, anybody could put 15% IRR in the Excel spreadsheet cell box. Is that is that actually a conservative number? Are you looking at the actual rent escalations. Is that matching the market information. So just know that deal numbers are at the end. You need to vet the sponsor. Then you need to look at the MSA and the area. And then you need to look at the investments. And eventually, you know, like I trust Sam, I’ve invested with Sam before. I trust him as a sponsor, so I don’t need to to do this. So so what I’m saying is that this decision making process is going to be a little bit shorter in the future. I will still look at the MSA in the area in the investment and the deal numbers, because that might be something particular to my needs at the time. Maybe the liquidity timing of the deal is is really important to me. So I need to look at this third stage, which is the investment stage. Right. So but but just driving into this and again you could reach out to me, we could set up a call.
Colm McEvilly ([00:05:01]) – There’ll be there’ll be my contact in the show notes. But the first thing you want to do is always have a phone call, you know, is there even a real number on the website? You know, is there is there a real number on. There’s a real number on on on Brecken right on your Brecken website.
Sam Wilson ([00:05:14]) – Oh there.
Colm McEvilly ([00:05:15]) – Better then know I know, I think I know there is.
Sam Wilson ([00:05:18]) – I mean it’s got to be at the bottom or it’s under a contact. Go. We just launched the new website last week.
Colm McEvilly ([00:05:24]) – Yeah, it looks really good, I saw that. Oh, by the way, you put you.
Sam Wilson ([00:05:29]) – Did put a review from you. Thanks, buddy.
Colm McEvilly ([00:05:31]) – Yeah, but you put, you put my last name was with an E instead of M. Not that it matters.
Sam Wilson ([00:05:36]) – Oh, well, then that’s. I got to go back to our website, guys. Hey, we’re getting off track here, and you have told me something even already here called my website.
Sam Wilson ([00:05:47]) – I mean, which you can find my contact info all over the internet, but it it doesn’t have our phone number there at the footer. We need that. Hey, I’m sorry, we’re getting off track here. What you’re doing here is really good. But no, we don’t have a phone number there at the footer. Yes, there is at least 100 phone numbers. Probably on there.
Colm McEvilly ([00:06:04]) – Those are called trust statements. You should actually have a couple different numbers. And then side note, if you are raising capital one of the best websites to file file to follow a site. Tuners. See you notice his phone number up here. There’s lots of there in marketing it’s called they’re examples of trust. You know you have the referrals in here. We’re jumping off topic but just know if you want to look if you’re building a money raising website go to Site Tuners and you can actually reach out to them and get a free free contact. They can help you optimize your website. Oh that’s. Yeah.
Colm McEvilly ([00:06:36]) – And we could talk about that later. So Brecken and then back to the decision making processes. So you want to have a phone call with them. And you want to look at their track record and not just look at what they are projecting, but what were their actual returns. And referrals is really important. A lot of times I’m working with physicians. They only want to talk to another physician that invested with us. So if you’re if you’re raising money, again, not just if you’re an investor, but if you’re raising money, make sure that you have the different occupations of your investors separated and tagged, because you’re going to have different investors that are going to want to speak and receive information in a unique way, that they’re probably going to hear it better from someone that has the same job as you. So just a side note, but but when you’re asking for referrals, maybe ask for somebody that has the same job as you because they’re going to care probably about the same things as you as an investor.
Colm McEvilly ([00:07:32]) – The strategy. So different types of strategy. Right now I’m I’m not so bullish on multifamily. I’m more so bullish on alternative assets. I think multifamily is going to be I think there’s going to be a correction. And I’m interested in looking in multifamily in a couple of years from now, unless there’s a super sweet deal because but the point is, I know my strategy right now and I’ve moved a little bit away towards multifamily. I’m in alternative assets, I’m in storage, I’m in industrial with some with some really good sponsors. And then think about this. You know, they always say that your closest five friends are going to predict are kind of like a, a microclimate of what you’re going to become. If you have five, five friends that are way out of shape and you’re probably going to become out of shape, right? Right. So the partners so understanding who your sponsor has partnered with, why and then learning about those partners, are those partners ethical. Like what have those partners done.
Colm McEvilly ([00:08:36]) – And and then also asking your sponsor why they partnered with that particular sponsor. Because that could show that could be, you know, you’re peeling the onion back and learning about why the sponsor partner with somebody else. Because that could show where the sponsor feels like they might not be super strong or might not have enough resources. And time is a resource. And so learning about your sponsors partners is really important. And then.
Colm McEvilly ([00:09:04]) – So that’s the that’s the.
Colm McEvilly ([00:09:05]) – First quadrant or not quadrant. And that’s the first step in in this decision the decision making process. And again decision quality equals your life quality. You your decisions in every area how you do one things how you do everything. So now we’re going to dive into the MSR. And there’s my old partner Neil Bawa had this thing called location magic. I can send you the link for it. It’s really good on identifying key KPIs and submarket KPIs. So for example, I want to look at the population growth, the job growth, and I want to look at the crime and the average condo value.
Colm McEvilly ([00:09:41]) – I want to look at the average the average income growth. And there’s certain metrics. And you can reach out to me, I can give you those metrics that are my lowest growth requirements for for Metro. And then I want to look at the neighborhood. I want to look at the the poverty levels. I want to look at the crime levels. I want to look at the income levels. I want to look at the rent levels for that neighborhood. And again, job growth. You can even sometimes look at job growth and neighborhood Scout USA data. There’s a lot of really good websites that are out there that can give you KPI metrics. Actually, I can pull up. So here’s here’s a couple different fee based softwares that will help you with identifying market and submarket information. So we have ry indicator. Neighborhood scout Ryan Ryan is really good for the debt. So that’s probably if you’re raising capital trying to buy buildings or buy assets, it’s really good for because you’ll know the timing of when people have to sell or when they have to get new, new financing.
Colm McEvilly ([00:10:40]) – Best places. Net best map. Those are some free ones. Data using Google search. Crime grade Dawg city data. Department of numbers. Those are some free ways to look at submarkets. And actually I’m going to I want to show you one thing for schools. When you’re when you’re investing in B and C classes or when you’re investing in a in. B classes, the schools are more important. Important if you’re investing in a C class, crimes more important to attend it. Just just understand that. But if you want to find out where to get more information on good schools Niche.com Greatschools.org justice. Org. Those are a couple of really good resources for finding out good schools. Again, go back to the a couple minutes back in this YouTube video and you can see those those free and fee services laws and risks obviously rent control understanding if it’s even impacting or not. Where I live right now we have rent control but it’s CPI plus 8% and Cpi’s like 8%. So I can raise my rent 16% every year.
Colm McEvilly ([00:11:49]) – You know, that’s it’s okay. Yeah. Northern California has rent control. But is it even you know that’s that’s pretty high every year municipality. So this has to do with with understanding different laws. There are some really good websites for understanding the amount of permits and developments that are coming in your area. That’s really important because if you have a development that’s huge, 200, 300, 400 units that are going in across the street, and you’re going to probably have to give up a couple of months of free rent. That’s going to kill your cash flow for the first year. So that’s something to think about. Unit count, square feet. Just know that that in times of recession, people like more bedrooms and more bathrooms. People huddle together when money is tight, and so just having more bedrooms and bathrooms are they’re more desirable in a time of recession. But at the same time, they’ll probably stay there longer because they’re going to have more, more crap there. And then understanding that people will typically choose a bigger square foot facility than than a small or bigger square foot.
Colm McEvilly ([00:12:59]) – Apartment in a smaller square split apartment, and then just understanding what your asset class and what’s the strategy behind that asset class for that investment. And we’re going through here quick. Again, we could always talk I got five more minutes right. Yep. Okay. So this third level is the investment. And you can read this. You can pause the video. But we’re going to start with tax benefits. There’s three types of investors. There’s there’s growth investors. There’s cash flow investors. And then there’s tax deferment investors. And so just understanding why are you investing this particular thing. You know an investment in a multifamily investment in a new development investment are going to have different they’re going to have different types of depreciation benefits. Right. You know, typically, if you have more than $3 million deployed, you’re a cash flow and cash flow investor. And then if you have less than that, you’re an equity growth investor. That’s just kind of what I noticed from dealing with with I probably had 6000 investor calls, the NOI strategy.
Colm McEvilly ([00:14:03]) – So what’s the strategy that they’re doing to implement to increase the net operating income? What’s the lending info? This is crushing people. Right now, there’s $1.5 trillion of debt that’s about to come up at the end of their term. What are those people going to do if if the income or the worth of the property is actually less than, then what it needs to be in order for them to to get new debt, you know, maybe if they’re DSR as 1.0, they’re not going to be able to get new debt. So they might have to sell. So just knowing what your lending info is, what your LTV, LTC, your when’s the interest only term and and how that affects your your bump and your your balloon payment, not your balloon payment, but how it affects the increase of the of the mortgage on a monthly level when you’re no longer interest, only if that’s what the structure is and understanding the distribution schedule. I don’t personally care if I get one check a quarter or one check a month.
Colm McEvilly ([00:15:04]) – I have so many different investments I don’t even look. I mean, I look at all the reports, but to me, I’m going to get the money eventually. I partner with people again. The number one thing I do is I check the sponsor. I partner with people I really trust, people that have a great track record. So the distribution schedule, if it’s monthly, quarterly, weekly, you know, with, with some of this new. Bit tokenization of real estate. You can actually have daily distributions, but I don’t know if that is even something that’s attractive to somebody. And then forms de filing. Just making sure that, you know, it’s a real entity that you’re sending your money to. But you probably already knew that because you vetted the sponsor. And then the last, the last we have two minutes for the last section, which is the deal numbers, understanding the CapEx, the reserves and the operational budgets. That’s really important. And sometimes the CapEx or the reserves are huge.
Colm McEvilly ([00:16:02]) – And you go, why do we have $5 million of reserves? And they say, well, we’re raising this distribution reserves. It’s like, wait, you’re raising money just to give me back my own money? What the heck is that? You know, but that’s a that’s a project that I came across about a year ago. It’s kind of funny understanding the fees. You know, sometimes the fees are steep, sometimes they’re not. But the truth is, you you think that, you know, you need to pay some sort of fees. You want to pay for someone to have some resources to actually implement good asset management. So asset management fees and property management fees, you get what you pay for. A lot of times it’s like it’s like olive oil. If you if you buy a cheap bottle of olive oil, it’s probably fake. But if you buy an expensive bottle of olive oil, it’s more likely going to be real than fake. It could still be fake. So the same thing applies with with the fees that have to do with asset management.
Colm McEvilly ([00:16:59]) – Really important. You think you think that you know, you think it’s expensive working with a professional. Try working with an amateur like you get what you pay for, right? Yeah. Ask for the underwriting. I love it if they don’t want to share the underwriting with you. That’s a huge red flag. And you don’t need you don’t need the the actual model. You don’t want the model because you might get an Excel version that doesn’t line up with the version that you have, and it opens up and all the numbers are like, they’re gone, they’re off. Right? And you just ask for a PDF screenshot of the underwriting, and if you want further information, you should be able to have a phone call with their investor relations person like myself or, you know, the partner like Sam. And they should be able to speak eloquently through the entire numbers with you. Ask for the underwriting.
Sam Wilson ([00:17:48]) – That’s one thing. And we have to we have to hit stop here, unfortunately. But this is awesome.
Sam Wilson ([00:17:53]) – By the way, what you’ve shared today is really good because this applies both to the people out there raising capital and also to the people out there looking to deploy their money into investments. The strategy is the same. It’s just on which side of the table you are and how you’re looking at this. One comment on the underwriting is I actually asked for the Excel model, and so maybe I’m a little bit different in that regard, but I asked for the Excel model just so I can play with the numbers and see how they change. Or it’s like, okay, good call out. Like that’s your assumption. Like you assume there’s an 8% rent growth, but what happens if there’s a -3% rent growth, like, oh yeah, you know, I don’t know. That’s just one of the strategies that I as a personal when I deploy capital into into other investments as a limited partner that I 100% of the time ask for the Excel model. Anyway, on that column, if our listeners want to get in touch with you, learn more about you.
Sam Wilson ([00:18:43]) – What’s the best way to do that?
Colm McEvilly ([00:18:45]) – My email is column at TGR. That’s that’s column at TGR. And and there’ll be some show notes.
Sam Wilson ([00:18:57]) – Absolutely. Column. This is great dude. Maybe we got to come back for round three. But thank you again for your time today. This has been absolutely fantastic.
Colm McEvilly ([00:19:06]) – Hey. Thanks, Sam.
Sam Wilson ([00:19:06]) – Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
