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From the hospitality industry to alternative investments, Rob Overstreet shares his story of jumping into the world of multi-family properties!
In this episode, Rob shares the key components of underwriting. He explains how this process is not just about knowing what type or model you want – it’s also crucial that you take your time and explore all options before determining your investment.
Wealth is never an accident. It’s always the result of careful planning, consistent hard work and good decisions that are geared towards your future goals! Rob speaks of the three key points during underwriting: rent growth, cap rate, and making sure you have well-capitalized real estate deals in place for stability.
With a philosophy on wealth strategy like Rob’s, you’ll be sure to accelerate your progress in investing and life! Listen now and increase your financial IQ on how due diligence on underwriting can mitigate your risk.
Hey everyone, and welcome to today’s show on Wealth Strategy Secrets. Today’s guest is Rob Overstreet. Rob is the co-founder of Harbor Drive Holdings LLC. Rob is a legacy cash flow specialist, capital raiser, syndicator, and real estate investor. Rob’s passion is teaching investors about alternative investment opportunities. His goal is to help investors reach early retirement while building their wealth by applying the strategies used by the wealthiest one percent of Americans. Rob lives with his wife and two young children in San Diego, California. Rob, welcome to the show.
Thanks, Dave. Excited to be here. Big fan of yours, big fan of the show, and it’s a real honor. I’ve been listening to many of your episodes for some time, and I’ve got some big shoes to fill.
Grateful you’re on the show, Rob. I think you’re going to add a lot of value. I think the listeners are going to love it. So maybe we can just jump right in and talk a little bit about your journey, your background, and what got you into real estate investing, alternative investing, and your thoughts that you can share.
Yeah, thanks. I’m from Southern California. I grew up east of San Diego in a community called Imperial Valley. Very rural desert landscape, lots of agriculture, so hard work as a kid was kind of a birthright—working on farms, driving tractors, all of that stuff. Fast forward, I go to school at San Diego State, study economics, and I was working in the hospitality business for some time, at Ruth’s Chris Steakhouse. Even after college, that’s when I tell people I got my PhD in hospitality, treating people right, and communication. There were opportunities for me to advance with the company, and sometime during my tenure, Ruth’s Chris went public.
They were sending me on assignments because they went IPO; they were opening new stores across the country like wildfire, and they would send me for weeks at a time to help indoctrinate these new places and help them expand, etc. But at some point, I realized that unless in the future it was going to be called Rob’s Chris Steakhouse, I didn’t really want to continue down that path. So I started looking at other opportunities. I was a business owner of a few different businesses and then really started educating myself on alternative investments, specifically real estate. I started taking baby steps—reading books, educating myself, seeking mentors, underwriting deals, and making offers on deals.
We finally completed our first syndicated deal in Dallas, Texas in 2016. It was an 80-unit, and we learned so much about the entire process. There’s only so much you can learn in a book or listening to podcasts; at some point, you’ve got to take action, and that’s what we did. So, I’ve been in the business—it even predates that first deal—probably seven or eight years now, and the last five of those have been full time. This is my exclusive effort. Today we have about 1,700 units under management across multiple syndications. We raise capital and really try to educate our investors on the benefits of our product offering.
Yeah, that’s awesome, Rob. So how did you jump right into getting into multi-family? A lot of people in the space of real estate investing kind of start with single-family rentals or Airbnb, things of that nature.
Yeah, great question. Some of my early mentors were telling me, “The sooner you go big, the better.” So call it dumb blind ambition. “Oh, okay, go big!” So the very first real estate deal we did was an 80-door apartment. The next one, several months later, was a 120-unit, then a 132-unit door after that, all within about an 18-month period. All syndicated deals—we have investors in those, and to date, I’ve still never flipped a house. At some point, maybe I’d like to check that off the box, but we just went for it.
But it didn’t start that way. I educated myself. Like I said, I read every book I could get my hands on, and for several years, I think in my gut, I was too nervous to take the plunge, to take action. Even though I’d listened to every tape, I had my heroes in the space that I would listen to religiously, read every book—I felt like I knew everything top to bottom about syndicating apartment real estate deals. I just never took action until one day I looked myself in the mirror and said, “You’re either going to do this or you’re not.” And that’s when it all started, that deal in Dallas in 2016.
Yeah, that’s excellent. I think a lot of people who jump into the active space on the real estate side probably don’t have too much equity, right? So they start and work their way up the ladder, but you completely leapfrogged all that, did it in reverse order. That’s excellent. So you must have a lot of experience in terms of underwriting large apartments and everything. Can you tell us what you’ve really learned about underwriting?
Yeah, that’s a great question. If I could give any advice to somebody that’s trying to get started as an active investor in the business, and even passive investors should have a basic understanding of underwriting deals. Over the last several years since we got started, I’ve probably underwritten a couple thousand apartment deals, and over time, you learn things. You start to develop your own business thesis, and it really helps you gain that foundational knowledge to the point where today, I don’t even have to see pictures of an apartment deal. If somebody sends me a financial statement and a rent roll, I can tell you in about five minutes if it’s a good deal or not without even seeing it. Now, we wouldn’t submit an offer on a deal without looking at it first, but underwriting is so key, and it takes time, repetition, and practice. You’ve got to look at a variety of different models to see what fits you best.
I see some guys getting started in the business go out and do other aspects of the business and provide value in other ways, and that’s fine. But somebody on the team needs to have a strong foundational underwriting knowledge, or people could get hurt financially. I’ve looked at a lot of deals that other sponsors have brought out to the field, and the first thing I ask is, “I want to see your underwriting.” I think to a lot of retail or passive investors, they’re busy folks. They are entrepreneurs running their own businesses; they’re high net worth, high income—doctors, lawyers, working 100 hours—and they just don’t have the time to gain that knowledge base. If you don’t know certain things about what to look for and what to look out for in an underwrite, limited partners may not even realize that there are undercurrents of risk that may change their opinion about a deal before writing the check.
Yeah, for sure. We’re always having that conversation that real estate investing is really a team sport. Not everyone can be great at everything they do, but when you’re able to work on the larger side, like in multi-family, you have professional people like Rob, who really understand underwriting and know how to look for those things that you wouldn’t uncover if you were a smaller operator. You have someone who’s doing the same thing on the acquisition side, they’ve been in the industry a long time, they have relationships with brokers, they’re able to uncover those off-market deals. You have someone who’s strong on the asset management side. These are really critical components that make up an overall team to ensure that your investment is going to be maintained over the long haul.
Since we have a lot of limited investors, LP type investors, who listen to the show, could you give us maybe three of the top things that you look for in terms of underwriting? What would be your top three?
Yeah, some things that I’ve seen recently off the top of my head that would give me some pause if I was a limited partner looking at a prospective opportunity—pay close attention to rent growth, organic rent growth. I know CoStar and Yardi and some of these national data companies that are deeply involved with multi-housing have some pretty bullish forecasts, and for all purposes, they’re probably right on future rent growths, at least short term. But just because CoStar says rents are going up 25% in Austin next year doesn’t mean you should be underwriting that way. That’s one area I would ask questions on if you’re looking at a deal that some sponsor is bringing to you. Be sure that they’re not being overly ambitious with their organic rent growth.
Cap rate on exit is another big one that can have a big influence on investor returns. If you’re buying at a four cap and you’re going to exit in 10 years on a 4.20 cap, that would raise a red flag for me. Be sure that they’re conservative in that regard—cap rate expansion. Just making sure that the deal is well capitalized—how much are they budgeting for their reserve account, for rainy day funds? What’s the budget for any intended capital improvements? A lot of deals these days are quote, value-add. Every deal’s value-add right now, which, how can that possibly be? But they all are somehow. What’s the sponsor budgeting for unit renovations, exterior renovations? Are there any contingency monies budgeted in? Those things can destroy deals if you’re not well capitalized.
Those are some great points, Rob. Since we focus a lot on due diligence because investors don’t have the time to do that, another thing we really look for is conservative assumptions. It’s really the opposite of that. The more the deal can be padded, where the rent growth is actually very conservative, underplayed out, we’re looking for those types of assumptions. It gives the operator and the whole team a chance to actually exceed on the deal if you have enough conservatism baked into the deal.
Yeah, one other thing I’ll add for passive investors listening is to pay close attention to the rent comp set. If the subject property that we’re all investing in was built in 1970, and the five comps they’re showing you were all built in 2015 with a $700 rent gap, those aren’t real comparable apartment complexes. They’re much newer, have better amenities, etc. So that’s another thing I’d look for.
Yeah, great point, great point. So, Rob, can you tell us, from a personal perspective, what has really been your wealth strategy? You talk about trying to help your investors invest like the one percent do, so you clearly must have a bit of a strategy or an investment thesis. Could you share that with us?
Yeah, from a high level, I’m rotating out of traditional investments—equities, those sorts of things—and I’m going heavy in real estate. I love the tax benefits, the cash flow, the appreciation, and that they’re not as volatile. I like to sleep at night. When somebody tweets something or the Fed chairman opens his mouth, and the stock market just flips upside down, it’s a roller coaster ride, a casino.
The other piece is, part of our wealth strategy—and I learned this a while ago—I owned a business prior to my real estate career, and I would network in different trade associations and things. One of the networking groups I belonged to was called BNI, and their motto was “Givers Gain.” I’ll never forget it: “Givers Gain.” You have to give before you can receive. So, my wealth strategy, part of it, is to give as much of me as I can to our investors, our vendors, our partners. If I can help enough people achieve their wealth goals, I’m going to ride that train as well. It’s only going to help me.
Outstanding philosophy. Very much like the Zig Ziglar approach, right? Also, just serving others first, which we share that same philosophy. I think it’s really great, and I think that’s why a lot of us are in this business—to share the insights and the learnings that took us so many years to uncover. The one thing that I regret is that I just wish I started this earlier.
Totally.
It’s so rewarding to watch my kids now, to watch my daughter who’s really embraced this. She’s already bought her first house; she’s going this weekend to buy her second investment property. It’s really great to see. The same thing with investors, once people understand this. We like to call it an overall strategy because it’s not just one thing. A lot of people get stuck with one thing, like we’re just in equities or just in bonds, and they think that’s just one piece of it.
But it’s really a comprehensive strategy. What you mentioned first, about taxes—people really underestimate how important that is. Taxes are your number one biggest expense. If you’re not doing anything to mitigate your taxes, you’re leaving a lot of money on the table.
That’s exactly right. Tax-efficient assets, that’s what we look for. It’s not a knock on equities, and I am invested in them, but the majority of my holdings today and in the future are going to be focused on real assets, tax-efficient vehicles, and cash-flow-producing assets.
Given that you’re focused on multi-family a lot and real estate, are there any particular markets that you really like or any particular asset types that you’re looking for?
That’s a great question. I’ll start with the markets. We’re in a couple different markets. We really like Indiana—Indianapolis, Fort Wayne, Bloomington, Evansville. Those are all great Midwestern markets. I think there’s still some yield there, and we have fantastic relationships. We own property there, and I’ve been to Indiana too many times to count. It’s just a great place with a diverse job base, etc. I think Forbes had an article a couple years ago calling Indianapolis the Silicon Valley of the Midwest. Headquarters, Salesforce has a big presence there, and there are lots of bio firms moving there.
So Indiana’s one we like. Texas—Houston, Dallas, Austin, San Antonio—but yields have been squeezed there over the last couple of years. But we continue to look in those markets and maintain those relationships there. Those are the two off the top of my head.
The other piece was the asset type. That’s an interesting question, especially right now. Where we are in the cycle has shifted our thinking a little bit around things like vintage. When was the deal built? Location? Historically, ’70s-built apartment communities would trade around a six or seven cap. ’80s to ’90s would trade around a five to a six cap. The A-plus core, 2000 or newer built stuff, would trade around a four to a five.
What we’re seeing today is that early ’70s-built stuff, which is getting older every day like all of us, is trading at a low four cap. Or I can go buy a 2015 build for a 3.90 cap. My thinking is, and this is what I believe, when there’s a correction or some type of down cycle, the B and C class deals are going to go back to the cap rates they came from, and there won’t be that whiplash effect as much in the A-class stuff. So recently, we’ve been paying closer attention to some newer-built products. Location, like always, real estate location is everything, but I feel like that’s even more the case today in this kind of late stage of the cycle.
Nobody has a crystal ball. Nobody knows when it’s going to correct, downturn, whatever you want to call it, but we all know that it is coming. Whether that’s tomorrow, next year, or five years from now, there will be some type of pullback. I’d bet my farm on it.
For sure. Can you share with us what you’re thinking in terms of interest rates in the current environment and where that’s headed, and how that’s going to impact your strategy?
Well, that’s a… How much time do you have? I think short term, Powell has said they’re going to raise rates a couple of times this year. As far as what that does to cap rates—which historically, interest rates and cap rates of commercial property are very closely correlated—I think in the short term, if they raise rates in bits and pieces here and there, I don’t think short term that’s going to have much of an effect on asset pricing and cap rates. That’s my personal opinion.
I think there’s too much liquidity out there; there’s too much demand. Unless treasuries move in a material way, I think short term we’re going to continue to see these compressed cap rates. But the other piece to that is rates are going up. They will go up; they’re going to continue to go up. So it’s changed our thesis a little bit to where we’re looking even harder now at switching over back towards gold standard debt—agency, Fannie, Freddie, low locked-in long-term interest rates.
Floating rate debt scares me a little bit today, and that would be your bridge debt kind of product, right? Three years plus one plus one, full-term interest only, low debt service coverage ratios, deals with thin margins. That stuff scares me a little bit in today’s environment.
I think it’s also interesting; a lot of people underestimate the economic fundamentals of this whole marketplace in general. Some of the markets you talked about, and also what we’re seeing in the Southeast and Southwest. We both came back from the IIREC conference recently, and a lot of panelists were still really highlighting the fact that there’s still a huge shortage of housing across the US, and that need is not going to be fulfilled quickly. So it’s interesting to keep that in mind in terms of the overall fundamentals in addition to some of these dynamics that are playing out right now in the market.
Totally. It’s interesting times. There are forces on opposite sides of each other suggesting we’re going in one direction or the other. But all of what I just said aside, the cost of housing is going up. It’s becoming less affordable to purchase for first-time homebuyers, and it’s creating this inflated pool of renters. We’re still multi-housing bulls, just being extra cautious in this phase right now with all these moving parts—interest rates, liquidity, everything.
Absolutely. Rob, I know you’re a top performer, so can you tell us a little bit about some of your personal development habits and routines that keep you on track and make you operate at such a high level?
Yeah, and Dave, you and I talked about this in Los Angeles at IIREC. You know, that balance in personal and business, because as entrepreneurs we always want to go a thousand miles an hour with blinders on in one direction, stay in the lane, right? Sometimes it’s hard. I’m a family man. I have a wife who works full-time, and we have two beautiful children—our daughter’s six, and our son is two. It’s hard because sometimes I’m on an investor call till 8 p.m., or work never stops. But I do have some routines that I follow.
I swim every morning. I wake up at 4:30. I work out with a group of master swimmers, so it’s a coached workout for an hour and a half, and I’m home before the sun’s even up. Some days I don’t want to go if it’s cold outside, but I just grind through it. It clears my head mentally, I feel great physically, and it really sets up my day for being a high producer and as productive as I possibly can. I read and listen a lot—I listen to podcasts and read in the evenings.
Then, really hitting the pause button to have that quality family time. Like I said before, sometimes it’s hard. If you have something important to do off-hours or whatever, I try to make a focus point to be with my family around dinner time. We like to cook together, sit down, eat together, talk about each other’s days, and reconnect.
That’s awesome. Hitting that pause button just seems so hard living in this day and age, I think, for all of us. If you don’t create some habits to do it, you miss that time to get that much-needed rejuvenation, and you can be stronger at work. When you talk about swimming, actually, I did master swimming in the past as well when I was training for triathlon. It’s interesting, right? There are a lot of parallels between being an entrepreneur or high-performing in business and being an athlete.
If you look at the routines of athletes, they’re in three phases—they’re prepping for competition, they’re competing, or they’re completely resting. We should take those three different phases and bring them into our business life. You need to take some downtime, and you need to create some triggers to do that.
I’m so glad you said that. I’m a humongous sports fan. I love baseball, football, competition. I’ve told people in the past that I see a lot of parallels between excellence in athletics and excellence in business. All the greatest athletes in the world had multiple coaches, mentors, and made sacrifices for those practice and preparation times. They skipped events, couldn’t go to parties, and sacrificed family time. The competition, the gridiron—I love to get out in the business world and work hard. There are a lot of parallels between great athletes and great business folks.
100%. That’s awesome. So, Rob, if you could give one piece of advice to our listeners, what would it be?
For those that are active in the business or want to get active in the business, it’s really to take action. Don’t sit on the sidelines. I did that for a couple of years, and I wish I had gotten started earlier, but I was scared. I had the knowledge from mentors and all my education, but I didn’t take action. On the limited partner side, I would suggest getting to know your sponsors. I just finished writing an ebook called “The 20 Minute per Day Guide to Financial Freedom.” It’s geared towards passive investors that are busy and don’t have the time to get the education and experience it takes to be an active investor.
The next best thing to take full advantage of all the wonderful tax, cash flow, and appreciation benefits of this product is to be a limited partner in a deal, a couple of deals, or several deals. Spending 20 minutes per day is fully achievable, and a big focus of my ebook is getting to know the sponsors. You have to trust them, understand their business model, their thesis, how they look at the market holistically, and feel comfortable before you get involved in somebody’s deal.
That’s excellent advice. Taking action is key. You get to see for yourself the benefits and how it works. Part of this overall strategy that shouldn’t be underestimated is taking control. Taking control of your financial future, creating the life you want to live—lifestyle design. It’s a shame because the $20 trillion financial services industry makes us think we’re not smart enough to manage our own money. But look, you’ve been running different businesses.
Most of the listeners are very educated, intelligent folks. It’s just a matter of applying yourself, spending some time. I like that—even just 20 minutes a day. Focus on your wealth, focus on improving because once you set a target, you’re going to hit it. If you don’t have a target, you’re going to miss every time.
That’s exactly right.
Awesome. Rob, thanks so much for coming on the show today, providing a lot of value to the listeners. I really enjoyed the discussion and look forward to further collaboration.
My pleasure, Dave. Thanks for having me. Let’s do it again.
Awesome. Thanks, Rob.