When doing financial analysis
for real estate syndication or

fun, there's a lot of different
what I call levers which can

change the outcome for your
investors. And for you. In this

blast from the past, we're going
to look back at a video I made

about two years ago, talks about
cash flow, and about what those

levers are in cash flow. So we
can see how does the syndicator

think about those levers and you
know, what they can manipulate

in order to give the best return
possible to the investors

ultimately make more money for
the syndicator or fund manager,

and everybody's happy.

So, now that we've discussed
that, let's go ahead and talk

about our levers again. So we've
got our assumptions, actually

straight facts and assumptions.

And that leads to our
calculation of noi.

And that leads to our
calculation of cash flow.

And that leads to our metrics
and equity.

So that is our normal starting
place on on where everything's

begins. Now, we've talked about
facts and assumptions and how we

calculate those things. Ad
nauseam, right, so we know what

facts are, we know what our
assumptions are, we know that as

we get further out from where we
are today, we get more and more

assumptions, right? We're making
more and more assumptions about

what's going to happen. For
example, when Anya and I were

looking at that house, for $174
a square foot, we made an

assumption, we made an
assumption that turned out to be

absolutely wrong. That, well
$174 A square foot is a is a

fair price for that house. And
our assumption is that when one

year has passed, those same
properties, similar properties

would be maybe, maybe with a
crazy, crazy market, maybe $200

a square foot. Because we really
didn't see a lot of $174 a

square foot, most of them were
like 150, this one was 174 that

we liked the most. So maybe they
would go up to $200 a square

foot and that assumption was
wrong. So we all know what

assumptions are. And we all know
that as we get further out, like

our projection a just a year
out. And in this case, it's our

projection just six months out,
there is no way I would have

guessed that it would go over
$174 a square foot there that it

would go over $200 a square foot
in six months, that would be

absolutely nuts. But it did. So
that is that those are our

assumptions. And a y we already
know about right? That's our

operating our our income, minus
operating expenses, equals our

noi. I've already gone through
all of those and really kind of

talked at length about how we do
that. So right now though, I'd

like to talk a little bit more
about cash flow. And if we have

time, we'll talk a little bit
about metrics and equity. So

cash flow is pretty simple. So
cash flow really starts with

Noi. Right? And if you remember
in, in when we're talking about

noi, there's two kinds of
expenses. Right? So our anoa our

cash flow is our noi minus our
below the line costs, which I

guess we'll put discretionary
expenses. Actually, well, we'll

see Yeah, I don't really want to
use the word capital expenses.

It's a little bit takes us a
little bit off topic. And that

equals our cash flow. And for
our purposes, its cash flow

before tax. Because we don't, we
don't really taxes into main

concern for almost everything we
did was gone. There we go. So

what are those discretionary?
Why are we scrambling like that?

I have no idea. So what are is
our discretionary expenses, the

biggest one is debt is debt
service, right. So when we're

looking at a loan, and we're
looking at financing the

property, we make more money in
general, when we put debt on the

property, and we just need less
equity. So our investors make

more money, I should say,
actually, if you do the way, the

deal, the way that I tend to
where we just take an equity

stake, you actually make less
money because you're raising

less equity. And so if I'm
getting 10% of the, of the total

amount raised, if I put debt on
it, that's not money I'm really

raising. So I don't get that
portion of that money. So I, as

a syndicator, I tend to make
less money, if I put debt on it

not but most of the time you
need debt in order to make the

deal work. So debt service, and
so we've got our principal

expenses.

I always get it mixed up. It's
bad spelling, nope, that's

principal, like your principals,
your principal and your

interest. Right. So I always
want to keep my I would like to

keep if I could, in a in a
syndication of a reasonable

term, I would probably choose if
I could to do no interest. I

mean, though, of course, it
should do no interest, I would

prefer to do an interest only
lot. And the reason is, is that

interest only means that I'm not
really capitalizing, I'm not

getting extra money for paying
the bank back for part of the

principle, I'm only making, I'm
making more money off the spread

between where I bought it. And
where I'm selling it right from

this spread here is where I'm
making my money. But if I'm

reducing this Unbound, if I'm
giving money to the bank,

basically, without any real kind
of, or I'm doing it a basically

a bank interest is putting it
away, it's like saving it with

the bank interest, right? I'm
not getting real great value on

that, where I'm looking for big,
big wins, where the, the

increase of the value of the
property is over what the over

what the I would be paying the
bank. So if the bank is making

3% or 4%, say, on its loan
interest. And then, but I'm

getting, you know, I buy it at a
seven cap. I have this 3% spread

it's just there, right? That's,
that's in my pocket. Whereas if

I'm paying down the principal of
the property, that 3% It's so

minimal in comparison to what
I'm getting on the rest of it,

me paying down my principal just
it just eats up my my profit in

the long term. Now, it's great
if you are a if you are the kind

of investor who's looking for
pure appreciation, and cash flow

isn't very important, right? If
you have a zero cash flow

building, just because it's all
appreciation that you're going

to be doing. And that your
principal is part of that that's

okay. Because you're you're not
really looking for those

payments that are going to the
investor every single period in

order to raise your IRR. So that
service is your big one. But you

also have other things you have
your leasing costs. Right,

that's a big expense. You've got
your tenant improvements, you've

got your capital expenses. Now
your capital expenses may or may

not be able to be passed on half
to two in two tenants

sometimes it can sometimes it
can't it's in your lease. And

then I've got of course my, why
are you doing that to me? My

asset management fee

so we've got, we've got our
debt, debt service, principal

and interest, leasing costs, T
eyes, capital expenses, asset

management, amount towards
reserves.

Reserves those are all
subtracted now from noi in order

to get your cash flow before
taxes now, is there anything

that gets added into there? Not
really. There's nothing that

brings up your cash flow in this
particular conversation. Now you

can do some fancy accounting.
But I wouldn't. So some of you

may be thinking, well, couldn't
I do something like what Elon

Musk is doing in order with with
the with? What do you call those

things? With cyber with
cryptocurrency? For Tesla, can

you do the same sort of thing?
Where you're parking that money

that's being spun off by the
cash flow into an asset? Which

hopefully appreciates or pays
income and rate raises that

amount? Well, yeah, you can.
That is something that does

happen. It just doesn't happen
really in the real estate game

much at all. Once it once you
start doing this, you're really

talking in the hedge fund world,
and that's just not that's just

a different world, and then what
we plan so, but I'm always

trying to look at okay, well,
how can I game the system? And

how can I? How can I? How can I
plus one? Anything, right? I

want to plus one my noi, I want
to, you know, here, I want a

minus one my assumptions and
plus one my facts and how can I

get my equity, you know, double
plus one, your double, I guess

plus two, that will be plus two
when

so I, you know, I'm always when
wanting to do that. So when I

even just write it there, that's
what I'm thinking like, Okay,

well, how can I get my How can I
increase my so if discretionary

expenses comes off of my noi, to
give me my cash flow before

taxes, is there anything that
increases? So you should be

thinking the same way? How can I
increase it? And likewise,

you're always thinking about
these things, too. How can I

reduce my leasing costs? How can
I reduce my debt service which

goes to our discussion on
interest only loans? I can tell

you as an aside, I have had in
the past week, I've had

conversations with people with
syndicators three four

syndicators who all are doing
hard money loans

and three of them are looking at
borrowing

one is putting together a fund
to lend and I certainly

understand the the one putting
together to lend and I cannot

understand the three that are
looking to borrow right now. I

mean, I know that it's it's
appealing because of timing

because of the funds that are
available but man oh man money's

cheap right now and there's tons
of people looking to invest it's

just an aside because your print
the your interest payments and

penalties are so huge on hard
money, but I don't really see

the point. It's, it's well if
you absolutely have to do it,

but otherwise, so how can you
reduce ti costs becomes a lot

more tricky. You know, in a hot
market where there's a lot of

people clamoring you can
negotiate T eyes and get less

less T eyes. Capital expenses,
you know, this is not a good

time to be paying capital
expenses. So the costs of

construction are really, really
high. I wouldn't be, I would be

hoping to avoid any kind of
capital expenses right now.

Asset management fees are mine
to decide with. So what I want

to do, and reserves right, I
want to keep that as low as

possible, because I want to give
as much money to my investors as

possible, so that they're happy.
But I also need it as reserves

so that I have it. That's just
sort of a discussion on cash

flow and some of the thought
process behind it. I know that

video was useful for you, if
you're looking at putting

together a syndication or a fun,
even these video, this video was

in the real estate context, but
it doesn't have to be it could

be for business or for anything
really, financial analysis takes

place both ways and both under
any kind of security that you're

putting together. Now if you
need help putting your security

together, then give me a call.
My name is Tilden Moschetti. I

am a syndication attorney with
the Moschetti Syndication Law

Group. You saw the video of the
way that I did things back then

I still do that today. That's
the kind of help that on top of

the legal documents that we can
help you with. So as part of why

my representation of clients, we
of course, do all the legal

paperwork, the private place
memorandum operating agreement,

subscription agreement, but a
lot of times our newer

syndicators or even the season
ones have specific questions

about you know how to do things,
how to put things together and

how to make it so that they're a
their offering is as good as

possible. That's what we're
there for. Not only the legal

documents, but do whatever we
can do to help you be successful

in your securities offering