College isn't for everyone. Rob Beardsley is a prime example of that. After dropping out of college, he started a successful real estate investment company. He had the support of his family and knew what he wanted, so he took the plunge and did it. Hear how he did it and learn from his story to go after your own dreams and goals. Don't be afraid to take chances in life. You may not know everything, but if you have a good idea and the drive to make it happen, go for it! Rob's story is an inspiration to anyone looking to achieve their goals. Listen and learn!

Table of Contents:

• Where To Listen To The Podcast
• Dropping Out of College to Start Real Estate Investing
• The Culture of Hard Work
• Dropping Out of College Is an Awesome Challenge
• Great Lessons You Can Learn from Dropping Out of College
• The Time It Takes to Go After Your First Deal
• How to Be a Professional Real Estate Investor
• How to Reach Rob Beardsley

Dropping Out of College to Start Real Estate Investing

Darin: Rob Beardsley is 25 years old and he started his real estate investing when he was 20. He did not let age stop him from going after his dream. He believes in stacking wins and the positive feedback loop.

So, just a little bit on how we know each other. This is the first time that we're talking to each other, but we were both down at the same multifamily conference in Charlotte. Rob was one of the speakers there. For those who are listening, you can't see him, but if you’re on YouTube, you can see he's a young guy. I'm interested to find out how this young guy get into this world and what he’s been up to. With that, the first question I typically ask is how many properties and how many units you're invested in.

Rob: Our company, Lone Star Capital currently owns 10 properties, about 2500 units.

Darin: I'm just going to come right out. I'm 52, so how old are you?

Rob: 25.

Darin: 25 years old with 2500 units. Let that sink in. Listeners, I'm telling you, I know people have so many excuses on why they can't accomplish things. How did you do it at such a young age?

Rob: I think I had a lot of shortcuts. For one, as much as I think college is a great place to be, once you know where you want to go, it can slow you down in some ways. I had the infrastructure and safety net, and my parents' shoulders to stand on.

How the Business Started

Rob: I had the confidence to drop out. I started my business with my business partner, who was much older and had more corporate experience. By starting the business at 20 instead of 25 or 30, or 35, I was able to build up quite a bit of experience while still being very young. Obviously, the younger you start, the sooner you can be successful. One of the big things is a mindset thing. It's just that people have this idea that, "Well, I need to get a certain amount of experience before then I decide to start out on my own."

But the reality is if you do have this desire and you want to be an entrepreneur, then the best time to do it is right away. That's when your opportunity cost is lowest, and failure isn't as painful. I took it as, "If I fail, I can just go back to school and it's business as usual like it never happened. It's even better because I'll have the experience to grow from. If it's successful, then it's successful and I can keep going."

Darin: You said a lot of great things there. One, you started at 20 years old. You mentioned that you partnered with somebody that had a lot more experience and that was older than you. How did you find your partner?

Rob: We met through a mentorship group which we were both in at the time. He joined a little bit before me. It was Joe Fairless' mentorship group. That was a great way to open many doors and just learn a ton. Obviously, you can learn a lot from reading things, and listening to podcasts, and I did all that.

10x Your Learning Process

Darin: I listened to hours of podcasts every day, and read every book, but going and meeting people is how you learn the fastest. For me, it was going to conferences and meetups, and that mentorship group, and just having phone calls. Then, just doing things like talking to brokers and lenders, and investors, your learning goes 10X.

Rather than preparing myself for the moment that I'd be ready to talk to a broker and try to underwrite a deal, just actually doing it right away is how. If you have the humility to ask questions and learn, that’s how you can learn the fastest.

Darin: First, I'll hit up the mentorship group and get out there, surrounding yourself with like-minded people. I think there's a contingent of people out there that think that it's a waste of money to go to conferences. Like, "I could just read it in a book, or I can just look up a YouTube video." But what you just said was at 20 years old, by joining a mentorship group and surrounding yourself with like-minded people, you developed a relationship with somebody that was more senior. He’s older and had more experience than you, and somehow you built a relationship where you guys partnered together.

A lot of people lose sight of the value of those intangibles, like going to conferences, going to networking events, where you can meet a business partner. You can meet somebody who is selling a deal, a broker that may introduce you to a deal, or a lender that might lend you money on your next deal. All those things happen at these events.

How Dropping Out of College Led to Meeting the Key Connection That Transformed the Business

Rob: There's a reason why people continue to go to them. It's not just for beginners. The books and everything are more so for the beginners, because the specialized knowledge that you seek as you grow and have issues in your business that you need help with, is not always in a book.

My friend, Dan Handford, who's somewhat of a mentor for me and has done extremely well in our business, in our space, always says, "When you go to a conference, you're looking to learn that one key thing or make that one key connection that can transform your business." It's so true. You don't have to make 100 connections at a conference. It's just meeting one person who can pay for the conference or transform your life.

Darin: I agree with that wholeheartedly. Sometimes, and I'm sure you go through this too, you go and hear a bunch of speakers, maybe two or three of the speakers, you're like, "I didn't learn anything." No value." Then all of a sudden, one person says something and you're like, "If I do that in my business, that can have a huge impact." And so, it's worth sitting through and sifting through some of the other stuff that doesn't add value to find that one nugget.

You mentioned desire before. I love that you mentioned desire because I typically would say you have to decide and then commit. But desire is something that gets you to the point where you make a decision to go after it. You had the desire and then you decided to quit school, quit college, and go after it.

The Mindset of a 25-Year-Old Real Estate Investor

Darin: Talk about where your mind was at, to do that. You talked about mindset, let's hear what you were going through.

Rob: It's not an easy decision, but I'd say it was easier than maybe other people's decision-making process because I had the luxury of a safety net. My parents would be there for me, and I would be safe. I wouldn't be on the street. Although they did say that "If you're going to school, we'll float your boat. But if you're not going to school, you're cut off." It was a decision that I was making at that moment.

I could have lived a cushy life in college, but I'm such a pragmatic person. If I don't see the value in doing something, I just can't go through the motions. I couldn't just go through school when I felt like I had this opportunity in front of me in something that I wanted to pursue.

That was really the thing that was eating away at me and made it impossible to continue going to school, it's just pragmatic. It's just, "Okay, this is the path. I need to explore this path."

Darin: You said you have a hard time going through the motions. That's what I want listeners to hear, there are so many people out there who have that itch in their belly. They know in their gut, that they want to try something else, but they're afraid. And they know they're going through the motions, but taking that step, that leap of faith, that action step is hard for a lot of people. I understand you had a safety net, but you actually had to make a decision and how did that play out?

The Benefit of Dropping Out of College

Rob: Obviously, had to tell everyone and talk to my advisor about it. Oh, the other benefit as well was the fact that the college I was going to, Carnegie Mellon University in Pittsburgh, has a very lenient leave of absence policy. A lot of kids go there. They're tech savants who want to do startups and if they leave and do a startup, then they can come back. So they have a very lenient, indefinite leave of absence policy. So I'm currently on an indefinite leave of absence and at any moment I am liable to return.

That was the other thing, my advisor said, "You could just come back and pick up right where you left off and there's no negative." It doesn't impact me, I don't have to retake courses or get credits or whatever it is.

Darin: That's different from a lot of listeners. A lot of listeners, they're in a W-2 job that's paying them. For them to decide to leave, that company is not giving them that leniency, "Just go try it out and come back in six months or two years if it doesn't work out." Now, the reality is they may take them back if they were good at what they did. They may take you back at a raise.

I know people who left and went back as a consultant, and they make more money. But making that decision is tough for many people. Now, you said you had a safety net, and one was your parents. Two, that is a big deal, having the college tell you that they have a lenient policy. So you make that decision and then what happens from there?

The Culture of Hard Work

Rob: From there, it was just now finally I had the freedom to dedicate all my time, all my effort, to this one thing, which was really launching the business. Before my time was split and having that full focus, I think it was interesting. My friends and I have this debate sometimes. We have this culture of hard work in America in particular, where people glorify how much they work, especially entrepreneurs.

One of the concepts that we discuss is, "Could you theoretically be successful if you just let's say worked five hours a day?" You would get successful. It would just take longer than the guy that worked 10 hours a day. Is it a linear path to success, just one gets there quicker than the other?

One counterargument to that is, no, you need the 10 hours a day, 12 hours a day, the crazy initial push to get that inertia off the ground. Once you get it off the ground, then it can slow down. But I just think back to those years, those couple of years period of just full force working 12 hours a day. That was the momentum that I needed, that big push to get it off the ground. So, that was really what my life looked like at that time.

Darin: That makes sense. You seem like a nice guy, a go-getter. But at 20 years old, what value did you bring to the table? You had the other guy that partnered with you, he had to see something in you, what was it?

Competency and Humility

Rob: A little bit of competency and a lot of just willingness to work and learn and be humble. I think that's the key when you're approaching it when you're younger. You can go a long way with just those things. That was a good blend for us.

Darin: You hit it on the head, there's a mindset. There are a lot of younger people that think to themselves, "I'm too young. I can't achieve this." They talk themselves out of it. "I don't have the money, the experience, the contacts." They talk themselves out of even trying. But it's possible to go out and find the person to partner with that has the contacts and has the money and has the relationships.

What do you have as a young person? You have grit, you have determination, and you have the willingness to work hard. Maybe the other guy doesn't want to do those things anymore, maybe they've done it. So, you decide to go into this space. You find a partner and then the deals just show up at your door.

Rob: It's interesting because when we started out, you don't have a portfolio and you're single-minded in that you just want to get a deal. My business partner, I'd say our biggest mistake that we made when starting out was we bought the myth that if you find a good deal, the money will come. We totally neglected the capital side of things. It was a huge mistake. We could get into that in a second, but when we started out the point I wanted to make as far as focusing on deals. It was just all hands on deck.

Division of Labor

Rob: Let's just find a deal. There was no division of labor. It was just completely overlapping labor, which is fine. When you're getting started, it's good that everyone does everything just to learn. You have to do everything to learn.

As the company grows, naturally, people need to take on certain roles and responsibilities and delegate, otherwise, you're not leveraging everyone's time as efficiently as possible. When we started out, as I said, it was just both of us focused on deals.

But then, slowly but surely, I leaned more heavily into the deals, and he leaned more heavily into the operations. Then when we found out that, "Actually raising money's really hard." I had to go lean over into that and essentially make that my full-time job for a period as we built out our marketing and our branding and our relationships. It's a very healthy division of labor at this point, as we've continued to grow the team.

Darin: Talk about that first deal. You said that raising the money was hard. Talk about how that happened, what you were up against, how that impacted you, the deal, and the timing.

Rob: For the first deal, we had to raise four-and-a-half million dollars. It's a very big raise and we were ill-prepared, of course. We just went out there and I say there are two types of money-raising modes. There's the money-raising mode when you don't necessarily have a deal, you don't have a timeline. That's a very good money-raising mode to be in. You build your investor funnel, you attract investors to come to you, you nurture those relationships, and you build trust.

An Advice from Someone Who Succeeded After Dropping Out of College

Rob: But then there's the money-raising mode when you need the money today. Because if someone comes to me and says, "I need to raise money today." My advice to them can't be, "Start a podcast." Because you're not going to see results from a podcast until two years from now. Really, when you need to raise money today. That's a frantic call, everybody, you know mode, and ask for introductions, referrals, cold calls, meetings, whatever it takes. That was what we ended up having to do.

It was a good experience, and it was very difficult. We heard certainly a lot of nos, but what it also did is we were able to take a lot of those nos, hopefully gracefully, and turn them into relationships. It's interesting because when you reach out to somebody cold, nine times out of 10, certainly much more than that, they're going to pass on whatever it is you're selling them. Or if you're trying to raise money and partner on a deal, the first time they just don't have enough information.

They don't have trust; they have to pass. But that could be a great opportunity to then start a relationship and build it from there. The other thing I think is true about our business is we all love deals. We all live off deals. It's not necessarily a bad thing to start a relationship off with a deal, even if it's a rejection because a deal is exciting. A deal is interesting, it’s a great way to get to know each other. Even though that frantic money-raising mode is not a good mode to be in, it is a great way to expand your business.

What You Don't Know About the First Deal

Darin: In the first deal, you don't know what you don't know. I would say the same thing. When you're going into your first deal, you should be just letting people know what you're doing all the way through. Whether that's on social media or when you're playing golf with your buddies, or you're getting together at family functions, way before the actual deal is there. People start seeing that, "Rob's going after real estate deals. All right, I'm going to watch him."

Then people start seeing, "He was just at a broker meeting, and he was just on property visiting sites." If you see all that accumulate, then you're building trust and expertise as you're doing that. It makes people a lot more comfortable. Some people that I've talked to, think they have to get that first deal before they post anything or tell anybody anything. That can make raising that first deal much harder.

Rob: It's a chicken or the egg situation as well. I've heard the exact same thing that you mentioned, "I don't feel comfortable being a thought leader and sharing information if I don't have a certain level of credibility in whatever it is that they establish in their mind." It might be, "I don't feel comfortable being a thought leader until I bought my first deal." Or it might be, "I don't feel comfortable until I've sold my first deal, gone full cycle." It could be whatever the hang-up is, but the reality is you just need to put one foot in front of the other and take action.

Dropping Out of College Is Courage

Darin: Taking action, is something that takes guts. It takes courage to do any step of action. Going to your first networking function where you don't know anybody. It's a weekend or it's a weekday night and you're going to go and walk into the room. It is like the first day of class and you don't know anybody. But when you realize that there are a lot of other people there, doing the same thing, trying to learn. Others that have been around for a long time that want to teach others, then it becomes a much less scary place. You learn that.

But you took action, I applaud you for doing that. There are a lot of young people that are too afraid and don't believe in themselves enough to put themselves out there. How did you get the confidence to believe in yourself? Was it the reading the books, sports, or your parents? Were you just born that way?

Rob: I think it's a very fundamental question. Basically, at the end of the day, confidence is built from a positive feedback loop. How easy would it be, just theoretically, to be confident if every time you did anything you were successful? Then conversely, how difficult would it be to be confident if every time you tried something you failed? How could you?

Honestly, believing in yourself would be really tough. Every time you try something, it doesn't work. Stacking wins and building confidence over time is key. Things apply to each other. You mentioned sports. Growing up, I played football and that was my life. Building confidence through putting in the hard work and seeing results from that.

Dropping Out of College Is an Awesome Challenge

Rob: Same with going through school. School's an awesome challenge with a straightforward feedback loop, studying for the test, and getting a good grade. Don't study for the test, get a bad grade. It's a confidence builder of those types of things growing up and people telling you.

Also, the corollary to this is the idea that you like what you're good at. Part of that is people say, "You're good at that." That feels good. Even if, for example, Math isn't your favorite subject, every time you get a good grade on a test, everyone says, "You're amazing. You're so smart." You might start liking math because you like people saying that "You're so great. You're so smart." That's another similar to confidence, that positive feedback loop.

I would say I've worked hard my whole life. It wasn't necessarily all in real estate but working hard then gets you that positive feedback loop, which then builds your confidence. It then gives you the idea that "If I try this new thing, based on my previous experiences, it probably will work out."

Darin: I love that you said, stacking wins. It works with fear too. I tell people, "Think about a time in your past when you were afraid, and you did something anyway. You tried it and it worked out." That's like stacking the win. You just create that memory. You're like, "Now, I'm faced with this new thing. I've never done it before, but I know I accomplished that other thing before so I'm going to let that nudge me into trying this." Once you stack enough of those wins, it definitely helps go after the next.

Stacking Wins and Being Uncomfortable

Darin: You've done a lot at a young age, but you still have a ton more to do. I've met some extremely successful people. They keep pushing themselves to get uncomfortable, to do stuff that they haven't done before. Stacking those wins and learning that, "Even if it doesn't work out, more times than not, I've learned from it. I've been successful by taking action versus not taking action and just letting life happen to you."

Rob: I'm really impressed by people who have achieved success, whatever it means to them, and they keep pushing. Especially when it comes to money because I feel like money can cause complacency. I just don't understand how Tom Brady puts on his pads every day and wants to be sweating on a hot field with a bunch of 20-year-olds banging into him when his wife is a supermodel. He's so rich and has a more accomplished quarterback than anybody else. Yet, he still wants to go and do it. It's just crazy.

That is something that, if you will, is one of my new aspirations or levels of success. Because I don't want to say that I've made it, but I could choose to coast and ease off the brakes. That's a very tempting thing to do. It's almost like you have to up your discipline game even harder because when your back's against the wall, you don't have to think about it, you just work. But then if your back's not against the wall, now you have to introduce some real discipline.

Darin: That's a great point. I think not in Tom Brady's world, but in this world, I've interviewed people that fall under your camp. They have thousands of units and they've achieved financial freedom.

Building Generational Wealth

Darin: They could be on a beach, have nobody know their name, and they are going to be just fine. I'm like, "Why do you keep doing it?" After a while, it seems like I hear this repetitively, in the beginning, you're doing it, building the wealth for you, for your family, maybe for generational wealth. Then, it comes to what impact you are going to make on the world and on others.

Teaching people how to become financially free is an important thing. Why keep that to yourself? I'm with you, I admire people that will get uncomfortable to get out there and teach other people how to do it. There are a few things in life that people want. They want health, so there are fitness instructors out there. Well, they could just get fit themselves, but the ones that go and teach other people, that's admirable. People that get wealthy could just go sit on the beach, but they get uncomfortable. What are you going to do next to get uncomfortable?

Rob: Right now, we're in very much so a scaling mode. A lot of the things that we've been working on have been to establish ourselves. Now, we're getting to the point where we've figured out what works, we're doing what works, but now how do we do a whole lot more of that? This year, we're on pace to buy 250 million in acquisitions. I would like to scale that to 500, then to a billion.

When I think about 500, I think, "Okay, 500, I can kind of figure that out. That's 10 $50 million deals. I mean, that's aggressive.

Dropping Out of College and Figuring Out the Next Step

Rob: That's very ambitious, but I can see that." But then I say a billion and my brain breaks. I don't really see a clear path to that. That's the level up. You have to figure out, "That makes me uncomfortable. I don't logically understand how to buy a billion in a year." That's what, 10 $100 million deals? Well, I've never bought a $100 million deal. How do I do that? You just have to figure out the next step. That's where I am right now.

Darin: That's fantastic. Being realistic with yourself, like, "I don't know how to get that deal but I'm going to figure it out." What's the largest deal you've done so far?

Rob: A little over 50 million.

Darin: What was the first deal you did?

Rob: 16.

Darin: When you were doing the $16 million deal, were you thinking that you were going to be doing a $100 million deal at some point?

Rob: Maybe at some point, but at that moment, I was thinking, "16's very big."

Darin: That's the thing, taking action, stacking wins, getting out of your comfort zone. If you want to build something, you got to take the first step. It's like every one of us starts with the first investment and I've interviewed people with thousands and thousands. This guy is 25 years old and he's thinking about how he can do a $100 million deal. It wouldn't have happened if he didn't quit college and go to the mentorship group and build a relationship. It's one step after the other.

Looking in the Rear-View Mirror

Darin: Then, when you get to a certain level, all of a sudden, looking in the rear-view mirror seems easy because you've done it. It wasn't easy to get there, but now you're onto the next. If you sit back and you don't take action, you're going to be in the same spot next year.

Rob: That's the biggest thing that scares me, staying stagnant. Stagnant is not good.

Darin: Talk about the ripple effect. Right now, you're building your company and you're looking to scale. But whether you like it or not, there are people that are watching you. There are people that want to learn from you. There's going to come a time that you have to figure out, "How do I teach these people?" You don't have to. There are people that just build businesses and just keep scaling, but how are you going to teach other people how to do it?

It could be by going to conferences, doing podcasts, writing a book, starting your own mentorship group or mastermind, whatever. People are going to start saying, "Rob, I can't believe the level of success you've had. You have to tell me how to do it." Now, there will be people that will ask you that, that are not willing to do the work. That's the hard part. There are certain people that are going to ask you and they just want it handed to them. It's not going to happen. There are others that will take your advice and will go after it. You mentioned you were a football player. Do sports have anything to do with business? Does it come into play at all?

Great Lessons You Can Learn from Dropping Out of College

Rob: It does a lot, especially in a team sport. Learning leadership, learning your role on the team and how to contribute, how to listen, and things like that. The teamwork aspect of sports is huge in developing those character traits early on. Also discipline, responsibility, and sacrifice. Those are all good lessons from sports.

Darin: You mentioned sacrifice. What kind of sacrifices have you had to make to achieve this level of success?

Rob: When it was football, my family never really went on summer vacations because summer was the time to train, get ahead, summer camp, and all that stuff. Then, when it comes to business, obviously you're sacrificing your time. I don't really look at it too much, like a sacrifice. For the most part, I enjoy what I'm doing and that's not a terrible sacrifice. But, at the end of the day, you're choosing to work when you potentially could be doing anything else.

Darin: You also gave up college. College can be hard. The classes can be hard. It's a lot of studying. But there's also a big fun factor associated with it. It could be a four-year vacation away from your parents that they're paying for you. You have some responsibilities to get good grades, but you also have a lot of free time to do a lot of social events. But you gave that up because you had a desire and you decided and you committed to going after something else.

A Cool Place to Be After Dropping Out of College

Darin: I love that you said at first you said time, but then you were like, "I really like what I do. That's a cool place to be. There are a lot of people that work in jobs all their life that they don't like. They know it, but they're afraid to do something different.

Rob: It's just not worth it to do something if you don't enjoy it. It's something I feel really strongly about. That's another thing that I felt because my career track at school, I was studying computer science, and the thing that excited me the most was consulting. I found that to be very stimulating because you get to work on different projects all the time and the traveling sounded cool. But at the end of the day, I would be not location free. I would have to be traveling and all this craziness.

For me, being a business owner is huge because you have time and location freedom, to an extent, for both. But that is big for me. Number one, enjoying it. Then number two, having those freedoms. I say this a lot. I'm not sure what the exact math is, but easily I would rather make half as much money to have time freedom, or even simply, location freedom.

Even though I like routine and we just signed a lease for an office, we'll be moving the team into an office which we're all excited about. We'll all be going into the office every day. In spite of that, I do like having freedom. It's not worth it to make more money to then give up those things.

Why People Give Up on Freedom

Darin: A lot of people give up that freedom because they buy the nicer house, they buy the nicer car or they put the kids in private school, whatever the case may be. Now, they're a slave to larger payments every month so they feel like they can't take that risk. You said you would take half the amount of money to have that freedom. The funny part is that it's freedom, it doesn't mean that you're working less. Most entrepreneurs that I know bust their tails, but they enjoy what they're doing.

It doesn't necessarily mean fewer hours, but here's a phrase that I've heard a lot of people say that are entrepreneurs, they don't like being told what to do. When you're in a job, a lot of times, you're just being told what to do. But when you own a business, you've got the freedom to go in whatever direction that you're looking to push the company. You're in scaling mode now, and two years from now, you may be in a different mode. Are you focused only on multifamily?

Rob: Yes.

Darin: That's another thing about real estate that's so phenomenal is that I think there's no ceiling. You can, even in multifamily, it's like, "I want to scale, do larger deals, and go from C class to B class to A class." But then there are all these other asset classes. You mentioned Dan Handford, so now he's like in storage and he's doing car washes. Maybe, he'll continue to scale those businesses, maybe he won't, maybe he'll get into more.

Whatever You Believe, You Can Achieve

Darin: There are office buildings, mobile home parks, RV parks, and huge shopping centers, and there are so many places to go with it. It's all in your mind, what you believe that you can achieve.

Rob: That's one of the things I like about the real estate business. I don't think you should necessarily chase the shiny object, but there’s are a lot of scale there. The ceiling is very high. At the end of the day, just to use a very direct example and I don't know this business well. From my understanding, if you're the best coder or engineer and you get hired by Facebook, you can get paid $400,000, maybe half a million dollars. But then that's your ceiling and then you have to turn into a manager. Then you have to be a manager and things. It only scales so high.

I think real estate entrepreneurship, what we do has such a higher ceiling where the numbers just grow and the percentages are based on the numbers. It's a similar amount of work and similar things you're doing, but it could be on a million, 100 million, a billion. It's very straightforward.

Darin: Real estate has a lot of leverage. In building your own company, you can hire employees to do a lot of the work, which frees you up to do higher-paid work. It's all about leverage and you can stop wherever you want. But you can continue to leverage where you're using other people's time, other people's money, and other people's resources to achieve fantastic things. Do you see yourself staying in multifamily or do you have the vision to go outside that, or you don't know?

The Next Big Breakthrough

Rob: Long term. I want to scale beyond, but for now, we've discussed scaling. I think the next big breakthrough would be development in the multifamily space.

Darin: There's a big difference going ground-up development versus buying. You buy an existing property, it's cash flowing day one. It's a business that you're buying, but you're, you're buying a set of cash flows and projected cash flows. What can you do with CapEx money to improve those cash flows? Ground-up development is completely different. Well, how do you buy the land? How long do you have to hold the land?

Somebody just taught me something recently. I thought that people buy the land and they're out of money for the property taxes and whatnot. People are like, "No, you just, depending on where it is, you could lease it to a farmer that uses that land. He gets the crops and that pays you a lease. All of a sudden, all your property taxes and your loan are covered." It’s pretty strong, to be able to do that.

That's the beauty about real estate, you get the leverage and there’s no ceiling. The other thing I would say, and I want to get your experience on, is that it's very collaborative. There are people that are willing to help you. Even if you're going after your first deal there, I had so many people that had way more experience than me. They’re like, “Darin, anything you need, call me and I'm happy to help you." Sometimes, you're competing on the same deals with other people that you know. Other times, they're a phone call away to help you. What's your experience with collaboration?

Life After Dropping Out of College is More Collaborative Than Competitive

Rob: I have found the business to be very collaborative rather than competitive. You could imagine that other businesses, even if we are competitors in real estate, people are very willing to share information. I would imagine other businesses; information is not shared as freely amongst competitors. The real estate's very collaborative. Even if you are competitors, you might find yourself doing a Co-GP anyhow. That is another awesome aspect of real estate and why you can grow up in the business faster.

Darin: I'll share a story where I think I made a mistake. It may not have panned out, but I walked onto a property and I was doing a property tour. Somebody that I knew was leaving, they just had a property tour on the same property. Now it was in an area that I think was being overlooked. It'd be different if there was a ton of people looking at this deal, but I didn't feel like there were a ton of people looking at the deal. I thought to myself, "I should just call him and see if we can partner. Rather than compete against each other, we both would make a little less, but we'd get the deal."

My ego got to me and said, "I'm just going to go alone and try to beat him." He beat me to the punch, locked up the deal, and I got nothing. I always think about that and I'm like, "I should have just called the guy." He may not have wanted to partner with me, who knows? Looking back, that would've been the smart play. One phone call could have potentially got me part of that deal.

The Time It Takes to Go After Your First Deal

Rob: I've definitely thought that before as well.

Darin: Talk about focus because there's a level, especially when you're going after your first deal, a lot of people will tell you, "It's going to take you six months, nine months, a year. Let's just say a year." People have that in their minds. I've seen people come into the business after that year hits, they get frustrated and some of them peter out. They just can't state have the longevity and the persistence to keep pressing on. Talk about focus and how you have to be focused in order to get that first deal.

Rob: Focus is huge. It's one of our main things about us that I think is one of our reasons for success. Focus on the acquisition side is great because you need the brokers to know who you are, you need to establish credibility. It's difficult to do that if you're looking at 10 different markets. How could you be credible in 10 different markets? It's hard enough to be credible in one. Focusing on a market, being there, underwriting all the deals, talking to the brokers consistently, and sharing your feedback on the deals with them, which they very much appreciate.

The other thing too about being focused is, that you can make sense of the deal flow. You look at all the deals in a particular market and you are focused, you can identify better what a good deal looks like. If I looked at a deal in a market I had never been in, for example, I don't know, Boise, Idaho.

A Good Deal Versus a Bad Deal

Rob: It'd be much more difficult for me to say if it's a good deal or not. I might have an idea, but I really wouldn't know. Whereas in my market, I'm looking at deals every day. I know exactly what a good deal looks like and I can feel it intuitively just because I've underwritten so many deals. So, I think focusing on both getting a good deal flow, and then being able to identify it is huge.

Furthermore, a little bit later down the road, also having the focus, for example, us, we have in-house property management. With our vertical integration, we have a centralized portfolio. You'd be much more difficult to vertically integrate if you had a deal here and there across different markets. But because most of our deals, almost all our deals, are in Houston. We've got our management team in Houston as well. That focus makes it easier to execute our plans.

Darin: You said so many great things there, making sense of deal flow and feeling it intuitively. So, I remember the first letter of intent I put in. I was afraid if they were going to accept it because I wasn't sure if I was underwriting it properly and whether I was giving a good price, and I lost that deal. Then I underwrote so many deals in the Dallas market.

The next time I was at a deal, I was like, "You know what? I like this deal." It was double the price of the first one, but I just knew there was so much opportunity. I didn't hesitate at all, I wasn't scared. And I was like, "This is a great deal." I went wholeheartedly after it.

Why Watching Things Get Traded Away Is a Good Thing

Darin: Though I did not get the deal, I could see all that work of doing the underwriting had paid off because. In that split second, I was able to confidently know that market and know that this was a good deal. If you don't do it, sometimes seeing things trade away is a good thing. It's a good thing in a lot of different scenarios. One, as a syndicator it's good because then it tells you where the market is.

As a passive, you talked about it earlier on when you're building relationships. Well, in the beginning, you're showing somebody a deal, if you tell them, "I really need to know in the next few days whether you have an interest or not." They come back and say, they're going to pass. The next week you call them back up again, they're like, "He said it was going to be gone. Now, he is coming back to me a week or two later and is asking me to get in that same deal."

If you see it trade away and the guy gets it done, they're like, "He was right. He funded the deal, it got done. Next time he calls me and says I have a few days or else I'm going to going to miss it, I'm more apt to believe him."

Rob: It's building scarcity as well. I like that a lot. That applies also, interestingly enough, to the institutional capital space, which we do play in. It's a bit of a different market than your typical market.

Darin: Talk about the difference between dealing with people, high net worth individuals, that invest in these deals and institutional players.

Dropping Out of College and Doing Real Estate Professionally

Rob: Big picture. Your typical high-net-worth investor that is writing a $100,000 check doesn't do real estate professionally. This is not their business. Whereas institutional investors, them investing in you is their business. That's their job. Their job is to find sponsors, to invest in deals with sponsors. Obviously, the sophistication level is completely different. The check sizes are different. If you have a $100,000 check with high net worth investors, then institutional investors are writing anywhere from typically five to $25 million checks.

The fees are different as well because they are writing you. It's like a bulk discount because they're giving you $10 million all at once from one source, they demand to pay you lower fees. They demand to get a better split of the profits. You as a sponsor have to decide whether that is worth it to you. Are you willing to accept lower fees, and a lower profit split, for the convenience of having a large check writer as a partner?

The other benefit aside from one source of big money is their experience and their sophistication. They're not another cook in the kitchen trying to work with you, but an amazing advisor because they likely have had way more experience than you. At least, that's been the case for us. It's a great way for us to learn by partnering with these sophisticated groups.

Darin: Almost like in the tech space, like a good venture capitalist that can not only provide the money but also provide expertise and possible connections. You talk about the fees.

The Fee Structure

Darin: Obviously, if they're going to write a bigger check, they want something different. Can you share any specifics or generalities on what part of the fee structure they really hone in on and how big of a discount do they get?

Rob: If you look at the typical syndication fee load, which in my opinion is around a 2% acquisition fee and a 2% asset management fee. For those that are less familiar, basically, a 2% acquisition fee would be 2% of the purchase price. That would be paid at closing out to the sponsor. Then, an asset management fee is an ongoing fee, typically calculated based on revenue. So, 2%.

In the institutional world, it's closer to 1% for each fee as more standard. It could be 1.2, it could be 1.5 even, which is nice and healthy for those fees. It's just in that general lower 1% range. You could see, it could be a 50% discount.

Darin: What about splits?

Rob: The splits are more interesting because there are just more complicated things you could do. If you say that your typical retail structure is a 30% promote or profit split to the sponsor, over a seven, 8% preferred return, and the split is much more favorable to the institutional investor where they're getting a nine or even 10% preferred return. Then they're paying a 20%, promote up to a 12 to 14% IRR. Above that, it could be 40, and then maybe over 16 or 18, it could be 50. But institutional investors really don't like a 50/50 split. It offends them, it offends their sensibilities. That is rare, but that is, that is the difference there.

Life After Dropping Out of College: Capital Raising and Crowdfunding

Rob: It's a big difference. What I think is really interesting, and this is a major thing happening in the industry, is just the success and growth of capital raising and crowdfunding. Dan Handford, going back to him, he's doing things that have never been done in this business ever. People have never, ever before bought $80 million deals with 2000 investors. That just is a new thing via technology, via social media. It's disintermediating the middle market, real estate private equity space.

You're seeing it right before your eyes because the funds that compete in that space are getting crushed. If you or I were sponsors and we have a high-net-worth investor base that can fund us $10 million, which we routinely raise 10 million of retail equity, we can charge higher fees, better profit split, and more control. Or we go to a private equity firm and it's lower fees, lower profit split, less control, and why would we do that?

The only answer is scale. The reality is if I can only raise let's say $5 million for my retail investor base, but I have an institutional partner that can write me a $15 million check, now they're making it up in volume. If I can buy a 50, 80, $100 million deal with the institutional investor, I'm going to go to them, that's really attractive. But what if you can do that 80 million deal with your retail investors? It's really crowding out these smaller private equity firms. Like I said, disintermediating the space.

Darin: What do you like to do outside of work? Do you work all day, all night?

How to Be a Professional Real Estate Investor

Rob: Something that I heard recently as a piece of advice is, and this is not answering your question, but, look at everything like it's work. Even if you aren't working, treat it like it's work. This doesn't sound so relaxing, and it isn't necessarily relaxing, but treat everything like a professional. Even if you're relaxing, for example, or going on vacation, treat it like work. How do you actually make this vacation the best it can be? Be a professional about it.

My dad recently retired, and I was talking to him on the phone the other day. I see him just sitting at his desk like he would as if he were working. I'm like, "Why are you sitting at your desk? You're retired. Don't you have something fun to do? He's like, "No, I don't know. This is just what I do." I said, "Well if you're going to retire, retire with conviction. Be deliberate about it. If you're going to putz around and waste an hour, waste that hour righteously, really relax."

That was the advice I heard, treat everything like work. That didn't answer your question but basically, I do like to not work, and I do like to be active in the gym. That's probably my one single hobby. I do yoga, boxing, and weight training. That is a great break in the day and also a great way to build energy and focus and discipline and all that stuff.

Darin: Absolutely, working out. If you get into a habit of working out every day, that's a huge thing. A lot of people struggle with that. They start in January, "I'm going to lose weight," and they peter off.

Discipline and Consistency

Darin: Learning discipline and consistency with working out, with underwriting deals. Rob left college and went all in. He had a safety net with his parents and with his school, but he went all in on it.

I know people that had W-2 jobs that had a desire and committed and decided they were going to go after it, but they had to do it when they got back from work at night. Instead of watching Netflix, they were underwriting deals. On the weekends, they were putting together offers. Those are the types of sacrifices that you have to make in order to get there. It's not just going to get handed to you. It is work, but then you build momentum.

The beginning part is hard. Once you start building the relationships, the systems, and the processes, then you get momentum, and it gets easier. But you got to take action. Rob, I really appreciate you coming on the show. I wish you a ton of success and I look forward to meeting you face-to-face at a conference coming up here at some point. If people want to get in touch with you, what's the best way for them to reach out?

Rob: The best way to reach out and learn more about us is on our website, lscre.com. That stands for Lone Star Capital Real Estate. On our website, we've got our free underwriting model download that we use to evaluate our deals. We've got a link to articles and the book I wrote.

Darin: That's a free spreadsheet that people can download for underwriting?

Rob: Yes.

A Free Resource

Darin: That, in itself, I know so many people that are like, "How do I get an underwriting Excel spreadsheet?" I'm part of a mentorship group and I cannot send it because I'm obligated not to. So, there's a resource for you. You don't have an excuse, download that thing for free.

Rob: It was a strategic decision years ago to give it away for free rather than sell it. It's paid off in multiples because over 5000 people have downloaded it and it's grown our network tremendously and established credibility. We've done more deals because of it, I'm sure of it.

Darin: Good for you. I know a lot of people that charge for that, so that's powerful. It's a great step in building that relationship with somebody. Were there other things that you were about to mention that were on that website?

Rob: There's plenty more, but I'm sure people will be able to find those things for themselves. If they also want to connect with me on LinkedIn, I post daily there. Feel free to connect and reach out on there as well.

Darin: Listeners, no excuse. This guy started at 20, he's 25 now and he's thinking about doing a $100 million deal coming up. I hope you enjoyed that one. Until next week, we're signing off.

How to Reach Rob Beardsley

• Website