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Show Summary
In this conversation, Jeremy Roll shares his journey from the corporate world to becoming a full-time real estate investor. He discusses the importance of understanding market cycles, preparing for potential recessions, and the significance of patience in investment decisions. Roll emphasizes the value of networking for sourcing deals and provides insights into evaluating business plans in relation to market timing. His analytical approach and experience in the industry offer valuable lessons for both new and seasoned investors.
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Jeremy Roll (00:00)
Um, that’s a good question. So the first thing I’ll say is one of the tricky things about business plans is that every single business plan theoretically makes sense. Otherwise someone wouldn’t be pitching it to you. The problem is that you have to kind of sit back and take your opinion about where we are in the cycle and the economic market, you know, both the real estate cycle and the economic cycle and say, does this business plan make sense at this timing? Because a lot of the times a business plan makes sense, but not at this timing. And I’m going to give you one of the most interestingthings that no one talks about to consider, which is people don’t realize that LPs are pitched. The worst business, like a business plan at the worst timing normally in the cycle.
Kristen (02:14)
Welcome back to the Real Estate Pros Podcast. I’m Kristen and I’m here with Jeremy Roll. He’s an investor in more than 60 LLCs across more than $1 billion worth of real estate and business assets. We’re going to talk about everything he sees from the investment world. He does a lot of passive investing, so I’m excited to get into it. Thanks for being here, Jeremy.Jeremy Roll (02:34)
Thanks for having me. Thanks for everyone who’s joining us too. I hope it’s helpful for everyone who’s listening.Kristen (02:38)
Yes, I mean, think you have a very interesting angle with everything. Tell us a little bit about your background and how you got ⁓ involved in investing.Jeremy Roll (02:46)
Yeah, sure. So probably very relatable to a lot of people. I spent over 10 years in the corporate world, mostly in the US. I’m actually from Canada, from Montreal originally. I have an MBA from the Wharton School or UPenn. And my last two jobs were like a big Fortune 500 companies. know, the last one was Toyotain LA and then it was Disney headquarters before that. And so my journey into real estate and really on the passive side started in 2002 after, for everyone who’s old enough, after the dot com crash.
And when I saw that happen, I kind of realized the stock market was not the right place for me for my long-term retirement predictability. Just watching the stock market go up and down 30 % in a year and like the lack of predictability and volatility was not the right fit for me. So I looked at different ways to invest, came across the concept of more predictable cashflow incidications. And I started dabbling in those, I think it was like February of 2002. And I rotated all my money from stocks and bonds into cashflow between 02 and 07 on the passive side.
And then I left the corporate world in mid-07 from the cashflow. And to be fair, like we can get into this more if you want, but I wasn’t planning on leaving the corporate world. was just planning on getting more predictability in my retirement account, but I had kind of a last-draw moment with my manager in the corporate world. So it wasn’t like this amazing plan that I pulled off or whatever. But I I was, the risk because I had the cashflow to live off of. And it’s been a really great journey since.
Kristen (04:04)
Yeah, and I mean, think a lot of people might see real estate as a little bit up and down, but you found kind of comfort in this, you know, cyclical nature of it.Jeremy Roll (04:14)
Yeah, it’s really more cash flow, know, so you can argue that, I’ll keep it really simple, but let’s just say that you own a single family home in a pretty stable market in the Midwest, okay? And you’re getting $600 a month or let’s make it easy, $1,000 a month in rent somewhere, and you’re getting, you know, you’re profiting $200 a month in cash flow. If we have a sick cyclicality and the property goes down, you know, assuming rents hold reasonably well, because you’re a more stable market,you’re still going to end up with pretty good cash flow if you went into the right location with the right property, etc. So the underlying value of the asset can go up and down, but the cash flow can be more predictable depending on what you’re looking at. And then of course you can always get into assets that are more counter
cyclical or stuff like that, that’s a little more complicated.
Kristen (05:48)
Yeah, absolutely. And I’m sure you’ve seen a lot of ups and downs, so you’ve really seen that ⁓ be tested.Jeremy Roll (05:55)
Yes, yes. Yes. In fact, quick story. In January of 2008, I invested in like a 300 unit student housing apartment complex in Michigan. And I actually thought we were going to have a recession in 2008. And the reason why I still did that in January, despite that, is because I kind of figured, okay, students go back to school. Like more people are going to go back to school during the recession and that’s going to have no issue holding its vacancy and rent. And also it was like right across the street from a state university campus, literally.So was thesis worked out perfectly, know, zero issue as if there was no recession, right? So there are certain ways to invest even when you’re coming up to what you think will be challenge where it still can make sense.
Kristen (06:36)
Yeah, yeah, and I would love for you to kind of talk about what you’re seeing now in the market.Jeremy Roll (06:42)
Yeah, so it’s interesting. So on the economic side, which I think is really important to think about, I think from a probability perspective, we have such high stock market valuations and we have an inverted yield curve in the bond market or treasury market that then un-inverted again. And that is signal that we have a high probability of recession coming up. And also keep in mind, if you can believe this, in 2020, we are already at a record long economic upcycle.Now we’re 2000, we’re according to the end of 2025. So we are way overdue for a proper recession. And if we get one, then that will have major impacts on, you know, the income and vacancy and everything else of real estate across most, or if not all asset classes. And I think it’s the last domino we’ve been waiting for, for a full end of cycle reset, which will eventually then breed more opportunity, which is great.
Kristen (07:34)
Right, and talk more about kind of the opportunity that it breeds.Jeremy Roll (07:38)
Yeah. So, ⁓ look, people would argue that, you know, if you look at apartment prices, for example, that they’ve come down 20 or 30 % or more, depending on the market, et cetera, and that they’re done and they’ve had their full reset. I would argue no, because we haven’t had a recession yet. If we have a recession, then you have rents come down, vacancies go up, people tend to either go back and live at home with their family, or they double up, you know, to have like less expensive rents, et cetera. So vacancies go up.So inevitably you will likely have or probability wise have lower net operating income. But at the same time right now in our inflationary environment, you will probably have increased expenses. That means lower net operating income or profit at the property. Right. And even at the same multiple, if you buy that building, let’s say there was a recession starting tomorrow, you buy it in a year from now, you’re buying it at a lower price because you’re paying a multiple on lower income. Right. So those are the types of opportunities I’m referring to. But then if you kind of add on
the fact that during a recession, typically would have a stock market crash, investors get scared, banks get scared and have to reduce liquidity. So now you have ⁓ equity going away, you have debt going away, and then it’s harder to buy a property. So then you have less demand and you actually have people who are able to negotiate a lower multiple or a better deal or higher cashflow on the exact same property on top of the profits going down. So you have the compounded effect of lower profits plus ⁓
higher, ⁓ well, lower multiple. So better deal in terms of cashflow. And now you’re in a better position from a starting gate, you know, as a, let’s say cashflow investor like me.
Kristen (09:13)
Yeah, so you you’ve been able toof predict the market pretty well. ⁓ Going into this time that you think might be a recession, how can people prepare for that with their investments? I know you leaned into the university housing. That seems like a great option.
Jeremy Roll (09:31)
Yeah,and that could be, eventually, be good option for someone right now, as long as you’re getting it at the right price, in the right market, in the right location, at the right school. student housing has become much more complicated, because a lot of schools have closed. ⁓ Prices are so high. if you’re going to look at that space, you want to make sure you’re in the right student population, with the right longevity, et cetera. So there’s a lot to consider. ⁓ But the number one way to prepare, really, is to do two things. One is to, well, you’ve got to formulate your own opinion. But if you end up with a similar opinion to me,
then you want to be very cognizant of the fact that if you’re looking at something today, but there isn’t a recession yet, you have the risk of a recession coming up that could be very high. And so you want to be very, very selective if do nothing for now, kind of like Warren Buffett at the moment. And number two is you want to try to get some dry powder ready, right? And there’s certain ways to do that. You can either just accumulate some cashflow instead of revesting it, or you can even sell assets. Now know that’s a bit extreme and that really is case dependent for everybody. ⁓ But
you can consider doing all those things. I would say the most important thing is for everyone to formulate their own opinion and come to their own opinion, but really pay a lot of attention to it because it can really impact investments you’re making today and next year or the year after.
Kristen (11:18)
Definitely, and I mean I know that’s a big strength of yours. You’re very analytical with these deals. How do you kind of ⁓ break them down and you know rely on the data rather than the marketing materials?Jeremy Roll (11:30)
Yeah, so that’s a good question. So someone has to do my personal, I’m just very data driven. So for me, it’s just a very objective decision and it’s not emotional, which I think is really important. It’s also not, my decision is not at all driven by, I have so much cash, I have to put it to work. I don’t have that mentality. And I think that could be good for some people, but I think it could be dangerous as well in certain circumstances. But I think that, let me give you a really easy example. If you said to me,What is the number one indicator that things are overpriced at the moment and you know that you shouldn’t be investing at the moment? I would tell you that we don’t have enough positive leverage. And historically, let’s say on a class B asset and kind of an A minus or B plus market, you’d expect to have 125, 150 basis points of positive leverage. Right now we probably have between negative 25 or 50 to like positive 25, right? So what that tells me is that as an investor, the price is too high and I’m not being compensated for the level of risk. There’s no risk premium. That makes sense.
So ⁓ as a result, I’m watching that very carefully and that could correct itself by either lower prices, lower cost of debt or both, right? Which I think will happen in an end of cycle reset, for example. So that’s just one way where you can just one running quick example where like, okay, if I’m not getting compensated for the right amount of return for the level of risk, I’m just gonna keep waiting, which is exactly what, and I keep going back to Warren Buffett because he’s also very patient and I think he has the same type of philosophy.
but just not necessarily on the real estate side, on the business side, but it’s very similar.
Kristen (13:00)
Yeah, I think that patience is really important. I think a lot of people, as you said, feel like they need to spend the money they have or they need to get into the market or they’re gonna miss out. Can you talk a little bit more about kind of how you’ve been able to build that patience?Jeremy Roll (13:17)
I gotta be honest, part of it just personality. I’m very persistent and very patient and just kind of built into me. I am very frustrated to be clear that I have some money sitting in treasuries at like, you know, just under 4%. That’s extremely frustrating to me because I don’t feel like I’m keeping up. But I also feel like long, long term, that’s a smart thing to do. ⁓ So ⁓ yeah, that’s hard for me to kind of pass along to other people. But…Kristen (13:19)
Yeah.Jeremy Roll (13:42)
I tell you, the thing that I fear the most is like I speak to a ton of investors, new investors, know, who are trying to understand the space. Actually, I won’t call with one today and they’re brand new. And they’ll come to me and say, look, I just sold my business. have $10 million or five, whatever the number is, right? And I want, I need to put it to work. need cashflow. And the first thing I say to them is, well, have you thought about where we are in the economic cycle? And if this is the right time to actually deploy the cashflow, because in their mind, they’re like, I got todeploy this cash flow and I’m like, well, just because it’s the right time for you, it doesn’t mean it’s the right time for the market. Right. So, you know, that’s what you really have to keep in mind and hopefully you could kind of keep that in mind to help with patience because you do not want to deploy capital at the wrong time. I don’t need to tell you, you don’t, you don’t want to invest in stuff in 2007, right? Like from a cycle timing perspective. So you got to keep that in mind.
Kristen (14:30)
Yeah, absolutely. I mean, I think that’s really good advice and definitely pay attention to the market and talk to people who are also keeping an eye out. With all of these investments, what does your deal flow look like? How do you kind of source deals?Jeremy Roll (14:44)
Yeah, I mean, I have a bit of a unique advantage just because I’ve been doing this for 23 years and I also been doing it full time since 2007. So what is that? It’s almost 18 years. So I built up a large network over time and so it’s an unfair advantage to someone who is new.But I also did a lot of proactive things. So for example, I co-founded public investor meetings in LA in 2007, right after I got out of the corporate world and I had more time.
That actually ended up growing to the largest series of public non-institutional real estate meetings in California. We have tens of tens and tens of thousands of members. In fact, we had like 30,000 members in 2018. I don’t even know what the new number is at this point. And that really helped with my network and that was proactive. It was a lot of work, but it really paid off. I tend to network and try to go to conferences, for example. I realized not everybody could do that. It’s expensive and people are working, but…
If you get to one or two in a year if it’s possible that would be very helpful, trust me. If you go to the bigger conferences. ⁓ I started my own investor group and that led to a lot of networking as well. And so I’ve taken, and by the way, even co-founded a conference that we ran for a few years. So between all that you end up exposed to a lot of networking just by default. the networking is probably one of the hardest parts about this because a lot of the deals are not allowed to be publicly marketed. ⁓ And so it’s a little tricky to find deals.
Kristen (16:36)
and I’m.Jeremy Roll (16:45)
⁓ And so if you have no interest in doing any of the networking, there are other alternatives actually. Like you can go onto a crowdfunding website to look at opportunities. You can join an investor group who has a lot of deal flow,who will be sending you deals that they’re filtering. But ⁓ there’s definitely pros and cons to that as well.
Kristen (17:06)
No, that’s amazing. Yeah, your network is definitely the most important thing in this line of work, I’m sure. Do you ever have, do you ever see yourself like running a fund, anything like that?Jeremy Roll (17:18)
No, people have asked me that for years and years and years. I just really like being an LP, so I would have made a lot more money running a fund, honestly, like a lot more money at this point, but I just don’t want to change the way my life is. So I’ve just passed on that for that reason. And going back to networking, by the way, I tell people that passive investing is a team sport, and I truly believe that. And it’s very, very important aspect of this just to throw that in.Kristen (17:40)
Absolutely. And what does your day to day look like as a full time L.P.?Jeremy Roll (17:45)
Yeah, my day is a combination of, ⁓ possible, looking at opportunities if they’re actually out there at that time ⁓ and evaluating them. ⁓ I am constantly networking and trading notes with other LP investors. I am networking with other investor groups and trading notes, and I’m also talking to general partners. And one of the great things about talking to general partners, especially the ones you’ve kind of built a relationship with that you really trust, is getting their pulse of the market. So for example,I’ve invested many times with a specific multifamily sponsor in LA who doesn’t invest in LA, but they’re based in LA. And I get with them at least twice a year, the founder, just to hear his opinion about what’s going on in the market, because they’re going to know better than anybody. I he’s got 7 billion of apartments. They’re going to know better than anybody. I’m friends with the largest multifamily broker or partner, the largest multifamily broker in Texas. And I will touch base with him several times a year, right?
Kristen (18:29)
Right.Jeremy Roll (18:38)
So even though you would think, just network with some LPs, no, it’s actually good to network with the right industry people as well.Kristen (18:45)
Nice. And as you see these deals come in and you being so analytical and good with, you know, sourcing financially sound deals, I’m sure you see stuff all the time. What are some maybe like vanity metrics or things that look really good on paper but can be a little like not really beneficial?Jeremy Roll (19:05)
Um, that’s a good question. So the first thing I’ll say is one of the tricky things about business plans is that every single business plan theoretically makes sense. Otherwise someone wouldn’t be pitching it to you. The problem is that you have to kind of sit back and take your opinion about where we are in the cycle and the economic market, you know, both the real estate cycle and the economic cycle and say, does this business plan make sense at this timing? Because a lot of the times a business plan makes sense, but not at this timing. And I’m going to give you one of the most interestingthings that no one talks about to consider, which is people don’t realize that LPs are pitched. The worst business, like a business plan at the worst timing normally in the cycle.
So for example, sponsors, let’s say for the past few years, have to do more value add because otherwise the returns wouldn’t be high enough on a stabilized deal to actually attract investors going backing into, say, a 15 % IRR, for example, right? So they were forced to do, whether it was floating rate bridge loans or
⁓ high value add right because they to pay so much for the properties and with that Doing a heavy value-add deal is at the end of a cycle is the exact wrong timing In fact the best time to do a value-add deal is the beginning of a cycle when you have the wind at your back rents are going up the economy is growing That’s the least risky time think of it is you’re on an airplane and you’re taking off Do you want to you know? Basically have a short runway before you the cycle ends where you have to do all these value-add things or you fall off the runway
Or you want to have the long runway? The long runway is to provide it to you at the beginning of a cycle where you can course correct. And that is most needed when you have the most value at. And so the funny thing is, that the, ⁓ those value ideals should be presented to you at beginning of cycle, but they’re actually not because it’s easier for someone to buy a stabilized property and manage it. And so you’re going to find that at the beginning of a cycle. And there’s nothing wrong with that, doing that at the beginning of a cycle. But you know, my point being is that people are getting pitched.
deals that back into certain returns and IRRs that conform to the sponsors being able to raise capital, not necessarily optimized for the timing in the cycle. And that’s why you really have to take a step back, formulate your own opinion, and make sure that what you’re looking at makes sense at this timing. I hope that example makes sense.
Kristen (21:23)
Yeah, absolutely. I think that’s a really great example and really good practical information for people to follow. ⁓ Well, this has been awesome. I I think you have such a cool space carved out in the industry. And I think a lot of people are probably interested in kind of building what you’ve been able to build. Tell everyone where to find you.Jeremy Roll (21:43)
Yeah, sure. mean, I don’t have a website or anything, no social media. So the best way to reach out to me, and everyone’s welcome to reach out in any way can help, it’s jroll, which is my email, jroll, J-R-O-L-L, at Roll Investments, R-O-L-L, Investments with an S, dot com. So [email protected].Kristen (22:00)
Amazing. Well, thank you so much for being here, Jeremy.Jeremy Roll (22:03)
No problem. Thank you. Thanks for everyone who stuck around to the end and I hope it was helpful for everybody.Kristen (22:08)
Well, yes, thank you everyone for listening. Hope you got a lot of good takeaways and maybe some inspiration to look at your business a little differently or add on some new ⁓ things to your business. So thanks so much and we will see you back next time. Bye.
