How Our First Deal Returned 68% While the S&P Returned 15 | Real Estate Deal Autopsy

This was the deal that started everything.

In June of 2017, Two Waters Capital purchased 124 units in Georgia for $7.05 million. It was our first acquisition. It had taken a year of underwriting, somewhere between 75 and 100 deals looked at and passed on, to get here. And when we finally found it, we found a long-term owner who had done nothing with the property for years, was extracting as much cash as possible, and had left an enormous value-add opportunity sitting there for someone willing to roll up their sleeves.

In this episode of Lessons the Hard Way, Brian and Sam do the full deal autopsy on Park Walk. The numbers, the cap rate story, what they underwrote versus what actually happened, the emotional decision to sell early, and what this deal established as the permanent standard for every Two Waters Capital acquisition that followed.

In this episode:

• Park Walk: 124 units, $7.05M purchase, $56,900 per door in June 2017

• The news in mid-2017: Brexit, Prince Harry and Meghan, fidget spinners, China capital controls — and why none of it mattered

• 75 to 100 deals underwritten before this one was approved — what they were looking for

• Low hanging fruit: what it means, what it looks like, and why this property qualified

• Proforma rent growth of 3% versus actual rent growth of 10%

• 10% cash-on-cash cash flow while they held it

• Proforma exit at 9.5M at year seven, actual exit at 10.5M in two and a half years

• A million over the seven-year goal in less than three years

• 68% investor return versus the S&P 500's 15.3% in the same time period

• Cap rate compressed from 7.5 to 6.5 at exit: what that means and why it matters

• How to underwrite a flat cap rate and still produce outsized returns when the market moves

• The emotional decision to sell early: it was the first deal, Brian did not want to let it go

• Ring the bell: the Two Waters standard for when to exit a deal

• From 15 investors to 500: what Park Walk built in terms of trust and loyalty

• The fundamentals today look just like 2017: same uncertainty, same opportunity for those willing to move

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Two Waters Capital: 2waterscapital.com

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0:00 Intro

0:51 Welcome: tonight we are talking about Park Walk

1:12 Setting the scene: what was happening in mid-2017

1:39 Brexit, Meghan and Harry, fidget spinners, China capital controls

2:25 Two Waters purchased Park Walk in June 2017 and sold in January 2020

2:48 S&P 500 returned 15.3% in that same window

3:07 Two Waters returned 68% in the same period

3:40 The deal: 124 units, $7.05M, $56,900 per door

4:16 Proforma underwrite: 3% rent growth

4:47 Actual result: 10% rent growth

5:27 How Two Waters underwrites conservatively and what that protects against

6:26 Low hanging fruit: a long-term owner who had done nothing with the property

6:51 The opportunity: roll up your sleeves, build a community, give residents an amazing place to live

7:20 Why Park Walk was near and dear to Brian's heart from the start

7:43 Proforma exit at 9.5M at year seven

8:29 Actual exit: 10.5M in two and a half years, a million over goal

9:06 68% investor return and the sense of relief on the first deal

9:21 From 15 investors to 500: what this deal built

10:03 Conservatively underwrote to be a million over, got there in less than three years

10:22 Market timing and tailwinds: giving credit where it is due

10:45 After four years on the sidelines, Two Waters is seeing these deals again now

11:26 Today's pricing looks like 2017: the fundamentals have not changed

12:38 The news is always bad: block it out and focus on the deal

12:59 Cap rate story: proforma at 7.5, exited at 6.5 cap

13:20 What a cap rate actually means: explained simply

14:08 Why cap rate compression means stronger buyer demand

14:34 Bought and underwrote to exit at flat cap rate: the conservative standard

15:10 If cap rate compresses that is all gravy, not the plan

15:48 With conservative underwriting a bad market still produces doubles and triples

16:17 The fundamentals of how Two Waters underwrites have not changed in ten years

16:36 Current pipeline: same entry cap, same exit cap, 1 to 3% rent growth, 5 to 7 years

18:09 What else from Park Walk: the emotional decision to sell early

18:52 10% cash-on-cash while they held it: the cash flow story

19:12 Learning to let go even when you love the deal

19:36 The standard Park Walk set: buy, add value, hit the goal, ring the bell, exit

20:14 Legacy investors from Park Walk who are still with Two Waters today

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