Investors naturally focus on projected returns. We do too. But projected IRR and equity multiple are outputs of an underwriting model; they are not, by themselves, an investment thesis.
Before we focus on what a spreadsheet says an investment might earn, we want to understand why the opportunity should work and what could cause it not to.
At The Laager Group, that starts with a small number of principles: purchase basis, current cash flow, location, identifiable upside, capital structure and execution.
We would rather pass on an attractive-looking projection than buy a property that requires too many things to go right.
1. Basis: the price paid still matters
Real estate can forgive many mistakes over a long enough period, but overpaying makes nearly every subsequent decision harder.
We begin by asking what we are paying relative to the property's current income, replacement cost, comparable transactions and realistic value after execution of the business plan.
A favorable basis creates options. It may provide more room to absorb operating surprises, slower rent growth, additional capital expenditures or a less favorable exit market.
An aggressive basis does the opposite. It can force the investment to depend on rapid rent growth, cap-rate compression or perfect execution simply to produce an acceptable outcome.
Our preference is straightforward: we want to create value through operations, not depend on the market to rescue the purchase price.
2. Cash flow: start with what exists today
We like upside, but we want to understand the income already being produced before giving credit to future improvements.
That means looking closely at actual collections, economic occupancy, concessions, bad debt, payroll, repairs and maintenance, utilities, insurance, property taxes and recurring capital needs.
A property can appear highly occupied while producing weak economic occupancy because tenants are not paying. A rent roll can show “market” rents that have not actually been achieved. Expenses can be temporarily suppressed by deferred maintenance or understaffing.
The underwriting therefore needs to distinguish between reported performance and durable performance.
We prefer investments where current operations provide a reasonable foundation and the business plan improves that foundation rather than replacing it with a hypothetical future property.
3. Location: demand is difficult to manufacture
A sponsor can renovate a unit. It can improve landscaping, collections, leasing, management and amenities. It cannot move the property.
For that reason, location remains one of the most important parts of our analysis.
We look at the factors that support durable rental demand: employment, schools, household formation, access to major job centers, neighborhood quality, competing supply and the relative affordability of the property to its target renter.
We are particularly interested in middle-market multifamily where residents have a practical reason to stay: the property offers a good location and a useful housing product at a rent that remains competitive with alternatives.
A strong location does not eliminate operating risk, but it gives the operator a better environment in which to execute.
4. Identifiable upside: improvements we can actually execute
“Value-add” is one of the most overused phrases in real estate.
We want upside that can be identified, measured and implemented—not simply an assumption that rents will rise because the market is growing.
That may include below-market rents that are demonstrably achievable, renovation premiums supported by comparable leases, improved collections, reduction of avoidable expenses, better property management, operational efficiencies, targeted capital improvements or correction of deferred maintenance that has limited the property's competitiveness.
The key question is whether the value comes from actions under our influence.
We are more comfortable underwriting an operational improvement we can execute than a macroeconomic forecast we cannot control.
5. Capital and debt: good real estate can be damaged by bad financing
The quality of the asset and the quality of the financing cannot be separated.
Leverage can improve investor returns when things go well, but excessive or poorly structured leverage reduces flexibility when conditions change. We therefore look carefully at loan-to-value, debt-service coverage, interest-rate exposure, maturity dates, extension options, reserve requirements and the assumptions surrounding a future refinance.
We also want adequate capital reserves. Real estate rarely follows a spreadsheet perfectly, particularly during the first year of ownership. Renovations can cost more, leasing can take longer and insurance or taxes can change.
An investment should have enough capital to execute the plan without depending on everything happening exactly on schedule.
We would rather accept slightly lower modeled returns than create a capital structure that leaves no margin for error.
6. Execution: the spreadsheet does not run the property
Once an acquisition closes, the investment becomes an operating business.
That means somebody has to manage the property manager, review leasing performance, monitor collections, approve capital work, challenge expenses, track the budget, communicate with lenders and make decisions when the original plan meets reality.
This is where sponsor involvement matters.
At The Laager Group, we are intentionally principal-led. We use experienced third-party property managers and professional advisers, but responsibility for the investment remains with the people who made the acquisition decision. We invest alongside our limited partners and remain directly involved through the life of the investment.
That structure keeps accountability clear.
The objective is not the highest projected return
The highest modeled IRR in a stack of offering memoranda is not necessarily the best investment.
A projection can be increased simply by assuming faster rent growth, a higher exit price, more leverage or a quicker business plan. None of those changes makes the underlying property better.
Our objective is to find investments where the projected return is supported by a sensible basis, existing cash flow, a durable location, identifiable operational upside, prudent financing and an executable plan.
When those pieces align, returns are the result of the investment thesis rather than the substitute for one.
That is the discipline we bring to every opportunity we evaluate—and one reason we are comfortable passing on far more deals than we pursue.