The importance of cash flow and due diligence in deals
Key takeaways:
If a property cannot be restructured or refinanced to achieve positive cash flow, it may be best to walk away from the deal.
Thorough due diligence is crucial before closing on a deal, especially if the income cannot be properly verified.
Past behavior is often a good indicator of future behavior, so it is important to research a person's track record before entering into business with them.
Transcript:
Speaker 10
If you don't have a means to get it to cash flow positive, you should figure out how to restructure number one. And if you can't restructure, you can't refinance, you can't adjust the equity. I mean, there's a lot of ways to play the game. But if there is no way to get it to cash flow positive and exit, then I would walk away. And at the end of the day, you can re-lever your other portfolio to pay it off. But if you have no means to get it to positive cash flow, absolutely, it's a no deal.
Speaker 9
If you can't get through due diligence, walk away from the deal. We've had a deal that should be absolutely phenomenal. The terms are ridiculous. The stated incomes there, they just did not have the bookkeeping to back it up at all. And it's like, you know what? If they can't prove they're bringing in the income, we've seen this so many times. Due diligence is not fantastic. Just don't close on the deal. You need to know what you need to know.
Speaker 2
The best predictor of future behavior is past behavior. And so most often, people will not surprise you as the first bad thing that person has done before. And where I've gone wrong is not doing enough due diligence on people in the past. So if they've exited multiple companies and done well, if they've done other partnerships well, if they have a happy marriage, if they have good friendships, if they have long friendships, I want to see duration and time of execution. And typically, we don't do that. We meet a person in a moment in time and we think that that person is who we're getting into business with. What you should actually do is go back and look at their history. You need a track record on excellence because if it was a track record on poor performance, that's most likely to continue. (Time 0:38:51)
