Is being a spreadsheet ninja the keys to the “kingdom”?

[Arn Cenedella]

In MF investing is it more important to be a:

Spreadsheet ninja Or Good operator?

We have a spreadsheet ninja on the Spark Investment Group team.

Our spreadsheet ninja is a NECESSARY but NOT SUFFICIENT condition for successful investing.

That being said, our ninja also has VAST investing experience - as an individual owner of rental property and as a MF investor wearing both the LP and GP hats.

The combination of both skills and rental experience is where the magic happens.

If I had to choose between the two, I would say:

The benefits of having actual operating experience & expertise for MF and rental assets are far greater than the benefits of being a spreadsheet ninja.

Being a spreadsheet ninja without this hands on down and dirty experience is a recipe for disaster as far too many LPs are now finding out.

The reasons for this is two fold if not more.

1. The 5 year proforma by DEFINITION is based on a whole slew of assumptions about a whole host of issues in the future - national economy, local economy, interest rates, cap rates, rental rates, political and geo-political factors. The operator has NO control on any of these. At best, they are (hopefully) educated guesses.

2. Then there is the principle of GIGO.

If one doesn’t know the market if one doesn’t have the experience to properly determine cost and pace of a value add campaign (for example), the numbers going into the spreadsheet are meaningless.

If a ninja believes they can renovate 100 units in a year and they only do 25, the spreadsheet falls apart.

If a ninja believes they can move a $1250 a month tenant in between two $800 a month tenants they may be unpleasantly surprised.

The spreadsheets look impressive lots of numbers many of them big, all neatly and orderly entered into this really nice looking chart.

It has the appearance of accuracy and truth.

I imagine there were lots of great looking spreadsheets presented to investors in 2022 and 2023 promising outstanding returns and some of those deals are now in trouble.

The spreadsheet isn’t God. 🤷

And so the spreadsheet has a place in deal analysis. But I don’t give it primary weight.

I’m not a spreadsheet investor.

I KNOW I can’t predict the future - in 45 years of real estate investing, I’ve been thru some major economic cycles and world events. And I just kept moving forward, doing my best keeping my head down plugging away thru markets thick and thin sticking to the FUNDAMENTALS!

I’m a brick and mortar investor.

I’m a steak and potatoes investor.

I’m a line drive base hit investor.

Know your market - both sales and rental.

Price per door. Price per sf.

Average rent. Rent per sf.

Know your neighborhoods and submarkets.

Gain experience and learn how to operate rental property. It’s a business.

Build up over time to larger assets if you wish.

Structure acquisitions properly - low leverage fixed rate debt and ample cash reserves.

The key to the “kingdom” isn’t thru a spreadsheet.