by | 04, Mar 2023

The Biggest Lie You’ll Hear From Operators

Here is the biggest lie that operators will tell you. AUM. Assets under management.

We always hear operators stretch, twist, expand, and contort this number in every single way possible. It’s an important metric for us. It’s the total market value of our assets that we manage.

But here’s the tricky part… the definition, the very formula to get your AUM, changes person by person. So one operator’s AUM may look very different than another’s, based on how they’re valuing their assets.

And because of this lack of uniformed definition, many operators will take advantage of you by inflating their AUM stats.

In most cases, operators that do this… aren’t technically doing anything illegal… but it’s definitely questionable, and sets a bad example for their transparency.

A lot of new investors and operators fall prey to this tactic, they want to seem legit, so they will boast HUGE AUM numbers.

The only way to weed your way through these kind of operators… is to simply ask more questions. What questions exactly?

Find out on this week’s episode of Multifamily Investing Made Simple, In Under 10 Minutes!

Tweetable Quotes:

“What’s interesting about this term, assets under management, is that there’s two opportunities for people to lie, both assets and then management. “– Anthony Vicino

“Most of the time when you hear people referencing AUM, it’s a bit of a flex because in real estate, numbers are always a big deal.” – Dan Krueger

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five rules of investing

The Five Rules of Investing


Biggest Lie From Operators

[00:00:00] Anthony: Hey, what’s up everybody? Welcome back to the podcast. I am your host. Uh, my name’s Anthony, and this is your other host. His name’s Dan. And at the end of this episode, we’re gonna go into the thunderdome where two hosts enter, but only one emerges. Mm-hmm. , um, alive. Yeah. And so stick around

[00:00:16] Dan: for that. I brought some poison, so I expect to exit successfully.


[00:00:21] Anthony: I brought a, um, shard of metal that I found in the. . I don’t, it, it’s a, it’s cumbersome, but it, it looks like it could do some damage. Okay, so see what happens. So the, the polls are open or the, the bedding windows are open. Place your bets, uh, currently when you have the next three minutes to get those in, and then no more, uh, bets will be accepted on who will be victorious.

But until then, let’s be cord. and talk about something that maybe will, um, bring some value to the listeners. Mm-hmm. , this is something that I was thinking about the other day [00:01:00] on Twitter. Somebody made a comment about what’s the biggest lie the operators tell, and for me, it’s not even close. This is the one that I see over and over and over and over again.

and, and maybe lie is like overselling it. Maybe they’re just like stupid and they don’t know. Or maybe it’s just confusion. It could be a lot of things. It could be ignorance. Yeah. But this is the biggest lie that I see operators tell. Mm-hmm. , what do you think

[00:01:25] Dan: it is? I already know what it is because we’ve been internally bitching about this because it drives us to us.

Yeah. Like we see so many people that do this for so long, and I think it’s a little bit of both. Like you said, there’s some people who understand. , uh, that what they’re saying is, um, misleading. Mm-hmm. , and they kind of, it’s not like a, a lie per se. Not a lie. Yeah. It’s just a, a misrepresentation of what’s really going on.

And the other people that just don’t understand the lingo, you know, they’re new. Mm-hmm. , they have no real experience in investing or private equity, so they just don’t know any better. But yeah,

[00:01:56] Anthony: it’s, and, and that’s the thing. So hopefully in this episode we can break down [00:02:00] exactly what this term is, this lingo, so that when you see this, you can learn.

Evaluate it critically because it does have a set definition and it is calculated in a, in a particular way, but you can also be like a little fuzzy with it. Yeah. So the, the way that operators are, the, the most common lie that I see operators telling is around assets under management or a u m mm-hmm.

And so let’s just break down real quickly. What does this term, what’s it mean from a high level and why, why would anybody. Share this number. Like what’s. The value in it. Uh,


[00:02:38] Dan: flex. It is a flex almost

[00:02:40] Anthony: always. I mean, it’s, it’s, unless you’re like, I got $20 of assets under management. Yeah. It’s like not so good.

I mean, it’s

[00:02:44] Dan: a good measure of how, how big your portfolio is. Mm-hmm. . Um, but I think most of the time when you hear people referencing it, it’s a bit of a flex because in real estate, num numbers are always big in real estate. So you can get to a pretty impressive a u m number pretty quickly. And it [00:03:00] feels, it feels good, I’m not gonna lie, but you know, there’s.

To, to answer the question, what does this actually mean? It means how much stuff do you own in your portfolio? Now it could differ a little bit from like private equity to real estate. You know, in our industry, we’re typically gonna be talking about what’s the value of all the properties. Mm-hmm. in the real estate, in in the portfolio, or if you go over to like a hedge fund or something like that.

It’s not the value of all the stocks and the equities and stuff like that. It’s how much equity are they managing, how much cash do investors give them? So there’s that little distinction there. But generally speaking of real estate, you’re talking about what’s the current market value of all the.

[00:03:38] Anthony: And there’s a lot of reasons why.

One, this number is a little bit confusing for some people and, and how it can be conflated and you can conflate it really easily. Cuz let’s think about real estate where there’s not this daily mark to market function. Mm-hmm. , where you can easily say, You know, I bought this 32 unit a year ago today. It’s worth this.

Like you can’t just get on Robinhood and like see what somebody would [00:04:00] pay for it. It’s like trump’s net

[00:04:01] Dan: worth, right? Yeah. It

[00:04:02] Anthony: changes by the hour. It’s a fuzzy number. Always feeling it’s a fuzzy number because he gets to say, Hey, this is what I think it’s worth.

[00:04:09] Dan: Yeah. You don’t get an appraisal, right. It’s just whatever you say to, and also to, to call for this real quick.

Um, another thing that’s. Closely related to this, but also very much embellished is a number of units. Oh, it’s

[00:04:21] Anthony: basically communication. We, we will tie these two together for sure. Yeah. It’s,

[00:04:24] Dan: it’s another one that’s very common and just it’s like nails on chalkboard

[00:04:28] Anthony: for Well, there’s, there’s a, what’s interesting about this term, assets under management is that there’s a couple different ways, like both assets and then management.

Yeah, like on both of those sides that people can lie. Let’s try and unpack all of it, because there’s actually a lot here. One is, okay, so the mark to market functionality, like we bought a property a year ago. What’s it worth today? Well, if you’re being very conservative and true, like what I would typically do is say, what did you pay for it?

Like just go with what you paid for it. Even if it’s been a couple years and you think there’s a ton of value in it, like it’s always, you’re probably not gonna be wrong [00:05:00] if you’re being conservative just going with what you paid for it or your most. , um, appraisal. Mm-hmm. , right? If you did a refinance or something like that, but, yeah.

Or, or a good,

[00:05:09] Dan: you know, um, kind of quick and easy way to get a, a relatively accurate, uh, measure without an appraisal is just take your current noi, put the market cap rate on it, and that’s probably pretty close. Mm-hmm. right As, as long as you can back it up with some math.

[00:05:22] Anthony: Yeah, that, that cap rate, one thing I saw on Twitter is like, well, what cap rate do you use?

Right. And because even that, some people, the one from I’d say the one when you purchased, purchased it. Yeah, yeah, exactly, exactly. Because a lot of people, you know the difference between a six cap when you purchased it and then saying, well now the market’s a five and a half cap, that’s gonna change the numbers really drastically too.

So like 10% in value. So just right there, like we could make an argument that, you know, our portfolio, I think conservatively is around 70. Right. And so we could make an argument how we would wanna make these numbers to say it’s a hundred million. That would be very easy, but it would be very disingenuous.

Yeah. We could

[00:05:56] Dan: value it off of proforma. Totally. Yeah. Next year’s numbers [00:06:00] actually do all this stuff we haven’t done yet, but we’ll do it. Don’t

[00:06:02] Anthony: worry. Or when we plan to sell this in five years, yeah. This is what it’s gonna be worth. And a lot of people do this, like you will see big numbers start out and then when you unpack, okay, how did you come to this number?

It’s like, wait, that’s not fair. They can’t do that. And you, and you might think this is. , um, not a big deal. But if it’s a difference between thinking somebody has like a $20 million portfolio in a hundred, cuz you could, you could very easily conflate this to the, to that, that level. Um, you know, you’re, you’re thinking you’re getting in bed with one size operator and really you’re not.

And what’s interesting, again, going back to Twitter, what got me thinking about this in the first place was somebody made a comment about how. . He thought it was really funny when operators would include debt into their assets under management instead of just equity. And I was like, well, that’s how it’s defined.

It’s the market value, the debt, and the equity. Right. And so even there an experienced operator, he’s looking at it and saying like super conservatively, he’s like, you shouldn’t even count debt into the equation. Well then he’s just

[00:06:59] Dan: using the [00:07:00] equity under management. And it wouldn’t be assets under management.

It wouldn’t be equity under management.

[00:07:03] Anthony: Yep. And I think that’s, I think equity under management is actually. in a lot of ways, a better number. It, it’s harder because you don’t know exactly what the size of the units or the, the asset classes or anything like that. But it’s also

[00:07:16] Dan: a mo more of a moving target too.

Mm-hmm. . So, um, there’s how much money people gave you.

[00:07:22] Anthony: Oh, that’s what I’m thinking of necessarily. Like the baked in. Yeah. That’s your, you’re adding over time. That’s a good point too. That can get also messy. Yeah. But

[00:07:28] Dan: the other angle that, that, that’s really bugged me for a long time, just being in the industry and talking to a lot of different, I don’t even wanna say operators, but, but people who are involved on the GP side of syndications is just the, um, the, the way they talk about how much, how many units they have,

[00:07:47] Anthony: they own, they control, they manage, yeah.

Air quotes

[00:07:50] Dan: all here, you come to find out that maybe they raised a hundred grand on a 20 million raise for like a 500 unit portfolio, and they just say, [00:08:00] oh yeah, I, I have, uh, 500 units under management. It’s like,

[00:08:03] Anthony: Not really. Yeah, you’re not the prime gp. GP not operating it. You don’t have the majority stake.

And you’ll see these people that, in that case of like, oh, they, they put it, they raised a hundred thousand dollars to buy a 20 million asset, so now they have 20 million of assets in their management and it’s like, Well that’s, that’s not entirely true sliver technically,

[00:08:22] Dan: if you look at their percentage ownership of the GP and what that equates to as the percentage of the deal, it’s a much smaller number.


[00:08:29] Anthony: and the, the, the, the biggest, um, violator of this that I see as new syndicators, new capital, razors, new operators getting into it, who maybe were previously LPs or are they still LPN deals? And so they might, yeah, they might invest passively into say, um, a a hundred unit class. portfolio, they put $50,000 in and then they will say like, they’re, they’re co-owners in, uh, a hundred units or something like that.

They’ll start using terms and it’s like, well, [00:09:00] technically not wrong, but it’s very disingenuous to, to present saying like, I have 3000 units. When it’s like, well, you’re passively invested in 3000 units.

[00:09:10] Dan: Yeah, I mean, I have, I have some shears in Apple. . I don’t say I I You own Apple. I own Apple . I mean, I do, but like, I mean that’s such a big, you know, obviously company like everybody knows I’m talking about, but it’s the same thing.

Like I don’t claim to have any significant ownership in Apple. I own like, I dunno how many minuscule, very minuscule amount of what’s available on Apple. So I don’t know, just be careful. If you’re out there looking to get into a bed with an operator and you’re newer and they’re. , don’t just take that assets under management at face value or, or the numbers of doors, like dig in a little bit and make sure that you’re not seeing some conflated numbers and there might not be as much experience there that you might have thought there was.

[00:09:53] Anthony: So, yeah, I think, and another one, this is like just way out there is like, what if you had a million dollar building [00:10:00] and then you had a million dollars debt on it, right? You could, let’s make this even bigger billion dollars. Let’s say you had a billion dollar asset, or billion dollar of as of asset set are a hundred.

um, leave it up. Yeah. Right. Like you would say you have a billion dollars of assets, but that person has zero equity. Yeah. So like that number is very interesting on one hand, but completely meaningless on the other. A hundred percent. And so take the time to ask, is the, the, I think the long story here, just ask your operators, can you explain to me your assets under management?

How’d you come to this number? Like, how are you calculating this? What’s this mean? Like, how many are you actually managing? Or, um, what’s that look like? What are you actually doing? Yeah, . So a little bit of a rant, but that is in my. The most common lie that you’re gonna see operators telling. So be on the lookout for it.

And now just take that with a grain of salt. Whenever you see people saying how many assets they have under management. Mm-hmm. , hope this helps you guys. Now, Dan, uh, let’s, let’s lube up. Let’s strip down and let’s get in the, let’s get in the thunderdome. I got already lubed. , you’re . [00:11:00] You are wearing, I am covering, wearing gasoline.

Under this you are wearing a waffle. Waffle sweater. Henley. Oh yeah. Underneath though is this man is perpetually loo . Like, how do you think I get into these pants? Oh yeah, yeah. Okay. No other way I. I am gonna bow out of this fight, like never fight with a pre lubed man. That’s, you know, where to find me.

Words of advice. So guys, we will see you all in the next episode.

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