Vetting Operators and Stress Testing Deals W/Thomas St. John
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Episode Description
In this episode of the On The Rise Podcast, host Jeremy Dyer sits down with Tom St. John — a real estate investor who spent nearly two decades grinding from single family homes to multifamily, made a major exit at the peak of the COVID-era market, and then lost a significant amount of money on his very first LP investment by failing to vet the operator properly. That painful experience became the foundation of his current work as a fund manager — traveling the country, meeting operators face to face, stress testing their deals, and only placing capital in investments he personally participates in. Tom and Jeremy cover operator vetting, stress testing underwriting assumptions, why alternative investments are often overlooked, and why the next five to ten years may be the decade of operational excellence in commercial real estate.
Summary
1. It Took Nine Years to Buy His First Multifamily — And That Was the Education Tom started in real estate in 2006, survived the Global Financial Crisis with creative financing tools like hard money and peer-to-peer lending, and did not buy his first multifamily property until 2015. That nine-year journey — doing everything himself after losing his brother and business partner in a car accident — taught him the difference between working in your business and working on your business in a way no classroom could.
"It took me nine years to even get my first multifamily. If I had to start over again today, I don't even know if I would. The stuff you have to go through."
2. A Telescope and 32 Years — The Moment That Changed Everything When Tom's father retired after 32 years at a power plant, the retirement gift that arrived in the mail was a telescope. That image — a telescope for 32 years of labor — became the catalyst that sent Tom to the library to read every book on business he could find. He decided there had to be another way. Real estate kept showing up as the answer.
"I just saw that telescope as my future. That's what 32 years will get me. I knew I had to find a different way."
3. He Lost a Significant Amount of Money as an LP — Before He Knew How to Vet Operators After his COVID-era exit, Tom rushed into the LP side without properly evaluating the operator. He knew the numbers but never looked closely at who was running the show. The operator had multiple other businesses Tom was unaware of, and the investment went badly. That experience — painful and personal — is the direct origin of his current work as an operator vetting specialist.
"If that can happen to someone like me — and I consider myself kind of an expert — I think it can happen to anyone."
4. Only Invest Where You Personally Invest Tom's core value proposition to the investors he works with is simple — he only places capital in deals he invests in himself. No recommendations without personal skin in the game. That alignment of incentives is the clearest possible signal that the analysis is genuine and the conviction is real.
"I only place money in the deals that I invest personally. I just tell people — invest where I invest. Plain and simple."
5. Stress Test Every Deal to the Point of Failure Tom's most practical contribution to any investor's due diligence process is his stress testing methodology. Take every assumption — which is really just a guess — and adjust it by 100 to 200 basis points in the wrong direction. See how the deal performs when rent growth is flat, when exit cap rates expand, when interest rates rise. If it fails on paper under those conditions, it is better to discover that before deploying capital.
"I like to stress test the property to the point of failure. It's way easier to make it fail on paper than in real life — because that happened to me."
6. Operators Paid by Performance, Not by Fees One of Tom's clearest operator red flags is a fee structure that rewards the sponsor regardless of how the investment performs. Reasonable acquisition fees are acceptable — it genuinely costs money to source and underwrite deals. But an operator who is primarily compensated through asset management fees and other recurring charges has misaligned incentives. The best operators eat what they kill.
"It's usually pretty easy to tell if an operator is going to get paid based on performance or if there is a fee-based firm."
7. The Next Five to Ten Years Is the Decade of Operations Tom is bullish on commercial multifamily for the next several years — not because of macro tailwinds or rent growth assumptions, but because the operators who survived the interest rate environment of 2022 to 2025 through operational excellence are now buying distressed assets from those who could not. The cream is rising to the top. The operators who can create NOI through disciplined management will dominate this cycle.
"The operators who can create NOI based on really efficient operations — I think the cream rises to the top these next five to ten years. It's the decade of operations."
8. Consistent Returns Compound Faster Than Volatile Ones Tom makes the mathematical case for private alternative investments over the stock market — not by chasing higher returns, but by eliminating the volatility that destroys compounding. An investor earning 7 to 8 percent consistently every year will outperform one who averages the same number through a mix of 16 percent and negative years — because every down year resets the compounding baseline.
"The guy that gets 7%, 8%, 10% every year, year over year — even if the other guy averages that — the consistent guy is going to be way farther ahead because he's capturing the power of compounded interest."
Resources
Website: https://northcorpcapital.com/
