- What's going on y'all?
Welcome back to Wealth Hacker Labs.
So on this channel, we talk about how to accelerate
our wealth building and we do that through investing,
whether it be investing in the stock market,
investing into real estate,
investing into online business.
Now, one of the areas that I haven't done a good job
in growing my wealth is through real estate investing.
I've tried a few physical properties.
It didn't quite work out for me.
You actually can check out the older video
where I talk more about that,
but for me real estate investing
has been through real estate notes
or real estate syndication
or Fundrise, an online real estate platform.
But recognizing that I don't have the expertise
to talk about real estate, I want to talk about a
real estate investment opportunity that I recently took part
in, and to answer your questions on this
investment real estate opportunity,
I wanted to bring in a real estate investment expert
which ain't me.
So who I am bringing in, his name is David.
He is from the Military to Millionaire website
and also podcast.
I've met David as FinCon.
I was actually just recently on his podcast.
So he's a military guy, Marine hoorah.
- (screaming) That's a war face.
Now, let me see your war face.
- (screaming)
- But also has built his wealth
through real estate investing
and he is the one who introduced me to
this real estate investment opportunity.
So what is this all about?
So I sent some questions to David
and he recorded his answers for you all
so that you could learn about this, how it works,
and if this makes sense for you.
So without further ado, let's find out what David has to say
about this real estate investment opportunity.
(techno music)
- Hey, what's up, guys?
I'm Dave from the Military Millionaire community.
And today I'm here to talk to you a little bit about
the syndication process and how people invest
in these large real estate acquisitions.
And I'm gonna do that by answering four questions
that Jeff sent over to me,
the first one being, "How does real estate syndication
"differ from real estate investment trusts like Fundrise?"
Easiest way for me to answer that
is to break it into pros and cons
and just talk briefly about a little bit of differences.
So a real estate investment trust or a REIT,
the pros for them are that they're liquid.
So it's a a big fund, so you can invest money into it
and pull money out of it.
There's thousands and tens of thousands of people investing
in these funds.
So it gives you that sense of confidence
and the barrier to entry is pretty low.
It doesn't take a whole lot to get these funds.
It's much like an index fund, where you're investing in this
fund and it goes up and down.
Some of the downsides are that they're very volatile,
like stock markets, and you don't really have a say in
what asset you're investing in.
You invest in this fund and the fund buys real estate here
and then buys real estate there, and it might buy
this kind of real estate and then it might buy
that kind of real estate, and you have an idea,
but you don't really know what property you're buying,
so you can't tangibly analyze and see if that's a deal
you would want to be invested in.
And also you don't really know who's operating
and to me that's a very important piece is the operator
of a deal, and so that's one big downsides for me is
you don't really have a say in who's operating your deal.
It's this fund.
Some of the pros of syndications are that you get to know
who's operating the deal.
You're investing in a team, in management, in operators,
and so you know controls who controls that asset,
which is huge for me, because I've seen really good assets
not do so hot, if they were poorly managed
and I've seen really bad assets turned around
when a new team bought them and added value and
they became incredible assets.
So I think the operator is almost a bigger piece to me
than the deal.
That being said, I also love that you get
to analyze the deal.
So I get to sit and go, "Hmm, do I like that
"internal rate of return?
"Do I like that preferred return?
"Do I like that cash flow, that value add, that strategy?"
And you get to know what the property is that they're...
So, for example, you might have these operators
that you love, and you might buy a property with them and
then invest in another property with them,
and then the third one comes along, you're like,
I'm gonna hold off on this one and wait for the next one.
It's not really just my type of thing.
And I like having the ability to do that
and analyze different deals, rather than just being
in a fund where you don't really know
what's getting invested.
With the syndication, it's also possible to do
a 1031 exchange rules, which means that you can defer
the taxes to later and you get depreciation benefits,
which is a huge tax bonus that real estate investors
get based on aging properties
and being able to pay for repairs.
Also one other fund, and this is goes into the REIT.
I forgot to mention this as a con is
syndications don't have all these crazy fees.
They're much lower fees,
whereas a REIT has, some of them have very exorbitant fees
and just make sure you're looking out for what
their fee structure is and how much of the investment return
they actually give back to you.
They're only required to give 90% back to you in a REIT,
whereas a syndication has preferred returns
and they give me more of your money back.
Now, some of the cons first syndications.
It's not really that liquid.
You're in it for the long haul for that deal,
and the barrier to entry's higher
and it takes more money to get into one of these,
because you need to be an accredited investor
or a sophisticated investor with some decent capital.
And we'll touch on that in a minute.
Also, you need to understand how to look at
income and expense reports, as well as due diligence,
and you should be able to do that with anything
that you invest your money in.
But because you're investing in a specific deal,
you definitely want to be able to understand the numbers
on it before you put your money into it.
Question number two is "What are the biggest risks
"associated with something like this?"
And most of them are outlined in your PPM,
which is the Private Placement Memorandum,
and this is gonna discuss a lot of these risks.
I will say that in 2009, at the bottom of the last crash,
the residential mortgages had a 5% delinquency rate
and multi-family only had one percent.
So it's a little bit safer I think partially
because when people can't find a place to live,
they flock to apartments 'cause they're a little bit
more affordable, so they help people be able to survive
a downturn if they get kicked out of their house.
So it makes it a little bit more recession-proof.
One of the biggest risks with this is poor management.
As I said, a poor operator can take a good deal
and ruin it.
So you need to know who you're investing with,
and you know they have some credibility and a track record.
But the nice thing with the syndication is that
you're limited to the amount of money you put in.
You can't lose any more than that.
Now, I've not really seen that happen.
But the point is that this is nonrecourse debt,
so the bank's not gonna come after you and
make you file bankruptcy if you can't repay the loan.
Especially as a limited partner,
you're really only gonna be able to lose the investment
that you put into it, which is not good and
probably hopefully won't happen to you.
But at least you know your worst case scenario
is losing that money
and it's not gonna cost you anything else.
The third question is can I talk about the process?
How do I find properties?
How do I find investors?
What goes into a deal like this?
So, first, I want to just break down
the syndication process real quick.
A syndication is nothing more than a pool of investors
coming together to buy a larger acquisition
than they would normally be able to afford.
A prime example of this would be a Ferrari.
Let's say I want to buy a Ferrari,
but I don't have 200 grand.
So I find you, and your buddy Jimmy,
and my friend John, and we all pitch in 50000
and we buy a Ferrari and we say,
hey, every fourth day, it's yours.
That could work.
Now, granted that a apartment will hopefully appreciate and
Ferraris don't always appreciate,
but you understand the concept.
There's two different kinds of funds that are primarily used
for buying large syndications.
There's a lot of ways to do this, but a 506B and a 506C.
And the 506B says that you have all accredited investors
and up to 35 sophisticated investors,
and then you cannot market at all,
because it allows sophisticated investors.
So an accredited investor is somebody with million dollars
in net worth or who makes $200000 a year
or with a spouse makes $300000 a year,
and a sophisticated investor would be someone
who hasn't quite met the accredited standards yet,
but it can be reasonably assumed that they understand
the risks they're taking on.
So, for example, if I was to invest in something
and I'm not accredited, then I have to understand,
I have done some real estate investing.
I can prove that I know what I'm getting into,
and so I can assume that risk.
They can only take up to 35, and because they allow
sophisticated, no marketing allowed.
A 506C is only accredited investors,
so they can do general marketing, some basic advertising,
and talk about the deal a little bit more just
because there's no sophisticated investors allowed.
So everybody in the deal is assumed to understand the risk
or at least be able to lose that money
or have a large income.
With all of these deals is a GP, General Partner,
and an LP, Limited Partnership.
The GP are the people who operate the deal.
They do due diligence.
They do inspections and they manage and operate everything.
The LP side is the investors who just put their money
into the property, invest,
and they just sit back and enjoy the ride.
So it's much more passive, much less time induced.
If you're gonna do the GP side, make sure you talk to a
Security Exchange Attorney, and SEC attorney
and have them help you structure all this.
For finding deals, a lot of this just comes
from relationships with commercial brokers in your area.
You could also talk directly with Mom and Pop owners,
which are a family or a small partnership
that owns real estate investments and whatnot.
Rather than going through Fundrise and buying a property
from them, you might go to local Mom and Pop who owns
an apartment and just ready to retire.
You could also just look on the MLS,
like LoopNet, Realtor, Zillow.
LoopNet's more for commercial properties.
Not gonna lie to you, the market's hot right now,
so some of the stuff you're seeing on LoopNet's
not really ideal to buy as an investor,
because you're gonna pay a pretty penny for it.
So relationships with commercial brokers,
and then marketing to and networking with
Mom and Pop owners are the best.
How do you find investors?
Networking, content marketing, getting out there.
So because you have to have a prior relationship
with people who invest in these deals,
you can't just walk down the street and say,
"I'm buying an apartment.
"You want in?
"I'm gonna do this.
"You wanna invest?"
You have to be able to prove that you knew them previously.
For example, I'm talking to someone who is a dad
of one of my friends in high school.
We stayed in touch.
And I've got a couple of people like that from high school
that stayed in touch, they see what I'm doing,
and they're interested in investing with me or in me
or however you want to look at it.
There's also people I've met networking through YouTube
and podcasting or going to meet-ups and going to events
and going to conferences and just telling people what I do
and we built that relationship, 'cause you have to have
that relationship pre-existing.
And then also content marketing.
So what is content marketing?
Content marketing is huge for one.
It is having a YouTube Channel,
having a podcast that allows you to get out
and put yourself out there and tell people what you're doing
and then if they like it, they come to find you
and talk to you and get invested with you.
So prime example is I'm filming this video
for this channel, because I'm putting myself out there,
giving you guys some information,
and if you were to like it, and you wanted to come find me,
you could go to frommilitarytomillionaire.com/investors
and fill out some information there.
We get in touch.
We build a relationship.
Maybe we invest together down the road.
Or you watch it, and you learn something new, you move on.
But it's putting myself out there to help build my network.
And also to just help educate people.
And that's a good way to get yourself out there,
help find potential investors,
because the most important part is personalities clicking,
credibility and trusting each other.
It does take a lot of time and resources
to do the General Partnership side of syndication.
It's much less time invested to be a Limited Partner.
You just understand the deal, and you sign some documents,
hand in the cash.
So large apartments though, like this,
a normal house takes 30 days to close.
A large syndication might take 60, 90, 120 days to close.
It may be even more.
And so the process is just longer,
because the due diligence is a lot easier on one house
than it is on a 100 unit apartment complex
and you need to plan out if you're putting in a pool
and zoning and there's all kinds of things to consider
with a large apartment that don't really matter as much
on a small residential property.
The fourth question is, "For an investor who does not
"have accredited status, what are some of the real estate
"investments they might be able to get into?"
Well, you could just do single and multi-family housing,
so like a small, 10 unit or whatever.
I bought a single family on my own.
I've paid for duplexes on my own.
I've bought a 10 unit on my own,
and then I've done a partnership,
a 50-50 split with someone for a 40 unit.
And so there's a lot of options out there
for not having to do syndication.
It's just a matter of financing and creativity.
You could also just become a sophisticated investor.
And then you can invest in these with the capital you have
without having to do all the craziness
of being a General Partner.
One of my favorites is house hacking though,
especially if you can use the VA loan,
or even the FHA loan.
You buy a primary residence, like a duplex, a triplex
or a four-plex.
You live in one of the units and you rent out
all the other rooms and that allows you to build equity,
with other people paying your mortgage now.
Or you could even do like me right now.
I'm stationed in San Diego.
And I'm paying $3000 a month for rent,
but I'm renting two different bedrooms out on Airbnb
and if I make $2500 that month on Airbnb,
then I'm really only paying $500 for rent
and I'm able to save the rest of it to reinvest later.
It's a lot of money I save every year
by renting out rooms in my house.
It's not always convenient.
But you learn about landlording.
You learn about Airbnb, and you save money to reinvest.
It's like bootstrapping and side-hussling.
So I really like house hacking,
especially if you're just getting started in real estate.
And then, finally, you can do private money lending,
which is if you want to lend someone 50 grand
and say give me 12% interest and then go buy real estate
with it, or you can do private money lending
and do equity partners, so you say, hey I'll pay 50000
towards this property, but I want half the equity
and it's a 50-50 partnership, you get half the cash flow,
you get half the tax benefits, you get half the profit
when you sell, and you can negotiate these things
with an investor that has time and knowledge
to go and invest if you just have the money
and want to invest.
And the nice thing with that and with syndications
is that if you use self-directed IRAs,
you can take the money from a self-directed IRA
and you can turn around and put it into a private lending
with somebody on real estate, or into a syndication.
You can utilize that money, which is really cool
and a nice benefit.
Once again, guys, I'm Dave from the Military Millionaire
community, and I really appreciate Jeff letting me
on this channel to talk to you.
Hope you learned something today about real estate
and syndications.
If you've got any other questions,
don't hesitate to reach out.
- All right, y'all, I hope you enjoyed this video.
One of the main reasons I wanted to put this out to you
is that I just wanted to show you that yes, the market is
going to crap right now, but also to show you that
there are other ways to invest.
Now, many people think that you have to do it
the traditional way, and you have to buy mutual funds,
you have to buy ETFs, you have to buy stocks,
and I just want to show you that if you want to build
your wealth that there are other opportunities out there
that you may not know about.
And that's why it's all about getting the information.
It's all about connecting with others.
That's how I was able to learn about this opportunity
is all because of connection and networking
and just going out there pressing the flesh,
which you don't want to right now with coronavirus,
but nonetheless, it's just making those connections.
And whether this was a good opportunity for me or not,
I still wanted to know more about it.
So before I actually made this investment,
I forwarded this information to my CPA.
There's another opportunity I was looking at as well
and I forwarded both those to him.
I trust him.
He's known me for, dear Lord, 16 plus years.
He's also a knowledgeable real estate investor.
So I really look to his guidance on if this made sense
for me, and for anybody for that matter,
and got the two thumbs up back from him, saying,
yeah, this was a good investment.
So I was able to move some money in there
and that's what I did.
And I wanted to take this opportunity and educate you
on this to show you that, man, there are just so many other
ways that you can invest.
So I hope that you found this video helpful.
Hope you learned something and if you did,
now would be a good time to hit that like button
or to subscribe if you haven't
and also share with anybody else who wants to know
about real estate investing, real estate syndication
and how this all works.
All right, y'all, I hope you enjoyed it.
'Til next time, I'm Jeff Rose reminding you that
it's your money, it's your life
and only you can make it awesome, peace!