What is going on? YouTube, it's Matt Faircloth. Welcome. Welcome to mentorship
Monday. Let me bring it to my partner, Justin Frazer. Justin, come on in.
Hey. Hey. Hey. How's it going, man? How are you, man?
I'm doing great.
Our guest today is one of DeRosa Insiders. Come on, bring him in, Justin.
Hey Scott. This is [inaudible 00:00:17] Scott.
[inaudible 00:00:20]. Wow are you, brother?
I'm doing good. You had a question.
Let's get to it, man. What do you got?
My question really revolves around passive investing, as a limited partner. There's lots
of places, lots of people that might be offering deals, but how did you vet those sponsors? How do
you know that you can trust those sponsors? Good question.
That's the root of the question? Right. So, once you've drank the
Kool-Aid and realized that Wall Street is not the only place to build your wealth,
then you got to make that decision of, "Okay, well now I'm in, I get it. I want to invest in a
syndication or invest with an operator that I can touch and feel and have their..." Scott's got my
cell phone number. So those that you invest with, you end up having a tighter relationship with,
than the CEO from Microsoft or in some ways even your financial planner because you can be a little
more active in where your money's going and things you're up to. Right? Or at least with us you can.
But the question is where do you go? Right? I get that. I feel it Scott, and I've done some
passive investing on my own. Some ended up well and some ended up not so well because I
chose the wrong operator. So I feel it. What I would say, and before I even... I
should plug a good friend of mine's book that's about this. That's Brian Burke,
the fellow BiggerPockets contributor Justin and I are good buddies with him. He's a phenomenal guy.
Great operator. Has thousands of multifamily under management. Also manages a bunch of fix and flips.
And he wrote a book called The Hands-off Investor. That's a BiggerPockets book.
I've heard of that book. He does very, very well. Yeah, it's
a great book. So you should pick that up. Because it's a $20 investment in your own education. But
that book is about picking the right operators. And it's also... It's gloves off. He talks about
how operators can dupe you, not like in a scare tactic way, but things to look out for,
and levers that operators can pull to tweak IRR and things like that to make things look a little
sunnier and happier than they actually are. It's Brian Burke's book. So, that's my two cents.
Justin, what are some thoughts you've had on how folks like Scott that want to be passive.
I happen to know Scott and his wife both love what they do, and by the way, Scott, I want to make
sure we plugged your wife's a website for her soap business for the 25,000 people that are watching
so they can all pick up a bar of soap. In that from you guys, because they make phenomenal soap
made from goat's milk. It's incredible. My son loves it. I love it. It's good stuff. But anyway,
for folks that love what they do Justin, as I understand talking to you, man, you're
a hundred percent fine being a passive investor. You don't ever want to quit and do this full-time
and there's many people like you out there. Yep.
Oh yeah, I work a full-time job. I work as an engineer for a semiconductor company, which
I'm very happy at doing that. And I do have a duplex that I own locally to me.
And one of the biggest things that I learned out of that is I don't want to be the landlord.
Yeah, for sure. I'd much rather invest passively.
So Scott, I'm going to assume a few things. You like what you're doing.
You already said you don't like being a landlord. You don't like having your hands in it and that's
great. That's perfectly okay. So for you, you've got to figure out who do you know, like and trust,
before you make an investment decision. And we hear those words a lot. And so from our
perspective, we're always thinking, "How do I get more people to know me, like me, and trust me?"
And so, for you, let's say you're starting fresh. "I want to invest in somebody's deal. And I love
real estate. I want to be in a syndication, but who?" And that's really the question that you're
asking. So we start with who do you know? And know, is a very broad term. But, who do you know
in terms of what podcasts are you listening to? Are you listening to my podcast? Matt's YouTube
channel? Are you listening to any great operator? Lots of operators have podcasts for this very
reason, because they're trying to get the word out so that more and more people know them.
So once you to know me, you've heard of me basically. Right?
Right. Now, you have to like me and trust me, which
is the next level. And so, maybe you're going to reach out and schedule a call with me. And what's
that process like? Do I get back to you in time? Do I blow you off for a while and catch up later
on? Am I someone that is willing to give you 30 minutes of my time, an hour to sit down and have a
Zoom call or an in-person meeting and talk about what we do and how we operate? And so, you start
to pick up on building this resume of know, like, and trust through all the little interactions that
we can have over and over again. I will-
So what I have been doing, I have been listening to some podcasts, and one that you did Justin in
particular with Shannon Ludlow, that really got me going and looking at some of this and looking for
operators. And I have listened to a number of the podcasts, and I have reached out and has
a couple of those conversations with people. Great. So, that's a great sort of first step. So
now you're starting to build a list of who's doing this? And so let's say you find five operators
that are possibilities that you have a pretty good feeling kind of know what they're doing, and they
seem to have a track record. Now you've got to do like a next level of evaluation in that you want
to look at the past deals that they've done. You want to then even possibly talk to past investors.
We have people asking us all the time to speak to past investors, get references,
see how do we communicate? Do we do what we say we're going to do? If we can't do it,
how do we talk about it? And so, it's like a really in-depth interview about every aspect.
Because at the end of the day, you don't want to lose your money. Of course,
you want an upside and you want all the benefits, but you really don't want to lose your money.
And so, that's the end of the day question is who are you going to put your money with,
where you're not going to lose it? And you don't want to get scammed and you don't want someone
to go and take it for a ride. And then you want someone that's going to be a good steward of this
money that you're working really hard for. And so got to go through that whole evaluation to figure
out through that know, like, and trust process and then the credentials. And then the referrals.
Okay. I think all that's awesome.
So yes, to everything Justin just said, but I'll throw a few things on top of that and. Basic
stuff. Is this syndicator transparent? Are they going to give you view insight on what's going
on? So the way you determined that as you ask them how they're going to keep you in the loop?
You going to send me monthly emails? You going to have an online community like we do? Whatever it
is. How is it? Or, are you going to just call me when the money's ready, kind of thing?
Obviously, talk to other investors that have worked with them if you're open to taking
referrals. So remember, for references, people put references up on a pedestal.
Nobody's going to give you people that are mad at them, or people that they screwed over, or people
that... I rarely ask for references for people I do business with. I look for friends to refer me
to somebody. I'll take a referral over a reference all day long. The reason why, is that if I asked
a contractor for a reference for somebody I'm going to work with, they're going to give me
their best customer ever that's going to sing their praises. To me, references are BS because
nobody's ever going to give you someone that's not happy with them. This is [inaudible 00:08:05].
Fair enough. Fair enough. Now, next thing is transparency.
Vulnerability. Ask them about a time that things went sour. Hey listen, tell me about a time that
you screwed up or that the deal didn't go the right way that you thought it was going to go,
or that things went south and you ended up having to re-correct or course-correct, or make it right,
or got it, or that you wrapped things around a tree and you couldn't fix it. Whatever it was.
Tell me about that. And if somebody says, "I've been in business for 15 years and I've never
screwed up." Next. They're a liar. We all screw up.
Like things go... We do. And things go awry in this business. And so if they're not willing
to admit to any mistake they've ever made ever, move on. Because that's just not the way of being,
you want to have as someone as a syndicator. You want them to be able to learn from their
mistakes and admit. And also more importantly, if they admit things are going to go wrong in
this business, but they can show you that they can course correct around errors,
then that's a horse I would ride. That's really what I was going to say,
Matt. One is, are they going to admit that they made a mistake? But two is, what have you done
about it? Because you don't want someone that's going to make that same mistake over and over, or
like, "Okay, we made a mistake on one, we changed our business plan so we don't look for a deal like
that. And we don't operate that way. Or we don't spend money in the same way." There's a million
ways that you have to learn and grow and evolve. And if you can't speak to that, and you can't
show that you're growing as an operator, then I'd be nervous putting my money with you.
I've made tons of mistakes. And it's about the mistakes about what I learned,
and what I did to correct it. So, that's really what matters. It doesn't matter have you
had a mistake? Well, I sure hope so. Those are really learning opportunities.
Yeah. If you're not making
mistakes, you're not trying hard enough. And, I just want to point out that we're 15
minutes into this conversation so far, we have not yet once mentioned the deal. It's the vehicle
you're actually putting your money into, but it's so important that it's the operator first,
and then the deal. It's someone that you have to know and trust before you even
think about it. Because I can tell you I've got the best ROI and return for you,
but if you don't trust me and I- It doesn't matter.
... don't have the record to back it up, then it's all baloney.
The deal is BS. So it's about the person first.
The deal is secondary. Scott's invested with us in a project in Trenton. So he has to
believe in Trenton. He has to believe in the deal, believe the numbers work and all that,
but I'd be willing to bet Scott, you vetted me first, before you vetted that deal.
Absolutely. Because if it's like the biggest
shyster on the planet, and it's offering you a great deal of lower Manhattan at half the price,
I'm still not going to invest. I don't care what you got, man. I don't trust you.
Some of that was from BiggerPockets and watching some of your videos on YouTube and stuff. And
that's how I got to know you. And now I got into contact with you.
Don't put it on BiggerPockets, because BiggerPockets has had people that were...
It's not on them. They can't vet everybody. So people should hear this. Just because someone's
been on the BiggerPockets podcast does not mean they have high integrity. BiggerPockets
doesn't vet people that people like that. They can't. They're not going to do background checks
and stuff like that. They've had people that were running, that ended up being bad operators and
screwed people over. BiggerPockets did the right thing. They took their podcast down. So there are
podcasts you can't listen to anymore. I didn't know that.
There were people that were maybe bad actors. At the end of the day, just because someone's
on BP is really... All BP is, is a megaphone. You still need to go and vet the person. Now,
our YouTube channel is different because we put a lot of what we're doing out there,
that are transparencies on YouTube. That's on us. That's us saying, "Hey, look at what we're doing.
This is our project and we're exposing ourselves here." And everything like that. So,
our YouTube channel is a little different, but I wouldn't put BiggerPockets up on a pedestal as an
integrity measure. All that is, is a megaphone. Well, it's [crosstalk 00:12:24] very much what
you're saying. That's why I first heard of you. I first heard your name. I was
attending one of your webinars on BiggerPockets. And then from there, I went to your YouTube
channel, watched some stuff from there, I got in contact with you. We had a phone call.
Good. And I'm not coming back on what you were saying. I'm really just using it as a
learning opportunity for whoever is watching. And I just want to point out what Scott just
said was exactly... He heard him at, the know, from BiggerPockets podcast. He started liking
Matt by the YouTube channels. He likes what he's saying, he's going back for more. And he started
trusting him when they started meeting together and talking about how they could work together. So
you move through that progression. And Matt's not the only person that you have heard on
BiggerPockets or seen a posting or video of. But you got to start with the bigger funnel and
work your way down to the people that you're going to actually do business with. Great.
[inaudible 00:13:23]. So we had another guest for the show,
I guess they haven't showed up yet, huh? Listen, it's actually a little bit intertwined
with what Scott's saying on the other side of it.
I think we should go there. I do want to mention this a little bit because
we did have another guest lined up, and that guest's question was centered all around
raising money. They're a partnership team that has some deals in progress that are about to
close in the next few weeks, and they need some more money. And so their question was around,
"How do I raise money for this deal? My family's tapped out. My close friends are tapped out.
How do I raise money?" And it's exactly in line with the same conversation that we just had of-
I would have loved to [crosstalk 00:14:03]. ... reputation, because... Scott, let's say you've
got a ton of money and you're ready to invest in someone and you're like, "Oh, look, there's
great young guys that are operating, but they didn't show up on time for the presentation,
for the meeting the favor, the question that they asked for us."
That's not sounding very good. Exactly. So right off the bat...
You know, you're out. Yeah.
And I think that you've only really only got a few things in life. You got your track record and you
got your word. And if you're not... Listen, I'm not going to say I've been on time for everything
I've ever done. And I have blown meetings, I blew off and I screwed up and had the date wrong
for the Joe Fairless podcast one time, and missed it. So I couldn't go on the Joe Fairless podcast,
but I cleaned it up immediately and I called them apologized or whatever.
I was very embarrassed about that. But if you just operate haphazardly through life that maybe make
appointments, maybe you don't, the investors are going to be very turned off by that. I would be
turned off by that. And let's keep their name confidential because I don't want to... Even
though I was tempted to throw them out there, let's not be jerks about it. Not be jerks about
it. But at the end of the day, I wouldn't give these two a nickel. I wouldn't. Of my own money,
or I would recommend my investors do not invest with these guys unless they can...
They got to fix their integrity measure. Let me tell you, since we started here,
I've got a message. And their response was, "We didn't realize it was still happening, and
can we do it tomorrow instead?" No.
Exactly. Because, guess what? They got the same email that Scott got.
And Scott was here on time. Show time.
He was here before me today. Scott showed up. Opportunity knocks once, man. Opportunity knocks
once. And we could have helped those dudes and put them on [inaudible 00:15:57].
You got calendar invite, you got a follow up from our... There's the whole process of follow up.
We could have put them in front of 25,000 people. I could have put them in front of 25,000 people to
talk about their deal and to talk about it and everything like that. So...
The lesson learned is you have to show up, you have to do what you're going to say.
And I'm actually even more upset about the response that I got of like, "Oh,
let's just do tomorrow." Because, that's not right. That's not how you ask for that.
[inaudible 00:16:21] for a second. If you've got an investor that wants to put 50K,
100K into your deal, and you can't get your act together to get on spot and have a one-on-one call
with them. Number one, you're like, "Oh, can we do it tomorrow?" I don't know, man. You don't really
respect other people's time. And I know these guys are younger, but guess what? I've seen people that
around their age, early twenties operate at a high level of integrity. So you can't write it
off to that either. So, people can change. And I used to not honor my word as much as I do now.
But it's important to learn that lesson early in life, if you want to be successful, is that your
word is one of the few things you got. And if you honor your word and your integrity, and are
willing to be vulnerable with people about mistakes you've made, then honor your word.
When you do something, do it and be willing to own your track record. And my guess is these two
because of their age, don't really have much of one. Be willing to own that. And they take a shot
on me, I probably would take a shot on somebody if they were vulnerable and were high integrity.
It's like, "You know, I think I'll take a shot." Scott, I bet you would too. You might not need
to see 15 years worth of experience like I have. Again listen, if you seem like you're willing to
be vulnerable about it and be transparent and be honest, I'll give it a shot.
Listen, at the end of the day... [inaudible 00:17:41]. Sure.
Yeah. Yeah. And at the end of the day, if you don't have the experience,
you got to make up for it and be really on point with everything else. You really got to be...
I got no experience. I can't show up on time to things. I don't value other people's time.
So, you can get away with maybe not having one of those things, right?
And then we give Justin a song and dance about the deal that I got and everything like that. Yeah.
It's like, "Nope, Nope, Nope, Nope. Nope." Right. So, not too far down the rabbit hole
of pointing that out about these guys, but in general, it directly aligns with
everything that we talked about with Scott, because these guys on a much smaller scale, but
someone like Scott who might be looking to place money into a syndication, or maybe a hard money
loan, or maybe any kind of... Scott's a smart guy. I'm sure he's open to creative financing
ideas on things. You never know. This could have been a perfect opportunity conversation that we
all would have had, but the opportunity's lost, the opportunity's gone. And it's unfortunate.
And I feel bad for those guys because it's a hard lesson that you have to learn. And guys,
if you're watching, because we are going to send this to you, hopefully [inaudible 00:00:18:51].
[inaudible 00:18:51]. We gave them advice in the recording. Instead of this recording,
they can hear our buddy Scott talking about what he wants to hear from a passive. This is perfect
for recording for those looking to raise money. Because this is what to do, and what not to do.
Definitely. Absolutely.
Listen guys, listen, thank you. I don't want to tie you up for the rest of your day,
man. I appreciate you taking time out. Thanks, Scott for being on, man. I'll
talk to you soon. Wish you the best. Thank you, Matt. Thank you, Justin.
See you later, Scott. Appreciate all the advice.
Thanks for watching, guys. Have a great, profitable-