Intro 0:02 Welcome to commercial conversations over coffee.
The show where two college dropout turned real estate millionaires discuss all aspects
of commercial real estate investing. Now, your hosts Tyler Cauble and Apt-Guy, Bruce
Peterson.
Tyler Cauble 0:24 Happy Friday, everybody if you are joining
us live - Oh, you know what it looks like we might have lost Bruce. Let me see if we
can get him back in here real quick. So Bruce is actually traveling right now he is in Denver
speaking at a conference. So we've been having some issues trying to get him in here live.
And there he is. One second. Bruce, what's going on, man? What's up, brother?
Bruce Petersen 0:49 Sorry, I'm in a very temporary spot. So I'm
trying to get myself figured out here.
Tyler Cauble 0:53 No, it's all good. I was just letting everybody
know that you are traveling and speaking in Denver, and that we may have some technical
issues. So please bear with us. If if the audio gets funky, or the video messes out.
But Bruce, tell us about what you're doing in Denver.
Bruce Petersen 1:07 Well, okay, when I get to Denver, I'll let
you know. I'm in Salt Lake right now.
Tyler Cauble 1:11 So you're in Salt Lake right now.
Bruce Petersen 1:12 Well, then. Yeah, I didn't know I was supposed
to be in Denver. Apparently. I'm in the wrong place. Yeah, no, I'm doing you're learning.
You're learning, branding and hanging out with a bunch of like high powered driven entrepreneurs.
Just kind of hanging out. We we spent the night the evening last night, having dinner
in a billionaires hangar, which was pretty cool. got rich, all of his Tony Stark Iron
Man toys, you know, his private jet helicopter, the $1 million baja rig that he owns the little
zombie apocalypse Sprinter van that he has. So yeah, it's, you know, it's basically I'm
learning while I'm here, but we talk about it some and probably not enough. You're the
average of the five people you hang around with spend the most time with, I'm not a billionaire.
But I get to hang out with billionaires, I get to pick their brain, you have to elevate
yourself, if you're always hanging around in a pond where you're the biggest fish, dude,
you're not gonna grow. You have to put yours. It's an ego boost when you're the biggest
fish in your pond. You're a badass, right? It's cool. But you're not going to move yourself
forward. I am by far the smallest fish. I'm a pretty successful dude. But I make far the
smallest station is true. And I can't tell you how much fun I'm having. I'm hearing stuff
I've never heard of before. business opportunities. Just it's insane.
Tyler Cauble 2:34 Yeah, I mean, that's what I always like to
say, you know, I want to be the dumbest and poorest person in the room. Right? Because
if I'm the dumbest and poorest person in that room, I'm in a damn good room. And if you
know if, again, if you're the smartest, or you're the wealthiest person in the room,
you probably shouldn't be in that room unless you're, you know, there to help other people
and you're giving a talk or you know, whatever, right?
Bruce Petersen 2:56 Exactly. You know what I tell people when
I'm on stages, or I'm you know, just teaching them one on one, it's like, Look, if you walk
into a room, you're the smartest person in the room, get the hell out of that room. You
know, you don't want to distance yourself from friends, family, loved ones, that kind
of thing. But as you're trying to move your business forward, make yourself a better human
being. You got to level yourself up, if you're just hanging around people that play video
games all day, well, that's what you're going to regress to even if you have great intentions.
And I'm reading a book right now called willpower does not work. And it's talking about willpower
doesn't work, it's all about environment, you are going to fall into your environment,
no matter how driven you might be, how much willpower you have, willpower is very short
lived. That's why people can't quit smoking. If they hang around people that smoke, you
won't be able to quit smoking. You know, it's it's that thought process, just elevate yourself,
change your environment, and you will succeed. It's a guarantee if you can put yourself in
a a strong environment with driven people that are very successful.
Tyler Cauble 3:55 That's so important. You know, I first realized
that when I dropped out of college and moved back, right, so I had two years where all
I did was work, I worked and I worked out I never drank like I didn't really drink because
I didn't have any friends to go hang out with all I did was work all day. And so I got really
far ahead of my friend group. And when they came back by that time, you know, I wasn't
playing video games anymore. I wasn't going out partying on the weekends, you know, 2223
right. So that's basically what all my friends are doing. They're still doing all of that
to this day. And so I immediately recognize like, okay, I've, you know, I'll always love
my high school and my college friends, but I can't be around them all the time. You know,
they're still smoking pot every day and playing video games and, and, you know, bitching about
how their manager you know, came in and yelled at him or something. And I just, I was sitting
there one time with him and thinking to myself, wow, I just can't relate to that. Like, I've
got to figure out how I'm gonna make payroll next. I'm trying to figure out our marketing
program, you know, running this business and You know, if I don't go out and work in close
a deal tomorrow, you know, I'm not going to get paid. So there's a lot of, you know, again,
you know, you got to change who you surround yourself with. Now, like I said, still hanging
out with them, always will will always go grab drinks on the weekends, but I kind of
know what I'm getting myself into, you know, the best thing that I ever did was join a
real estate mastermind. That's actually what led me to meet you, right? It was best year
ever blueprint with how Elrod and I was sitting in that room one day, and you know, I'm 24
at the time. And it costs $10,000 to join that group, which to me, it was like, Man,
that was a huge, huge commitment. I mean, it was a ton of still a ton of money. And,
but it was the best decision I ever made. Because I was sitting in a room surrounded
by other people who could afford to spend $10,000 to be in that room, which meant one,
you know, probably a good group of people, every single person in that room, not every
single the majority of people in that room were authors. And because of that, I became
an author, I was sitting there going, Well, I don't want to be the one chump that didn't
write a book, what am I gonna write a book on? So I wrote a book and you know, it's,
that's the power of who you surround yourself with, I don't know that I ever would have
if I hadn't done that.
Bruce Petersen 6:14 Yet, a lot of it is it comes down to an accountability
piece that, you know, like you said, you didn't want to be the one guy that did write a book.
It also, when you see others around you being Uber successful, you feel like crap, that
dude, I, you know, got my head up, I asked, and I'm not doing anything, I sleep until
11 o'clock, I play video games, when I get home from work or whatever you're doing. These
other guys aren't doing that, you know, these guys that I'm surrounded with now, they're,
they're adrenaline junkies. And they, you know, I'm trying to figure out how to keep
up with them in that respect. But, you know, again, it's just elevating yourself making
yourself better. Now, if you don't want better for yourself, why don't you hold tone level
yourself up. But if you're trying to be more than you are, and you know that that speaks
to something to that I watched a clip by Kevin O'Leary the other day. And he just said very
passionately, in an interview with one of the guys that I'm sitting here with now, Andrew
Caudill, he said, Andrew, I do not apologize for being successful, I do not apologize for
being ridiculously wealthy, creating jobs, working my ass off, I don't apologize for
it, I owe it to myself, I owe it to everybody around me, I owe it to my community to be
as successful as I can possibly be. And if those around me aren't comfortable with that,
that's fine. But you don't need to be around me then.
Tyler Cauble 7:30 Right. I mean, that's, you know, we talked
about that a few episodes ago, didn't we where, you know, you've got the the moral responsibility
almost to go out and build as much wealth as you can, because that's how you have a
positive impact. You know, if you're making a million dollars a year, and you're donating
$500,000, a year to charity, or whatever you decide to do, that's going to have far a far
larger impact than if you just donate 100% of your time to volunteering, right? Or, you
know, they, there's different ways of going about it. But you can have a pretty big impact
the more money you make.
Bruce Petersen 8:05 Exactly. And that's what it's all about money
is, you know, it's the cheeseball phrase, but money is a tool to me money is options,
it gives me options that I wouldn't have had otherwise. So I work as hard as I do, do as
much as I do, to earn as much money as I can. Because that gives me options in life, I can
help my autistic adult daughter, that's expensive, her therapy, the support that she needs is
crazy expensive. If I worked in McDonald's, there's nothing wrong with working at McDonald's,
but I can't provide for my family in the manner that I feel I need to and that I owe my family.
So it all goes hand in hand. And again, unfortunately, maybe the world runs on money, I need as much
of it as I can, I can do it in a very responsible, socially responsible way, not step on people's
throats on the way up, give to everybody that I encounter. But I need to drive myself forward
and make as much money as I can.
Tyler Cauble 9:01 Exactly. Well, speaking of surrounding yourself
with the right people. I mean, you know, we've talked before about how getting into a real
estate group or real estate mastermind has, you know, it's obviously impacted both of
our careers, right. I mean, that that was probably the most pivotal moment for both
of us was joining these groups, and surrounding ourselves by other people who are successful
in real estate. I mean, how, how has that impacted you? I mean, how did you go about
that process?
Bruce Petersen 9:32 Well, I found a group locally that I joined,
they taught me how to invest, how to structure deals how to do syndications, which is really
what we're going to be talking a lot about today, but they taught me how to do it. And
it wasn't enough for me to be taught how to do it. I i obsess about everything I do, right.
So when I find something that I believe in that I'm really interested in, I dive in all
the way. I was always the first one there when we had seminars we had, you know teaching
things where they'd have vendors come in and talk to us about how lending works, how insurance
works, I was always the first one there, I was always the last one out the door. So I
didn't work there. But I was basically turning the lights out behind me when I walked out,
I wanted to be there all the time. And that just led to doors opening for me, because
people saw that I did care it I was really dedicated to this. And people sort of introducing
me to other people that they thought might benefit me might help me and my growth and
try to figure the whole thing out. So again, you know, I owe everything to you know, find
the my coach, mentor, and then groups like that. Also, surround yourself with people
that are trying to do that are doing what you're trying to do at a very high level and
learn from those people don't try to learn from the person that says, Oh, you know, taxes,
toilets and tenants, it sucks. I had two rental houses and you know, I was crawling under
houses fixing plumbing all the time. Okay, quit listening, your crazy uncle Vinny. It
didn't work for him. He did it. It's that simple. He did it wrong. You know, there are
people out there successful. There's rental buildings, everywhere. Most all commercial
is rental, almost all residential is rent oil, 60 to 70% of residential housing, apartment
complexes, their rentals, it's doable. You can do it quit listening to dudes that didn't
do it right. And just bitch and moan and complain about how it's stupid, go walk away from that
person, remember it level yourself up, find the people to be around that figured out how
to do it the right way.
Tyler Cauble 11:30 It's amazing what can change when you do that,
too. For the first two years of my career as a commercial real estate broker, I I only
focused on cold calling and door knocking. I didn't go to any networking events. I didn't
do any of that kind of stuff. And I remember looking at I made $40,000 my first year as
a commercial real estate broker, which a lot of people will say that's incredible. Because
that mean, you know, you don't really make money for three to five years, but especially
not your first year. Second year I looked at my tax return, it was like 40,500. I was
like, Man, this is awful. Something's got to change here. Well, that third year, I went
out and started networking with as many people in the industry as I possibly could I started
surrounding myself by everybody that I possibly could that was knowledgeable or, you know,
three rungs past where I am on the ladder to you know, 20 4050 rungs past and figuring
out what they were doing. And because I surrounded myself with those people that year, I joined
the mastermind, and I tripled my income just from getting out and meeting the right people.
I wasn't cold calling more I wasn't door knocking more. I just met the right people. And that
opened all the doors. So that that has been huge and has had a massive impact on my career.
Bruce Petersen 12:46 Yeah, again, you know, I do well, for myself
now have been doing this for a long time. I've been very diligent, very hard working.
But when I'm hanging around billionaires, they make me they're worth 100 times more
than I am. They know things that I don't know, they've experienced things that I haven't
experienced. They've had doors opened in concepts. You know, we're learning about how you can
buy art. And three to five years later, you can donate that art at a significant increase
over what you paid for it. So the guy that I'm talking to, he said, Look, you see this
art hanging piece right here and all white? Yeah, I paid $10,000 for that. Well, okay,
nice. He said, I went to somebody that I developed a relationship with. He's a really well known
artist. And he was creating this run up, I think, I think it was 500 pieces. He said
before he release it for sale, I would like to buy one of your pre your pre sale pieces.
He said, Okay, great. You know, just to help me fund my life while this is going on. I'll
sell them all to you, you know, whatever you want for $10,000 fee. He goes, Okay, great.
So what happens now, as he sits there, he sits on this art. And he waits until the artist
finally has everything ready. And he releases it to the public, and he starts to sell. So
now what he has to do for this process, he has to establish a true market value. You
can't do that until this guy starts to sell stuff to the actual public market. So he started
selling them. Well, three to five years later, after he sold most of all his pieces. The
average price was $230,000. Wow. So he spent $10,000. But now the market has valued it
legitimately at 230,000 bucks. So now what he does is he goes out and there's very legal
structures that you have to follow to get this done. But now he donates that to a nonprofit
that his friend owns. He donated he gets the full credit in a tax write off because it's
a charitable donation of $230,000. He gets that tax benefit on a $10,000 spin. I'm like,
What do you mean? He said No, dude, that and it's totally legal. It's totally legit. He's
doing a good thing for this nonprofit. And he's getting a hellacious tax benefit. I'm
like, oh my god. I've never heard of this. Exactly, verse. That's why you're in this
room. You know, I don't know this kind of crap done probably not many people, if anybody
on this call on this webinar has ever heard of anything like that, I've surrounded myself
with more successful, bigger deal financially speaking, professionally speaking people than
me. And these things are presenting themselves to me, I'd have never figured this out, if
I hung out with the same people that I always hung out with.
Tyler Cauble 15:26 Right? I mean, it's, it's remarkable the things
that you will learn when you surround yourself with people who are just a few steps ahead
of you on the ladder. And that actually leads us into syndication. I mean, I did not know
anything about syndication until I found myself at the acting Business School in Austin, Texas.
And with a guy who was in a boot named Bruce Peterson, hobbled up on stage and started
talking about his career in multifamily syndication. And since that day, Bruce and I have been,
I mean, it took probably about six months after that, but I mean, we've been talking
about every everyday sense. And we're partners in ventures and I walked up to him, I'd never
heard of multifamily syndication before. You know, my background was in development, I
had worked with the commercial real estate developer. And I was just fascinated, I didn't
realize, you know, so the developer, I worked for self funded every project, they'd never
had a single investor, they never talked about raising capital, nothing. So I just never
even thought about going out and buying real estate with other people's money. And Bruce
gets out there and talks about, you know, tells his story, which if you guys have been
listening to the show, you know, I mean, he started off in retail, and he got into apartment,
you know, investing and within a few years got worked his way up to over 1000 doors.
And to me, it was just crazy that you could do that. So, Bruce, how did you find out about?
How did you find out about multifamily syndication? And what did that sparked in you?
Bruce Petersen 16:58 Well, you know, I just sat down, and I thought,
well, I quit working for other people at the age of 42. And I thought, What am I going
to do next with my life? I'm burnout that many of you have heard my story, I was a retail
guy. But I thought, you know what, I've got free time. Now I've invested my money wisely.
I live way below my means. So now I had the wherewithal I had the financial means to have
some options. Remember, money is options. I had played the money game properly, you
know, to that point. So now I had options. So I thought, Okay, what am I going to do?
I kept looking around for options and businesses that could start, I did want to work for anybody
anymore. I did it for so long. It burned me out. So I just did a Google search. And I
come across real estate. And then I found a coach that taught me the ropes. She explained
to me how rental real estate worked, but then also why I should not go into single family
homes, because I didn't mean to, it's a great way to start for most people, because most
people do need to and that's totally fine. I didn't need to I had the money and I had
the time. So she said look, you should go straight into to multifamily, which is commercial.
I said, Okay. And she said not only that, but you have time you have intelligence, you
have a background of leading people directing people professionally, so I think you should
go lead your own deals and syndicated deals. Okay, explain that to me. So she kind of walked
me through every step of the process. So again, I found a very qualified, very successful
coach, she opened my eyes to it, then she taught me how to do it. And I did everything
she told me to do, basically, without questioning because I knew she was successful. I didn't
know what I was doing. I need to listen to what she's telling me. So I paid her for it,
right? Probably around 10,000 $20,000 wherever it was, but it was worth it for me to gain
the knowledge I didn't have. You'll go to college for four years and spend 50 to $250,000.
But people are hung up. But I can't pay a coach. I can't pay a mentor. That's a scam.
That's crap. What the heck is wrong with you? This, this woman taught me how this is going
to sound really douchebag I don't want it to come across that way. I'm trying to explain
to you that anybody can learn what I learned. I'm a college dropout from high school dropout
parents. That worked in retail, I make seven figures a year. That's two comments. That's
a million dollars plus, every year because I was willing to pay that woman up to whatever
it was maybe $20,000. Why would you not pay somebody $50,000 they can teach you how to
have a million dollar a year income. It's crazy. But yeah, that's how it happened for
me.
Tyler Cauble 19:22 Now what a great ROI. Right? You spent 20
grand to learn how to make seven figures a year, I would I would spend that in a heartbeat.
Luckily, I don't have to because somehow I finagled you into becoming my business partner.
Bruce Petersen 19:34 So, you brought skills to be that I didn't
have I brought skills to you see, we had a good professional marriage and it worked out.
Tyler Cauble 19:43 Yeah, exactly. Well, that's great. So Bruce,
what what is real estate syndication?
Bruce Petersen 19:49 So let's just break down syndication, not
real estate syndication, syndication, really all it means is that a group of us pool our
money together to go buy something. That's it. Nope, nothing more complicated. Now it
depends on how you structure your syndication as to what you have to do legally. Right?
There are some legal docs you need to do you need to form companies, you need to set up
structure properly. Okay, so now I'm using syndication to go out and buy income producing
assets. So now that that syndication becomes what's called a security, right, because the
way I structure my syndications and most all syndicators do this within real estate, I
will be the managing partner, the operating partner or the general partner, so I make
all the day to day operational decisions. I don't consult with my limited or silent
partners, they're giving me money raising this together, and they're ready to go out
and buy an income producing asset. And since that's the structure that I make all the day
to day operational decisions, the profitability on this endeavor really rests on my shoulders,
you know, entirely, that is now what security people are investing their money. With one
person at the head or one firm at the head, that general partnership, that's going to
go out and execute the business plan to get their return for them. Since that's a security
that's when you have to get a syndication attorney to file you as a, as a public as
a private. A private placement is what it's called. But then you have to do some basic
registering with the SEC. So there are semantics, there are things that you have to do to get
it done, right. But again, syndication is nothing more really than everybody raising
money together and going out and making a purchase.
Tyler Cauble 21:33 That's true. And Bruce loves to give the example.
It doesn't have to be income producing he talks all the time about syndicating a Snickers
bar. It's not really profitable. But you know, if you get $1 from a friend and $1 from another
friend, you know, if the three of you buy a Snickers bar, that's technically a syndication.
Bruce Petersen 21:50 Yeah, you got you know that I don't mean to
sound rude or disrespectful. But you know, if you're a bunch of homeless people sitting
on a corner, nobody can afford a Snickers bar. Well, if you all pull your money, you
can go buy a Snickers bar, you technically syndicated that damn Snickers bar. So again,
that is my analogy, because it helps people understand that, oh, it doesn't have to be
to make money. It doesn't have to be in real estate. Almost every major percentage purchase
in the nation as a syndication, the Dallas Cowboys were bought as a syndication, most
businesses are started as a syndication because it's not just one person putting up all the
money. Now, that does happen without question. But the majority of the time, it's people
pooling their money together to go out and buy something.
Tyler Cauble 22:28 So at what point? And because that raises
a good question here. What At what point does it become a syndication, right? Because if
I've, if you and I are going to go buy a property, and we bring in a third friend, do we have
to syndicate that At what point does the SEC need to get involved?
Bruce Petersen 22:48 Okay, so again, we get into securities, right?
So if I'm just going to syndicate money from like four people, but we've all decided that
we're all going to be equally involved in the day to day decision making for this company,
for this business endeavor. Well, okay, that might be a joint venture, that might be a
true just basic partnership, because everybody's got to stay at the table. So that is a syndication,
but it's not a security. Now, you still need to have legal documents, operating agreements.
So everybody understands everybody's role, how you endeavor to manage the company, how
it's going to all operate. So you have to have a company agreement or an operating agreement
to spell all that out. But now, the way I do it, I don't have everybody sitting at the
table together, making decisions, nothing would ever move forward when you have 50 to
100 investors. And I have to ask everybody, what color toilet Should I put in, you know,
you know, one on one, it's just not practical. So that's why syndications and real estate
are almost always set up this way. There's one decision maker, one operator. And again,
when that's the situation, there's one person or group generating the income and the profit
on behalf of the group, that is now a security. So now you have to get a syndication attorney
involved. But if you don't have that structure, again, everybody comes together, all four
of you put money in, you all put $50,000 in or $10,000, in whatever it is, then you all
decide I will handle all the construction, I will handle the books, I will handle getting
the loan. So see you're you're chopping it up for everybody to have a role everybody
to have decisions throughout the process. So again, that is not a security. So there's
no syndication attorney needed. But you do need to get an attorney involved to clearly
spell out everybody's roles and how you're going to manage the company.
Tyler Cauble 24:34 So Bruce, you know, we've talked, you're saying
gotta get an SEC attorney involved or a syndication attorney involved, and you got to make sure
that you are adhering to the rules and regulations of the SEC. I mean, obviously the SEC is a
pretty, I mean, that's a pretty daunting governing entity that you've got to deal with. How do
you ensure on every project that you do that you're staying within the bounds of the SEC?
Bruce Petersen 25:00 Well, that's where your syndication attorney
comes in, right? So a lot of people call it the SEC attorney, the syndication attorney,
you're not dealing with one of the attorneys for the SEC, you're dealing with a syndication
attorney that knows the rules of the SEC. So you get them involved. And they're going
to tell you exactly, this is why you need to get yourself educated truly, before you
go to the syndication attorney, because it's not their job to teach you how to do a syndication,
their job is to help you structure your syndication legally in the right way. But you have to
have a working knowledge of how this system works before you go to them. Because it's
not fair to them. Again, they're going to charge you 10 to $20,000 for this, but they're
not charging you that to teach you what a syndication means what they're going to help
you make sure you're structured properly. But there are right and wrong ways to do that,
you know, you can, the two main ways people are going to form their syndication is in
a 506 B, or a 506. c offering, you don't have to know a lot about that right now is just
to kind of explain the process. So a 506 B says I'm allowed to go out and raise money
from individuals. But in a 506 b situation, they all have to be sophisticated investors,
I can have up to 35 non accredited investors and an unlimited number of accredited investors.
But I have to have a pre existing relationship with these people, I have to know them fairly
well and have a very strong relationship with these people before I'm allowed to present
them with the deal. If I don't know them, before I have the deal, I cannot meet them
tomorrow after I have the deal and say, oh, I've got a deal. Look at it, you're not allowed
to do that. You have to have this existing relationship with them existing it has to
be before you have that deal in hand, right. So that's a 506. b, you're not allowed to
advertise it anywhere, you're not allowed to talk about it anywhere, you're not allowed
to put it on your website. And none of that stuff. There's a lot of regulations around
this. Because you're dealing with a lot of non accredited people, the government's trying
to make sure that you don't take advantage of people. So they put these rules in place.
Now if you file a 506 C, that means you can now only have accredited people. Now an accredited
person means it's somebody that's worth a million dollars without the value of their
personal residence figured in, or they've made $200,000 as an individual or $300,000
as a married couple, each of the last two years. And I have every reasonable expectation
of making that this year. That's the basic definition of an accredited investor. So 506
C, I can only raise money from accredited investors. That's it. But now I no longer
have to have a pre existing relationship, I no longer have to ensure that they are a
sophisticated investor, sophisticated investor means that they know what they're getting
themselves into, do they understand the risks that they understand what the returns mean?
What does a cash on cash mean? You know, that's what a sophisticated investor would be. They
understand the risks. When you're dealing with accredited people, the SEC sees that
they're accredited, they are wealthy people, they are deemed by the fact that they were
able to generate this much income or this much net worth that, you know, they're sophisticated
enough, we don't have to put all these protections in place for them. So again, only accredited
people out of Bible six, see, you don't have to have a pre existing relationship. But now
also you can advertise anywhere you want. You can't mislead, you can't make false statements.
You can't commit fraud, of course, the obvious stuff. But you could put this on Facebook,
you can talk about it on our podcast, you can put an ad The Wall Street Journal, you
can do anything you want to advertise and solicit this business. So that's the two main
ways people are going to raise it. And people would think, Well, why would I want to only
do a 506 c? Because it's easier to raise money if I don't have to know you beforehand. And
if I could advertise, okay, in theory, yes, that's right. But what many people get into
this, what they find out after they file a Bible succeed for their first offering? They
think, Oh, well, I'll do if I succeed, I can raise money easier. I can. Do you know, enough
rich people. You know, if people don't know you, they're not going to give you their money.
So you could advertise all you want, if they don't know you, they're still not getting
give you their money. So if you don't have a, you know, it goes back to even though it's
not the legal requirement, if you don't have a sophisticated enough investor base that
has decent money, and they are accredited, because remember, you can't bring anybody
in that's not accredited. If you don't have enough of those people on the sidelines waiting
to go and you start going down this route. And you go, Oh, I don't know enough of people
that are rich that can give me money. Oh, well, now I gotta go talk to non rich. No,
you're not allowed to talk to non rich people. You can't talk to non accredited people. People
get themselves hung up. They can't raise enough money and they have to get out of the deal.
terminate the deal, lose a lot of money. A lot of their earnest money, a lot of the money
they paid to get all the legal documents pulled together. You could lose 10 to 40 to $50,000
on a deal. If you're not Careful, because you didn't do it the right way. That's why
guys, you have to get yourself educated. There's all kinds of education out there, I have some
of my own if you're interested, I teach you exactly how to syndicate the right way to
legally the effective way how to conduct yourself. But you know, that or find yourself a coach
that's done it before to make sure you do this the right way.
Tyler Cauble 30:22 Yeah, I mean, there's, there's two books out
there that I would recommend a real estate syndication and I'm gonna plug one for Bruce
since, so that he doesn't have to do it for himself. But he wrote, you know, syndicating
is a bitch, you know, in other truths that you haven't been told, right? And he gives,
uh, you know, I've Look, I've read the book, even though I know, Bruce really well, he
gives an incredible perspective on you know, should you even syndicate because there's
a lot that goes into it that you may not think about. And now you've got to deal with the
SEC, you've got to answer to these investors. I mean, the SEC is nothing to mess around
with, you know, they can revoke your ability to ever raise capital on another project ever
again. And you don't want to find yourself in that position. So you have to make sure
that you're doing it right. One other book that Bruce recommended to me when I first
started, you know, investigating syndication was a book by Gene Trowbridge, who is a real
estate syndication attorney who can you know, I think we've we've used him to set up deals
for us before what was his book called Bruce?
Bruce Petersen 31:19 It's a whole new game. No, it's a whole new
business.
Tyler Cauble 31:22 A whole new business by Gene Trowbridge. I
think you can buy that on Amazon. You buy Bruce's book on Amazon? Well, there's a we'll
leave a weight to Bruce's book in the description below. But yeah, I mean, you know, you have
to, you have to at least have a working knowledge of what you're getting yourself into before
you even get attorneys or investors involved. Because there's a lot on the line. I mean,
there's there's quite a bit of upside to doing a real estate syndication, there's equally
as much downside, if you don't do it properly. You know, you won't get like what's going
on with Grant Cardone right now, right. I mean, even if he's done everything by the
book, he has been reported by some of his investors, and he's going through an SEC investigation.
And you know, you don't ever want to find yourself in that position. It's just can't
imagine how stressful that would be.
Bruce Petersen 32:11 Right? So you know, we talk about, you know,
it can be difficult to raise money, there's all kinds of legal structures, Grant cardones
drag, you can do it the wrong way, make maybe non factual statements, I don't know exactly
what he's been accused of. And I don't know exactly what he's done. But I think that's
kind of what they're accusing him of. So, you know, people would ask me, Well, what
so Why the hell would I want to, you know, be a syndicator? Why would I ever syndicate
something when I bought by my own thing, I have nobody to worry about nobody, what what
a syndication the beauty and power of a syndication, I might have 50 or $100,000 in my back pocket,
because I've been smart with my money over my life. And I can go out and buy maybe one
or two single family rent homes, maybe I could buy a little five unit property on my own.
Well, a five unit property on your own is fine, it's a great way to start. And if that's
the only way you can get started, that's great, go get started. But if you want to do this
a little easier way, a safer way, the larger property you buy, the easier it is. Because
now you can afford to hire staff, you can't afford to hire staff on a five, you know,
property, you're going to be that staff, you think, well, I'm gonna hire a management company
management companies don't want to manage a property. And if they do, and there are
companies out there that will, but they're gonna charge you up to 10% of your rent, you
know, to do that. So it's not very profitable for you. So I think, you know, if you're going
to do this the right way, and you want to actually own a business, you probably want
to start at a four unit and above what most people don't have. In today's market, most
people don't have two to $4 million in their back pocket to go out and buy this property.
So now you get a bunch of people together to everybody contribute 2040 $50,000 Well,
now collectively, we can afford to go out and buy this 48 unit property. That's the
main reason people are syndicating. It takes a real estate business. Now, it's a very advanced
approach to real estate investing. So most people that get into this, they've already
done some single family stuff, they've already bought some stuff on their own, but they're
you don't they've run out of money. their bank account is all invested in these different
properties. But they like the process. They understand real estate, they want to do more.
Well, they're kind of tapped out. So they go out and raise money from other people.
Also, since you're the only person really operating it day to day, you're going to get
paid for that because that's basically your day job. You're a silent investors, they're
just giving you money as an investment. They still go to their own day job, maybe, well,
this is my day job. So I have to get paid for my day job, but there's no reason for
me to do it. So you will get compensated for that. The hassle because there's a lot of
there's risk. There's a lot of headache, there's stress that comes with it. And you're going
to be very, very, very busy. Right? So we do get paid for this and you know, if you
run a successful syndication business, you can make a lot of money because you're making
a lot of other people a good return on their money and they're willing to let you copy
And save yourself appropriately to go out and do this. So it's a great way to make a
living. But it's also a way to buy more than you could have otherwise bought by yourself.
Tyler Cauble 35:10 Right? I mean, you know, the the way to look
at it is you know, syndications are basically, you know, real estate investments. It's it's
like somebody managing a fund on the stock exchange or something like that, right? Like
everybody's buying into it. And you've got a manager that is making sure that people
are getting a return on that money. So that's, that's kind of what a real estate syndicator
does. It just happens to be in real estate.
Bruce Petersen 35:35 Exactly. Yeah. So I mean, that's a great analogy
again, it's, it's a lot of work. It really is. And that's why I wrote the book syndicating
is a bitch, because people always
Tyler Cauble 35:46 Oh, looks like we might have lost Bruce. I
know. He has had. He's out in Salt Lake City, giving a guy about to go give a talk. So as
soon as he jumps back in, but, you know, real estate syndication has been really interesting.
You know, because I have not. Well, here's Bruce again. There we go. What's going on,
man?
Bruce Petersen 36:09 Sorry about that. Since I'm, you know, out
of pocket right now traveling, I'm on my phone. And my wife called so she hijacked my Oh,
nice. I hope she doesn't try to beat Lee called me back. So I'll get back in. But anyway,
so we're talking about, you know, people go to all these different real estate seminars,
it's kind of tough and COVID times right now I get it. But you know, you go to these real
estate weekend seminars, these free seminars that are there free, but they're trying to
sell you something, right, when they're trying to sell you something from the stage, I can
teach you how to syndicate a deal. You know, I can make you rich yesterday, you know, they
parade all of their students across the room, and they say, Hey, you know, they're telling
you all the success stories and how this program, I couldn't have done it without them. And
they've made me rich yesterday, I'm worth $438 trillion now, and they make it sound
so perfect. Nobody can ever get it wrong. We're here to support you. Nothing could you
know everybody can do it. Rainbows, lollipops, all that stuff. Now what they're teaching
you are what they're telling you. It's all true stuff. But they're not telling you how
difficult it really is going to be. They make it sound like anybody can do it. Because if
they make it, if they make you understand how difficult it is, you're not going to give
them 20 to $30,000. Right? Exactly. So they're smart, they have an objective, they're not
going to lie to you, they're going to tell you the truth. And you know, their students
are parading across the room, they have been successful. But they're also not telling you
about the dead people that I find on my property. They're not telling you about the fire, the
flood, the car jacking the home invasion, that, like I said that dead people, they're
not telling you about that stuff. You know, I went through COVID-19 as an owner, as a
syndicator. You know, I got to communicate to my investors, why income is down, because
not everybody can pay their rent right now. Because they're all losing their jobs. It's
hard. It's really, really difficult. It's a fantastic way to make money, a fantastic
way to provide for you and your family. But my god, there's a lot to understand. So that's
why it was so important for me to write this book. So people understand, please, this is
how you do it. This is every single step about how you do it. I don't hide anything from
you. You know, hardback, is 25 bucks, you know, the soft back is, is only $19 for 20
to 25 bucks, I'm going to teach you how to generate a million dollar business. But I'm
also going to tell you the truth along the way, look, you're gonna get kicked in the
face. And if you're okay with that, if I just told you this story about how I got kicked
in the face, you think, Oh, no, I'm fine. I can still do. I want to keep doing that
throughout the book. And if you get to the end of the book, you think I do want to do
this. Great. Maybe you should do this, but I just want to make sure people understand.
It's great. I love everything about it. But, man, it's hard.
Tyler Cauble 38:49 One thing I do want to reiterate is that Bruce
and I are not legal professionals. We are not syndication attorneys. So everything that
you're you know, hearing from us here is just based on our experience as investors. Don't
take it as professional advice. Always go talk to your attorney. So, Bruce, you know,
one thing that we've been talking about here recently is the potential to do a 506 B and
A 506. c on the same project. Is that possible to do?
Bruce Petersen 39:15 Okay, so for people that are already in the
space, and already syndicators, maybe this is news to you, because it hasn't actually
happened yet. But what the SEC is proposing and it looks like it's going to pass but we
nobody really knows when it will pass. So the proposed changes to the rules of what
the SEC is, if you file a 506 c offering. Remember, you can advertise now, but you can
only have accredited investors involved. That's it. But you don't have to know any of them
either. So you don't have to know any of them. They don't have to be sophisticated. You can
advertise but they all have to be accredited. So let's say you get into a deal and you think
well, you know, it's going well. I'm raising money and I have enough of a bench of potential
investors that I'll be fine, I'll be able to raise the money, you know, but I'd really
like my brother to be involved or my mother to be involved. They're not accredited. Well,
that sucks. I can't be in this deal. And maybe I should. Well, what they're proposing is
you can run concurrent 506, B, and C offerings, you can run them at the same time, you got
to be damn sure that if this passes, if you do it, remember, I'm not an attorney, this
is my understanding of these, these new rule changes. You have to be able to show that
506 b offering somebody that you allowed to invest through that 506 b offering, you can
prove that you had a pre existing relationship with that person. And that person did not
come into your deal through a solicitation or an advertisement or a pitch. Right? If
you can prove that you'll be fine. If you can't, you're in trouble. You could be in
a lot of trouble.
Tyler Cauble 40:56 What counts as a pre existing relationship?
I mean, that seems like such a gray area? I do we have been best friends for five years,
or?
Bruce Petersen 41:04 Well, some attorneys have said that there
is case law to prove that, you know, it's the things best I can tell. Remember, again,
I want to be just enough, I am not an attorney, go seek out advice from your syndication attorney.
But best i can tell there's it's very nebulous there, there is no direct, you know, directly
spelled out thing, it's this many touches. It's this long of a relationship. It's this
type of meetups, it's this, did you have coffee three times and dinner four times, well, that
qualifies, well, there's nothing out there, you just have to be able to point if the SEC
ever comes snooping around, you go, Oh, I don't think you had a pre existing relationship,
you better have some kind of a paper trail and email a digital trail to show no, I met
this person, you know, 30 years ago, you know, it probably won't be that long ago. But you
can point to when you first met this person, and you need to be able to show that they
made first contact with you. That's why I always asked all of the potential investors
that I encounter at meetups at different real estate events, to please here's my business
card, if you're interested, you know, that's fine. Reach out to me, let me know what you
have in mind. They reach out to me say, hey, Bruce, you know, is great meeting you at,
you know, maybe the BiggerPockets conference, you know, I'd really be interested in seeing
the deals, you're working on it and maybe working with you on a deal in the future.
Hey, Great, well, now I've established that you've made first contact. And now I will
start developing a relationship with you, we will have a phone with me, you'll we'll
have some phone calls, we if you're local, we will probably have maybe a coffee here
and there, maybe meet for lunch, maybe go to dinner, whatever I need to get to know
you, I need to know, personally, you know, let's get the SEC regulations out of it, I
need to make sure if we're going to be in business together for five to 10 years, I
like you. If I like you, but I see what you don't like and trust me, I'm still not gonna
let you invest in my deal. Because what a nightmare that's going to be you're basically
professionally married for five to 10 years, because once you get into these deals, it's
really difficult to get your money out before the deal sells, you know, it's just, it's
not the stock, you can't just go you know, put, you know, go to a trade and you know,
push the sell button. So it's really hard. So, but you need to be able to point to all
these different points of contact. So when they say, I don't think you knew these people,
and oh, no, here's the first time they contacted me an email, you know, maybe even have it
in your Google or your icalendar. To say, look, no, these are all the different times
that we've met, we've met a lot of times, you know, maybe we've gotten so good friends,
we've traveled together, we vacation, you'll be able to point to things that say no, we
really do have a legitimate relationship. So again, I don't know of a very specific
thing. It's this many touches, it's this type of touch. So you know, just be able to show
that you do know these people and you didn't know them before you sent them a deal.
Tyler Cauble 43:58 Yeah, that's that's a great point. And I want
to reiterate the point that Bruce made about figuring out who you're getting into bed with
for the next five or 10 years, if you if they start asking a ton of questions, and they're,
you know, weird questions, or it kind of starts coming off as needy. I mean, we've just told
people like, Hey, we don't feel like it's going to be a fit. I mean, Bruce and I have
had conversations about potential investors in several of our projects, where it's like,
you know, what, we, this may not be the fit for you. And we intentionally do not bring
those ambassadors into our deals. Because the last thing that you need, when you're
going through this project, trying to make it as successful for everybody as possible,
is one investor that's nagging you and nagging you and nagging you because the $50,000 that
they gave you is the $50,000 that they have to their name. I mean, it's you you need to
be focused on making the project successful. Not making this one investor happy. I mean,
have you ever had to deal with investors like that, Bruce?
Bruce Petersen 44:52 Oh, absolutely on one of the deal, but my
second to last deal actually had somebody said, Hey, you know, I was referred to you
by a great friend. He's invested in every one of your deals, man, I really want to get
involved. I like, that's fantastic. Thank you so much for the interest. You know, I'm
so glad that you're interested you, you want to talk with me. So let's get to know each
other. So you know, we schedule a 30 minute call, where we could just sit down, they could
get to know me a little better, I can get to know them a little better. So we can start
building the relationship, in case I do a 506 B, and I have to have the pre existing
relationship. So I'm talking to this person. And, you know, what are your needs on a return
basis for you to consider investing? I don't know. Just, you know, maybe what I'm making
in the stock market? Well, what do you make of the stock market? You know, I really don't
know that either. Well, do you have any needs? Do you need, say, I need to have at least
a 6% cash on cash return or an eight or a 10? Well, what what's a, what's a cash on
cash return? I would start I don't know any of that down all. They didn't know anything.
And they were this. She was a sweetest lady. She was, you know, a great person. I could
tell I really liked her. And I would really like hanging out with her. But she didn't
have any clue what she was doing. So I was very diplomatic and very tactful. But I said,
Look, I'm sorry, you're gonna hurt yourself. You don't know what you're doing. You have
no clue what's going on. And you're going to get yourself in trouble. I'm an honest
guy. But you don't know that. Yes, your friend referred me. Maybe your friend is being paid
by me under the table. You know, that's not what's happening. But you don't know who I
am. And you don't know how to verify what I'm telling you to be true. Because you don't
know any of the stuff I'm talking about. So you're just going to trust everything I say
is accurate. And it's good. And you're going to get yourself taken advantage of hurts burned,
you're going to lose money. So look, I've got ways for you to help you get yourself
educated, I have online education, go to street versity.com. You know, I have a passive investing
course I teach you what all of these return metrics mean, I teach you how to vet somebody
like me, before you get involved with me. I'm going to teach you every step of everything
you need to know to safely and educated Lee I guess that's a made up word, I think but
you know, get yourself invested safely and smart. So she goes Look, I you know, I'm just
Tyler Cauble 47:23 Oh, looks like Bruce might have accidentally
muted himself. Now still muted. I don't know what's going on. Is it maybe the connection?
All right, bear with us. Bruce is going to call back in any second. Thanks again for
being patient with us guys. Usually Bruce is at home with his computer setup and not
traveling. We're gonna try and keep it that way. For every episode moving forward, but
hey, that's that's the, you know, that's the pros and cons of doing a live show. Right.
You got to deal with some things sometimes. Bruce, you're still muted? I can't hear you.
I don't know. Why is it saying you're not muted anymore? I just can't hear you. All
right. Well, while we're waiting on Bruce to come back, Cesaro had a good question.
And see if I can add this to the broadcast. Any tips on how to pick the right coach for
commercial real estate investing, I definitely want to make sure that we get Bruce's opinion
on this. But I'll go ahead and give my input. You know, find somebody that is, you know,
you can have several mentors. It's it's okay to have several mentors throughout your career.
So, you know, tips on finding the right coach for commercial real estate investing, I would
say find someone that is successful and in in the field that you want to be and if you
want to be a syndicator go find someone that has syndicated multiple deals, and has that
experience. If you want to be a commercial real estate developer, go find a commercial
real estate developer that is successful and has done several deals. And you know, grab
coffee with them, sit down, get to know them, buy them lunch, buy them the coffee, right
because they're taking the time to meet with you and just see if your personalities click
right like Bruce and I wouldn't be you know, friends. If If We just didn't get along. Right?
It doesn't matter how good of a real estate syndicator he is, if our personalities didn't
click, we probably wouldn't be where we are today. So that that's my advice. Bruce, do
you have any advice on how to pick the right coach for commercial real estate investing?
Bruce Petersen 50:14 Well, that's it, you just got to get to know,
you know, just like you're trying to get to know it. potential investors, you know, interview
them, you know, don't do it aggressively. Don't try to fix it, right? Because I promise
you, you're not as successful as they are. You're not as knowledgeable. So don't try
to pull that card on them. But yeah, see, if they're open to getting lunch with you
getting coffee with you, and just just talk to them, tell them where you're coming from.
Tell them your experience, you know, what your financial state is, you know, how much
money do you have to work with? You know, do I have any kind of a network of people
that might be willing to invest right away. So tell them upfront, where you are, where
you're starting from who you are, but then you don't get to know who they are verify
that they've done some deals. So you know, they just, they got taught by a syndicator,
how to teach people how to syndicate, but they never syndicated their own deal. That's
a recipe for disaster, right? You got to find somebody, then you have to do whatever you
got to do to verify what they're telling you to be true, right? Find people that have worked
with them or interacted with them. Don't ask them for referrals. I hate when people do
that. It just makes no sense to me, if you're trying to vet a deal sponsor or a syndicator,
that you want to put your money invested into. Don't ask them for referrals. If I have 100
investors, or this potential coach, I've coached 100 people, three of them have been successful.
97 of them hate me, and I didn't deliver for them. And I was terrible. You're only going
to hear from those three people. I've only got to give you their names. That's it. So
please don't ask them for referrals. I mean, I guess it's not the worst thing in the world
to do. But you've got to get out. And this is where you have to network, you have to
go to meetups, you have to be in the Facebook groups, be on bigger pockets, talk to people
don't ask about people in a public forum, direct message them. Be respectful, be professional,
if you're trying to hire me as a coach, I don't coach anymore. I don't have time. But
if you're trying to hire me as a coach, and I know you go on to bigger pockets, and you
ask 13 trillion people all at the same time publicly, what do you think of Bruce Peterson?
That's completely inappropriate to me. Because even if I've been the best coach in the history
of mankind, somebody is going to be pissed at me because they wouldn't do what I told
them to do. They couldn't find a deal, because they don't, you know, they don't engage. They
don't so because they wouldn't do what they're supposed to do. They're pissed off at me,
well, now they're going to bad mouth, right? It's totally unfair to the person, you're
trying to do it behind closed doors, right? direct message them, send them a private email,
send them a private text, but yet, you got to figure out who these people are. Because
a coach, nowadays, they're gonna charge you 10 to $30,000, I've heard as much as $50,000.
So you know, do the best you can and to ask around to get people's input on them.
Tyler Cauble 52:58 So these are that was a great question. Thanks
for asking you. For anybody that's listening to the podcast after the live recording, you
can always join us on Friday to ask questions of me and Bruce, and join in on the conversation,
right? This is supposed to be a conversation. It's an open forum. So Bruce, right before
we got cut off, I was about to ask you, how do how does a an investor go about vetting
a sponsor? Right, because you were just talking about you know, you wouldn't let a newbie
into your deal because she didn't know enough about investing. You know, how, how would
someone go about, you know, vetting their sponsor and getting educated enough to learn
who to invest with? It's Hey, can you hear me it's muted again.
Bruce Petersen 53:51 Alright, can you hear me? Yeah, there we go.
All right. I've learned by doing this on the road you got to hit Do Not Disturb. So I get
phone calls. hijacking. My things are so popular man. Oh, well, no, I just I don't know what's
going on. A lot of them are spam. And my wife my wife's not spam filter. I said that. But
yes. So again, do it the same exact way you know, reach out to people on some of the bigger
pockets or the Facebook groups or things like that, but again, do it respectfully. Do it
one on one with people and it just try to ask it that way? Do a simple Google search
put my name in Google. If something comes up where I have been a convicted murderer?
I'm a cat rapist. You probably don't want to invest with me.
Tyler Cauble 54:37 I was waiting for it. I was waiting for the
beast. Yeah, there's always some sort of animal that's poor animal.
Bruce Petersen 54:44 Exactly. But you know, just do it. You don't
have to do a you know a full criminal background check on me, right. You probably don't have
the ability to do that. And, but you know, just do some basic poking around but the best
thing to do is you'll find people organically that have worked With that syndicator before
and find out how it went, you know, do they communicate effectively? Not only do they
give you a good return, did they hit the numbers they're trying to hit, you know, but don't
always use that against them either. If they told you look, I think we're gonna make an
8%. You know, that's my projection on this deal. We only make a six well, things happen
on all these deals, not every deal is going to go exactly as planned. But as long as you
didn't lose money, and you still made good money, but you maybe not made what they thought
you were going to make. That's not necessarily a bad thing. So don't necessarily hold that
against them. But, you know, what, have they done some deals? Have they been successful?
So again, you're talking to people that have invested with that person, but again, not
only have they been successful, but how is their communication style? are they available?
If you have questions? Did they communicate on a regular basis? This is what's gone on
this month or this quarter, we had this many movements, we're dealing with this COVID thing,
this is how we're dealing with COVID. You know, are they communicating effectively?
That is an enormous piece of it that even if things aren't going well? Did they tell
you why? what's caused that to not go so well? What are they doing to right this ship, you
know, that stuff you want to know, too, that they're, they're gonna be there for you in
times of crisis, because I promise you every syndicator, at some point, will have a crisis,
where only businesses and things are going to go wrong, like every single business in
the world? How do they handle it?
Tyler Cauble 56:26 How do they communicate? So syndication kind
of has a chicken and an egg issue here, right? Do I need to go find the deal first? Or do
I need to go find the investors first? And we've talked about this a little bit before,
but what do you think I mean, should I should I have a deal so that I can go to investors
and say, Hey, here's the deal that we're doing? Or should I go to investors and just say,
Hey, I'm trying to find a deal? Are you interested? I mean, what's, what do you recommend?
Bruce Petersen 56:51 Well, almost everybody that starts are going
to start with a 506. b, because you don't know enough rich people, and you don't know
enough accredited people to be able to effectively raise that money. So you've got to start as
a 506 b offering where you could have non accredited people, and you can have accredited
people. So when you do that, remember, you can't present a deal to somebody if you don't
have a pre existing relationship with them. Well, then that's the you know that that solves
that, you know, chicken in the egg thing. If you don't have soft, committed funds on
the sidelines, waiting to go, before you find this deal. We're stuck, I find a deal that
I need to raise $500,000 for I haven't talked to anybody yet. Nobody's expressed any interest
in any deal that I might bring to them in the future. Well, I found a deal will not
let me go raise, you're not allowed to do that. Because you don't have pre existing
relationships with people that have said that they are willing to invest? Well, you know,
I think I have enough people that maybe, well, if you don't know, if you haven't had conversations
with them, and you go to the people, you really do know, you have pre existing relationships,
and they all go, I don't want to invest in real estate, or I don't like that deal. Or
I don't have $50,000, or I don't even have 10,000, you're just shooting blind, you're
running through this blind and you're going to screw yourself completely up, you're going
to get a deal under contract, you're going to put earnest money down, which is typically
going to be 1% of the purchase price. And then you go out and try to raise money and
nobody that you have a pre existing relationship as well to give you any money. Well, now you're
stuck, there's a chance you could lose that 1% earnest money. If you're trying to buy
just say, a million dollar property, you're probably gonna have to put a $10,000 earnest
money deposit up. If you don't do things the right way. Because you don't have a coach
explaining this all to you. You could lose that $10,000 because you have to terminate
at the end, you get like two days before closing and you go, crap, I couldn't raise the money.
I gotta bail. I can't close. The seller doesn't care. They're not gonna give you your money
back. Oh, well, Bruce is not No, this is a business. They're gonna treat it like a business,
they're gonna treat you like a grown up. Not like your parents that cover your ass your
whole year life, right? This is real shit. You got to figure out what you're doing upfront.
So sorry, tangent law, long, long winded answer, you have to find the money first. If you think
I'm going to go out and try to find a deal that will probably occur, you know, entail
a $500,000 cash raise to buy the property, I'm going to try to find you damn well better
raise two to three times that much. Because even people that say, yes, if you find a deal
that I think is pretty good, I would be willing to invest, you know, 10,000 or $50,000 in
the right deal. Okay, you go back to them. Many people have already found another deal
to invest in before you get back to them. Or maybe they've had a life crisis of life
emergency stuff that's come up, they can't afford to invest that $50,000 in your deal.
Or maybe they've gotten to know you a little better now, and they just don't like you.
Who knows there's all kinds of reasons that people might not be able to invest with you
at the very end. So if you don't raise two to three times what you think you're going
to need, you're going to get stuck. And again, if the five You can't go out meet people and
say, Hey, let me show you my deal now, too late, you don't have a pre existing relationship
with them. So again, I can't stress enough guys, find yourself a coach, again, you could
take my education on street versity, calm, that's fine. But it's still just a two dimensional
or static course, right? It's going to teach you everything you need to know. But there's
all kinds of things out there that are going to happen that you have that couldn't have
been covered in a class or in a book, if you don't have a coach that you can lean on to
help you through those times. This is going to be really, really difficult. So please
find a coach that is reputable that has referrals that has a good track record, and lean on
them.
Tyler Cauble 1:00:38 Okay, so definitely need to go meet investors
and you know, soft raise capital before you find a deal. What are the high level just
bullet points that you walk through when you go through every deal? You know, at what point
do you start talking to investors? At what point do you put a property under contract?
What's your due diligence process? When do you start putting the money to get I mean,
how, what's your process just bullet pointed?
Bruce Petersen 1:01:01 Right, so we got about 10 minutes, but I can
get through this pretty quickly. So remember, it all starts with the investors. So have
them lined up ready to go. But once that happens, right, I'm gonna go out and I'm gonna be looking
for properties. And we're doing some tours, and I'm gonna find a few that Oh, you know
what, I think that one fits my model. You're going to run numbers, detailed numbers on
and now you're going to fully underwrite or pencil it out, right? through a spreadsheet,
figure out does it really work? Okay, yeah, this really does work. And you know, they've
told me, they're expecting, you know, a million dollars in a purchase price. Well, you know,
that million dollars, I think works for this deal. So I want to make an offer. So then
you're going to, you know, create what's called a letter of intent or an LLC. That LLC is
a non binding document that you draw up that says, Look, I propose to offer you a million
dollars, I propose to give you this, put this much money down, and then take a loan out
for the remainder of the purchase price. I will I want 30 days to inspect a property,
I will give you 1% earnest money. So you're going to spell out the high level details
of the of the project. Again, it's not binding, but you're saying this is what we're going
to try to come to terms on with the final contract, you send it over, if they go with
you, you now have an accepted fly. And now you're going to start working on the actual
PSA or purchase sale agreement, the actual contract. Now that lLoY with a high level,
now you're going to start putting all the final touches all the fine tuning on that
with the help of your real estate attorney, you're going to go back and forth with their
real estate attorney, and you're going to come to a final contract agreement. Once you
have that done. Now you're going to go in, and if you negotiated a 30 day inspection
period, now you have 30 days to look over that entire project, crawl under it, over
on top of it threw it behind it, you're looking at all the plumbing systems you're looking
at, you know, is there termite damage? Do you have foundation issues? What's the roof
look like? Do you have a lot of wood rot? Do you need to pay? Do you need to address
the parking lot, you're going to go through all of that. But you're also going to look
at their numbers, you're going to actually look at their rent roll, which is a listing
of everybody to live in on the property. And see, make sure that everything on that rent
roll is exactly what they told you was going to be when you got this property under contract.
Some people lie, right. So it's your job to dig through this. You're a professional business
person, now, it's on you to figure out if this is still a good deal. They don't have
to tell you anything. You're all out on your own. As a professional and commercial real
estate. You get through the 30 day feasibility period or the inspection period, you think,
nope, everything looks okay. Not exactly what I thought, but I didn't find anything bad
enough to really ruin the deal. So let's go forward. Once you pass that inspection, or
that that due diligence period, for the most part that that earnest money that you put
up that 1% is now what's going to be called going hard, right? It's going to go hard meaning
if you back out of this deal, for almost, there's very few reasons that you can back
out and get that money back. There are a few caveats in your purchase sale agreement that
you negotiated up front. But for the most part, if you bail after that 30 day period
that you negotiated, you're not going to get that earnest money back. So you need to make
damn sure you're ready to go. Right. So then you talk about Okay, Li contract due diligence.
Well, when do I get my sec attorney involved with me, I get them involved as soon as I
have an accepted Li because I know it's going to take them one to three weeks to get all
the legal documents pulled together. I gotta get this done pretty quickly on the front
end, because it might take me a full month to raise the money after I get that I can't
raise the money until I have the legal documents because they have to sign the legal documents
say I understand what the deal is. I agree with the terms of this deal. Here's my signatures
and now give me the wiring instructions. Now I can put my money in the bank account, right?
So that's the way it has to flow. So once you get through your due diligence period,
you get all your money raised, you usually have about 30 to 45 more days that you're
working on your loan, getting that all pulled together, you need to get your insurance quotes,
get everything lined up, to make sure your lender is happy with it, they have to order
inspections, appraisals, all this stuff on their own. So it's, you know, it's a 60 to
75 day process typically. So you know that that's kind of a really quick dive through
how the timeline works. And when you want to start engaging.
Tyler Cauble 1:05:33 That's great. So do you after the fact after
you've closed? Are you reporting to your investors monthly? Are you reporting to them quarterly?
What are you kind of updating them on after the fact?
Bruce Petersen 1:05:41 I think most people really do quarterly? I've
always done monthly, I'm not opposed to doing quarterly updates. But you know, it just depends.
You just got to read the documents that you're signing, if you're investing in one of these.
And as the deal sponsor as the syndicator. You have to decide what works for you and
what do your investors expect. If you say I want to, you know, send you updates every
quarter. And they say, Well, you know, I really want to deal with that they communicate with
me more configurable, more regularly than that I want somebody to communicate with me
every week or every month or whatever you want. You know, you might have to change your
syndication say, Okay, look, I've heard you guys speak. So send an email out to everybody
say, you know, we are going to send you updates monthly. But again, it's very common for people
to send out updates, which will include financials and a narrative as far as you know, what's
going on on the property. It's most common to see those come out quarterly.
Tyler Cauble 1:06:36 Yeah, that makes sense. Well, that's about
all the time that we have for this week, Bruce has got to go be the big name that he is and
give a talk this morning while he's in Salt Lake City. So, Bruce, I appreciate you gracing
us with your presence that was very kind of you.
Bruce Petersen 1:06:52 Such a pain in the butt with all the glad
to be here with you guys again.
Tyler Cauble 1:06:57 Yeah, next week, raising capital, right? I
mean, we're gonna dive into you know, your processes, my processes, how to go about doing
that because now we've talked about syndication and why you should should or should not do
it. Well, the next step is bringing the money together. And honestly, that's my least favorite
part. And Bruce is really good at it. So we'll have a lot of fun talking about it. So we
will see you next week at our normal time Friday. 10am Central live on youtube talking
about raising capital. See you guys.
Transcribed by https://otter.ai