Financial Security Through Fractional Ownership of 1500 Units

0:00our main focus right now is our co-investing club so this is a a real estate investment club that every month we propose a new passive real estate syndication deal anyone who wants to invest in that deal can do so no one has to we don't take a cut of any of the money that's invested otherwise we'd be selling securities which we can't do at least not without involving the SEC so we charge a flat membership fee for this investment club to give people access to pull their money together and invest in these these private Equity Investments That ordinarily the minimum investment is like 50 Grand 100 Grand which most of us don't have just sitting around collecting dust

0:48right you know in our in our checking accounts so the minimum investment in our club is $5,000 per deal so you know a tenth or a 20th of what you would need to invest on your own but by pulling our money together as a club we can meet those High minimum Investments and it lets people spread their money among many different deals right and that's one of our core values as a club is diversification and you know moving that or spreading that money among you know multif family deals and Self Storage deals and mobile home parks and Industrial properties and Retail properties you know in in cities and states all over the country with different sponsors and operators all over the country so you know over time you know a couple of those deals might underperform a couple of them will overperform a lot of them will perform

1:37as projected U but it just averages together instead of you know having you lay awake at night you know biting your fingernails worrying about that 100 Grand that you put in one single deal right you know if that deal underperforms or worse you know loses money you're in a lot of trouble but when you spread your money across a lot of different deals it just becomes numbers on a page it becomes you know the average of how all of those deals together perform and it's a lot lower stress as an investor interesting interesting so so you C you can't charge a fee to to the investors people who are investing which makes sense can you invest alongside them though in these deals we in so I invest my personal money in every single deal alongside our club members so awesome yeah I

2:25mean that's that's part of our mission here is to keep our interests 100% align our MERS so yeah we we don't take a cut of the M invested the opposite we invest our own personal money in all these deals okay and who identifies the deal that's going to be presented each month so my partner and I do sometimes we put these to a vote in the club that gets a little tricky you know when you're dealing with hundreds of of investors who you know all have an opinion on the matter and and different opinions right so they're all clashing but yeah so what we do is we just keep an eye on deals as they come along because you know these again as passive deals they're just opportunistic right I mean you know as deals hit our inbox you know we look them over and see if they might be a

3:13Good fit for the club if we if they think they are then we'll propose it as that month's deal and we bring the sponsor on to a group video chat and our club members can ask the the sponsor questions directly which is great because you know they come up with questions that may not have occurred to my partner or me in some cases they have specific knowledge about that location and you so a month or two back we were evaluating a deal in Dallas and I've never been to Dallas but we had a club member who lived 5 minutes down the road from the apartment complex that we were talking about investing in so you know we got to hear from her you know the the boots on the ground analysis of you know just how much demand there is for rental

4:02Housing in that in that neighborhood you know how there is an insufficient supply of you know higher end rental units you know and she got to tell us about the location and you know how good or bad was the location so you know that that's the beauty of investing with other people as part of a club is you're basically crowdsourcing all of that knowledge you know as you vet these deals I see got it interesting and have you I know it's probably maybe it's too new to to know this yet but have you been able to track performance overall you know I know you said some are lower than expected some are higher than expected do you know overall like generally where performance has been compared to what you were expecting or projecting

4:51Yeah so these deals are medium to long-term deals so typically 2 to 7 years we we just started started investing in passive real estate syndications last year so none of these deals have gone full cycle yet most of them are paying distributions so we are collecting cash flow each month on those deals but none of them have actually sold yet to to you know close out the deal and and finalize the returns but that being said we did in our club we did do a couple single family single family properties like I said as kind of an experience ment before we got into the passive deals one of those I think it had an annual return of 47% and

5:40The other had an annual return of closer to 7% so one of them way overperformed one of them slightly underperformed what we were aiming for but you know 7% still what you can expect to earn from stock investments in an average year or U you know or on a on a rental property so yeah we actually that that deal that earned the 7% we the reason that did not perform better is we decided to sell that property early because we didn't really love the the market and you know we decided that money would be better redeployed into these passive real estate syndications so we just decided to to close it out earlier than expected take our you know take the returns and and put it put it elsewhere got it okay but in general we

6:28Aim for 15 to 30% annualized returns on on investments in our real estate investing Club okay yeah that's what I was going to ask because a lot of people ask me that you know for a passive investment which you know for people who are listening who aren't familiar with different types of real estate investing most of the time when people are referring to being a passive investor it means somebody else is putting the deal together like the the operator syndicator and then they need investors Equity investors who are going to own a small share of that deal but they're going to be 100% hands off for the most part like you know you're not making any decisions or anything like that you're just investing in their deal and and so the returns obviously for something

7:17Like that are typically different you're targeting different returns from something that you're more Hands-On with because like you talked about earlier you got to account for your time so so you said 15 to 30% return on your your cash that you're investing is what you're shooting for yeah that's what we're aiming for and that's a combination of the the cash flow the distributions that we're earning while we own the the investment and then the profits upon sale you know most of these deals the bulk of the Returns come from the profit upon sale but some of them are more cash flow oriented so you know the distribution yield on these is typically not super high at least in the first year or two you're usually looking at like 4 to 6% which is still better than

8:05Most stocks right but it's not an enormous yield and then and distribu sorry just to to cut you off again here just to explain it so distribution yield is you know in these passive Investments typically it's like quarterly or you know semiannually or something like that you're getting a payout you're getting cash flow payouts dividends even though your money is still invested you get kickoff of cash and so that's what what Brian's referring to yeah absolutely one of the things that's cool about these deals is that sometimes instead of selling the property they will refinance it and return some or all of investors initial investment back to them but we as as limited partners LPS passive investors we keep

8:53our ownership interests our Equity interest in that property so we keep collecting income distributions even though we've gotten some or all of our money back and so we can go and and reinvest that money somewhere else and you know keep stacking up these investments in our portfolio with the same money that we originally invested with so those are called infinite returns when you get all your money back but you still keep the asset you still keep earning the the income on it and of course the property continues to appreciate over time as well so yeah I I love those deals you know they're they're not always easy to find but they're great deals when you can find them yeah yeah there there's a lot of like I don't know the ter maybe scuttlebutt or

9:41There's a lot of mainstream news out there about you know potential commercial real estate crash and you know obviously they Clump a lot of all commercial real estate together even though there's huge differences in sectors and that sort of thing so what's your as interest rates have gone up and it seems like cap rates are now going up as well kind of following interest rates what's your where are you finding opportunity and and how are you finding something that you feel like is going to be worth more if you know we're in this interest rate cap rate environment where they're raising and rents you know it doesn't seem like they're going up as as quickly as they have in the past yeah so you

10:30Know like you said commercial real estate you know all comes under one label there but that includes many many different types of properties right you know when most people hear the words commercial real estate they think of office space we do not invest in office space not that I have anything against office space but it's certainly not a great time for that sector at the moment I mean they they got pretty badly beaten up by the pandemic but you I have actually found that the risk with with interest rates going up you the worst risk for that was actually like two years ago you know when no one was talking about the the risk of higher interest rates or interest rates going up what everyone was seeing two years ago was the the record high returns that a lot of these real estate syndications were producing so everyone's just

11:18Piling their money into real estate syndications without necessarily vetting them very well or doing much due diligence and then a lot of those sponsors ended up taking variable rate loans just kind of assuming that interest rates would always be low because they have been low for for a long time now U of course that's not what happened so a lot of those sponsors got burned interest rate risk now I think is not the greatest risk because now everyone's aware of that risk and everyone's accounting for it you know people will go out and buy rate caps and or they'll go out and and try to find you private sources of of money like assumable loans from the seller or you know seller finances you know or they'll even you know buy a a low fixed rate loan for the next 5

12:07To 10 years so you know that's that's a risk that now sponsors are all accounting for so that risk was really it was a big risk two years ago when no one was talking about it and no one was thinking about it now that risk I think has largely passed doesn't mean the interest rates won't go up more I mean the FED has certainly signaled that they plan on raising rates you know twice more this year potentially you know it really just depends on what happens with inflation but you know when we screen deals one of the things that we look for is what contingency plans does the sponsor have in place and you know that includes loans right so we want to see loans that are extendable you know if it's a short loan like a three-year loan you know is it extendable for another year or two if need be

12:55you know did the sponsor buy an interest rate cap in case rates do continue going up precipitously you know those sorts of things or you know is it longer term financing that's a little safer are they assuming a loan that's maybe a low interest loan that the seller got a couple years ago you know are they did they secure seller financing so you know these are all risks that we we take into account when we look at a deal but you know we want to see conservative underwriting you know you you talked about cap rates potentially going up so we like to see sponsors do what's called a sensitivity analysis where they they show you the different projected returns at different cap rates different exit cap rates and at different rates of being able to raise rents you

13:43Know so if rents only go up by 1% a year for the next 5 years you know how will the returns look then versus if the rents go up by 3% each year or 4% each year you know or whatever so you know we want to see that that sensitivity analysis of you know what are the different returns that we will earn or LPS will earn depending on things that are outside of everyone's control right you know exit cap rates at that time you know different rent increase rates over the next few years and we want to see that as conservative as possible and we'd like to see that even in the the worst case scenario the nightmare scenario we're still making money you know it may be underperforming right it may be less money than we were hoping and expecting to earn but not a loss right so

14:33It's a longwinded answer but hopefully that that that answers your question