How to Invest In Multifamily Real Estate

[00:00:01] Speaker A: Hello. Welcome to the Money Adjustment. I'm your host, Dr. Mark Kramer, D.C. i am a chiropractor who loves investing and trading. Are you interested in what's moving markets and your money? Great. Me too. Let's get started. So tonight's special guest is a returning guest, a returning favorite of mine. My guest tonight is Jody Neighbors. Jody, you may recall from episode. I did an episode with him earlier and it's a real estate episode. And what's particularly interesting about Jody's journey and what struck me to reach out to him was he went from at the time I said 0 to 400 doors, but it was actually 0 to 800 doors. And I'm sure when we talk to Jody tonight, it's going to be even more than that. So this is a continuation of that conversation. Jody invited me to a group. I'm going to have Jody come and explain the whole thing about the group that he kindly invited me to. And I got to actually watch the whole presentation for one of these multifamily deals. And I would really appreciated going to this particular event because it helped kind of solidify certain concepts I had been learning in terms of cap rate, which we discussed a lot in the last episode, but also the idea of cash on cash and what you're looking for in an investment when you invest in one of these multifamily deals. So without further ado, I'm going to let Jodi jump in here and give you a little bit more. Maybe we'll start off, Jody, with what was the meeting that I attended last week that is actually a regular reoccurring meetup that happens every Tuesday. As far as I know, it is. [00:01:56] Speaker B: On this deal that we've got, well, this two pack of deals. And so we're going to all the way up through when we're supposed to close, probably about mid January. So that that webinar that you attended was an opportunity meeting for potential investors to take a look at what we were offering. And our team, it's, we have basically it's an investment team that we have where we focus on multifamily properties primarily right now we're looking in Texas and down in South Florida as well. And so we look to take down cash flowing ass that are in great locations. There are different strategies that you can take down whether they you need to provide value add or whether they don't really need a lot of work, which is kind of like we have with these two deals that we have, which we can't because of the current offering, which is a 506B. We can't name them right now. [00:02:46] Speaker A: I see. [00:02:47] Speaker B: Per SEC regulations. So. But it's, it's an invitation to anyone that had a prior relationship or you know, with us, any of our member of our team could attend and take a look at it, whether you're accredited or non accredited investor and see what we were doing, see what the offering was for these two deals and help you, you know, help you at least get information that you could then either make a decision right away, which we've had some people do, or to take it and just kind of mull it over. Because a lot of people, some of the more sophisticated investors, they're looking at multiple investment opportunities at the same time. But basically we're giving you that information so you could take it all in and make the best decision for you. [00:03:26] Speaker A: Yeah, I really found it informative. What was interesting to me is the person who was the. Can you name people in this? Like the person who actually did started the presentation. She was excellent. Like she really came out, had a lot of energy and talked about why she's so passionate about this type of investment. I was just going to have you name her just so, so I could refer to her by name. But like it, I don't even know if it's relevant to anybody or not. So a lot of concepts that I've been hearing in this real estate mentorship group, like I was speaking on earlier, I got to see it in action that I hadn't seen it before in terms of the pieces coming together. So last time you brought up new terms, there were new terms for me like general partner and limited partner. And you were talking about you can be one on one deal, you could be something else on a different deal. Limited partner was a good one to start. Start with because then you get to see how the process itself works. But like the general partner is where you're actually a little bit more hands on. On the deal is my impression. When she started this presentation it was for a particular property. But then at the end she showed that you already, this group already has a portfolio of assets. So they've already establish some type of track record in demonstrating how this actually works for people. I'm going to be personal here because this is, this is. It's almost like. I know you're. The way you presented yourself was part of the investor relations. Right. So you're like a liaison almost for potential investors in terms of. Would you say it's like a vetting process or. [00:05:19] Speaker B: Well, there's a few Things that I want to touch on what you've gone through there. So I'll answer your first question that you just asked. So when it comes to being a limited partner, which is a passive investor, which, you know, if, you know, let's just take us, for example. Example, you came into our webinar, you're like, jodi, this looks like a great deal. I'd love to invest my money with you. Basically, you're telling us here, take my money, run this asset the right way according to the business plan that you presented, and then just send me my money every month, because we pay a monthly distribution. And then when we do a refinance or a sale, we're going to send you your original money back. Plus, on top of that, you'll get that equity multiple that we've talked about on our presentation, which we don't do any. We don't do any deals that are less than 2x multiple. So we're going to double your money over whatever time frame. The person that you were talking about, her name is Janet Uselton, and she and her husband Tim have been known as for about four years. We all have the same mentor group. I don't know if I can say his name. Can I say his name on your podcast? [00:06:27] Speaker A: You can say anything you want on here. I mean, like, I'm flexible. [00:06:30] Speaker B: Yeah. So Grant Cardone is basically our mentor, and he has provided tremendous amount of material to help us educate and figure out what we're going to do, how to do this in the multifamily. It also spills over to the self storage and mobile home RV parks as well. So Jan has been with him for four years. So basically, as they got associated and his education, they had taken that a couple of about a year and a half, I guess, before they really got things under their feet, underneath them. And then really over the last 24 months is where. And I've been with them for a little more than that time, a little more than half of that time frame where we've really started to stack properties one on top of the other. And so going back to your limited partner and your general partner on these deals, the general partner, they're the ones that they basically find everything on the deal. They find a deal, they raise money, they get the debt, they manage the asset all the way from before closing through closing, just like you would your normal home, just with bigger numbers and a little more complexities. Then you manage it all the way through to your exit, which is what we call a refinance, a sale or a 1031 exchange, which is a more complicated matter. And so the webinar we have, what we're doing is that's a syndication. And you can go back and you can thank Barack obama back in 2016 in the jobs act where part of the legislation in that. In the Jobs act allowed for a 506B or a 506C offering. And what those do is it allows you to raise capital from a group to help you take down an asset. And so there's a lot of SEC guidelines that we have to follow which I mentioned earlier. A 506B is a friends and family. So you have to have a preexisting relationship. And then a 506C the main distinction is 506C you can advertise a 506B you cannot. So 506B you have to have an existing relationship with someone to raise money for that deal for them to be a limited partner on that deal. For a 506C it doesn't matter. You just advertise Instagram, Facebook, whatever medium you want to use. We do have plans to as we go. We, we have the option to transition to a 506 C in the future if we want to just to kind of finish out the capital raise on that deal and which we've done on previous deals and it's worked out fine. [00:08:59] Speaker A: Is that common in terms of you start with like a 506B and then if you raise the capital through that then you're good. But. But if you. If you're still in need of capital then you graduate to like a 500. So you could have two. Two different types on a deal. Two different. [00:09:18] Speaker B: I don't know if I would say it's common but I know that it's not uncommon if that makes sense. Yeah, I get you this raise. It's. It's a bigger deal and so we're not going to have any trouble doing it. But the thing about with a 506B the reason why we're doing a 506B first is we have a number of investors that we know friends or family that are non accredited. Now 506B you are limited to 35 non accredited investors on your deal. So 506C you have only allowing accredited investors in. A quick summary of what those are. An accredited investor is someone that has either $1 million in assets outside of the regular home or someone who has $200,000 in income each of the previous two years or 300,000 with your spouse each of the previous two years. So there's discussion on. Some would say that that's a little bit discriminatory because there are a number of people. Because the reason why you have those thresholds are like, oh, if you have that much money, you must be a sophisticated investor. But that's not necessarily true. And so there are many, I know many sophisticated investors that are not qualified by those terms. So I hear that there's rumblings that those. There may be an easier way to define who is accredited, who is not accredited, but I don't know what those are. [00:10:48] Speaker A: I know and I think those are good definitions of accredited and non accredited. And there's actually one other opportunity for people who don't meet the requirements for accredited investor. You can actually take a test and I forget what the license is for it, but you can take a test and you could become an accredited investor through an educational process. So there are different variables to become accredited. But to your point, this is a unique opportunity in that usually these kind of deals are more exclusive to accredited investors and for non accredited investors to have an opportunity to get into. I think of like when I think of accredited investors, they're people who can get into ventures like SpaceX or something. They can invest in deals that are very attractive that are not available to the general public public. So from the stock market standpoint, the general public doesn't get access into companies until they become public. But by the time they become public, a lot of the growth and the juice has already been squeezed from the company through venture capitalism. So for a non accredited investor to have an opportunity to get into some type of asset that can produce them higher returns or that an asset that they don't necessarily have easy access to on open markets I think is a unique opportunity. One of the reasons that even exploring the multifamily deal. I'm telling like I've said this before again, just to kind of keep it personal. I'm coming from the stock market world and I think Grant, I didn't even really know Grant and I didn't even really know like he was a real estate guy. I just saw like, I thought he was like an Instagram influencer or something. Like now I thought he was just like an influencer guy. And then I found out, oh, he does car sales and other kinds of things. And I'm like, okay. But I remember that the Growth Con event, he invited Wall street names like Anthony Scaramucci was there and the Najarian brothers were there. And I remember him addressing the audience when they weren't on the stage. And he was saying, I know a lot of you have been asking me why I have these Wall street guys on. But he's like, that's where the money. A lot of people are more interested in the market now for whatever. I'm sure it ebbs and flows in terms of people's interests. And so when I'm like, how did I kind of get down this road? I think I was like, he attracted me in from this other world and now like to get more, to get concrete on something. Because I remember talking to you and you said your 401k was one of the things that was a like one of the variables you looked at that you were so frustrated with how little, how little growth you saw from it over a period of time. And that was upsetting enough to want to reallocate those resources into something that was going to appreciate over time and allow you to. It's what real estate is one of those unique assets where you can gain appreciation but you can also depreciate it because it depreciates over time. So you could take tax credits for it and, and it cash flows. And I think that's a big thing for people. So like when I think about if I was going to invest in one of these opportunities, I would be looking at something like my 401k or a self directed Roth IRA that I had in terms of a source of funds to maybe get into the first deal. And then I'm thinking to myself, this is money you're not going to see. Even when you think about your Roth IRA or 401k, it's money you're not going to see for. For. I mean you should be lucky enough to live as many years before you're going to kind of get any of this money back. And so I think one of the people who kind of recognize that might get frustrated. Like I'm starting to kind of think about okay, maybe I don't want all of my money here because it's going to kind of buried away anyways. One of the unique things about the real estate, and I was actually going to think about naming this episode that because when I was kind of deciding what you and I were going to talk about this, I was thinking doors equal distributions because in the end of even that pitch there was the distribution number is what started to get exciting. And I see like when, when you're kind of talking about key metrics, it's those distributions that you're giving to investors so you're already talking about money that you're not going to see for decade, but this way you're getting at least a check every month. That's what I'm interpreting is the cash on cash. Am I interpreting that correctly? When you say cash on cash, it's like if I put in X amount of dollars, I know I'm going to start getting a monthly return on that, on that money. Which is, that's one of the things you don't get from the 401k. You don't get the level of appreciation, you don't get the write offs, you don't get the cash flow. That's when I start to weigh those things and I'm like, oh, now I why someone would consider utilizing that capital and reallocating it towards a real estate deal like the ones you and your team are presenting. [00:15:54] Speaker B: Yeah, you've got the self directed IRAs. And the thing about those, they're traditional, they're raw, just like you have any other. But within those self directed, you usually have a custodian. So there's a custodial company that are recognized that follow the sec, whatever guidelines they're supposed to follow. So any distributions or any funds that you generate off of, of real estate have to go right back into that account. So you're not going to get those distributions in hand to prevent the taxes. It has to go back straight into that self, into that. [00:16:27] Speaker A: That's a good distinction. So you're still kind of not, that's not like you're getting sent a check. But your, your Roth IRA account is going to reflect the distribution and will it also reflect the asset on there then? [00:16:42] Speaker B: Yeah. So what you're going to have is basically the custodian says, hey, we're going to let you use this and make sure it doesn't go anywhere. So right now I'm actually working with a number of investors that are using their self directed IRAs to invest in this deal that we talked about last week. So there's a lot of setup. The funds that you may receive from the deal actually go to a, a big pool within that custodial company and then from there it actually go, it flows into your account. And so they just make sure that, hey, when that money comes in, we're putting it back where it's supposed to go. And so I mean, the thing about it, what's different, Mark, is you've got your money that's in the stock market. You have very little to no control over any of the factors that Impact the value of whatever investments that you have. It's all pure market, it's all pure environment, geopolitical things of that nature. Whereas when you invest in multifamily family, everybody needs to live somewhere. And so we identify assets that are going to be cash flowing, that are in great markets, great locations, and then we have an exact business plan of how we're going to not only return your money to you, but also double that in a time frame that you're not going to get when you're in an ETF or some other kind of investment that's out of your control. That's what resonated with me also, the fact that you look at the growth of whatever investment you have, like, oh, I was able to generate 10% return on my money this year. Great. What was inflation? So that's going to take a hit out of it. And then do you have to pay any kind of fees, whatever and stuff like that? So you think about all the chunks that are taken out of that. Whereas what we do. My biggest thing that I liked about it was when I invested my money in one of these deals, as the value of the dollar went up and down, so did the value of my assets. And so in that, the value of my money was quote unquote insulated from the market. If the market tanks or something, you know, black swan event or something like that, like Covid, it's going to be impacted. But for the most part, as the value of your dollar goes down, the value of your property went up. And so that helps you counteract that inflation impact to your money that's in that deal. [00:18:59] Speaker A: Yeah, I get all of that. Again, my bias is towards the stock market because that's just where I spent a lot of and energy figuring things out. And so like I'm up maybe 60, 70% this year in one of my portfolios. And so I think to myself, I don't think I'm going to get that kind of return on real estate now. Now, the caveat to that is this was a great year. Like not all years are going to be like that. And the markets do fluctuate. And I just had a conversation the other day with someone where it's like the market giveth and the market taketh away. So when things move fast up, they can also move fast down. So it does get a. Like you said, there's a control aspect, there's variables when you have the real estate where you can manipulate things like the rent or add value to the property and increase the property value that way. And then there's the inherent appreciation that happens with real estate, just from the scarcity aspect of it. So there is ways that you can, I don't want to say manipulate, but you can do things in a real estate transaction that you are not able to do. If you're just trading stocks, you're more at the mercy of the CEOs of the companies that you invest in or the people that are managing the funds. [00:20:14] Speaker B: Let me ask you this, Martin. With your returns for this year, how active are you in the transactions and make sure the transactions happen for you to help get that return? [00:20:28] Speaker A: Fairly active in that I watch the stock market and when I see an opportunity, what I see as an opportunity, then I'll, then I'll take a position in a stock and then I'll either try to, I mean the ultimate goal is to take profit and then not lose or at least not lose a lot when it comes back in. So I have different strategies that I do for that. And from a day trading strategy, it's terrible. Like I've, I'm, even this year I'm thinking I'm not even going to day trading. I still kind of like it. So I, I keep a small account that I can scratch that itch. But I tend to do better with long term trades over longer periods of time. But longer periods of time. So like a real estate transaction are the ones we're talking about. You're like, oh, we'll double your money. For example, that deal that we're talking around, the one that a webinar that I went to last week and that you're currently raising capital for, that one. I guess for me I would have to trust you guys. I would be relinquishing a certain degree of control over to you. I think that's like, I have my pros and cons with the trading. I do like the control aspect of it because managing my own portfolio, I have three different strategies. I have one professionally managed. I have one that I manage in terms of allocating and then I have a day trading account. And that day trading account is like that just like stays where it's at. And that's like I said, I keep that position small and I just use it to scratch the itch. The other account that's up over 60% on the year, the one that I manage and then the one professionally managed is at 15% for the year. And I think because they have to be more conservative because they're not going to take the same kinds of risks with My money that I'd be comfortable taking. But the flip side to that on the trading account, because I'm comfortable taking some ridiculous risk, it really bites me sometimes. And so those are the things that I weigh when I'm dealing with, like managing my own money. [00:22:34] Speaker B: Yeah. And the reason why I asked that is because when it comes to the investors that I've seen, that I've had experience with, I mean it, you, you've got your, what you call your retail investors who, you know, they may have a small number, 50, $100,000 to invest and then they're done, or you may have your more wealthy investors and stuff like that is as the value of this asset goes up, we can take a, you know, we can do a refinance as the value of the property goes up and then, you know, we can pull that money out, return some of your money back to you in a non taxable event. Because it's just a loan, it's a transaction between us and the bank. It's not any kind of a sale or anything like that. That's just taxable. And so those earnings and stuff like that are not taxed. And so what you also get with multifamily is, you know, you mentioned earlier, you get the appreciation and the depreciation. And so with that depreciation is whatever values that you get from a passive income, you know, so, you know, you have multiple properties or you have investments of some sort, you can use that depreciation, those losses that we have, because we can either do, we can do accelerated depreciation, we can do cost segregation and things of that nature, which is another long discussion. And you can put that on your tax and you can actually reduce the amount of tax you have to pay on your passive income, which is another advantage. I know for a lot of our folks that have multiple investments, I wonder. [00:24:00] Speaker A: How that, in terms of the stock market, how that works because there's tax loss harvesting so I can use my losses against what I gain in stocks. So to me, when I hear what you're saying sounds very similar. [00:24:17] Speaker B: That aspect, I'm not going to claim to be a tax expert in this area. [00:24:22] Speaker A: Me neither. [00:24:23] Speaker B: There. And, and at Wealthcon, they, they did bring up a tax strategist which was, you know, just mind blowing. There's a difference. You can actually, if you can be qualified as a real estate professional, you get, you can even deduct that off your active income that you also have because that's where you're making your most money. That's part of it. There's a time consideration but you actually legitimately actually have to be making money actively. That is your primary source of income, which is a lot what a lot of people miss. Now when it comes to being that. [00:24:54] Speaker A: Your background, you are a software engineer, correct? [00:24:59] Speaker B: That's correct. [00:25:00] Speaker A: So, and do you still, you still practice? You're still working, correct or no? Okay, yes I am. So do you do the real estate professional. Are you, do you do that for yourself is like a part time thing or can you even do it as. Yeah, go ahead. [00:25:13] Speaker B: Well, it's. So here's the fun thing about it and it kind of goes back to the team that we talked about you got to know and goes back to you relinquishing control and trusting us to be able to do this. The thing about it is we know what we're doing. We've done this multiple times and are planning, you know, an exit on another deal that we have. When I say exit, we're planning a refinance on a deal that we bought two years ago at 7.1 and we're about to refinance it with a value of 12.5 million because we actually accelerated our business plan by a couple of years to where we can return that capital capital to our investors. So the team, we have done this multiple times. And so from a time standpoint for me I don't have to do everything. That's, that's the key thing. Like I live on the north side of Houston, these deals are in Dallas. I'm not going to be an asset manager. I'm not going to be the one that's going to go around and make sure the projects on the ground, you know, are being done, any cap, you know, capital expenditures, capex is done and double checking on our property manager and things like that because we're going to have, have third party management on it. We don't have to do that. And so from a time commitment this will be my third and fourth deals as a general partner on and currently I don't really have to spend more than three to four hours a week as a general partner man helping manage those assets. And that's my choice. And so in my own time that I have, my spare time that I have, I go out and I'm trying to spearhead into different markets Right now it's be Houston and then helping some other folks in South Florida with, with networking and stuff and things of that nature. So from a time commitment standpoint, it's up to me now once you put everybody Together and you have all the moving pieces and stuff that go into it. It actually a lot of people that say they want to be a general partner, meaning they want to own the asset and stuff like that, you got to watch what you're going to do because if you are awarded a deal, you got to figure out if it's going to be another job or not. [00:27:11] Speaker A: Is the general partner the one that's negotiating with the broker or talking with the broker and gather from the broker relative to the owner and would that be like a GP responsibility? [00:27:25] Speaker B: Yeah. General partnership team, our team, we take it from the communication with broker, we find the deal, we get the deal, we submit a letter of intent and loi. Then we go into negotiations with the purchase and sell agreement. Go through legal, we go through CPAs, we get our entities built up to form all of our properties have LLCs that are formed specific, specific to the properties. Take that, you know, communicating with our legal team and stuff like that, raising the capital and then, you know, closing and I really skated over a lot of stuff in that area. Yeah, but then managing the, you know, managing the deal until it's done, that's what the general partnership does. The limited partner, you know, the folks that we invited to our, to our webinar, they're the folks that say, hey, general partnership team, I believe in what you're doing. I like the timeframe that you have and because every and every deal is different. [00:28:16] Speaker A: Right. [00:28:16] Speaker B: You know, here's my money. Go. You know, I like your business plan. Here's my investment. [00:28:23] Speaker A: I think that's how I'm drawn to it because I get exhausted thinking about the type of work that you have to go in and do to look at these deals. And I see from the mentorship, I'm like, oh my God, you're like a real estate agent. And then some. It's not an age. I know it's not a real estate agent. It's investing. It's different than being the agent. But the work and the kind of what you're looking at, I have my mind, I think to myself, oh, that's kind of what a realtor does. Like, let's go look at these properties. Let's go look at the rooms. The thing with the multifamily again for like the, the going from the single family homes to the multifamily mindset is that the larger properties, you're not to see a hundred doors, you just have to go to one location sometimes. So. So it's not like a house where or the single family, where if you want to get to a hundred doors, you're going to 100 houses. So that's the part of it where I'm like, I see why some people would be more attracted to going bigger right off the bat, which is what Grant, like, that's. He touts that versus doing this, the single family. [00:29:26] Speaker B: And you think about any of these major, you know, size deals. I mean, these are multimillion dollar businesses. Right. And ultimately it's going to take a lot of people to get into these things. You stop and think about it. You know, Magic Johnson is one of the owners of the Los Angeles Dodgers, but he's not the primary guy. He's got tons of money from. He's been a very successful business person these last few decades, but he's part of a group that takes a small percentage in something that is going to be valuable because he knows he can't do that on his own. And so part of what we are doing and part of why I'm happy with this deal, that'll push, my wife and I will have. Right. At 600 doors as a general partner and almost 600 as a limited partner. So we'll have just over 1100 doors in a little over a year. Year. And the reason why we're doing that is because we can do that. We can scale. So you, you got to look at where your percentage is. Right. Number of doors, what percentage ownership. I haven't added it up or anything like that, but what percentage do you own of 1100 doors? And I don't know what it is. It's, it's, it's not, it's nowhere close to even, you know, 10%. But because of that, my risk is minimized. Plus, you have 1100 doors, whereas if you have a single family home, you have somebody move out, you went from 100% occupancy to 0% occupancy. [00:30:47] Speaker A: Right. I totally get that. [00:30:49] Speaker B: And so, and then what most people miss, they're like, I don't want to have a smaller percentage ownership of a 100 or 200 unit deal, which ours is over 300. Like, well, we're not just focused on one property. We're focused on scaling and having multiple properties. And so we're going to combine our forces. I'll take a little bit smaller ownership share so that our scale, which is going to be exponential, is way more, you know, you have the penny every day. Right. Or a million dollars. [00:31:20] Speaker A: Right, Right. Compound interest. Yeah, it's the same. [00:31:23] Speaker B: Same situation. [00:31:26] Speaker A: That's an Interesting way of looking at it. That's an interesting way of looking at it because I sometimes think it reminds me of like, fractional shares. So, like, some people think I don't want a small percentage of something because I'd rather just own the whole thing outright and do it myself. I know my sing family unit friends that are just investing in that way. That's their, that's their advice. Like, if I even talk to them about this stuff, it's like, you know what you should do? You should just grab this and then you have, you. You have full control and all of that. So it's like the control issue. It's almost like your ego. You have to get out of the way of your own ego to not. I feel bad every time I talk about, like, my friends who do this. A lot of them do it and they're doing great. So it's not negating that. But in terms of if you want to turn this into a business or you want to scale or you want higher returns in the future or you want to minimize some of the risks that are associated with real estate, this is a vehicle that could potentially provide that opportunity for somebody. [00:32:29] Speaker B: Well, one of our partners is a very successful. He's been a very successful single family fix and flipper. He's done over 500 and he wants to move into multifamily because. And he. And I asked him about it, say, hey. I said, why is he is why the move? He said, because the ability to scale is so difficult in a single family. Because you do a single family and something goes, something happens or you're unable to manage it or whatever. The people that may be doing the work, how many of those guys are going to come over and help you take care of your asset? And so we had someone last week, they were in, I think they were in Belize or something like that, that. Well, the asset's still there. We're still running it because we're all still here. He's over there. And so it's a team effort. That's one of the things that Grant preaches and said, look, he said, we're competing with the Blackstones, the blackrocks, the Vanguard, those massive companies out there for these ass, these assets and these doors. And he said, we can't. I said, he said, I can't do it alone. He said, I cannot do it alone. We have to get together. And he said, the other thing, the most important thing, going back to the 506B, that's an opportunity for what you want to Call the little guys who may only have like five grand to invest. What other opportunities do they have to get in and purchase an apartment complex of five hundred or a thousand doors? But the thing about it is they don't. That's one something that before I started, you know, this a little more than a year ago, I didn't know the entryway. I didn't know how to get involved. I have no way to know, know how to get my start in this game. I thought it was on a quadplex or, or something like that or, or duplex or something like that. Even looking at single family homes, I was like, I. But I knew it was a job because I knew I needed somebody to, to, to manage that asset for me. And the reality is you need to get an asset up to. You need to get, you know, something with 70 or more doors to really where it'll pay for someone for you to manage it, for you, for it to really make sense. [00:34:32] Speaker A: Right? Yeah, I get all that from the, from the investment side of it. I, I had a couple things that stuck out to me because I, I'm gen. I'm seriously considering this deal. I don't know when the expiration is to get involved in it, but I will tell you, and I do like the fact that Jana said they'll be doing these every Tuesday. Once this deal is through, there's going to be another deal coming through. So that kind of helped me visualize like, okay, there's things about this deal that I, that I'm questioning and I'll let you know what those are in a second. But then I was like, about, like if I see another one or something that fits, I guess the term buy box might apply here, right? So people have a buy. Like this is like what, this is the kind of asset I'm looking for. And this is like what, why I'm looking to get in this type of asset. So I'm going to go to baseball cards as my analogy for this because baseball cards is one of those unique collectors hobbies that every collector is unique in terms of how they want to collect. So some people like to collect just a certain era of cards. Maybe they like 1950s or 1960s baseball cards. Me in particular, I'm an 80s kid. So like I love the 1980s for the baseball players like the Don Mattingly's and Eric Davis and even Mark Grace back in the day because I'm from Chicago. But so you could be that type of collector. And then there's like psa. They have the grading and the grading of the cards. And that's where I get in terms of the baseball card analogy or just the sports card or the card collecting analogy is the grading process because then people that will just, they just want to have the card, they don't care about the grade or I mean you care about the group the grade to a degree in terms of assessing value. But there's some people that are like, I want the PSA 10s, like I want a collection of PSA 10s. I want to get the cards that's the mint condition, the best condition cards because I know those have the highest value across all of the other cards because it's harder to get that rating. And so you know it's going to hold its value over time longer. So I notice with like Grant, he loves his assets. He, his just wants the eye. Like I see him as like he's a PSA 10 collector. He wants to collect the best assets in the best locations, the sharpest looking, the best looking. And he's in a position, he's been doing it long enough and that he can, that he can aspire to that. Now bringing it back to this deal and using that as an analogy, this building or these units we're talking about, about they are in an older building. That was one of the things that I personally was thinking. I don't know if I want to get involved in that, this particular deal for that reason. And it doesn't negate it because like I said, there's a lot of types of collectors and the advantages is you can get into certain units, certain areas that are still good areas. I remember they gave it a rating. They said it was a B, like a B location versus an A location or a C location. So B is like it's a good location. It's near development that's happening that let's say the units are selling for 4 or 5,000, not selling, renting for 4 or $5,000. And this is a lower entry point units because they're, they're renting for like somewhere between a thousand and two thousand dollars. And, and one might say oh well that you know, why would people, I mean you don't even, I don't even know who would say it. There are people that are going to want to pay less. They're not going to want to pay 4 or 5k and there's going to be plenty of opportunity because if it's a big enough, bustling enough area and it' there's going to be spillover just like when I was using the baseball card analogy. There's Spillover from the PSA10s to the PSA Nines and the PSA8s, because the PSA10s are usually so far out of reach for some people. But if they really want that rookie card of their favorite baseball player like that, I got to get that Mickey Mantle rookie card. And I don't care if it's a PSA 10, it's a PSA 5, but it's still. It's a Mickey Mantle rookie card. So I'm going to be happy. So then you have, like, I can now start. I'm starting to conceptualize these real estate opportunities in terms of, like, grading them and assessing their value. Now, in terms of return on investment, getting past the, like, oh, I don't know if I want a building that was, you know, bought in the 1980s. The, the actual return on investment. I, I think it was like 8% was the cap. Was it 8% was the. That 8% is the cash on cash. Is that different than the cap rate? [00:39:09] Speaker B: Yes. [00:39:10] Speaker A: Okay. [00:39:10] Speaker B: Yes. [00:39:11] Speaker A: So 8% cash on cash. No, I interpret 8% cash on cash as meaning if I put in, let's say, $100,000 for simplicity's sake. [00:39:20] Speaker B: Yeah, let's talk about, let's talk about annual. Let's just keep it at annual. So if you put $100,000 in and you're getting an 8% cash on cash return, it'd be 8% of your investment investment is what you're looking at. So now we always do that. That's over the life of the deal from a cash on cash. And so the cash on cash, we also call that a drip. So the more investments you have, the more drip. [00:39:46] Speaker A: Slow down one second, because I really want to make sure I'm clear on this. So that 8% is the lifetime of the deal, or is it an annual 8%? [00:39:58] Speaker B: It's average over the life of the deal. So when you. [00:40:01] Speaker A: So that's 8,000 over. And now when we say life of the deal, the number that I recall was like five to seven years was what they threw out. Like, we plan on holding this asset and doing something with it in five to seven years. So that's the time frame you're looking at in terms of, like, locking up your capital basically for that duration of time. And. Okay, go ahead. [00:40:23] Speaker B: So you have. And so we've. Part of our business plan for the Class B is how the whole thing about this is how do you drive value and into this? And, and we're going to do a forced appreciation with our capex that we were going to put in. So we're going to put in cap, you know, capex and so as you know, so we're going to get the, you know, the value from that investment probably after this first. We usually do the capex usually in about the first year so that you can actually, you know, have the benefit of that work in, you know, in that revenue that it generates. So your cash on cash return the first and second year because there, I don't know if you're there the first week, but we did have a slide and had a breakdown of $100,000 investment. [00:41:08] Speaker A: I snapped so many pictures I should use like when we're talking about this stuff, just use that. It was such a great, great presentation. [00:41:15] Speaker B: And I can break it down for you if necessary. But so your cash on cash the first couple of years are actually a little lower. But then as the value of what we've done, your cash on cash goes up because we've increased the net noi, the net operating income, which is the primary factor that banks and everybody uses in the industry to determine the value of the property. And so what we're going to do is then we're able to refinance that property which because noi is gone up and you know, we're able to get a loan for much greater dollar dollars and so we're able to return some of that capital to you. So you know, in our example we used a certain percentage which is more than half and then you're left with, you know, let's just say 25% of your money left in the deal. Well now We've already returned 75% of your money to you. You can take that, go invest in something else, but we leave you with the same percentage ownership of that. So you know, now you got 25% of your money in there. Well, guess what, you're still getting the same returns in the distributions that you were before. Well actually it's going to be better because we've increased the value of the property but your cash on cash return has gone up because now you actually have less money in the deal. Does that make sense? [00:42:33] Speaker A: Yeah, it's kind of when you get your money back, when you refinance, you're not exiting the deal. What do they call that? What's the number for it? Like a 1031 or something? [00:42:44] Speaker B: 31 exchange? [00:42:45] Speaker A: 1031 actually, that if we, if we. [00:42:48] Speaker B: Return your capital to you, that's part of a non taxable event. So you can take that money, go do whatever you want with it, because it's not. [00:42:54] Speaker A: Now this is careful because you say you can take that money and do whatever you want with it, but if you're using a Roth IRA for the funds, then you can't take that money and do whatever you want with it. It's going to go back into your Roth ira. So you're going to have to just reinvest it into something else. Or the way you guys do it is reinvest it into the next real estate deal so that you're, you're accumulating these assets. Sometimes I visualize this as if you're, you're, you're accumulating the asset and then when it gets refinanced, your original sum comes out, gets put into something new, but you still have the original asset. And so that's the part, I'm still wrapping my mind around this, but that's the part where I get like, that could be interesting because let's say I put the hundred thousand in and you do what you say and it doubles my percentage, which is that a hundred thousand, it doubles the hundred thousand in five to seven years. So then in five to seven years I get my 100,000 out that I put in, but the other hundred thousand that I originally put in goes into either stays in that investment, so I can still get the distributions from that investment, or it gets put into a new investment and then the prop process replicates itself. That's where you start thinking about the compounding. [00:44:12] Speaker B: Yeah. So think about this, mark. It's like your original investment. So you're getting this cash on cash return before the refinance. Okay, so imagine it's taking you, you want to run a mile. It's going to take you 10 minutes to go a mile. Okay, but with all the work we've done on the property, we've developed like a bio skeleton or something like that. We're able to put that on you. And guess what, we're able to give you seven and a half minutes back to you to do whatever you want with it because you're still going to be able to go a month mile, but only using the effort it takes. So like it would take you a certain amount of effort, 100% of your effort to go a mile. Right. But now after the refinance, with the 25% of that original effort, you'll still go the same mile is basically what it is. And so as we go through, and we may refinance again and we May give you your full original investment back and you're still getting money back. That's what we call infinite returns. You have zero money in the deal, but you still have the same percentage ownership in that deal. So that's one of the things that we do. Our team, we want to make sure that you maintain. That's what Grant does in his deals. You maintain your percentage ownership. Like Vanguard, BlackRock, Blackstone, these guys like that, once they return your money to it, they're like, peace, thanks for helping us on the asset. [00:45:37] Speaker A: This is interesting to me from transitioning from stocks to real estate in that the exit strategy on a stock is you have to sell the stock. So you're never keeping the, you're never keeping your ownership position when you're taking your money and your profits, unless you just sell a certain percentage of your position. Sizing. And I'm not going to get into all that, but what I do like about the opportunity with real estate is that you have multiple ways to exit. Exit and still maintain profitability. Like you said, you can have ownership. You can still have an exit. An exit in the sense that you can get your money out but still have that ownership stake. I'm still really wrapping my mind around that because. Because I think, okay, so you're not in that scenario. You're not selling the property, you're refinancing. [00:46:31] Speaker B: Yes. And you're going to have an agreement, part of your agreement with whatever you're. You know, we have a, you know, we'll have a target amount that we're going to raise. Right. Let's just say that we're going to have. I don't want to complicate it too much, but you're going to have an 80:20 split, which is 80% to the limited partners, 20% to the general partners. So your limited partners, we're trying to raise. Let's just call it a million million dollars. Right. So your percentage ownership, if you invested $100,000 would be 10%. Right. So part of our operating agreement, when you, when you sign documents based off your commitment, that's your percentage ownership in the deal. [00:47:12] Speaker A: 10%. Wait, if I put in 100 and the deal's a million, that's raising a million. [00:47:18] Speaker B: We're raising a million. [00:47:19] Speaker A: We're raising a million. I put in a hundred thousand, then I have 10% of. I actually have 10% of 80% because the GPS have the other 20% of. But if it, if you're raising the million, is the GP part of that million? Do the GPS Put in, some do, some don't. [00:47:44] Speaker B: That's debt. That is the debt. So an example here, Grant says we're not supposed to over leverage ourself. He says don't go more than 75% loan to value. So let's say it's a $4 million deal, right? We're raising a million. So we're going to raise 25% of that 4 million. So we're going to get 3 million in debt. Okay, so that's what that is. So you have, let's go back. So out of that million you invested $100,000. You have 10% ownership in that. Okay, so with that 10% ownership. [00:48:22] Speaker A: 10% ownership tip in the equity. Yes, because the Debt is the 3 million and the equity is the million that you're raising. That's the equity part of it. So we're putting a hundred thousand is the equity position. [00:48:38] Speaker B: That is. That is correct. So when I say percentage ownership, it's your equity ownership position. That does not change. Okay. Sorry. [00:48:48] Speaker A: No, that makes sense. No, no, yeah, no, but I, Yeah, go ahead. [00:48:53] Speaker B: And then, so if you keep that example going, let's just say I don't, I don't even know if these numbers make sense. But if you have, let's say you have $500,000 in cash flow a year. Okay? So you have 10% ownership of that 80. So 80, 20 of the 500,000. 100,000 goes to the general partnership team. $400,000 goes to the limited partnership. That's your 80%. So 20% is $100,000, 80% is $400,000. You own 10% of that. So annually you would get $40,000 of that per year as a 10% owner, as an LP in that situation, $40,000 a year. [00:49:37] Speaker A: Is it $40,000 a year or. [00:49:40] Speaker B: Because you have 10% of ownership of that distribution. [00:49:44] Speaker A: Right, Distribution. What's the distribution number? Hypothetical. What's the hypothetical distribution number? So half a million dollars a year is the cash flow. [00:49:55] Speaker B: Yes, cash flow. [00:49:56] Speaker A: Let's say that's the cash flow. That, that's how much income is actually. So that's the net income. Is that the noi. Net operating income that actually comes in is the half a million. [00:50:06] Speaker B: So you're have your, you have your gross rental income minus your operating expenses. That gives you your net operating income. Out of your net operating income, you have your debt payments and then you have your cash flow. That's just general high level. So that cash flow, let's just say, is 500,000. Okay. Which is really good on a $4 million deal, by the way. But I just thought it, you know, say it. [00:50:32] Speaker A: So is that really what it is? We still. In the hypothetical, like in this particular deal, that's 4 million that you're not half a million a year, are you? [00:50:41] Speaker B: On this one is about $2,300,000 between the two, because it's a blended $2.3. [00:50:48] Speaker A: Million per year income. [00:50:54] Speaker B: Net operating income. [00:50:56] Speaker A: That's the net operating. Without minusing the expenses. [00:51:00] Speaker B: Without minusing the debt. [00:51:02] Speaker A: Without minusing the debt. And then there's the expenses. There's two minuses. [00:51:05] Speaker B: You've already taken out the expense expenses. [00:51:08] Speaker A: You've taken out the expenses. [00:51:09] Speaker B: So right here, this is where we're at. 2.3 million right here. And then you'll have your debt, then you have your cash flow. It'd be easier if we had a dry erase. [00:51:19] Speaker A: I know, I know. Have to do this to dry erase. [00:51:21] Speaker B: Yeah. [00:51:22] Speaker A: I'm trying to pick up what you're telling me. I'm going back. I'm listening to. I'm actually listening to the. The webinars that granted. So I'm listening to the passive income and real estate and I'm listening to how to make money in apartment deals. Like the apartment deal one starting to appreciate. Oh, these are different. Like, this one is more. One of them is more of a broad overview, a broad stroke of the whole process. And the other one is getting into like, these are the actual documents, the loi. You got to have this. You got. It's a little bit. It's more detailed and it's going to. [00:51:57] Speaker B: Be so cool because you're going to. When you go through all of it and then you may go back and you should have gotten a recording for last week, but by the way, should have given a link to it for yours. Well, every week we send out, if you registered for it, you'll get the link in an email the next morning. So you may want to check. [00:52:15] Speaker A: Can we say the name of your group? Your group, the one you're in outside of the cardone? [00:52:20] Speaker B: Yeah, we can say. Yeah. Model Investor alliance. Mia. [00:52:23] Speaker A: Model Investor Alliance. Right. So that's the term. Model Investor alliance is the group. [00:52:29] Speaker B: Yes. [00:52:30] Speaker A: And that group. So what you're telling me is through that group specifically, they do the recordings. They have those recordings. So like last week, the one that I saw is still available that I can get access to. So how do I get access to that? Is there an email? Does it come in the email or if I follow the link that I Went to. [00:52:48] Speaker B: It should have come to you in an email with a link to a YouTube video. [00:52:53] Speaker A: Okay, so then I. Okay. [00:52:55] Speaker B: And I can. I can forward you one here in a few minutes. [00:52:58] Speaker A: No, but I'll find it. I'm with my regular email. It's not great. And honestly, I'm, like, waiting for AI to just manage all of this. I had thousands of. I'm like, just. I need something. Like, I'm. I'm so hopeful for Apple Intelligence to come and just send me exactly what I need to pay attention to. [00:53:15] Speaker B: Need you to scan those things and just figure everything out for me. [00:53:19] Speaker A: One of the things this is like, somewhat of a tangent, but, like, with Grant, that is so impressive is just. He's so good about just keeping you in the loop of what's happening. And I think some people would see that as, oh, pushy, pushy. It's always selling, always pushing something, Always pushing something. And I've been in this process long enough where I'm like, he's keeping me engaged. Like, this is. It's not hard, but it does require a learning curve to understand it. And if you get. You lose your focus through the process. Because now I'm out four months into the mentorship program, and I'm only now really starting to be like, oh, okay, okay. Like the 8020 split and the equity and the debt, and this is how the deal work. That was a digression. But I think in terms of what you were saying with the Model Investor Alliance, Mia, they are knowing that you have that recording and that you can actually watch his recording again, that that strengthens that, I don't know, connection or trust. I think one of the reasons, like, I'm even doing this podcast and recording these calls is like, there's a level of trust that happens. It's like you and I are having a conversation about an actual deal this time around. Last time was more. More general. And this time we're kind of. It's at the backdrop of actually putting some real money, real capital to work here for me. You're already in it. Your. Your skin is already in the game. Right. [00:54:45] Speaker B: I'll tell you that. You never stop learning this business because at the beginning, this webinar, actually, I was getting a text from one of the brokers I was talking to about a deal here in Houston. So we're supposed to be. [00:54:56] Speaker A: So you're already making those relationships? [00:54:58] Speaker B: Always. [00:54:59] Speaker A: Yeah. [00:54:59] Speaker B: And, yeah, you know, we actually went. We went from last week on a deal. We weren't going to announce it if we Got it. Because just the timing of it with what we had here, we don't want to confuse people. [00:55:12] Speaker A: Confused, right? [00:55:13] Speaker B: Yeah. We. We went from one of our partners sending us a deal, sending me. He's like, hey, did you see this one? And I. I had missed it here in Houston. And we went from that conversation on Tuesday to me driving the property and visiting twice and touring with the property manager on Wednesday. Wednesday. And then submitting an LOI that night after multiple calls with me and Sean, who did the presentation. And we went from nothing to being one of the final two offers. [00:55:43] Speaker A: Wow. Wow. [00:55:45] Speaker B: And we ended up not getting it because our offer was about 200,000 less. Even though the broker said, hey, you talk about trust. And I'm getting to that. The broker said, hey, the seller wanted to go with a higher number. He said, I recommended you guys because you have never not closed a deal, which is very important. Also, this broker is with a brokerage that is also the broker on one of the two deals in that two pack. This is the same brokerage. The owner of that broker. Of that brokerage is the broker on that. One of those deals in a two pack. And so we communicated with him to say, hey, we're looking at this. Which automatically went from a credibility boom right there, because we have closed with that broker in Dallas. Five deals already. [00:56:39] Speaker A: Okay. [00:56:40] Speaker B: And so the guy's like, it's relationships. [00:56:44] Speaker A: It's relationships. Like everything else. It's like, yeah, we already know these guys can do the work. That's one of the variables is the confidence aspect of it. So, like, I. I'm still working on conf. In terms of. I'm starting to get the bigger picture, as in from the investment standpoint of it, But I'm not confident in the sense that I'm not ready to pull the trigger on the deal yet, because there's still the questions that I have in my mind. And like you said, you guys, that's what you're doing here. You're kind of walking me through things and holding my hand and helping me figure out certain aspects of this deal or help strengthen my understanding of what's actually the proposal that's happening. [00:57:19] Speaker B: You and you were going. Going to. Two. There's two things, Mark, that I want to mention. One, I remember from what you had said earlier about Grand Steels, but this one, this conversation you and I are having is a deal is a conversation roughly that I've had with numerous investors over the last couple of weeks. [00:57:34] Speaker A: I understand this. [00:57:36] Speaker B: Yeah, I love having these conversations because all These people have, have a problem or have a situation that they want to help get help figuring out. Either it's an investment thing or I need to know what to do with my money in general or I'm a very sophisticated investor, I need to figure out how to lower my tax bill. So all those things. And so this is an opportunity to solve all those problems at the same time. And so you tailor that conversation. But the goal, someone was asking me the other day, they're like, hey, how do you, how do you raise capital? How do you, how do you have realist relationships? I said, well, the biggest thing that I can do is just be myself. If I come in to try and be a salesman to you, I can't stand sales. I can't stand to be sold. I can't stand to try and sell something because my heart's not in it. If this is not for you, the thing about it, we're still going to have a relationship. [00:58:26] Speaker A: Oh yeah, absolutely. [00:58:27] Speaker B: Move on. And that's. Then that's the thing about it though. You know, these are multimillion dollar businesses. These are investors with thousands and some of them hundreds of thousands, even millions of dollars of investment capital. And they're not just going to put it. If you know what you're doing, you're not just going to throw it with someone that you can't trust. [00:58:47] Speaker A: Right, of course. [00:58:49] Speaker B: That's the. To me, I take that personal. So every, every person that you know, I, right now, I don't use a CRM, I don't use anything like that. Every invitation I do is personal. I manually do it. I either send you a text or I'm going to send you an email or most of the times phone call or you know, we have some kind of relationship and I know that you're interested in something and I'll put a personal note in it. Right. And so I want you to know that, hey, I thought about you because we talked about something and I don't have to tell you what it is because we've already got that pre existing relationship. [00:59:21] Speaker A: Yeah, you and I have the rapport now for sure. For sure. I. On that note, I want to. It's funny because these were the two things. A couple points. I wanted to bring out this specific deal that I thought you should know in terms of where I have reservations. And so like moving forward with other deals, one of the, the things that had me pause was the money market account and like holding the money till the deal closes and then that could be a period of time and then that you're just getting 2% on your money. And I can already kind of even answer in my own mind when I hear this. It's like you're looking at how short. It's like, are you willing to sacrifice maybe up to nine months or even a year for like, much bigger gains 10 years out from now or like a bigger portfolio out for now? So I'm kind of like doing a little bit of the lifting for you. Even when I ask the question, I'm like, okay, I almost already know what the. What would be the satiating answer to this one issue. But the other thing was. And again, it kind of. You can answer it even the same way is that it was about like nine months. I remember him throwing a number out. It was. Might have been, Sean, it would be about nine months before you got any return on that investment. And that part kind of had me pause also, because I could hear Grant's voice saying, you want to be cash flow positive day one. Like, I want to close this deal and then be cash flow positive. Like, we're already making money. And so when I hear nine months out, I kind of. There was a pause in my mind where I'm thinking, I'm going to put my. This initial wire in and then I'm not going to hear from these guys for like another year. So something. [01:01:01] Speaker B: See, and that's. And that's why you need to watch multiple times, because, sure, some of those. Those time frames are correct, just misapplied because. So while all these deals, they will. Cash flow day one doesn't mean close. [01:01:19] Speaker A: But doesn't mean day one's going to be the close. Tomorrow it's going to close when you have the capital that comes in and all The I's and T's are across the. [01:01:29] Speaker B: And.it so the closing is scheduled for mid January. Unofficially, it'll probably get moved mainly because it's a. A. I wasn't supposed to say that. [01:01:37] Speaker A: I was going to say I'm gonna have to delete that. Right? So out of context, it might not mean anything to anybody, but one of. [01:01:43] Speaker B: Those deals is a loan assumption. And so those right now are taking 60 to 90 days. And so all parties know that. And so we'll just adjust the contract to reflect that. That's not a big deal. So that's. Anyway, that's closing. Okay, so once we close, we take ownership of that deal. Right? It's cash flowing day one. Okay? It's. It's cash flowing. That's what Grant talks about. So there's a difference between cash flow and distributions and distribution. [01:02:12] Speaker A: I was just as, even as you started explaining, I was like, oh, it's cash flowing because the renters are still paying their rent and everything. But the distribution, it comes from after they pay the rent and the distribution cost comes out. Yeah, go ahead. [01:02:24] Speaker B: So that, so that nine months, you heard that was on some assets that we're having to go through stabilization right now. Stabilization, meaning value add. Some of these deals, their occupancy was down as low as 55%. And so we have to get them stabilized to us. So they're still cash flowing even at that little amount. Right. They're still clearing the debt payments, but it's not enough to start sending distributions to investors. That's what that one is. So we give ourselves six, nine months to do that. Even on this asset, we'll say it's going to take six months. Because what we want to do is when we get in there, yeah, we've done our due diligence, but the reality is, hey, we can't do anything about some of these, these residents that they may have, you know, kind of shoehorned there in there at the end to just kind of help, you know, float the occupancy rate. [01:03:12] Speaker A: Yeah. [01:03:12] Speaker B: Even though the, the historical average of this property is, is still up there. [01:03:17] Speaker A: It's hot. Yeah. [01:03:18] Speaker B: Yeah. So you still have to go through and make sure, hey, is all this legit? Right. Plus, you're put, you're implementing your own business processes and things of that nature. So it takes some time to do that. Even grants distributions won't start for like, you know, two or three months or something like that. And so we'll say six months. But in the past, we've actually started distributions earlier than that. And so that's what we're going to see with these deals because we have 3 million in capital capex budgeted. You know, we'll, we'll do that over the first year, but we'll start cash flowing before that. [01:03:50] Speaker A: So here it's like, again, this is kind of where I start to pause and especially if I'm thinking, because originally I was thinking 8% annualized, which is phenomenal, but it's not 8% annualized. It's 8% over however many years. Like five, let's even say in the lower end, five years. That's still like a very small. And then your annualization is just like negligible almost because, okay, two things. [01:04:15] Speaker B: Yeah, real estate's a long game. Okay. So real, real estate is a long game. Your cash on cash is not going to make you wealthy. We are going to send you money, monthly distributions and stuff. It's just a way for us to help return your capital to you faster. But the wealth is created through the capital events, which is the refinance, the sale, the 1031. That's where the real wealth is created. So I'm looking over here at that chart from, from the other night. Your, your cash flow is, you know, it's pretty consistent over the five to six years, but it's still a very small percentage of the profit that you're going to make on top of your, your original investment. Okay, so the cash on cash, cash is, it's not, it's just, it's just another factor of health of the property is what it is. [01:05:09] Speaker A: Laughing now because I like, I know what you're saying is, is correct and I didn't think to myself, wow, I really just developed a day trader mentality over these last four years because I'm so like last year I made 60, 70% on my money. So I'm thinking, why would I take any of that money now and allocate it to something that I'm going to have to wait out like begrudgingly for 5 to 7? I'm not saying that's accurate. I'm telling you honestly, like, that's where I start to like have pause. And it's not even that I don't think what you're saying is correct. I know it's like a psychological thing that I have to just be like, my interest in this would be diversification. Me personally would be just a way to diversify my assets. [01:05:53] Speaker B: So your 60 to 70% earnings that you've had on your money, what can you do with it? Kid, do anything. [01:06:01] Speaker A: I have to reinvest it. [01:06:04] Speaker B: Is it, is it a realized or is it an unrealized gain for you? [01:06:08] Speaker A: Well, because it's in a tax deferred account, it's in my Roth ira. It's unrealized, unrealized. [01:06:15] Speaker B: So you can't take. [01:06:16] Speaker A: I take in profits, but I don't, it doesn't come out to me. They stay in the account. And like you said, I mean, it is what it is. If I take any money of that out, it's penalized. So I'm going to lose money to try to take money out of my Roth ira. But I'm more attracted to the idea of diversifying, buying my Roth IRA with real estate so it's not just stock assets. And then When I think, okay, I made good money on the stock market, but the stock market's not always great and Grant's really putting out there that we're going to see a massive, unprecedented in his lifetime real estate correction. Not at the single level, at the multi unit what he's talking about. So it's going to. He really makes a compelling case that we're really in a window of opportunity. So then I think to myself, okay, I made this nice amount of money in the stock, stock market, diversify that money into another opportunity with real estate might be like a good way to do that. I mean people do that. So I'm not saying anything novel here. I'm saying in terms of what would. I'm trying to, even I'm almost trying to convince myself because I feel like it is. There's something about it that's the right thing to do. But I'm still. Isn't that funny? I'm pitching like I'm both against it and for it at the same time. I don't know how many people, I'm assuming I'm not the only one that feels this way, but I can articulate it and it is, it's like a genuine. I can't. That switch hasn't totally flipped for me. This, this deal that's currently presented. I did start thinking about it, but then I kind of go back to the baseball card thing and I'm like, oh man, I just got, it just got pitched like my, my dream rookie card was a Don Manalink rookie card, which I bought like a couple years ago because I was like, ah, this is my childhood. And I got the, you know, PSA 10 and that's the one I was holding out for. Y. Exactly. And so now I think, now I'm starting to see these properties and I start to think, oh man, they're going to do these every week. So this deal is really sweet. It seems really appealing to me, but maybe I'm waiting for that one that's just like, oh my God. This is, you know, this. Look at the property and look at the, you know, all that kind of stuff. So I'm not saying that's right. No, just throw it out the bat. [01:08:28] Speaker B: No, that's kind of the, the kind of, the mentality, you know, there's a bit of FOMO right at the same time I grew up, I have, I think I have close to 10,000 baseball cards, you know, and of course I was there. I remember when Upper Deck first came out, I remember Bowman cards being a pain in the butt because they're just a little bit bigger than everybody else. [01:08:49] Speaker A: Yeah. To buy a special. Yeah. Special sleeves. [01:08:54] Speaker B: And so one of my. My favorite cards I have is a Shaquille O'Neal, LSU basketball card. So. [01:09:01] Speaker A: All right. [01:09:01] Speaker B: Yeah, that's a very. [01:09:02] Speaker A: Yeah, you gotta pride, like a pride and joy card. [01:09:05] Speaker B: Oh, and I have a signed race card part as well. [01:09:08] Speaker A: Oh, so Mark Gray. So you, like. That was like, all right, that's cool. [01:09:11] Speaker B: I was a Cubs fan growing up, so. [01:09:13] Speaker A: Yeah, I remember you telling me that now, actually, on Telegram. That was one of the first messages that you sent out to me when you found out I was from Chicago. [01:09:21] Speaker B: But there's. You talked about Grant's deal earlier, the Class A's, and you talk about the value of those cards. I never look at the value of the deal as epic. Right. Grant has these 75, $150 million deals. I look at beginning and end. What's the difference? And so what's the difference in the valuation of those deals? What's my percentage ownership? What am I getting paid? And so, you know, you have these beautiful Class 8 deals in Florida. Those things are north of $300,000 per door. And because. And then the replacement cost is over 400,000. The deal which talked about this week, the average right now, what we're buying it, is around 120,000. A door replacement in Dallas is nearly 300,000 per door. Right. So the difference in that. Okay, it's not much different. Multiply that by the number of doors. Okay. And then how are you adding value? And how fast does that value add up? And that. That's where. That's where rent bumps based off of location matter. And then where you get into some of these. These other deals, that's why a B is kind of a nice sweet spot is really, to me, really where it is, because it's a solid place where, hey, you know, we could go move in there. It's not. It's not a bad place. It's not far. One of the deals is not far from at and Stadium, you know, Six Flags and stuff. It's a really, really, really nice, bustling area area. And then the other one's over here. And so you got Six Flags, Arlington, all that area over in here at&T Stadium. And so what we. You have to take into account is your market, and you got to know your market because they're people that have been living there since the 80s. They're always going to live there. They're always going to be there. Have they been maintained? Well, yes, they have. Have, you know, one of them by an institutional investor which we're lucky to get, you know, hold of. And so you got to look at it. How long are you going to hold that 40 year old asset? Well, guess what, it's going to be there probably for a good 20 more years. Our business plan, before it even really shows signs of issues, like big major issues. And do you want to be part of that or what? So that depends on how long you're going to own that. So that's why Grant goes after the class A's, the newer ones, because, because he doesn't have to worry about that. You know, that's one thing. So he's going to pay a premium for that. But then he's also going to still find those deals that provide a certain return. So his deals are going to be 5 to 6% cash on cash and then they're going to have roughly the same multiples. So that's what you got to look at. Now the assets are pretty, it's easy to raise money on deals that are pretty because they catch your eye, right? And so with the deals that we're talking about here, they're just, they're nice, they're set. We could, we could not do anything and we could still increase the value of the properties by 4 to 5 million just by coming up to market rents without doing any capex. And so that's what you gotta when, when Grant says your deal is going to be compared to everybody else's deal, whether it's multifamily or anything. And so what you also have to think about like the value of your cards. And that's why I was asking about the value of your investments. Yes, it's increased in value, but what can you do with that? Right? You know, you have to sell it. That's the only exit that you have. Whereas where we have, you know, a refinance plus we have the drips where your money's coming back to you and then you can take that and put it into something else. You can't take an unrealized gain and put it somewhere else. Now I know you know, some complicated stuff, some certain types of things you can borrow against those unrealized gains and stuff like that. But that's really complex. That's the advantage that I, that I have over any other investments because it's all about what level of risk are you willing to take on these things. So there's, there's so many different ways that I want to Go through that. [01:13:24] Speaker A: Yeah, it's interesting. It's a big shift for me because I spent like the last four years looking at charts and reading charts and doing technical analysis. So this is like a whole different game because it's interpersonal, it's relationships. It's somewhat more conceptual. That's arguable to say that, but it feels conceptual to me in that, like, I can look at a chart and just kind of follow trends in action and versus the real estate market. I don't have any sense of pulse on the real estate market. And it goes back to what you're saying. You want to know your market. And if you don't know your market, because the deal we're talking about is in Dallas, I'm in Michigan. And so if I got involved in this deal, I don't necessarily want to get involved in a deal in Michigan. And I might be more interested in getting involved in a deal in Texas because that's where the action's at. And I. And I think one of the members on your team was saying how he's in Florida, he's in the Florida market, but he's interested and he's part of the Dallas team because the market is just. You can find these better deals in your. In this market. [01:14:31] Speaker B: Well, think about your. And I always have to say, well, think about your investments. Like if, if you have a. You're investing in stocks and stuff like that. What. What are you investing in? Is it something that's tangible, something you can touch? You know, that's the other thing about it. You know, it's. This is real, something you can go and touch. You'll put your hand on. You drive by and say, hey, I own that. You know, and so you can see if it's being maintained. You see if it's occupied. You can see if it's being, you know, run well and people are happy there. That's the other piece of. It is not. Not necessarily is it something that is selling. But for me, the. That makes it more of a tangible investment. [01:15:10] Speaker A: Right. [01:15:10] Speaker B: Than, say, crypto. [01:15:12] Speaker A: Right. That's exactly where my mind went, because that's where you go bitcoin. And people get frustrated because it's like, if you don't understand blockchain, if you're not looking at that technology, then it's like, it's just thin. It's fairy dust to people. It's like, I don't know what I'm. I don't know what I'm in investing in. [01:15:27] Speaker B: Well, if you've seen anything that Grant has done lately. Yeah, I have bitcoin and so. Yeah, I know we're actually, I think we're probably, we're hoping to get it set up so that we can accept bitcoin on these, on this pack. [01:15:42] Speaker A: Oh wow. [01:15:43] Speaker B: If not for this one but for the next one and then, you know, bitcoin. Stay tuned for us. That's for sure. [01:15:48] Speaker A: Yeah, I know it's interesting. I just had a conversation yesterday with someone and we were talking about the cryptocurrency market and just because it's a topic, topic of interest right now I'm a, I'm more interested in stocks. I have more of a, like, I just like a Warren Buffett because he's the person that people can wrap their minds around in terms of the Scott stock guy and Warren Buffett's like cryptocurrencies all be, you know, like we were talking about how the boomers don't even, they're not going to really necessarily wrap their minds around this. Grant's unique in that he's just an open minded person. Like he's, he's always thinking, he's a forward thinking individual. So it's not like just a flat out. Each generation just gets it or they don't get it, but the, the, the likelihood of appreciating it comes like the younger generations that were born with it, they don't even question it. They're the digital natives. They grew up with it. That's part of their lives. It doesn't, it doesn't. They don't have to negotiate right or wrong about it versus other generations who don't understand it, didn't grow up with it, don't get it. Then they have to evaluate for themselves if they want to do something like that or not. But that's a digression. It is interesting. I like the idea of, of the converging asset classes, Bitcoin and real estate, especially if you're looking at the appreciation on bitcoin and it is a electronic electric asset that you could leverage in line with a tangible real asset like real estate. So I think that there, there's something about that promotional value of combining those two assets that sparks someone's imagination. And a lot of this you do have to be somewhat imaginative. Imaginative in terms of thinking through all of these things. [01:17:30] Speaker B: Anybody's a visionary, right? You know? [01:17:32] Speaker A: Yeah. [01:17:33] Speaker B: Grant showed us something on the club call Wednesday that pretty much blew my mind and made me reevaluate some how we're looking at some of the stuff going Back to pure real estate. You know, debt getting, you know, getting debt, the cost of debt right now is, is just really high with the interest rates. And so what that's doing is that's causing cap rates to collapse. So it's making the class A cap rates come up. So from the fours, like most of, most of this year earlier in Houston, cap rates for Class A's were between 5.25 and 5.75. And so Class A, B and C, they're all close together. And so that's, and that's because of the debt, because your cap rate has to be higher than your interest rate for you to make money on a deal, right? And so we imagine that right now, if you find a deal that works, it really works. Because if, even if, if rates only improve, like maybe one, one and a quarter percent, just think how much money. So if you take, let's just take our, our scenario earlier. Let me use my calculator. So let's say we had 500,000, not even cash flow. Let's just say 500,000 NOI. Okay, so you bought a deal at a 6 cap, all right, 80 end, so 500,000 NOI divided by a 6 cap, that's $8.3 million. Okay. [01:19:02] Speaker A: Okay. [01:19:03] Speaker B: All right, now you take that same. Let's say the cap rate, you know, the debt has gone down on average 1.25%. So now your cap rate, you've been able to drop it down to 4.75. So you take that same NOI, 500,000 and you divide it by.0475 value. Property is now $10 million. You just, it's just going up by $2 million right there. Okay? So that's how, that's how you look at it. So you can, you, you could do a refinance, you pull some of that money out, return to your investors, and you keep going. Now, here's the fun part. So part of our business plan is we're going to prove the property or whatever and stuff like that. Let's say we raise the rents $300 on 100 units. Okay? Just $300. All right, so you'll do $300 times 100 units times 12 months. And let's just say you, it's only 90% occupied. Okay, so 90%. So you just increased your NOI by $324,000. At a 6 cap, you just improve the value of your property by $5.4 million just by raising the rent is $300. And then if, you know, if you only raise it, you know, $100. You know, it's obviously 100 times 100 times 12 times 90. That's 108,000 in increased value. And you divide that by six, you increased it by $1.8 million. And those are pretty easy value improvements. That's rent bumps. What if we saved expenses in the amount of $108,000 a year? We're vertically aligned. We can streamline through our construction, our property management people. Plus we have all those assets in the same area. So we have strategic advantages of maintaining resources across all that. So that's also going to allow us to scale some of those things. So that's the other thing. So Grant's talking about. He showed a map of Miami one time. He said, look, I bought this one. Guess what? I've got four deals all right here within two blocks. He's like, here's my primo. If you can't afford rent there, then I just raise you. We're going to refer you right over here. And if you're not right here, right here. [01:21:24] Speaker A: He's like, controlling the neighborhood. He said, like, you want to control the neighborhood. [01:21:28] Speaker B: So all those things are what we're doing up in dfw, and we're going to start doing that here in Houston as well. There's so many different ways that you can improve the value and own your market. So there's. And that's why I say those are, those are controllable things that we can do with real estate, whereas other types of investments, whether it's land, you have more risk permits and time frame, you know, contractors and stuff like that. Material costs. I was talking to a builder the other day. He said, building material, the price never goes down, it only goes up. So the only thing changes, the rate of material cost. [01:22:04] Speaker A: Right. [01:22:06] Speaker B: Anyway, I, I went on a little bit of a tangent there, too. [01:22:09] Speaker A: No, no, it's good. And we kind of did it. I, I, I always, I plan like 30 minutes, and they go like hour and a half, two hours. So I don't want to take up any more of your time. I really appreciate you doing this with me, and I'm gonna see you tomorrow on the mental mentorship. Like, I look at what we just. This exercise that we just went through today, it reminds me of when I was in chiropractic school and I was learning anatomy and physiology and learning the human body to figure out and medicine and pathology and all of that stuff. In that, we had these small groups and we had to talk about things to learn them. To understand them, we had to process through these. So I been getting the information by watching the videos and the webinars, and I've been consuming a lot, but I haven't engaged like I have with you just now, where I'm actually trying to really talk this through to, to, to. Ultimately, it is about action. Like, at some point I do want to pull the trigger on something, but I want to make sure I understand it first. And then, and, and there's other variables involved. Like my wife is starting a business, so I have to kind of prioritize that as well. But, but overall, in terms of understanding what we're trying to accomplish with the multifamily unit, how you're trying to build wealth using multifamily units as a strategy of building wealth. And what I'm learning through you is the teamwork aspect of it and the relationship building of it and seeing the network that you're involved in in that webinar, like I said, really was like, a lot of things started to click for me when I saw that presentation. It was like, this is all the stuff he's talking about. It's like you have to have confidence. You present something that people are actually going to want. People like deals. They want to see a deal. And I saw what you guys did and I. And I'm excited to see what you guys are going to do in the future and see at some point where I'm going to fit into all of this larger things of what's happening and knowing that I have people like you as a resource to work through some of these things. So I'm going to encourage you to. [01:24:20] Speaker B: Get on his many webinars and calls as you can and just see what other people do. I'm not saying that we're better than anybody else, but it gives you more opportunities to learn to hear it, you know, like, I know Grant hasn't interacted this weekend. I know that, you know, he has that opportunity, but. And like next week we have, we have our Dallas Fort Worth meetup, which always has a virtual component to it. And I always, always, always call in. I can send you an invite to that because we, we have some topic that we cover and we talk about it in depth for about an hour or so. It's usually like 4 to 6pm Central Standard Time, so I'll send that. If you make it, great. If not, it's no big deal. But the more you get on these calls, the better. And this past Tuesday, Jennifer and her husband Sean and his wife were actually on the 10x cruise with Grant. It's a Rich Carlton yacht. It was just. [01:25:12] Speaker A: I saw the Instagram pictures, and so they were there. [01:25:16] Speaker B: There were a few of us. There were four of us. Me. [01:25:18] Speaker A: Oh, wait, were you there? [01:25:20] Speaker B: No, not Cruz. No. But on Tuesday, lady named Sharon, One of our other partners, Eloy, in Dallas, he lives like 25 minutes from those deals. And our. Our debt guy, Clark, who's just crazy to hear him talk about debt. And the dude, I mean, just, you know, a brilliant mind is really what it is. [01:25:39] Speaker A: He's a younger guy. Wasn't he on the call? And I remember you guys really kind of hyped him up, and he was very modest. [01:25:46] Speaker B: And so we did the presentation on Tuesday. We had a few little clunky moments, but we actually did the presentation on Tuesday. The one you saw the previous week? We did that Tuesday. [01:25:55] Speaker A: The one that I was on. There were 76 investors. I remember Jana calling out. She's like, oh, cool, there's 76 investors on this call. Do you know how many were on the last one? Is it roughly about the same, or are you guys guys? [01:26:06] Speaker B: About the same. 78, 79. [01:26:08] Speaker A: Yeah. Yeah. [01:26:09] Speaker B: The week before that was a hundred and something. [01:26:12] Speaker A: Yeah. It's interesting. It's interesting to see how all of these things converge. [01:26:17] Speaker B: Yeah. And a lot of that, you know, a lot of that is a lot of people need to see it multiple times. And, you know, that's how I got started, and that's what I encouraged a lot of the new people. There's other people in the mentor group that have reached out to me and stuff. And I'm like, look, you got to get comfortable with who you're doing business. I said, you got to do the due diligence on the people that, you know, you're looking at their deals, track record. I said, look, the fact that Grant Cardone has come and spoke as the keynote speaker at our conference says a lot about what, you know, A guy that owns nearly $5 billion in real estate is coming to speak at our conference, and he's taught us how to do it. It should say something about what we're doing, because at some point, point in time, you know, all you're trying to do is mitigate your. Your amount of risk. When you're trying to do an investment, a lot of times, third party validation is really going to be the last thing that you can do besides looking at, you know, track records and numbers and things like that. So all about your relationships, you know, Mark, I appreciate, you know, you Inviting me. I'm happy to have these discussions and, you know, maybe we'll have them earlier in the day when we're both firing on all cylinders. [01:27:24] Speaker A: That's my thing. I'm like, I am so tired. I've been doing these, like, back to back different subjects and topics. And yeah, we will definitely have to do one. Every time I go through this with you realize I have to tighten up how I have these conversations with you so that I feel like there's greater value that I want to share with groups. Because the way you and I go into it is, is a little bit more. Like I was saying, I'm learning and you're helping me learn, and we're. And we're strengthening our understanding of these broader concepts. But if you're, if you're someone listening in to two people that are like, fig figuring it out, like, I'm figuring it out. This is a totally side thing. Like, I always question the value of what I'm doing with these episodes. I'm glad I get them out because I went back and looked at my track record and I was like, oh, I did one on real estate, one on branding, one on cryptocurrency, one some trading. So I'm happy with what's coming out of this. But I, like I said this is a tangent because this is just kind of what I'm working on with the podcast and trying to figure out how I want to involved at. [01:28:29] Speaker B: But you can get even 15 seconds of goodness out of this one, man. [01:28:33] Speaker A: I know there was. There were tidbits. I'm thinking like, the baseball card thing was kind of cool. I'm like, there's something there that we could help orient people. Like a fun way to orient people. [01:28:44] Speaker B: And I know that. I know Sean has appeared on other podcasts. So you may, you know, we may even if you want to, we can approach him about hopping on as well if you'd like. [01:28:53] Speaker A: Hey, yeah, that'd be cool. That'd be fun to do a multi. I'll reach out to you. You're good. I. I know I won't abuse your time and you won't abuse my time. So with that, thank you so much, Jody, Neighbors, for being on the Money Adjustment. And we're gonna see everybody on the next one. Jody, you stay on and we'll see everybody else on the next episode. Bye, everyone. Thank you for watching this episode of the Money Adjustment. If you want more like comment and subscribe, you can follow me on X ark Kramer until the next episode. Stay happy, healthy and wealthy.