Building Wealth: Real Estate Insights from a Former Wall Street Guru

[00:00:00] , The Brick amp, Mortar Money Show, Paul Neal

[00:01:00] . Gain more freedom in your entrepreneurial journey.

[00:01:02] This is your destination for insightful stories, expert advice,

[00:01:07] and actionable strategies.

[00:01:10] Welcome.

[00:01:14] Hey, welcome listeners today.

[00:01:15] I have the distinct honor and privilege of having Jack Krupe on the show.

[00:01:19] Jack has got a really a pretty amazing story.

[00:01:22] He was a Wall Street guy, a guru there.

[00:01:25] Think, think the Titans of Wall Street.

[00:01:28] He was one of those guys.

[00:01:29] Maybe not, but was actually involved.

[00:01:31] He did amazing things there.

[00:01:33] Got involved in real estate and distress debt back in 2001.

[00:01:36] I had over 20 year investment experience in the multifamily space, a real estate

[00:01:42] investment space, and has done some amazing things with some funds that he's

[00:01:45] put together and I'm going to let him tell us all about those.

[00:01:49] But his big operative phrase is passive income and some of the things he's

[00:01:53] been able to do with passive income and some of the things he's been able

[00:01:56] to help other people, business owners and investors do to expand their wealth

[00:02:01] and accelerate their wealth and improve their lifestyle.

[00:02:04] Jack excited to have you on the show today.

[00:02:06] Want to start off and hear some of your background and what fueled

[00:02:09] your passion and how you got where you are, man.

[00:02:11] Great Paul.

[00:02:12] Thank you so much for having me.

[00:02:13] I haven't met a character.

[00:02:15] I've met one of the characters from the big short, which I'll share in a

[00:02:18] bit, but I definitely look forward to sharing my story and hopefully I can

[00:02:21] provide some value to your listeners here.

[00:02:24] Yeah.

[00:02:24] A brief background is I got into real estate in 2001.

[00:02:27] I thought I was going to be a dot com technology guy.

[00:02:30] I have a degree in information technology and then graduated during the

[00:02:34] dot com crisis, so I had a job, but there wasn't the same opportunities

[00:02:38] I thought there would be, but I had a job and I had credit and so

[00:02:42] I started buying properties, no money down, bought one of those paperback

[00:02:45] books on how to do no money down in real estate and within a year or two

[00:02:49] I bought 10 houses, quit my job in IT.

[00:02:52] One of my first investors was an IT client who was one of my past investors

[00:02:56] and then really from 01 to 08 did all of the traditional real estate

[00:03:00] that most people get started in.

[00:03:01] It was very active.

[00:03:02] I was flipping houses, wholesaling, really cutting my

[00:03:05] teeth to learn the industry.

[00:03:07] And then the 2008 financial crisis happened and everything froze up.

[00:03:11] And I was doing this, I got into the business in Rochester

[00:03:14] or where I went to college, but I was from New Jersey.

[00:03:17] Always wanted to live in the city.

[00:03:18] And it turns out that all these hedge funds were buying loans and

[00:03:22] they needed real estate people.

[00:03:23] And so I actually backed into wall street.

[00:03:25] I had no thoughts of being an investment banker or being a wall

[00:03:28] street guy, I really was the opposite.

[00:03:30] I wanted passive income.

[00:03:31] I wanted to own my own business, but for that next 10 years,

[00:03:35] I caught this crazy ride.

[00:03:37] I worked for a fund for about a little less than two years.

[00:03:40] Then went on my own, just similar to real estate doing some

[00:03:44] wholesaling and brokering of loans.

[00:03:46] And then eventually partnered with a family office and we had built up

[00:03:49] a multimillion dollar portfolio as we would buy non-performing loans.

[00:03:53] And we would do a lot of modifications, actually.

[00:03:57] Everyone thinks that the first thought is that we were these vultures

[00:04:00] buying loans, closing it, keep people out of their houses.

[00:04:02] And in fact, we made more money when we were able to modify the loan

[00:04:06] and get it re-performing, we'd get the cashflow.

[00:04:09] And then we wouldn't have to deal with all the issues of the legal

[00:04:11] of taking back the house and liquidating.

[00:04:13] Right.

[00:04:14] So it really was a win and we really sought that out.

[00:04:16] Unfortunately, there were definitely some homeowners that should have never gotten

[00:04:19] mortgages in 2005 or 2006.

[00:04:22] There was a saying, if you could fog a mirror, you could get a mortgage.

[00:04:25] Yeah.

[00:04:25] Yeah.

[00:04:26] I was there during that time.

[00:04:27] I'm very familiar with that.

[00:04:28] Yeah.

[00:04:28] Yeah.

[00:04:29] Crazy.

[00:04:29] Yeah.

[00:04:30] Yeah.

[00:04:30] And then what happened is that there was a larger private equity fund

[00:04:33] that wanted to enter the space.

[00:04:35] We were a small company with really just two people and we had loan

[00:04:39] servicing companies and a lot of vendors to support, but ended up

[00:04:41] bringing in one of their partner.

[00:04:42] And then this private equity fund started with $10 million and it grew

[00:04:45] 20 and it grew to 50, and eventually we bought $3 billion of loans

[00:04:49] with this group and they partially acquired us.

[00:04:51] And that was where it was an amazing ride.

[00:04:53] We transacted with Goldman Sachs, with Nomura.

[00:04:57] We bought loans directly from Fannie Mae and Freddie Mac in large

[00:05:00] portfolios, thousands of loans at a time.

[00:05:03] And eventually we would issue our own mortgage-backed securities

[00:05:06] to actually refinance our portfolios.

[00:05:08] I could say I was part of the cause and the solution

[00:05:10] to the financial crisis.

[00:05:11] You were doing mortgage-backed securities after the crash, right?

[00:05:14] So you were cleaning up the mess and then repackaging.

[00:05:17] Yeah.

[00:05:17] Yeah.

[00:05:18] And in fact, the character that they changed his name in the movie, but

[00:05:22] in the book, the big short, the character's name is Greg Lippman

[00:05:25] and he runs a firm called Libra Max.

[00:05:27] And yeah, they were one of the groups that would buy some of our bonds

[00:05:30] and they actually liked our credit risk because our bonds were not rated,

[00:05:33] but they actually knew and understood our bonds.

[00:05:36] They were conservatively underwritten, good loan to value.

[00:05:39] They thought our bonds were better than joke bonds because basically we paid

[00:05:43] them a higher rate because they weren't rated by the industry.

[00:05:46] They got a better yield and a better risk.

[00:05:48] It was a crazy ride, but I was not, again, I was not a Wall Street

[00:05:51] guy by trade.

[00:05:52] I didn't go to the Goldman Sachs investment banker training.

[00:05:55] I was really, to some extent, a fish out of water because I'd owned

[00:05:59] my own business prior for years and I loved to travel and I got

[00:06:02] into real estate to build passive income.

[00:06:05] And my first 10 years, I barely, I really didn't pay any taxes.

[00:06:08] I didn't really even know why.

[00:06:09] It was just that I was a real estate professional and didn't really

[00:06:12] understand the tax code.

[00:06:13] I just knew I didn't generally have to pay.

[00:06:16] And then all of a sudden I'm in New York, one of the most expensive

[00:06:19] costs of living in the country, making great money and all of a

[00:06:23] sudden I'm losing 50% of it to taxes.

[00:06:24] And I also don't have control of my time.

[00:06:27] And it's that Wall Street culture of work, just work, sit at the office

[00:06:32] until you want to be the first one there, the last one to leave.

[00:06:35] And even if you have nothing to do specifically, it just looks bad

[00:06:39] to leave and then so eventually that ate away at me a bit and I ended

[00:06:42] up leaving as an employee, but I still owned a piece of the business.

[00:06:46] And then a funny thing happened.

[00:06:48] I actually made the same money by not being an employee because once

[00:06:52] I was not due, I still owned a piece of the business and it turned out

[00:06:56] the profits were growing and my K1 from owning a piece of the company

[00:07:00] was more than my salary.

[00:07:03] And now I could use real estate depreciation to offset that income,

[00:07:08] which was amazing.

[00:07:09] And so I know you have a lot of business owners that listen and for

[00:07:12] those that are looking for that exit strategy, it's obviously every

[00:07:14] situation is different, but if you're a minority partner in a business or

[00:07:18] potentially taking on other partners and all of a sudden you're not

[00:07:21] owning a majority of the company and you're going to maybe let

[00:07:24] yourself off and just be passive.

[00:07:26] There's some interesting tax implications where you may not be

[00:07:29] leaving as much money on the table as you think.

[00:07:32] Right.

[00:07:32] Right.

[00:07:33] No, that's pretty fascinating.

[00:07:34] Talk about that a little bit.

[00:07:36] You use the term real estate professional.

[00:07:38] So I know that's a specific classification that a lot of

[00:07:41] people aren't familiar with.

[00:07:43] Sure.

[00:07:43] So again, I'm not a CPA by trade, but frankly, all this is something

[00:07:47] you should talk to your own CPA about.

[00:07:49] But the real estate professional status, there's generally two main

[00:07:53] factors, number one is to have 750 hours a year in the real estate

[00:07:58] profession.

[00:07:59] And that could be being a realtor, that could be being a property manager.

[00:08:02] From what I've read, it's pretty broad.

[00:08:03] It could be an attorney that does closings.

[00:08:05] Yeah, there's a lot, it's a very broad field of being involved in real estate.

[00:08:09] And now there's a second part of it that has 500 hours in

[00:08:14] rental property activities.

[00:08:16] That's the one that's a little harder to meet and all the advice I've gotten

[00:08:20] from all the best tax attorneys and CPAs is that you need to document.

[00:08:24] You know, if you're going to get audited, you really want to have

[00:08:26] your hours documented right from the start and not be trying to recreate

[00:08:30] what you did three years before.

[00:08:32] Yeah.

[00:08:32] And so that means some level of active participation.

[00:08:35] So maybe that means you own three or four rental units yourself

[00:08:39] that you're self-managing.

[00:08:41] Maybe it's a small apartment building, doesn't necessarily need

[00:08:44] to be in your hometown, but if you're driving somewhere, you

[00:08:47] could count the hours, but some level of material participation.

[00:08:50] And then once you meet that, and I know I have a close friend who

[00:08:55] makes a few million dollars a year.

[00:08:57] And the one tip I'm going to give to everyone here is don't

[00:09:00] discount using your spouse.

[00:09:02] There's a lot, there's passive loss limits for those that are

[00:09:04] business owners or if you're a high earning W-2, a doctor, dentist,

[00:09:09] a lawyer, investment banker, et cetera.

[00:09:12] But if your spouse qualifies as the real estate professional,

[00:09:15] there's an election where all of your income can be combined together.

[00:09:18] So that if your spouse qualifies, you can take that few million

[00:09:21] dollars a year you make and you can invest.

[00:09:23] And then you can use depreciation and that depreciation has the

[00:09:27] potential to offset your current income and lower your current income.

[00:09:31] Which if you're in New York, California, any of the high tax states,

[00:09:36] Virginia, often approaching Virginia too.

[00:09:38] Yeah.

[00:09:38] You're likely approaching 50% at the top bracket all in.

[00:09:41] The ability to defer that income is one of the most powerful tools.

[00:09:46] And one of the highest returns you can ever make is deferring that money.

[00:09:50] It's not offset completely because it is a deferral, but as part of your

[00:09:54] long-term tax planning, the ability to compound potentially hundreds of thousands

[00:09:59] or even a million dollars over five or 10 years in a tax to burn batter

[00:10:02] is amazingly powerful.

[00:10:04] No, it is.

[00:10:05] I have a couple of really good friends that didn't use that strategy,

[00:10:08] but similar with they built a series of car washes and they would, they

[00:10:13] started out young pretty much out of college and they were able to get

[00:10:17] their first car wash.

[00:10:18] Anyway, they kept selling and trading up as they would build

[00:10:21] their portfolio of car washes.

[00:10:23] And then in the last couple of years, they were offered by a big

[00:10:26] VC company to buy out basically their portfolio, but they had rolled

[00:10:30] their gains year to year into those.

[00:10:32] And so it was a massive payout that they deferred.

[00:10:34] And then they're deferring a lot of the gain in other real estate.

[00:10:37] Yeah, that's amazing.

[00:10:38] And I did go on a little bit of a tangent there, but I wanted to, I

[00:10:40] guess I should probably explain that the real source of this depreciation

[00:10:45] is generally through what's called cost segregation.

[00:10:47] Now, if you're just investing in single family houses, most of the time

[00:10:51] you take depreciation over 27 and a half years, and it's usually just

[00:10:55] enough to cover the rents that come in.

[00:10:57] You're usually not showing a significant loss.

[00:11:00] However, a lot of what we work on, similar to car washes, which I think

[00:11:04] about very high depreciation is multifamily, self storage, mobile home

[00:11:07] parks, actually car washes have become a syndicated asset class as well.

[00:11:12] With these asset classes, you hire an engineering firm and it's often

[00:11:15] maybe $10,000 for the report.

[00:11:17] But what they do is they look at the entirety of the building and the structure.

[00:11:20] But 200 unit apartment building has 200 kitchens, maybe 200, maybe

[00:11:24] 300 bathrooms or a half bathrooms.

[00:11:27] There's roofs, there's boilers, there's air conditioning units,

[00:11:29] there's landscaping, there's all these things that have a different life.

[00:11:33] Instead of taking it over 27 and a half years, they'll look at some

[00:11:37] of them have a five year life, some of them have a seven, some of them

[00:11:39] have a 15, and the way the tax laws are written now, and there's actually

[00:11:43] a bill in progress right now that when there is bonus depreciation, you

[00:11:47] could take a substantial amount of that in the first year.

[00:11:49] Now up until two years ago from 2017 until 2022, you could take

[00:11:54] a hundred percent of anything that had less than a 15 year life year

[00:11:57] one, which often meant if you were getting a loan, say at 60, 65,

[00:12:03] 70% loan to value and you're putting 30% down, you're getting

[00:12:07] a hundred cents on the dollar back in depreciation year one.

[00:12:12] And in some cases it was even over a hundred percent, depending on the leverage

[00:12:15] amount.

[00:12:16] So that was amazingly powerful for offsetting passive income or active

[00:12:21] income if the real estate professional status is utilized.

[00:12:24] But for those, if you're just a high earner and you own some rental

[00:12:27] properties, you're not going to offset your basic W-2, but if you

[00:12:30] own other rental properties, or even someone else, that other type

[00:12:33] of group we've worked very closely with is what I'd call the tired

[00:12:36] landlords.

[00:12:37] Maybe you've owned property for 20 years, it's almost fully

[00:12:40] depreciated and you're paying significant income tax on your rents

[00:12:43] coming in.

[00:12:44] In this scenario, you could actually offset passive income that you have

[00:12:49] from your rentals, even if you still have a W-2 job.

[00:12:53] No, that's amazing.

[00:12:54] It's super powerful.

[00:12:55] And most people aren't even aware of the concept of cost segregation

[00:12:58] and how you can use that to advance and accelerate and offset the

[00:13:02] income and save some tax dollars, man.

[00:13:04] Because as I say all the time with a lot of our entrepreneurs, as

[00:13:07] your income goes up and scales up, you lose typical deductions, right?

[00:13:12] They're all written out of the code.

[00:13:13] And so you pay the lion's share, even if you're not in California or

[00:13:17] New York, right?

[00:13:18] You're still taking it on the rear and probably not going to get

[00:13:20] any better in the next two, three, five, 10, 20 years, right?

[00:13:24] I don't anticipate whether national debt and all where that is.

[00:13:26] Debt and frankly, the average baby boomer is retired at this

[00:13:29] point too.

[00:13:30] Our population doesn't have as many issues as some of the rest

[00:13:33] of the world that has way too many old people and not enough

[00:13:36] workers.

[00:13:37] But yeah, there's a lot of issues and I just, I think we're going to

[00:13:39] see probably, I think inflation is going to continue to be an

[00:13:43] issue and there's a chronic labor shortage.

[00:13:45] It's not cyclical.

[00:13:45] It's systemic that there's just the baby boomers with the

[00:13:48] largest generation and they're retiring in mass at the great

[00:13:52] resignation with COVID to it.

[00:13:54] And I think we're going to see continued higher prices, higher

[00:13:57] inflation.

[00:13:58] My gut says that inflation will be the lesser of two evils, but

[00:14:01] it seems like the feds going to pivot and get as close to that

[00:14:04] 2% target as they could, but probably just move the goalposts.

[00:14:08] And I think we're going to continue to see inflation and

[00:14:12] eventually that's going to lead to higher taxes at some point.

[00:14:15] Yeah.

[00:14:16] It's, I know they want 2%, but it doesn't look possible.

[00:14:19] I think you look at the numbers now and you think, okay,

[00:14:22] maybe two and a half is where we are with the way they cook

[00:14:25] the numbers and so forth.

[00:14:26] Yeah.

[00:14:26] Cooking the numbers is a great point.

[00:14:28] There's a website called shadow stats that shows how they

[00:14:30] calculated this in the eighties.

[00:14:32] Yeah.

[00:14:32] The other thing is they may just change the formula.

[00:14:34] Yeah, yeah, that's it.

[00:14:35] We changed the formula to suit the narrative.

[00:14:37] I get it.

[00:14:37] Yeah, that's right.

[00:14:38] And which leads me into an interesting concept.

[00:14:41] So this idea of real estate and a lot of people want to

[00:14:45] invest in a Robert Kiyosaki makes this point a lot.

[00:14:48] This idea of when you invest in stocks, let's say you're

[00:14:52] really turning your money over into some, you're buying

[00:14:55] a piece of a company, but you're really trusting that

[00:14:58] their numbers are true and accurate.

[00:15:00] Their financials are true and accurate.

[00:15:02] And obviously there's reasons for that to be the case, but so

[00:15:04] many people have seen that's not necessarily the case, but

[00:15:06] when you're buying real estate, it's a tangible asset and

[00:15:09] it's got a tangible revenue stream.

[00:15:12] It's got tangible expenses and it's something that's more,

[00:15:15] I don't know where you can see and touch and it's more

[00:15:18] legit, it's harder to cheat the deal, so to speak there

[00:15:21] than it is in some of these other investments.

[00:15:24] Absolutely, Paul.

[00:15:25] And I dove into the taxes because I could nerd out on

[00:15:28] taxes here and there, but I'll talk about how I got into

[00:15:30] my original syndication deal.

[00:15:32] When I was in New York, I had a lot of conflicts of

[00:15:34] interest.

[00:15:34] I wasn't allowed to buy debt because as a company we

[00:15:37] were buying debt, but I met someone at one of the

[00:15:41] local real estate clubs that became a good friend of

[00:15:43] mine who I got to know over the years.

[00:15:44] And he had a similar background to me.

[00:15:46] He started with a bunch of single families and realized

[00:15:49] that it was very difficult to scale.

[00:15:51] And eventually he started buying bigger and bigger

[00:15:53] buildings.

[00:15:53] And then he was at that point buying 100 unit plus

[00:15:56] buildings.

[00:15:56] That was my first foray into real estate syndications.

[00:16:00] And I did it because I knew how hard it was when I was

[00:16:03] in my twenties to own a bunch of single family and

[00:16:05] two family houses.

[00:16:07] I'd been in the mortgage business where I used to say

[00:16:09] no tenants and no toilets, which again,

[00:16:11] multifamily there's still a lot of tenants and

[00:16:13] toilets, but it's big enough that I'm not the one

[00:16:15] getting that phone call.

[00:16:17] You're not with a plunger?

[00:16:18] Exactly.

[00:16:19] I could probably stick it on my head for those who are

[00:16:21] watching live.

[00:16:22] I've got a pretty big bald head so the plunger would

[00:16:24] probably get stuck on there.

[00:16:25] But I realized that for me, especially,

[00:16:27] I was making a lot of money in New York,

[00:16:29] investing in larger real estate opportunities at

[00:16:31] scale was a much better fit for me.

[00:16:34] And I think a lot of business owners lose track

[00:16:36] of what's their hourly rate.

[00:16:38] If you're a business owner and you're making

[00:16:39] a thousand bucks an hour and your best use of

[00:16:41] your time is to generate more business,

[00:16:44] do you want to be schlepping over to show an

[00:16:46] apartment on a single family house?

[00:16:48] Often that answer is no for many business

[00:16:50] owners.

[00:16:51] That's why I started investing in syndications

[00:16:53] passively in the mid 2010s.

[00:16:55] Eventually when I left my firm and eventually I

[00:16:57] got bought out.

[00:16:58] So I had a pile of my own money and I had to

[00:17:01] decide what to do.

[00:17:02] And for all those years in New York,

[00:17:04] I wasn't allowed to take passive investments.

[00:17:06] We had pension funds and hedge fund money.

[00:17:08] So I had a lot of investors that were

[00:17:10] asking, could they invest with us?

[00:17:12] And yet we could never do it.

[00:17:13] Eventually I was investing my own money

[00:17:15] anyway, and I decided to build a company

[00:17:17] around my personal investments into the

[00:17:20] syndicated real estate classes.

[00:17:21] It's a great niche.

[00:17:22] And when you, when you compare it to the

[00:17:23] stock market, it's a much less efficient

[00:17:26] market.

[00:17:27] I'm generally a believer in the, you

[00:17:29] know, efficient market theory.

[00:17:31] Maybe you get lucky on some stuff and

[00:17:33] maybe a certain tip here and there, but

[00:17:34] most hedge fund managers do not meet the

[00:17:37] beat the market consistently for every

[00:17:39] Warren Buffett.

[00:17:40] There's 20 other groups that have many

[00:17:42] down years or the funds just underperform.

[00:17:46] However, real estate is different.

[00:17:47] And the fact is it was really only 2012

[00:17:50] that these types of opportunities were

[00:17:52] going to, were available to the masses.

[00:17:54] They changed the rules regarding

[00:17:56] advertising of regulation D.

[00:17:59] A majority of syndications are regulation

[00:18:00] D 506 C, which means they're open to

[00:18:03] accredited investors.

[00:18:05] Before 2012, it was potentially a

[00:18:08] violation of the SEC to advertise

[00:18:10] unless you had a pre-existing

[00:18:11] relationship.

[00:18:13] And it's pretty tough to have a

[00:18:14] pre-existing relationship without doing

[00:18:16] some level of outreach.

[00:18:17] So it was difficult.

[00:18:19] These were country club deals.

[00:18:20] These were back, literally that was the

[00:18:22] only way that you would generally find

[00:18:23] out is you knew somebody who was in

[00:18:25] your country club.

[00:18:26] They were passed around casually.

[00:18:27] Yeah.

[00:18:28] And that all changed in 2012.

[00:18:29] And I think a great majority of

[00:18:31] accredited investors don't have

[00:18:32] enough exposure to these types of

[00:18:35] assets.

[00:18:35] They have 90% of their money in

[00:18:37] stock, in the stock market and stocks

[00:18:38] and bonds.

[00:18:39] And frankly, you think if someone

[00:18:42] thinks real estate's risky, the

[00:18:43] stock market was down 22% in 2022.

[00:18:46] And it was up 24 last year.

[00:18:48] So net you made 2% in the last two

[00:18:50] years.

[00:18:50] Right.

[00:18:51] Whereas syndication, they're

[00:18:53] certainly not foolproof finding

[00:18:54] means, but because they're less

[00:18:56] efficient than clicking a button

[00:18:58] and having some other pension fund

[00:19:00] buy millions of shares, the

[00:19:01] returns tend to be higher.

[00:19:02] It's more like owning a piece of

[00:19:04] business than it is owning stock.

[00:19:07] That's what I say to a lot of

[00:19:09] our clients and listeners.

[00:19:11] It's you're buying real estate.

[00:19:12] You're, it is a business.

[00:19:14] You expect it to perform and you

[00:19:15] talk about this whole idea of

[00:19:16] efficiency versus non-efficiency

[00:19:18] in the efficient markets.

[00:19:19] It's gotten so bad with technology

[00:19:22] and speed and AI and all that.

[00:19:24] And now you talk about latency

[00:19:25] of information, you're an IT guy.

[00:19:27] So information latency from, from

[00:19:30] Wall Street to California, let's

[00:19:32] say there's a little bit of a

[00:19:33] delay it's microscopic, but,

[00:19:35] but the more efficient you are

[00:19:36] at capturing information, it's

[00:19:37] hard to get an edge right on

[00:19:40] it's harder and harder today on

[00:19:41] those kinds of markets that are

[00:19:42] going more and more electronic

[00:19:43] and digital that the average Joe

[00:19:46] bag of donuts out there just

[00:19:47] business owner or whatever is

[00:19:48] just trying to take care of his

[00:19:49] family.

[00:19:50] He, there's no way he can

[00:19:51] compete in that.

[00:19:52] He's going to take somebody's

[00:19:53] advice and they're just

[00:19:53] regurgitating advice from

[00:19:55] somebody else.

[00:19:55] And outside of that, he's

[00:19:57] just getting whatever company

[00:19:58] du jour is putting the most

[00:20:00] money in there.

[00:20:00] They're advertising for this

[00:20:02] fun.

[00:20:02] When you're watching the

[00:20:03] masters here coming up in a

[00:20:04] week, I'll be talking about

[00:20:06] the principal or whatever.

[00:20:07] Oh, they seem like they're

[00:20:08] secure and we'll give our

[00:20:09] money to them.

[00:20:10] And, but at the end of the

[00:20:11] day, you're just like everybody

[00:20:13] else.

[00:20:13] You're not getting an edge.

[00:20:14] Yeah, exactly.

[00:20:15] And look, there's some good

[00:20:17] financial advisors.

[00:20:18] I often crap on this industry

[00:20:19] a lot.

[00:20:19] There's certainly some good

[00:20:20] ones, but majority of them are

[00:20:23] just salespeople.

[00:20:24] It's actually, they're not

[00:20:25] allowed to recommend something

[00:20:26] outside of their platform and

[00:20:28] there's no incentive for them.

[00:20:30] You can bring them the best

[00:20:31] real estate deal in the world.

[00:20:33] A, they're often not allowed

[00:20:35] because it's against their

[00:20:35] fringe rules.

[00:20:36] They can get fired for saying

[00:20:37] for even opining on it.

[00:20:39] But if you withdraw a few

[00:20:40] hundred thousand from them,

[00:20:42] they're losing money.

[00:20:43] They're losing assets under

[00:20:44] management.

[00:20:45] There's no incentive for them

[00:20:47] to recommend something outside

[00:20:49] of what's in their platform.

[00:20:51] And again, yeah, there's layers

[00:20:52] of fees.

[00:20:53] There's layers, there's

[00:20:54] multiple layers of fees and

[00:20:55] like the industry itself is

[00:20:56] just very, very bloated.

[00:20:57] And unless you're worth

[00:20:59] $10 million plus often they're

[00:21:01] just salespeople and they're

[00:21:02] not really trained as being

[00:21:05] tax efficient.

[00:21:06] For example, I've seen a lot

[00:21:08] of higher net worth people

[00:21:09] owning a ton of REITs.

[00:21:11] Now, a REIT because they don't

[00:21:12] get taxed at the REIT level.

[00:21:14] The dividends are not

[00:21:16] qualified.

[00:21:16] So you could be paying 29.6%

[00:21:20] in tax rate for REITs versus

[00:21:23] through a real estate

[00:21:24] opportunity, you could actually

[00:21:25] be getting a cash, a tax

[00:21:28] deferred 6, 7, 8, 10% preferred

[00:21:32] return in some cases because

[00:21:33] you show your loss on paper

[00:21:34] from the depreciation, but

[00:21:36] you get the cash flow in your

[00:21:37] pocket.

[00:21:38] And that's one of the things

[00:21:39] that again, I'm not a financial

[00:21:40] advisor either, but consider

[00:21:42] me like more of a mastermind,

[00:21:44] informal mastermind where I

[00:21:45] really like to have these

[00:21:47] conversations and just work

[00:21:48] together with investors to

[00:21:49] figure out if we can help each

[00:21:50] other and what's the most

[00:21:51] efficient.

[00:21:52] And something like that

[00:21:53] infuriates me when I see

[00:21:54] someone sitting on REITs and

[00:21:55] you realize what you're

[00:21:55] paying in taxes that you

[00:21:56] shouldn't be.

[00:21:57] Yeah, right.

[00:21:58] Well, so let's talk a

[00:21:59] little bit about the different

[00:22:00] syndication classes and things

[00:22:02] that you particularly like and

[00:22:03] your strategy because

[00:22:04] obviously if you're gathering

[00:22:06] investors to syndicate, you've

[00:22:08] got a target that you're

[00:22:09] going after in a certain

[00:22:10] type of return.

[00:22:11] What does that look like for

[00:22:13] you typically?

[00:22:14] Sure.

[00:22:14] So there's a number of asset

[00:22:15] classes, but the one that's

[00:22:17] one of the bread and butter

[00:22:18] asset classes is multifamily

[00:22:19] value add.

[00:22:21] And we're typically looking

[00:22:22] for not a distressed

[00:22:24] building, but building that

[00:22:25] maybe is a little bit old

[00:22:26] and tired.

[00:22:27] Often they're built in the

[00:22:28] 70s or 80s.

[00:22:29] We love it when they have

[00:22:30] original kitchens, original

[00:22:32] bathrooms, and ideally either

[00:22:34] a long-term owner or maybe a

[00:22:36] corporate owner that's just

[00:22:37] not really reinvesting in

[00:22:38] the property.

[00:22:39] And then when you take that

[00:22:40] building over, often the

[00:22:42] renter hundreds of dollars

[00:22:44] below market and there's a

[00:22:45] real demand for workforce

[00:22:47] housing, especially in recent

[00:22:49] years with the residential

[00:22:51] owner occupied sector

[00:22:53] increasing in value so much

[00:22:54] over the last five or 10

[00:22:55] years.

[00:22:56] And add to that, the

[00:22:57] mortgage rates being high,

[00:22:58] you've got a whole subset of

[00:23:00] renters that are priced out

[00:23:02] of buying a house but want a

[00:23:04] high quality apartment.

[00:23:05] So we found that you take

[00:23:06] these 80s vintage

[00:23:07] apartments, put in a nice new

[00:23:09] granite countertop, new

[00:23:10] kitchens, new bathrooms.

[00:23:12] Often the rent goes from

[00:23:14] $1,200 to $1,500 or $1,600 a

[00:23:17] month per apartment.

[00:23:19] And if you do that across a

[00:23:21] number of the units, all

[00:23:23] of a sudden a year or two

[00:23:23] later, that building is

[00:23:24] worth millions of dollars

[00:23:25] more.

[00:23:26] So instead of flipping a

[00:23:28] bunch of houses, you've

[00:23:29] got 100 units in the same

[00:23:31] building that you can

[00:23:32] renovate and just run the

[00:23:34] building more efficiently.

[00:23:34] That's the core asset class

[00:23:36] that generates a lot of tax

[00:23:37] loss on paper.

[00:23:39] And it's a business model

[00:23:40] that can largely be controlled

[00:23:42] because you're not, if it's

[00:23:44] executed properly, you're

[00:23:45] not gambling on what happens

[00:23:48] with inflation or interest

[00:23:49] rates.

[00:23:50] Now there's been some

[00:23:51] headlines in the last year

[00:23:53] or so.

[00:23:53] There's definitely a subset

[00:23:55] of owners that had variable

[00:23:57] rate debt that are in

[00:23:58] trouble.

[00:23:59] I've talked to a fair amount

[00:24:00] of people who think that

[00:24:01] residential is going to crash

[00:24:02] and that they're just

[00:24:03] waiting to time the market.

[00:24:05] Residential is not going

[00:24:06] anywhere in my opinion.

[00:24:08] 70% of people are locked

[00:24:09] below 4% and of that,

[00:24:11] 40% don't have a mortgage.

[00:24:14] So there's a chronic supply

[00:24:15] shortage on residential,

[00:24:16] but there are pockets of

[00:24:18] distress right now in

[00:24:19] multifamily.

[00:24:21] We're seeing it every day

[00:24:22] where people have bad debt

[00:24:24] and they need to sell

[00:24:25] because interest rates are

[00:24:27] still high and the

[00:24:28] numbers just don't work

[00:24:29] and they're going to sell at

[00:24:31] a discount.

[00:24:32] Unfortunately, some are

[00:24:33] taking losses.

[00:24:33] So there are good

[00:24:35] opportunities in subsets

[00:24:36] of commercial.

[00:24:38] So to talk about that

[00:24:39] a little bit, why are

[00:24:40] obviously rates were so

[00:24:41] low here a few years ago.

[00:24:43] So the expectations,

[00:24:44] they go out of these

[00:24:44] properties bottom with

[00:24:46] the expectation of cash

[00:24:47] flow numbers pretty much

[00:24:49] only working at the

[00:24:50] low interest rates and now

[00:24:51] rates have come up and

[00:24:52] now they're upside down

[00:24:53] in cash flow.

[00:24:54] Yeah.

[00:24:55] Yeah.

[00:24:55] In fact, if you look

[00:24:56] at the chart of SOFR,

[00:24:57] it was at basically 0.25

[00:24:59] and now it's at 5.5%.

[00:25:01] It's almost a parabolic

[00:25:02] spike.

[00:25:02] It looks like the

[00:25:03] Nvidia stock chart.

[00:25:04] So what was happening,

[00:25:05] especially during

[00:25:06] 2020, 2021 is you

[00:25:09] almost had to go in

[00:25:10] with bridge debt if

[00:25:11] you were going to compete.

[00:25:13] And there were some

[00:25:14] benefits of bridge debt.

[00:25:15] Number one is it would

[00:25:15] give you a slightly

[00:25:16] higher loan to value.

[00:25:17] They would build in your

[00:25:18] construction costs for

[00:25:19] renovations where if

[00:25:20] you renovated the

[00:25:20] apartments, they would then

[00:25:22] increase the loan amount.

[00:25:24] And more importantly,

[00:25:25] there was no prepayment

[00:25:26] penalty.

[00:25:27] One of the downsides

[00:25:28] of going in with say

[00:25:29] Fannie Mae or Freddie

[00:25:30] Mack loan is if you

[00:25:31] get a five year loan

[00:25:32] and there's a prepayment

[00:25:32] penalty the first four

[00:25:34] plus years.

[00:25:35] So you're really locked

[00:25:36] in and you can't sell.

[00:25:37] And when the business

[00:25:38] model was to buy and

[00:25:39] reposition quickly,

[00:25:41] renovate a bunch of

[00:25:41] units and resell, there

[00:25:43] were logical reasons

[00:25:45] to go into bridge debt

[00:25:45] in certain cases.

[00:25:47] And you generally would

[00:25:48] buy an interest rate cap.

[00:25:49] The going in rate

[00:25:50] might've been 3% because

[00:25:52] there's a spread,

[00:25:53] the SOFA rate, the

[00:25:54] government rate is

[00:25:54] almost zero.

[00:25:55] And then they would

[00:25:56] basically charge two

[00:25:57] and a half or 3%

[00:25:58] over that rate.

[00:25:59] And then you'd buy

[00:26:00] an insurance product

[00:26:01] that at the time was

[00:26:01] pretty cheap so that your

[00:26:03] rate could not go

[00:26:04] above 5%.

[00:26:05] So maybe they expect

[00:26:07] that rates would only

[00:26:07] go up 2%.

[00:26:08] In fact, rates went up 5%.

[00:26:10] And so most of these

[00:26:11] interest rate caps

[00:26:12] have now expired.

[00:26:14] And basically in order

[00:26:16] to buy a new cap,

[00:26:17] it's like buying an

[00:26:17] option that's in the money.

[00:26:18] So it would require

[00:26:20] millions of dollars

[00:26:21] to basically prepay

[00:26:22] interest.

[00:26:23] And then the lenders

[00:26:24] were requiring interest

[00:26:25] reserves and that

[00:26:27] along with I think some

[00:26:28] of the COVID money

[00:26:29] dried up and the rents

[00:26:31] got to a level where

[00:26:32] they were harder for

[00:26:33] people to afford.

[00:26:34] Certain markets have

[00:26:35] had new supply coming on.

[00:26:38] And again, most of the

[00:26:39] new construction

[00:26:40] is higher end,

[00:26:41] but there's a partial

[00:26:42] trickle down effect.

[00:26:43] Most of the $1,500

[00:26:45] units are not a $1,500

[00:26:47] a month tenant is

[00:26:48] not going to automatically

[00:26:48] move into a $2,500

[00:26:50] apartment.

[00:26:51] But when those

[00:26:52] apartments offer

[00:26:53] two months free

[00:26:54] or maybe drop the rent

[00:26:56] for the first year

[00:26:56] to $1,800 or $2,000

[00:26:58] as a teaser,

[00:26:58] there's a little bit

[00:26:59] of trickle down there.

[00:27:00] Is that contributed factors?

[00:27:01] The other big issues

[00:27:02] been insurance.

[00:27:03] Insurance costs have

[00:27:04] skyrocketed.

[00:27:05] In some cases,

[00:27:06] they've tripled.

[00:27:07] There's been a number

[00:27:08] of headwinds and I think

[00:27:09] those that bought at

[00:27:10] the absolute peak

[00:27:11] with variable rate debt.

[00:27:13] If you're stuck selling

[00:27:14] right now,

[00:27:15] it's probably 20,

[00:27:15] 25% lower than

[00:27:17] than what was purchased.

[00:27:18] And we're in it.

[00:27:19] We're in a,

[00:27:20] we have a few deals

[00:27:20] with variable rate debt.

[00:27:22] We have a lot of deals

[00:27:22] with fixed rate debt.

[00:27:23] Those with fixed rate debt

[00:27:24] are performing amazingly

[00:27:27] right now.

[00:27:27] Those that had seven

[00:27:28] or 10 year fixed

[00:27:29] at 3%.

[00:27:31] Those deals are

[00:27:31] printing money right now.

[00:27:32] We're in 45 plus deals.

[00:27:35] We certainly have a few

[00:27:36] that have some headwinds

[00:27:37] here and there and a lot of

[00:27:38] deals performing really smoothly.

[00:27:40] But then the new purchases

[00:27:41] right now are exceptional.

[00:27:43] Anything that's being bought today

[00:27:45] that cash flows at these

[00:27:46] high interest rates is,

[00:27:47] is an exceptional opportunity.

[00:27:48] It's similar to the stock market.

[00:27:49] There's a concept

[00:27:50] of dollar cost averaging.

[00:27:52] Um, so I would say to,

[00:27:54] to, to someone who maybe

[00:27:56] dipped their toe in 2020 or 2021

[00:27:58] and isn't a deal

[00:27:58] that's not distributing cash

[00:28:00] or is, has some challenges

[00:28:02] to keep in mind.

[00:28:03] Now is the time to, to,

[00:28:05] I don't want to say double down,

[00:28:06] but really just dollar

[00:28:08] cost average in and build

[00:28:09] a position in the syndicated

[00:28:11] asset classes because the

[00:28:13] deals now are where you're

[00:28:15] going to be making your money.

[00:28:15] And some of the returns now

[00:28:16] are probably the best we've

[00:28:17] seen since 2010, 2011,

[00:28:20] as far as being able to

[00:28:21] purchase at a really,

[00:28:22] really good low cost basis.

[00:28:24] And there's a lot of upside

[00:28:25] if interest rates do go down

[00:28:28] in the coming years.

[00:28:28] I don't think they go back

[00:28:29] down to where they were,

[00:28:30] but there's a lot of upside,

[00:28:32] even if there's a 7.75%,

[00:28:34] 75 basis point or one point

[00:28:36] drop in interest rates.

[00:28:38] Yeah.

[00:28:39] Which I think is legitimate.

[00:28:40] That's a legitimate target

[00:28:41] in the next 12, 12, 24 months.

[00:28:43] We're not going to see

[00:28:44] Alkaliwood right.

[00:28:45] The numbers we had in COVID.

[00:28:46] I mean, I hope we don't,

[00:28:47] right?

[00:28:47] Cause it creates all kinds

[00:28:48] of issues and obviously

[00:28:49] there's no way to go there.

[00:28:51] Yeah, exactly.

[00:28:51] It would take another crisis

[00:28:53] and they, what's the

[00:28:53] government say?

[00:28:54] Never let a good crisis

[00:28:55] go to waste.

[00:28:56] Never let a good crisis

[00:28:57] go to waste.

[00:28:57] That's right.

[00:28:58] Although we do have an

[00:28:58] election this year, so you

[00:28:59] never know.

[00:29:00] They're trying to gin up

[00:29:00] a crisis somewhere, I'm sure.

[00:29:02] Right now.

[00:29:03] And I know you asked about

[00:29:04] other asset classes.

[00:29:04] We've invested in self-storage,

[00:29:06] a great asset class,

[00:29:07] very similar.

[00:29:08] Almost everything we invest in,

[00:29:09] we look for where's the value

[00:29:11] add component.

[00:29:12] In self storage, it's often

[00:29:13] adding climate control,

[00:29:15] perhaps adding an additional

[00:29:16] building, layering in maybe

[00:29:19] U-Haul truck rentals,

[00:29:22] mobile home parks.

[00:29:23] It can be adding an infill,

[00:29:25] adding additional units,

[00:29:26] finding a way to bring in

[00:29:27] additional units to sell

[00:29:28] or to rent so that you

[00:29:29] could increase your lot rent.

[00:29:31] We're invested in one of our

[00:29:32] recent offerings was a

[00:29:33] Marina that had an RV park

[00:29:34] component, as well as some

[00:29:36] Airbnb's and VRBOs.

[00:29:38] And one of the interesting

[00:29:39] thing about marinas is

[00:29:40] everyone used to own

[00:29:41] sailboats 20 or 30 years ago.

[00:29:43] Now everybody wants power boats

[00:29:44] for weak boarding or tubing.

[00:29:46] And one of the marinas,

[00:29:47] there was a wait list

[00:29:48] for covered boat slips.

[00:29:51] People want to go out in

[00:29:52] the boat for an hour or two.

[00:29:53] They want to be able

[00:29:53] to sit in the shade,

[00:29:55] maybe have a little portable

[00:29:56] refrigerator there, drink

[00:29:57] beer, watch college football.

[00:29:59] There's a value add component

[00:30:00] to take a bunch of docks that

[00:30:01] don't have covers on them,

[00:30:03] install covers.

[00:30:04] It's a pretty modest amount

[00:30:05] of capital improvements and

[00:30:07] that's going to unlock

[00:30:08] thousands of dollars a month

[00:30:10] of additional rent for the

[00:30:11] boat slips just by executing

[00:30:13] a pretty modest capital

[00:30:15] improvement plan.

[00:30:15] Everything we look at

[00:30:16] generally has some type

[00:30:17] of component of value add.

[00:30:19] And those are, there's also

[00:30:21] tri...

[00:30:21] The only thing that maybe

[00:30:22] wouldn't is like a triple

[00:30:22] net lease type thing where

[00:30:24] you're just, there's nothing

[00:30:26] to do other than clip

[00:30:27] coupons and collect checks.

[00:30:28] We like industrial,

[00:30:29] white industrial.

[00:30:30] Think about the type of

[00:30:31] building that has a couple

[00:30:32] garages and maybe a

[00:30:34] electrician or heating and

[00:30:35] air conditioning contractor

[00:30:36] needs a place to store

[00:30:38] some things, a place to

[00:30:38] back the trucks up,

[00:30:39] maybe a couple offices.

[00:30:41] And those have record low

[00:30:44] vacancy rates.

[00:30:45] They're always in the bands.

[00:30:45] Yeah.

[00:30:46] These are all, none of

[00:30:46] these businesses are rocket

[00:30:47] science, but it's a lot of

[00:30:49] just finding the

[00:30:50] opportunities and we preach

[00:30:51] a lot.

[00:30:52] We both use the term passive

[00:30:53] income a lot.

[00:30:54] I also do want to point out

[00:30:55] it's not passive upfront.

[00:30:57] You're either listening to

[00:30:58] the show to start educating

[00:30:59] yourself.

[00:31:00] I go to a ton of

[00:31:00] conferences.

[00:31:01] I'm in multiple masterminds.

[00:31:03] We spend, most of the

[00:31:05] work spent is upfront to

[00:31:07] find the opportunities, vet

[00:31:08] the sponsors, do the

[00:31:09] due diligence, understand

[00:31:11] the asset classes to make

[00:31:12] a smart decision so that

[00:31:14] after that's done, you

[00:31:15] have more control of your

[00:31:17] time and you can spend

[00:31:18] less of your time having

[00:31:20] to oversee it and do the

[00:31:21] work yourself because you've

[00:31:22] done all the work upfront.

[00:31:24] Right.

[00:31:25] I think it was at Abraham

[00:31:26] Ligon that said if I had

[00:31:26] six hours to cut down a

[00:31:27] tree, I'm going to take four

[00:31:28] and sharpen the saw.

[00:31:30] It is so true in anything.

[00:31:31] It's do your, you're going

[00:31:32] to pay a price one way or

[00:31:33] another, right?

[00:31:34] You're going to pay it upfront

[00:31:35] or pay a bigger price on

[00:31:37] the back end generally.

[00:31:38] And we say that doing

[00:31:39] the loan side, working with

[00:31:40] an entrepreneur, like

[00:31:42] somebody who wants to buy

[00:31:43] that industrial warehouse.

[00:31:44] They're buying it to move

[00:31:45] their business into us.

[00:31:46] Let's do all of our due

[00:31:47] diligence upfront.

[00:31:48] Let's be very, let's be

[00:31:49] very, our attention to

[00:31:50] detail needs to be high

[00:31:52] now so then the process

[00:31:53] goes smoothly in the back

[00:31:54] and there's no surprises

[00:31:55] and no issues.

[00:31:57] And I like the idea that

[00:31:58] your point is you look for

[00:32:00] some kind of a value add

[00:32:01] component, regardless of

[00:32:02] the asset class.

[00:32:03] You've got different asset

[00:32:04] classes, so you diversified

[00:32:05] there with your syndications.

[00:32:07] But the key sort of

[00:32:08] the common theme is we

[00:32:09] want to improve it.

[00:32:11] And it also sounds like to

[00:32:12] me, Jack, you're talking

[00:32:13] about the Pareto's Prince

[00:32:15] Worth of 80-20.

[00:32:16] What are the small hinges

[00:32:17] that swing the big doors?

[00:32:18] Right.

[00:32:18] We can make the small

[00:32:20] incremental improvement here,

[00:32:21] but it has a, it has a

[00:32:22] massive impact in terms

[00:32:24] of perception and revenue

[00:32:26] and that sort of thing.

[00:32:28] Oh, absolutely.

[00:32:29] And the one thing, even

[00:32:30] when cap rates, which

[00:32:32] is how most commercials

[00:32:33] measured are, are compressed,

[00:32:36] that principle is even

[00:32:36] more important because

[00:32:37] for every five, you know,

[00:32:39] if a cap rate is at say

[00:32:40] 5% for every $5,000

[00:32:43] increase in net operating,

[00:32:45] you can multiply it by 20.

[00:32:47] So just a few thousand

[00:32:48] dollar increase in profits

[00:32:50] for the year can yield

[00:32:52] a hundred thousand or more

[00:32:54] of value increase for

[00:32:55] the property.

[00:32:56] So both on an actual

[00:32:58] execution point and also

[00:32:59] just on the finance side,

[00:33:00] it's, it's doubly true.

[00:33:01] Yeah.

[00:33:02] It's one of those,

[00:33:02] it's like gravity, man.

[00:33:03] It's a law and it just,

[00:33:04] it pervades everything in

[00:33:06] life, what you do in your

[00:33:07] job, what you do day to

[00:33:08] day, how you spend your

[00:33:09] time, your financial

[00:33:11] investments.

[00:33:12] Talk about this a

[00:33:12] little bit.

[00:33:13] How do you, with your

[00:33:15] business and your various

[00:33:16] funds, what are the

[00:33:18] opportunities that you

[00:33:19] have and you can bring

[00:33:20] to the table for some

[00:33:21] investors?

[00:33:22] And maybe as a corollary

[00:33:24] to that, is there an

[00:33:25] advantage to working with

[00:33:27] you and investing in a

[00:33:29] syndication role versus

[00:33:31] someone just trying to

[00:33:32] go out on their own and

[00:33:33] say, I'm going to go

[00:33:33] ahead and tackle this,

[00:33:35] the smaller multifamily

[00:33:36] on my own, so to speak.

[00:33:38] Or with the, or with

[00:33:38] two or three guys that

[00:33:39] I know talk about that

[00:33:41] kind of similarities

[00:33:41] differences.

[00:33:42] Sure.

[00:33:43] So I think there's

[00:33:44] definitely an advantage,

[00:33:45] especially with time

[00:33:46] and with tax efficiency

[00:33:47] for sure, going bigger

[00:33:49] into these larger deals,

[00:33:50] deals that we've often

[00:33:51] negotiated special terms

[00:33:52] on as well, because we've

[00:33:54] invested in over 40

[00:33:55] deals.

[00:33:56] We're often, and we have

[00:33:57] a number of partners

[00:33:58] that we'll repeat

[00:33:58] investors with.

[00:33:59] It's not easy to raise

[00:34:00] money.

[00:34:01] We're often on the

[00:34:02] general partner side

[00:34:03] along with our partners.

[00:34:04] So the fact that we

[00:34:06] may be able to bring

[00:34:07] across some of our

[00:34:07] contacts and our

[00:34:08] investors, that's saving

[00:34:10] them time and money.

[00:34:11] And that means they

[00:34:11] don't have to employ

[00:34:13] another full-time investor

[00:34:14] relations person because

[00:34:15] we can bring along

[00:34:17] capital from our tribe

[00:34:18] of investors.

[00:34:18] So they're willing to

[00:34:19] actually cut our fees

[00:34:20] and give us, or give

[00:34:21] us a piece of the deal

[00:34:22] where our investors get

[00:34:23] a higher return and

[00:34:25] they're getting the

[00:34:25] benefits of my 20 plus

[00:34:27] years of experience.

[00:34:29] We have a diversification

[00:34:30] option as well.

[00:34:31] So if someone's only

[00:34:32] going to make, say their

[00:34:33] first syndication

[00:34:34] investment, then who

[00:34:36] do you pick?

[00:34:36] Even if you're going

[00:34:37] to go bigger and

[00:34:38] you're not going to

[00:34:38] try it yourself, do

[00:34:39] you pick the one

[00:34:39] property in Dallas?

[00:34:40] Do you pick the one

[00:34:41] property in Florida?

[00:34:43] What happens if

[00:34:43] there's a hurricane?

[00:34:44] So the fact that

[00:34:45] we have one option

[00:34:46] that has multiple

[00:34:47] assets, multiple partners,

[00:34:49] operating partners,

[00:34:50] multiple locations,

[00:34:51] that is a big

[00:34:52] benefit to someone

[00:34:53] who's just starting out

[00:34:55] and doesn't have

[00:34:56] enough money invested

[00:34:57] yet to have that

[00:34:58] diversification.

[00:35:00] The other side of

[00:35:00] the coin is somebody

[00:35:02] who's a higher net

[00:35:04] worth, that business

[00:35:05] owner that's maybe

[00:35:06] looking for that really

[00:35:07] advanced tax efficiency

[00:35:09] side of it.

[00:35:10] We can work on a

[00:35:11] more custom basis.

[00:35:13] We do have another

[00:35:13] platform that allows

[00:35:15] people to pick and

[00:35:15] choose their individual

[00:35:16] deals where we may be

[00:35:18] able to show options

[00:35:19] where the deal has

[00:35:20] the highest amount

[00:35:21] of the depreciation.

[00:35:22] This happens a lot

[00:35:23] in November where

[00:35:25] everyone's like,

[00:35:25] I'm making too much

[00:35:26] money this year.

[00:35:27] I need to find a place.

[00:35:29] And we also,

[00:35:30] and this usually has

[00:35:31] to be like side by

[00:35:32] side with our fund

[00:35:33] as opposed to in our

[00:35:34] fund, but we've

[00:35:35] helped a lot with

[00:35:35] 1031 exchanges.

[00:35:37] Often the deals

[00:35:38] that we're investing

[00:35:38] in ourselves can

[00:35:39] take in money

[00:35:41] via a 1031

[00:35:42] exchange, which allows

[00:35:42] someone to sell,

[00:35:44] say, sell a single

[00:35:45] family house for

[00:35:45] half a million dollars

[00:35:46] they've owned a long

[00:35:47] time. And instead

[00:35:47] of paying 3% tax

[00:35:49] plus state tax,

[00:35:50] which sometimes means

[00:35:51] 30% plus of proceeds

[00:35:54] going to the government.

[00:35:55] That money can go

[00:35:56] into a larger syndication

[00:35:58] that's professionally

[00:35:59] run by experienced

[00:36:01] operator that we work

[00:36:02] closely with day to day.

[00:36:03] And that allows

[00:36:04] someone to trade up

[00:36:05] into a passive

[00:36:06] investment and retain

[00:36:07] cash flow into further

[00:36:08] taxes for another cycle.

[00:36:11] Those are those

[00:36:11] custom situations where

[00:36:12] I think we really

[00:36:13] stand out. I think

[00:36:14] there's a lot of,

[00:36:15] there's a lot of

[00:36:15] syndicators who often

[00:36:17] are the sales people.

[00:36:18] You pick your tribe.

[00:36:19] If you were a former

[00:36:19] pilot, you market

[00:36:20] to your pilots and

[00:36:21] upon the pilot knows

[00:36:22] how to do real estate now.

[00:36:23] I don't necessarily

[00:36:24] have the one niche

[00:36:25] other than I've been

[00:36:26] in real estate a long time.

[00:36:27] And I work with some

[00:36:28] hired landlords as well,

[00:36:29] but otherwise I'm

[00:36:29] equal opportunity for

[00:36:31] I'm living this

[00:36:32] business day to day.

[00:36:33] I've certainly made

[00:36:34] mistakes here and there

[00:36:35] too. And that's part

[00:36:35] of the benefit as

[00:36:36] well as you're benefiting

[00:36:37] from my 20 years

[00:36:38] where I've stubbed my

[00:36:39] stubbed my toe a few times.

[00:36:40] And you really only

[00:36:41] learned by having

[00:36:41] the scars of being

[00:36:43] through 2008 and

[00:36:44] seeing how it played out

[00:36:45] and knowing that things

[00:36:46] don't always indefinitely

[00:36:47] go up and there's

[00:36:48] down to be challenges.

[00:36:50] No matter how careful

[00:36:51] you are, how good you are.

[00:36:52] We can look at the

[00:36:53] last year or two in

[00:36:53] these pockets of

[00:36:54] commercial distress where

[00:36:56] some extremely smart

[00:36:57] people didn't envision

[00:36:59] interest rates moving

[00:36:59] five points in a year.

[00:37:01] But if you have a

[00:37:01] diversified portfolio,

[00:37:03] the one or two deals

[00:37:04] with headwinds are

[00:37:04] not going to sink

[00:37:05] your entire portfolio.

[00:37:06] I know all good points.

[00:37:07] And I think it is true.

[00:37:09] The fact that you

[00:37:09] have battle scars

[00:37:11] and what's interesting

[00:37:11] is that you worked on

[00:37:12] the, you worked on

[00:37:14] the, in the cleanup

[00:37:14] crew after 2008 on

[00:37:16] the debt side.

[00:37:17] And so you got to see

[00:37:18] a lot and live it.

[00:37:19] And I was, I started

[00:37:21] in residential finance

[00:37:22] in two that 1998.

[00:37:24] So I lived through that too.

[00:37:26] I've been in commercial

[00:37:26] for quite some time,

[00:37:27] but it's one of those

[00:37:28] things that unless you

[00:37:29] live it and breathe it

[00:37:30] and come through it,

[00:37:31] that you can have this

[00:37:33] irrational exuberance.

[00:37:34] Right?

[00:37:35] I think it was Ronald

[00:37:36] Reagan said that you,

[00:37:37] you don't know that

[00:37:38] there's a downside.

[00:37:39] You don't know that

[00:37:40] there could be a

[00:37:41] gremlin or a monster

[00:37:42] around the corner because

[00:37:44] everything has gone so

[00:37:45] well in your personal

[00:37:47] history.

[00:37:48] And I see that a lot

[00:37:49] with younger, newer

[00:37:50] investors or the millennials

[00:37:51] that start to, they may

[00:37:53] read a book or two and

[00:37:54] they want to get involved

[00:37:54] and they're now succeeding

[00:37:56] in their business.

[00:37:57] And they haven't seen

[00:37:58] the dark side, but it's,

[00:38:00] so it's good to have

[00:38:00] someone that's got that

[00:38:01] grounding.

[00:38:02] It's been there and said,

[00:38:03] Hey, okay, we're going

[00:38:04] to build some, we're

[00:38:04] going to build some,

[00:38:05] some pathways for crisis

[00:38:07] management here and this

[00:38:08] diversification idea and

[00:38:10] different asset classes.

[00:38:11] And I assume your

[00:38:12] investments are nationwide.

[00:38:13] You're not just limited

[00:38:14] to one geographical area.

[00:38:16] Uh, yes, we're definitely

[00:38:17] nationwide.

[00:38:18] We do have a decent

[00:38:18] concentration in growth

[00:38:19] markets like the Southeast

[00:38:21] and the Sunbelt, but

[00:38:22] we also have a couple

[00:38:24] sponsors that focus on

[00:38:25] the Midwest and then

[00:38:26] there's room for those

[00:38:27] slow and steady.

[00:38:28] We're in a great deal

[00:38:29] in outside of Dayton,

[00:38:30] Ohio.

[00:38:31] That's likely going to be

[00:38:32] selling at a pretty

[00:38:33] solid profit this year

[00:38:34] that some of the deals

[00:38:35] are, you hear a lot

[00:38:36] about people struggling

[00:38:36] at the moment, but that

[00:38:37] Dayton deals paying

[00:38:38] like clockwork and

[00:38:39] going to sell it a

[00:38:40] nice profits.

[00:38:40] Yeah, there's really no

[00:38:41] market that we won't

[00:38:43] do if the price is

[00:38:44] right and the deal

[00:38:45] makes sense, but we tend

[00:38:46] to lean towards

[00:38:47] markets of population

[00:38:48] growth like the

[00:38:50] Southeast and Sunbelt

[00:38:51] and also states where

[00:38:53] the government is

[00:38:53] business friendly.

[00:38:55] We've seen some

[00:38:55] issues where a few

[00:38:57] markets that are really

[00:38:58] purple States, if you

[00:38:59] will, but the local

[00:39:00] government's just not

[00:39:01] enforcing the

[00:39:02] eviction laws.

[00:39:03] And you could actually

[00:39:05] get your judgment for

[00:39:06] eviction in 60 days,

[00:39:07] but the sheriff

[00:39:08] won't show up for

[00:39:09] six months.

[00:39:10] And essentially it's

[00:39:11] a hidden tax.

[00:39:12] They're just passing

[00:39:12] on the landlord so

[00:39:13] that the government

[00:39:14] doesn't have to

[00:39:15] provide more subsidies

[00:39:16] or pay for people to

[00:39:18] be in homeless shelters.

[00:39:19] So it's unfortunately

[00:39:20] just being a hidden

[00:39:21] way to pass along

[00:39:22] hidden tax to business

[00:39:23] owners where we have

[00:39:25] a number of those

[00:39:25] markets documented now

[00:39:27] and generally we're

[00:39:28] avoiding investments

[00:39:29] in those places.

[00:39:30] Yeah, I think all

[00:39:30] the smart money is

[00:39:31] and if it's not yet

[00:39:32] it will.

[00:39:33] And so unfortunately

[00:39:34] there are policies

[00:39:35] and procedures as

[00:39:36] always have unintended

[00:39:37] consequences.

[00:39:39] Yeah, absolutely.

[00:39:39] We'll see what happens

[00:39:40] in New York City

[00:39:41] with some of these

[00:39:41] rent control.

[00:39:42] And I believe

[00:39:42] California even passed

[00:39:44] some sort of

[00:39:45] statewide rent control

[00:39:47] on houses of a certain age

[00:39:48] where you're just really

[00:39:49] taking away people's

[00:39:50] property rights

[00:39:51] to just blanketly

[00:39:52] enforce something.

[00:39:53] And it's really scary.

[00:39:54] Yeah, it is.

[00:39:55] And it creates

[00:39:56] all kinds of other problems.

[00:39:57] Rent control,

[00:39:57] you get the basic,

[00:39:58] you're setting prices

[00:39:59] and so you're gonna,

[00:40:00] you're not going

[00:40:01] to create supply.

[00:40:02] It's just, yeah,

[00:40:03] it's a bad place.

[00:40:04] Yeah.

[00:40:04] And supply,

[00:40:05] there's a few other

[00:40:05] top markets do have

[00:40:06] a lot of supply

[00:40:07] coming on now,

[00:40:07] but the permits

[00:40:09] have plummeted.

[00:40:10] Anything that wasn't

[00:40:10] already in the

[00:40:12] ground and building

[00:40:13] before interest rates

[00:40:14] moved two years ago

[00:40:16] is likely not happening now

[00:40:17] because now you still

[00:40:18] have high prices

[00:40:18] because the supply

[00:40:19] chains have improved,

[00:40:20] but not to the level

[00:40:22] they were pre-COVID.

[00:40:23] And you've got these

[00:40:24] sky high interest rates.

[00:40:26] So I think there's

[00:40:27] any,

[00:40:28] anything that's not

[00:40:29] already about to open

[00:40:30] two years from now,

[00:40:31] there's going to be

[00:40:32] another supply shortage

[00:40:33] on multifamily

[00:40:34] and most of the major

[00:40:35] markets and single family

[00:40:37] I think will continue

[00:40:38] to be constrained.

[00:40:39] You have too many people

[00:40:39] who are locked in

[00:40:40] at really low rates

[00:40:41] that unless

[00:40:42] there's a life event

[00:40:43] like death or divorce,

[00:40:44] people are going to be

[00:40:45] hanging onto their houses

[00:40:46] for significantly longer.

[00:40:47] Yeah, that's true.

[00:40:48] And then if you look at the,

[00:40:49] you look at the

[00:40:50] household formations

[00:40:51] number two,

[00:40:51] it's very high.

[00:40:53] This millennial group

[00:40:54] is a large group

[00:40:55] of people coming into

[00:40:56] now wanting to start

[00:40:57] a family.

[00:40:58] They're now starting

[00:40:58] to have children

[00:40:59] and that sort of thing.

[00:41:00] And for the longest time,

[00:41:01] they just wanted

[00:41:02] to share everything.

[00:41:03] They didn't want to

[00:41:03] own anything.

[00:41:04] Now they all want to

[00:41:05] own things because

[00:41:06] they realized they missed

[00:41:07] an opportunity to

[00:41:07] create wealth and get in

[00:41:08] the appreciation of

[00:41:09] single family or whatnot.

[00:41:10] And so there's

[00:41:11] all kinds of demand

[00:41:13] Yeah, 100% agree.

[00:41:14] And yeah, it sounds like

[00:41:15] you may have listened

[00:41:15] to some Peter Zahan

[00:41:16] who talks a lot about

[00:41:17] those demographics.

[00:41:18] If you haven't,

[00:41:19] I definitely would recommend

[00:41:20] check out a couple of

[00:41:20] Peter Zahan's YouTube videos.

[00:41:23] Yeah, he had a book.

[00:41:24] He has a book that I read recently.

[00:41:26] The name escapes me,

[00:41:27] but I think it came out

[00:41:28] about a year or so ago.

[00:41:29] It was really fast.

[00:41:29] The end of the world

[00:41:30] is just the beginning.

[00:41:31] I think that's it.

[00:41:33] Yes, the end of the world

[00:41:34] was just the beginning.

[00:41:35] Yeah.

[00:41:35] So if, but it is

[00:41:36] a fascinating take

[00:41:37] and it's an exciting time though.

[00:41:38] And it sounds like

[00:41:39] you're taking a great

[00:41:40] advantage of it

[00:41:41] and the other thing

[00:41:43] that's really cool

[00:41:43] about what you do

[00:41:45] and being a part of that

[00:41:46] as an investor or whatnot

[00:41:48] is that you're taking

[00:41:49] these properties

[00:41:50] that are tired and old

[00:41:52] and worn out

[00:41:53] and you're improving them.

[00:41:54] You're giving someone

[00:41:55] a nicer place to live,

[00:41:56] a nicer place to raise

[00:41:58] their family in this situation

[00:41:59] where there are apartments,

[00:42:00] multifamily,

[00:42:02] where maybe they're not

[00:42:02] in a position yet

[00:42:03] to buy their own home

[00:42:04] or their transition or whatever.

[00:42:06] That's a good thing.

[00:42:06] You're doing a good turn there.

[00:42:08] Yeah, absolutely.

[00:42:09] I'd said it makes me feel

[00:42:10] it makes me feel good about what we do.

[00:42:12] Yeah, that's it.

[00:42:13] Some would say,

[00:42:13] oh, you're making the housing

[00:42:14] less affordable,

[00:42:15] but yeah, what we've seen

[00:42:16] at the demand is there

[00:42:17] the demand for the high quality

[00:42:18] housing is there

[00:42:19] where there's really just

[00:42:20] not as many options

[00:42:21] in that sub $2,000 range

[00:42:23] for something with new kitchens,

[00:42:25] new bathrooms.

[00:42:27] And then there's a lot of exterior

[00:42:28] things too.

[00:42:28] Sometimes it's putting

[00:42:29] a dog park in,

[00:42:30] it's putting in barbecue grills,

[00:42:31] making it make,

[00:42:32] just making it a place

[00:42:33] that feels more like home.

[00:42:34] Yeah, there's a lot of holistic ways

[00:42:36] to just improve the quality

[00:42:37] of life for the groups.

[00:42:39] And then there's a few

[00:42:39] that are actually partnered

[00:42:40] with the city.

[00:42:41] So a number of the Houston

[00:42:42] projects we're invested in

[00:42:43] are actually public

[00:42:44] private partnerships

[00:42:45] where the city is actually

[00:42:47] given a tax abatement

[00:42:48] and the rents do stay.

[00:42:50] So this is opting in

[00:42:51] for some level of rent control,

[00:42:53] but I think Texas

[00:42:54] just does it a lot better.

[00:42:55] It's indexed to CPI

[00:42:57] and it's at a reasonable level

[00:42:58] where at least

[00:42:59] for the foreseeable future,

[00:43:00] we're not having

[00:43:01] to drastically discount rents,

[00:43:03] but it is a partnership

[00:43:04] with the city that we opted into

[00:43:05] and the tax break for it,

[00:43:06] which increases our investors returns

[00:43:08] and provides affordable housing,

[00:43:09] which is in need.

[00:43:11] Right.

[00:43:11] Yeah, it's definitely a need.

[00:43:13] And as you said,

[00:43:13] it's going to be more

[00:43:14] and more need as time goes on.

[00:43:16] Jack, this has been great, man.

[00:43:17] Tell us how we can get

[00:43:20] in contact with you.

[00:43:21] If we're, hey, we're interested.

[00:43:22] We want to diversify.

[00:43:23] We want to maybe get involved

[00:43:24] some syndications

[00:43:25] or at least learn more

[00:43:26] because it sounds like

[00:43:26] what you're doing is awesome.

[00:43:28] How do I get up with you?

[00:43:30] Sure.

[00:43:30] So we're on all major social media,

[00:43:31] but our website is

[00:43:32] jkaminvestments.com

[00:43:34] That's J K A M

[00:43:35] for JK Asset Management.

[00:43:37] jkaminvestments.com

[00:43:39] and then on social media,

[00:43:40] I'm very active on LinkedIn,

[00:43:41] Facebook, Instagram under my personal name,

[00:43:43] Jack Kruppi.

[00:43:44] And we also have company pages

[00:43:46] and we have our own podcast

[00:43:47] called alternative investor mastermind.

[00:43:49] And Paul, this was a great conversation.

[00:43:50] Would love to have you on our show

[00:43:52] at some point in the future.

[00:43:53] I feel like I obviously

[00:43:54] did a lot of talking on this one.

[00:43:56] I can just get going on rants here,

[00:43:57] but I would love to have you on

[00:43:58] to hear more of your story

[00:44:00] and introduce you to

[00:44:01] our listeners as well.

[00:44:02] Now, I appreciate that, Jack.

[00:44:03] I'd love to do that at some point.

[00:44:05] This has been a lot of fun.

[00:44:06] You're a fun guy and I want to learn more

[00:44:08] too, at some point about living in Puerto Rico

[00:44:11] and what that's all about.

[00:44:12] It sounds like that's been a fun move for you.

[00:44:14] Oh yeah, it's been great.

[00:44:15] We could do a whole episode on,

[00:44:16] on, on Puerto Rico.

[00:44:17] It's got the gist of it is

[00:44:18] 4% tax on export services

[00:44:21] and no short term or long term

[00:44:22] capital gains on Puerto Rico sourced income,

[00:44:25] which includes stocks, options, crypto,

[00:44:28] pretty much everything about real estate.

[00:44:30] But yeah, it's an amazing place.

[00:44:31] A lot of amazing entrepreneurs

[00:44:33] have moved there.

[00:44:33] Always happy to talk about that

[00:44:35] and promote Puerto Rico.

[00:44:36] And the weather's not too bad either.

[00:44:37] Exactly.

[00:44:38] It's, it's above 90.

[00:44:39] It's usually between 75 and 85

[00:44:42] almost every day with an ocean breeze.

[00:44:45] Yeah.

[00:44:45] Yeah.

[00:44:46] Oh, you're hating life down there.

[00:44:47] I can tell.

[00:44:47] Awesome, man.

[00:44:48] This has been great.

[00:44:49] Thanks for being on today.

[00:44:50] And we'll get all this stuff in the show

[00:44:52] notes and can't wait to hit

[00:44:53] the live button on this.

[00:44:55] Absolutely.

[00:44:56] Thanks again for having me.

[00:44:58] Hey gang, just winded down here today.

[00:45:00] Thanks for listening to the show.

[00:45:01] And as always, if you need capital

[00:45:03] to grow your business, you're looking

[00:45:07] to purchase commercial real estate

[00:45:09] or build a building or invest

[00:45:11] in commercial real estate.

[00:45:11] You're looking to acquire a business

[00:45:13] or a competitor or just need growth capital.

[00:45:16] We'd love to talk to you.

[00:45:17] We fund businesses all day long.

[00:45:18] Our mission is to help entrepreneurs

[00:45:20] win and to fund their businesses

[00:45:22] and fund their dreams so that they

[00:45:24] can make an impact in their community.

[00:45:26] Reach out to me today.

[00:45:27] Go to our website, click the button

[00:45:29] to schedule a 20 minute conversation,

[00:45:31] discovery call.

[00:45:32] We'll have a quick conversation.

[00:45:33] See if there's a need, see if there's

[00:45:35] a fit and we can take it from there.

[00:45:37] The website is vpcvictorpaulcharlie.capital.

[00:45:43] That's vpc.capital.

[00:45:47] All right.

[00:45:47] There's no dot com on that.

[00:45:49] It's vpc.capital.

[00:45:51] As always keep crushing it and hope

[00:45:53] to see you soon around here.

[00:45:55] Take care.