SPEAKER_00 0:00

I always think that people get upset when they lose money because they mispriced risk on the front end. If you know what the risk is and you go in and you lose, you're like, oh, that's what happens. I shouldn't have done that. I knew that on the front end. But yeah, if you don't know the risk and you lose, that's where there's trouble. Today's guest is Paul Shannon, founder of InvestWise Collective. He has acquired over 500 residential units and helps investors build wealth through passive real estate investing.

SPEAKER_01 0:24

People are kind of blind to it, and you see it like in some markets. And I kind of see industrial maybe getting overbuilt in some places just because it's I don't know. You can build it faster than multifamily.

SPEAKER_00 0:35

So man, multifamily as an asset class right now just doesn't look attractive, period. So I can invest in industrial or retail. It helps with diversification. So diversification asset class, diversification response. Start to look at it like a little bit differently. Like this is a diversified real estate exposure that's kind of all weather, so to speak. Whereas if yeah, one market isn't doing well or one asset class isn't doing well, I ship isn't staying.

SPEAKER_01 0:57

I think a lot of what you're talking about is like what investors need to hear, that it's in the syndication business. They have to understand you're going in on a partnership with us, you know, things can happen.

SPEAKER_00 1:08

I just launched a book. It's available on Amazon as of this week. It's called Both Sides of the Table. And it's kind of my perspective on sitting in these three seats, the fund manager and GP on the fiduciary side, the limited partner on the passive side. And one of the chapters I talk about kind of the mindset behind being an investor and how important it is to go from being a syndication consumer, quote unquote, to being a capital allocator and thinking more like a fund manager, even if it's your personal capital that you're investing.

SPEAKER_01 1:35

Paul has uh a lot of experience. You've been a broker, LP, GP, and uh mainly an LP though. So Paul, what are all are you looking for? And you know, what what are you getting into right now? Well, looking for where do you see going things going right now from a macro perspective? How do you see things playing out over, say, the next two years? I kind of feel like we're towards the end of it. Hopefully with the notes coming due, we're gonna see some things happen. I don't know. What what how do you feel, man?

SPEAKER_00 2:01

Carson, that's the the million-dollar question, right? I I feel welcome to the Carson's Quarter.

SPEAKER_01 2:11

All right, I'm sitting here with Mr. Paul Shannon, author, soon-to-be author of uh Both Sides of the Table. Uh, has been a GP and LP. Um is gonna share his experiences through that and share some of that with us on this podcast episode and kind of talk through that, his experiences, where he's been, where he's going, and all that.

SPEAKER_00 2:33

So how you doing, Paul? I'm doing great today, Carson. It's uh balmy 95 degrees here in Indianapolis. I've got my kids upstairs, they're home for the summer. It's it's basically total chaos at the house here, but uh, I'm doing all right. How are you?

SPEAKER_01 2:45

I'm I'm about the same. You know, I just uh threw a bag in my car and I'm sweating. I came upstairs. I'm like, oh my gosh, I'm heading out to Memphis here in a minute, so or in a little bit, but yeah.

SPEAKER_00 2:56

I appreciate having you on today. I'm looking forward to our conversation.

SPEAKER_01 2:58

Yeah, Paul has uh a lot of experience. You've been a broker, LP, GP, and uh mainly an LP, though. So, Paul, what all are you looking for? And you know, what what are you getting into right now?

SPEAKER_00 3:13

Well, looking for deals, that's for sure. Uh it's been hard to find deals that I feel like have a good risk-adjusted return. You know, transaction volumes have been down across the board, I think nationwide, just because of uncertainty where interest rates have headed over the last 18 months or so. Uh tariffs, the war, inflation, you name it. Uh when uncertainty is in the waters, it's it's a tough time to make deals pencil and to get deals done across the finish line. So um definitely looking for opportunities. And because I'm kind of encoded for this type of work, I I feel as though I can't put the underwriting down. I want to keep it sharp and kind of understanding, you know, what's happening in the marketplace and where we're headed. But um I've allocated into uh two or three deals as an LP this year. Uh haven't done a deal as a GP since uh January, so it's been a little bit of time since uh since we've got one for our investor base. But I think patience is prudent, you know. Um I think where a lot of people got into trouble in the 2021-22 period was there was this euphoria in the marketplace and a lot of uh a lot of general partners are wearing their entrepreneur hat and not their investor hat. So uh entrepreneurs like to run through brick walls and face challenges and get up off the mat and keep going, going, going. Investors uh have a different mindset where you have to kind of step back sometimes and see what's unfolding and say, you know, at the expense of my business, it may be time to just sit back and relax because what's more expensive than not doing deals is losing investors' money and trust. And that's pretty much game over. So uh fortunately we've been able to avoid those types of outcomes, but our growth has been slow. And um, you know, while I've been unable to find some deals as a GP, I've been allocating into different markets, different asset classes, um, you know, different uh different types of opportunities essentially where I can exploit other people's experience and and expertise and um you know keep keep capital flowing.

SPEAKER_01 5:06

So I think um there's a lot of dedication behind what you do because I look at a lot of deals too, and I'm a commercial broker and I'm an investor as well. And um it's frustrating, you know, getting a deal and hoping it pencils and it doesn't, and you're just like it we can't do it. And then you're like, would would they take this? And it's like, you know, it it's very frustrating. So uh challenging times, but you know, it feels like you're in it for the long haul. You know, you were one of the people that actually kind of stood out in the 2021 era, and I remember that. Uh this is like going back five years, you kind of stepped away, and that was an unpopular decision back then. Did you feel that way? I mean, back then were you like, gosh, I I felt like I lost some friends over it, you know.

SPEAKER_00 5:57

You know. Uh well, I didn't lose any friends. I lost some some partners that I was trying to work towards bigger things with who kind of got tired of, you know, when is this gonna end? When are we gonna be in a position where it makes sense to acquire deals? We were like-minded, yeah, um, but they couldn't they couldn't wait it out through the market cycle. Um was it unpopular? Yeah, I mean it it wasn't popular. Uh, but I I think that, you know, I take a lot away from a book that I read a while back, Mastering Market Cycles by uh Howard Marks, who's um, you know, the founder and owner of of Oak Tree Capital, one of the biggest PE firms. He talks about the market acting like a pendulum. It never stops in the middle, but it swings between euphoria on one end and fear on the other. And your job as an investor isn't necessarily to time the market, but it's to see where the momentum is heading along that pendulum and position yourself accordingly. So what I saw back in 2021 and 22 was that the federal funds rate was at zero, and multifamily deals were getting financed in the high twos to low threes as a as an interest rate, and they were all getting done with bridge debt. So this was floating rate debt that was tied to the standard overnight financing rate, which is heavily tied to the two-year rate, which is tied to the federal funds rate. So inflation was also running at 9%. And Jerome Powell at that time was telegraphing that, hey, you know, before I said that inflation was transitory and, you know, it's not so much. It's kind of structural. It looks like we're gonna have to do something about this. So with that in mind, you know, interest rates had really nowhere to go but up the federal funds rate. So with that, you know, these deals that were getting acquired at bridge debt with 80% leverage, aggressive assumptions around rent growth and everything going right over the next five years during their hold period. Uh, you could see that if these floating rate deals started to have an increased debt burden, uh, the debt service would be rising with that interest rate going up, that it was gonna erode cash flow and it was gonna make for a tough climb for these operators. And, you know, I was just thinking it's gonna be tough to hit that 18 or 20% IRR they've been touting. Not necessarily that they're gonna get, you know, their butts handed to them and and equity was gonna be completely wiped out, which is what we've seen in a lot of deals. So uh I saw it.

SPEAKER_01 8:15

I knew it was gonna get bad, but I didn't think it would I didn't think the interest rates would go up to the level in that fast, but I knew they were going up, and I said it spells trouble, but I didn't think it would, you know, but I agree.

SPEAKER_00 8:27

Go ahead. Yeah, no, that's it. It's just that it I saw the pendulum swinging at that point towards euphoria, and what goes up must come down. And, you know, it sort of goes back to what Warren Buffett talks about a lot and saying that be fearful when others are greedy and greedy when others are fearful. And I would say we're more towards the latter of that now. Be greedy when others are fearful. Today you've got people that are pencils down, they've been wiped out, they're out of the business, uh, rates have gone up considerably. Um, there's less transaction volumes, lenders have tightened up a little bit more. Uh, I wouldn't say it's, you know, the worst it could be. It could get worse. I'm not trying to time the bottom, though. I'm just trying to get more aggressive when things look to be a little bit more favorable for a longer term hold. Because once you get into these deals, you're you're not getting out, right? They're not liquid assets. They're five, seven, 10-year business plans. So I don't know what's going to happen in 10 years. I just want to position myself today in in a way where I can get a solid basis and I see the trend that real estate's going to continue to rise versus, hey, we're buying at the absolute peak. We need everything to go right, and let's, you know, dump this hot potato before it goes wrong.

unknown 9:35

You know?

SPEAKER_01 9:37

You know, I I give you credit for being very disciplined and not going into areas. You know, a lot of syndicators they waited too late, and then they're like, oh crap, and it's like 2023 before they finally caught on that this isn't this isn't changing fast. It's a tough environment. And, you know, I I transitioned all the way back in 2021 into some oil stuff, and some of it went okay, and then others just didn't. It's a riskier business in real estate. You know, I think just kind of staying on the sidelines. They say that don't stay on the sidelines, but you know, it's not that bad. It it's not staying on the sidelines, it's staying disciplined, is what it is. You know what I'm saying? You're still doing deals, you're just doing less of them. You know, so don't don't stay on the sidelines, just become more disciplined when things uh are not right. So anyway.

SPEAKER_00 10:32

But I think you also have to look at the syndication, just the structure and the nature of the business and the people behind it. I think incentives were misaligned and operators were earning, you know, outsized acquisition fees. So there was that temptation to kind of push the underwriting and assume, hey, everybody else is doing it, so why can't I? I'm gonna make a few hundred thousand dollars by closing this deal. Um, or they thought, hey, you know, we're advertising this pretty aggressively, it's an 18 IRR. Maybe it won't hit that. You know, maybe it'll give you a 10. No one's gonna get really mad at us if we don't lose principle, but we can blame it on the market, right? So there was I think those types of things that were happening at that time period, and of course it turned out much worse, but um what could go wrong? Yeah, what could go wrong? And and the syndication business is ultimately a glorified way of flipping property, right? It's not a single family home that you might flip in six months. It takes three, five years, potentially. But the idea is to shorten the whole period to juice the IRR. That's what everything is based off of is IRR. That's what the the waterfalls are structured as. So the GP gets their promote, et cetera, based on IRR. So the incentive to move these properties quickly is there. And that's, you know, that's okay. I invest in syndications as an LP and I appreciate it for what it is. But if you're looking for like generational wealth, like a lot of people quote and they're they're offering memorandums or pitch decks, uh, you'd be better off buying something with direct ownership locally to you, with maybe yourself and your wife or uh, you know, a few other partners and and holding it for indefinitely. That's the way you really can kind of get rich in real estate and and time heals a lot of wounds. You just don't have time necessarily uh on your side as a as a syndication investor. So it's important to realize that.

SPEAKER_01 12:18

Yeah, that's pretty, pretty interesting. You know, you mentioned something is uh like what you're looking for is uh is a good basis, and there's just not a lot of stuff out there at a good basis, you know. Um I'm seeing stuff that's value add and they're trying to trade it at and I hate using cap rates. I really do. I only use cap rates when somebody steps out of bounds because I'll say, hey, this is like a heavy, heavy value add, and you want a 7% cap, and it should be a nine, you know, or a 10 or or even a 12. I don't know where it should be, but it's not a seven. So anyway, I just I I hate the cap rate dictator and all that, you know, like people going around and it's like they're playing a tug of war between a five, eight, and a six, and you're just like, shut up and make a deal happen, you know? Yeah, I completely agree.

SPEAKER_00 13:07

But anyway. That's why I think as a value add, uh, you know, value add multifamily in particular, if you're looking at a value add business plan, the cap rate is has very little value, in my opinion. I think there's sort of like, hey, what's the market cap rate for this vintage of product that's stabilized? That's important to kind of know and be in a range. But what I'm more concerned about is the yield on cost. Like if I bring this deal to investors and I plan on putting in a million dollars in capex and improving units and running it more efficiently from an operation standpoint and cutting expenses, what's my NOI going to be on an untrended basis when I'm done executing that business plan? Yeah. What is that, how does that operating yield compare to the market cap rate? And that spread there is what I'm looking to create. So if I buy a value add deal at a three cap, it doesn't matter if stabilized properties that are similar are trading at a six cap. And I know that in two years I can get this property running at an operating yield of 10, right? So take that 3% cap rate and turn it into a 10% yield. That's real value that's been created. That's the development spread that a lot of developers use in their models with ground up construction. Uh, I think it can be applied to value add. And I think that's so much more important than just looking at a raw cap rate and saying, oh, that's too expensive or that's too cheap.

SPEAKER_01 14:27

Yeah, that's interesting. So where do you see going things going right now from a macro perspective? I you know, I've mentioned that I feel like it's a good buying time, but I've also have uh there's the other side of me that things could get worse, you know, that war going on, you know, not trying to get political, but when it's going on and gas prices go up from a macro perspective and it starts tipping the consumer, you know, I could see things getting uglier, but now they're starting to go back down. And I'm like, maybe it's a good time to buy again. And, you know, I think it all goes back to that good basis that you're talking about. But, you know, how do you see things playing out over, say, the next two years? I kind of feel like we're towards the end of hopefully with the notes coming due, we're gonna see some things happen. I don't know. What what how do you feel?

SPEAKER_00 15:16

Man, Carson, that's the the million-dollar question, right? I I feel to be transparent that I'm a little bit more confused than I have been over the last call it five to seven years, right now, today, than than I have been at all during that time period. And if you back up towards the beginning of this year, we had just gotten a couple deals across the finish line on the GP side. It seemed like looking back 12 months prior to that. So let's go back to the beginning of 2025 or so. You know, at that time you're hearing about inflation and input costs, construction, supplies, uh, labor. You've got insurance that's just all over the map, uh, very high property insurance rates that have ballooned up probably more than any expense line item for operators, uh, yet property tax inflation, uh, rent growth had really stalled. And, you know, you saw the 10-year treasury climb significantly, um, you know, and and just kind of sit idle for a little bit, but it just didn't, it didn't have the sense that, hey, there's there's a lot of predictability in this marketplace. At the beginning of 2026, a lot of that stuff started to kind of level out. And we saw the tenure kind of come down, drop below 4% for a little bit. You had you know a little bit more predictability in input costs, insurance was actually coming down, property tax seemed to level out a bit a little bit. So even though it was a different environment than it was 24 months prior, uh when things were much cheaper and and there were you know remnants of a little bit of rent growth here and there, it just seemed as if there was more predictability. And that's helpful when you're underwriting because you can look at things through a clear lens and not have foggy goggles on, right? So um we felt good about things. You know, we really did. We felt like, hey, the bid in the ask is kind of closing. There's been a few transactions happening. And then what changed, of course, was the Iran war. Uh, when that broke out in the March time period, um, you know, the 10-year ballooned up again up to 4.7 almost, and you know, three, four-week time period, it had just gone gone crazy to the upside. Um, you know, with the Strait of Hormuz being closed, you're you mentioned oil gas. The prices have started to you know be seen at the pump. And the next thing to follow is like fertilizer costs. A lot of the fertilizer around the world comes from that area. If that gets shut down, you know, food could be uh more scarce, which means supply and demand, obviously, food prices go up. Um, so this all hits the consumer wallet. And what I'm thinking is, hey, you know, how much more can, for example, a C-class tenant handle as far as their costs uh on a monthly basis? They certainly can't afford more in rent if they're paying more in fuel, more in food. Um, you know, this is going to affect the broader economy. That could impact jobs down the line, and we could see unemployment rise, which we haven't seen yet today. Um, so you know, it's very foggy for me as far as where we're headed and where we're going, which is why when I underwrite deals, I try to just create as much margin of safety as possible in, you know, multiple exit options. Uh, if this doesn't go well, you know, how is this going to impact the business plan via a sensitivity analysis? And frankly, with that approach, you know, I'm less likely to get deals from uh, you know, my market because there's some, there's still some buyers out there that are aggressive. There's less of them that I can't compete with what they're they're willing to pay. So my challenge to myself is to try to find inroads with stressed opportunities potentially, going directly to workout departments with lenders. It's talking with other investors directly and trying to find source off-market deals. It's trying to get creative in where we find these opportunities. And, you know, I think there is some distress out there today, currently, uh, and I still think there's more to come that we haven't seen over the next 12 months or so. So I think that's where it pays to keep the pencil sharp. I don't know if it's going to be three weeks or three months or six months down the road, but I know that if I keep at it every day, there's gonna be a good opportunity that reveals itself eventually here.

SPEAKER_01 19:13

I think the um what you mentioned about being close to the banks right now is a good idea. Um, you know, going to lunch with some of those. Um I get deals as a broker, but they're the same deals you'll get, you know, off market. I get good ones too. And those, you know, typically get pounded on. A lot of people, you know, eat them up, but you know, some of them you're just like, this owner just needs to give it back to the bank. Just go ahead and get it over with, you know. Yeah. I mean, I don't I'm not gonna call anybody out on here. Nobody knows them, you know, but I've seen owners like 30% sunk, you know, you're just like, just give it back, man. Yeah. I'm not telling you to, but it'll make you feel better, you know, just do it.

SPEAKER_00 19:59

Well, uh an example uh where we didn't have the relationship with the lender, we were pursuing an asset with a broker that we've done a transaction with before, and we're in the driver's seat as far as I think who he would recommend to the sellers that they go with as far as assurety and closing. And, you know, they were going to lose principle. There was no question, and they kind of come to that realization, but they ran up against their maturity, and we don't know exactly what happened, but essentially, you know, it didn't get done with us and and it went back to the bank. And, you know, now it's with the bank, the assets kind of materially declined since that time period, so it's worth even less. But we haven't been able to crack into the bank and say, hey, we were the ones that wanted to buy this. What are you willing to sell it to us for? And we don't understand why they're continuing to hold it, but we're obviously on the outside looking in.

SPEAKER_01 20:48

So I think to your point, if we weren't it's because they were never meant to they lend on those assets all the time. They were never meant to own them, and it's like a bureaucracy with the board and all that thing approved. So it'll take one year to make one little tiny decision.

SPEAKER_00 21:03

So yeah, we know they have other assets that are in similar situations with that same bank. So I think there's kind of a tangled ball of Christmas lights that they have to unwind to use an analogy, and we're not privy to all the things that are happening, but it's sort of frustrating. Like, hey, we would love to take this asset and we can manage it for you in sort of receivership situation until we close, and but we can't get in touch with the right people.

SPEAKER_01 21:26

So you know, I I honestly my my take on what happens kind of I think what's different now, and it's always kind of been this way, is not all markets are the same. So you'll hear like one person say there's a housing shortage, and then when you come to Nashville, you're like, hold on, there's 15% vacancy. And this is going back and forth, it's gotten better since 2023. But it's like there's two different worlds, you know, and it's like somebody from in Indianapolis is like, you know, the supply's different, and then Kansas City, and then like Feel. Phoenix and Austin have all this vacancy problem, you know, because it got way overbuilt. But I think what I'm kind of looking at from a from the macro lens, we don't know exactly what'll happen. And you know, I like the fact that you kind of leave it like because you want to stay away from people that pretend to know exactly what's going to happen. You know, we all have our ideas. That person that says exactly what's going to happen, you know, they should be a trillionaire if they did, you know. But anyway. That's right. But I think this the one thing that just really killed people on top of the it wasn't just interest rates, it was the supply on top of that just crushed people. And I kind of feel like supply is the Achilles heel of like real estate. And people are kind of blind to it. And you see it like in some markets, and you know, people talk about, oh, you know, how great of an asset industrial is because the tenants are different. And then it's like, I see 10 million square feet under construction in the natural area, and I'm going, holy cow. And then down the street, some of them got thrown up in six months because there are those concrete walls. And I kind of see industrial maybe getting overbuilt in some places just because it's I don't know. You could build it faster than multifamily. So, you know, I mean, I'm talking five years from now, not like right this second, you know, but I don't know some of that oversupply in industrial in certain areas.

SPEAKER_00 23:32

And what's interesting about like those mega, you know, million square feet type buildings is that they're built with two-year-out projections, and they don't have like it's like, hey, Walmart might be doing more business in town, so we should probably put this building up and hope they lease it in two years, but there's not as much certainty around what's going to happen. So it it there's that single tenant risk, which is kind of what I like, flex industrial, where you've got multi-tenant. Um, but I think you hit like on something that I want to touch on. You mentioned like different markets having different dynamics, and real estate is so local. And that's why I like being a limited partner because I know really, really well what's going on in Minneapolis. I have good relationships with contractors and brokers, and I know, you know, what something goes for on a price per square foot basis, per unit basis, what the cap rates are. Um, you know, I'm I'm a one of the few experts on real estate locally, right? I mean, and when I say few, there's there's a few thousand people probably that could say the same thing.

SPEAKER_01 24:32

But sometimes I know.

SPEAKER_00 24:35

Yeah, sometimes Indianapolis has unfavorable investment characteristics. And I can look at multifamily in, let's say, North Carolina, just as an example, and say, okay, I can get behind those fundamentals because of XYZ. Or, man, multifamily as an asset class right now just doesn't look attractive, period. So I can invest in industrial or retail or you know, pivot somewhere else and take advantage of a sponsor in a different market's knowledge, their unfair advantage, so to speak, using their local relationships and their knowledge that I can relate to in Indianapolis and exploiting them essentially to make my investment dollars go to work in that area. And it helps with diversification. So diversification asset class, diversification and sponsor, uh, diversification when debt matures and what type of debt it is. Um, you know, up and down, you can look at a holistic portfolio of real estate holdings and say, okay, I'm in the driver's seat in this one as a GP, I'm in the back seat as the LP in this one, uh, I'm in, you know, 15 different markets with five different asset classes, and you start to look at it like a little bit differently, like this is a diversified real estate exposure that's kind of all weather, so to speak. Whereas if one market isn't doing well or one asset class isn't doing well, my ship isn't sinking. So I'm not interested really in being 100% all in on Indiana real estate necessarily. I think it's a really good market with really good characteristics, but for my personal portfolio, I want to be spread a little bit further than that.

SPEAKER_01 26:05

Yeah, I like that. That's really smart. You know, the thing that was shocking back in um like 2021 era, 2020, is you'd talk to people about like the this these prices are getting a little high. And you'd talk about other asset classes, and a lot of them are like real estate only. But you know, and I'm okay with that. It's like, okay, I like real estate too, but I own stocks, but you know, it's like, and this isn't given financial advice, but then they came out of those programs so brainwashed, like the the mastermind or whatever they went to in the coaching programs, they're like multifamily only. And I'm like, dude, this person's like brainwashed completely, man. You know, it's like if you really believed multifamily only, your house would be multifamily. You own a single family residence, don't you? That's not multifamily. I I don't know.

SPEAKER_00 27:00

I'm just saying it's like, but they're so like who that that goes back to the pendulum example I was using before from Howard Marks' book, and that's yeah, a microcosm of a euphoric environment. You remember a couple years ago, there were courses all over the place. People were selling them online. You could go to a conference and pay somebody to, you know, get under the hood of your business. You could you spend $40,000 and they'd come with you for a day and look at everything.

SPEAKER_01 27:27

Crazy. You know, I was just like, wow, you know.

SPEAKER_00 27:30

Yeah. And that's, I guess you can't blame for trying to get it, but that to me is a characteristic of a market that's overheated. You don't see that nearly as much today. No one's buying that stuff because their sentiment is down, which indicates to me it might be a better time to be in the market now. So Yeah.

SPEAKER_01 27:43

I don't know if it's like, you know, like you can't time it, but it's now or it's gonna be coming pretty soon. You know, I think owners are gonna start coughing it up and either going to the bank or doing a deal with somebody, you know, like Mr. Shannon and uh making something happen for once, you know. Let's get the phone ringing, Carson. Call me. Yeah. It's it's the the deal hotline or whatever. I want somebody to call in during my podcast and we like close them on something. Yeah, we'll be there to look at it. Do do do like a case study or something. But um no, uh, so your perspective's very different, and I like it because it's like, you know, I can GP or I can LP, and if I'm unable to find deals that I feel comfortable GPing, um, I can go LP. And so do you have other LPs that invest with you? You have a fund, right? That you do deals with other LPs. Is that what I'm understanding?

SPEAKER_00 28:40

Yeah, we have LPs that are in our deals where we're multifamily operators locally here in Indiana. We only do multifamily within three-hour radius of where I live. Um, and then we've acted as a fund manager as well, where we've allocated investor capital with other sponsors where um, you know, it wasn't necessarily the best time to invest in Indiana real estate. We found other attractive opportunities that I was investing my own money personally in. And we were able to either get better terms for our investors or get them access to a deal that we wouldn't otherwise be able to get access to because of high minimum investments. Um we're doing less and less of those now and more focused on multifamily, but we're we're open-minded, I guess, to to deals that meet our criteria that we feel like have a good risk-adjusted profile. Um, and that frankly, we're as managers of a fund, accepting of the counterparty risk, which I think is a big deal.

SPEAKER_01 29:32

It's uh it's a when you say when you say counterparty, uh just spell that out for people that are listening that aren't sure.

SPEAKER_00 29:40

So, you know, if if I'm the operator of a multifamily property and I raise money from limited partners to fund the acquisition, um, you know, I'm in the driver's seat. I have perspective on what's happening at the property level, uh what our challenges are. I can communicate those challenges directly. Uh, I can communicate the successes. I know exactly what needs to be done in the business plan and what's come up during that time period that's thrown us off course and how we need a course correct. It's all on my shoulders. I can look myself in the mirror and say, hey, how am I handling this? Whereas as a fund manager, we essentially act as a middleman in a lot of cases, right? So we're we're providing this access or we're getting these better terms, but we are not the one in the driver's seat. We may be in the passenger seat. Uh we're getting information that's given to us from that operator who is dealing with the challenges and dealing with the day-to-day business, but we don't necessarily get all the information given to us. We could be on a more need-to-know basis, right? So I think that's the biggest difference is you really have, as a fund manager, have to trust that sponsor uh that you know they're a fiduciary of your capital and your investors' capital, and that they'd rather rather lose their right arm than um you know give up your capital for whatever reason. So there's just a different weight of responsibility and fiduciary uh you know responsibility when it comes to placing other people's capital versus investing your own. I might go, for example, as an LP into a deal with my personal money and just take a shot on it. I like to do deep due diligence and find things, but at the end of the day, it's like, hey, I've got five percent of my overall net worth that's ready to go on, you know, a gamble, uh, take a chance on something, for example, but never do that as a fund manager. That's uh completely against the grain. So there's a different hat you put on when you when you have that responsibility.

SPEAKER_01 31:25

Yeah, it's different. I've taken investors into a deal and it's like when that if the lead sponsor like stops communicating, it's really bad. You know, so it's you only have to do that once or twice before you're like, I'll never do that again. Or I'm gonna be very, very careful with who I do that with, you know, because it's like, gosh, it's miserable. Because you're in the middle of it too, and you're like, oh my gosh, these investors are pissed just because they can't get an update. It's like when you not send an email, you know, it's like how hard you're making this really hard, you know. Yep.

SPEAKER_00 31:58

So well, I've been I've been a um a victim of fraud as an LP in my personal portfolio twice. Yeah, it happened. I've had a fair bit of positions, so on a you know, weighted average or a you know percentage of my total positions, it's not not significant, but it's it still burns, it still hurts. So you don't want to be in that position as a fund manager. And we were invested in a debt fund uh for about a year and had been earning about a 14% annualized return, so very strong. Uh, we had a ton of due diligence on the front end that we accomplished and felt really comfortable with the deal and it performed well. But we at one point were denied access to the loan tape, which basically, for those that don't know, gives you who the borrowers are, what's the asset that's being lent against, what's the loan to value, um, you know, a whole host of other variables related to that loan and you know, the overall portfolio and the health of it. So uh we were also denied an audit that we were told was coming. And basically our ongoing due diligence for whatever reason, we started being denied access to what we thought were fairly standard items. And, you know, I at that point as the as the fiduciary, as the responsible party to our investors' capital, I called a meeting with the principal and he did not like, I guess, how I approached the questions that I asked him and and asked me why we were not getting this stuff anymore. And he got upset. He told me that I was adversarial, but I thought it was the other way around. So he he offered to to get us out of the fund with what cash they had available, which wasn't the full amount of what we had invested, but he took some of his personal capital and and paid us off. I guess I was just sniffing around the wrong tree. I don't know. Uh I don't know that that there's been a bad outcome with this fund. And you know, I I hope I hope there isn't for the investors that are still in it.

SPEAKER_01 33:47

They wouldn't show you the investment tape. You asked questions, they just said, here's your money back, get out of here.

SPEAKER_00 33:51

Yeah. And I told my investors, you know, for the ones that have been in since the beginning of that investment, they were like, hey, good call, but we had just raised additional capital like two, three months before that incident happened. So we went back to investors that had just gotten in, you know, to what they thought was gonna be a multi-year investment. We told them, hey, we're sending your money back.

SPEAKER_01 34:10

Well, you're better off doing that on the front end, because I've had it where, you know, on a one deal the operator's not communicating. Then so, you know, and then you know, you can put people in another deal. You it's just and he was gonna do some things for him. I said, wait until he does this, until we start demanding financials, and then they start thinking I'm hiding something with them. I'm like, no, we're gonna get to the financials, but we're waiting until he trans, you know, and I'm and they just don't understand and they're going crazy on me. And then we finally get it, and I said, Okay, here's the financials, you know. I just didn't want him to quit on us, you know, until that happened. But it you get crazy scenarios like that, you know. Yeah. And they automatically go dark on you. Like it's automatically you get fraud accusations and stuff like that. But, you know, in that situation might not have been fraud, but it's not worth the risk. When you start seeing those signs, you're like, oh sh, you know, I hope this isn't happening, you know.

SPEAKER_00 35:06

Well, that's what I felt. And I thought there's no other decision to make than accept his offer to have us bought out. Yeah. When I communicated to our investors, I said, hey, this is really disappointing. And, you know, it is for us as well as managers, because, you know, we had been earning solid income on the fund position, and our investors have been earning solid returns. And for those that had just got in, they just had done a lot of deep, you know, due diligence to invest their hard-earned money. Uh, but what I said was that disappointment is dwarfed considerably by the potential for future regret in finding out that, hey, we had the opportunity to get out, we saw some warning signals, and we just bypassed them and said, you know what, let's let it ride and hope this works out. And I just can't do that.

SPEAKER_01 35:48

There's red flags in every deal, and it's how do you respond to them? You know, and then there's sometimes you miss them and it's like, I should have noticed that. And then like the next time you see them, you have to stop and say, I'm not going forward anymore. You know, because it's like, what if you would have kept bringing in investor capital and then it gets to like 200 million, and then you find out it's a scam, and you're like, I should have known when we only put five million in or whatever the amount is and been done with it when I realized something was just a little off back then. It probably is, you know. Sure. Where there's smoke, there's fire sometimes, you know. Well said. Yeah. But yeah, that's that's crazy, man. I just I don't know. Um, I think a lot of what you're talking about is like what investors need to hear that it's you know, I feel like in the syndication business, a lot of the investors, their hands are held a little too like you know, you know what I'm saying. There's too much hand holding to where, you know, I did a podcast with Jed Morris, and he's like, you can't mitigate every single risk. They have to understand you're going in on a partnership with us, you know. Things can happen. You know, I think a lot of that euphoria you talked about in 2021 was it seemed like real estate was unstoppable, and there's no way you can lose money if it just keeps going up like this. Because it goes up every day, you better jump on now. And then that's why the investors kind of felt like, oh man, you know, I don't know. You know, they weren't maybe lied to, but they should have been like, hey, the you know, this this is a big boy and girl business, you know.

SPEAKER_00 37:28

So I couldn't agree more. Um I just launched a book. It's available on Amazon as of this week. It's called Both Sides of the Table. Yeah. And it's kind of my perspective on sitting in these three seats, the fund manager and GP on the fiduciary side and the limited partner on the passive side. And one of the chapters I talk about kind of the mindset behind being an investor and how important it is to go from being a syndication consumer, quote unquote, to being a capital allocator and thinking more like a fund manager, even if it's your personal capital that you're investing. Because if you think about all the marketing hype that's out there, the syndication marketing engine, you know, there's these beautiful pitch decks, there's these slick webinars, there's all this urgency language, generational wealth, only a few spots remaining, all this and that. I mean, this is consumer marketing, right? One spot left. Yeah, one spot, just one. And it's we're waiting for you. Um it works in in pretty much any kind of marketing, whether it's a consumer product or service business, and it works in the syndication business. And what I'm trying to train our investors to do is to take accountability for their decisions, to put their, you know, their big boy pants on, I think as you called it, where it's like, hey, you know, if they're alloc if they're advertising like an 18% IRR, well, the syndication consumer thinks, well, that's a great return, I'm gonna invest. Yeah. Whereas the allocator, for example, might say, well, what are the inputs that you use to get to that 18% IRR? And what's the margin of safety? And how much room do I have for error here where that 18% starts to turn into 8% or loss of principle? So there's sort of a different mindset. And I think the default answer for any LP going into looking at a pitch deck is no. It's like the first thing that you see that turns you off, move on to the next deal. That should be the default. And that's the mindset shift that I think is everything. I think it really starts with repetition and being able to kind of recognize patterns. You have to look at a lot of deals to do that. So I I train the people that invest with us. It's like, I don't want you to come to me because you like what I have to say on a podcast and you feel like you can trust me, and so you're not even gonna look at the deal. That means that if something goes wrong, you're not gonna understand out of my control even in three years, you're gonna come back to me and said, Hey, you you thought this was a good deal. Like, where's my money? It's like, no, I want you to understand all the risks. I want you to read the operating agreement, be comfortable with the terms. I want you to ask the tough questions, and I want you to decide at that point, hey, this isn't perfect because nothing is, but you're willing to take the ride. And you know, that is that is a major difference between um, you know, somebody that thinks that they're gonna retire from their job in two years because they're just gonna dump you know a few million dollars into positions as an LP and everything's gonna go correct.

SPEAKER_01 40:14

So um I think there's some regret on the syndicator side because there's a lot of syndicators that took the wrong investors, you know. Just back then money was moving so fast that it's like, should you really take in those investors? I mean, you know, if you would have had thought about it, they just you know, the education, I think what you're doing with your book. I wrote a book. I uh my favorite book I wrote was the one about small businesses and the leases and all the stuff that could go wrong. You know, I used to own a restaurant and it's a little airplane copy. It's about that thick, it's about 65 pages. So I just I think any kind of educational material that can say, hey, you know, this isn't a perfect process, but you can be successful if you're smart and disciplined. You know, one thing like going back all the way in my 20s is, you know, I I'm a really good options trader, you know, and not day trading, but I I'm a good stock picker, not options trader. The options are what are behind my stock pick. So I'll take like long-term options, you know, or the positions, you know, made a lot of money doing it. Like I'd get Tesla and turn like 10 grand into 120 and stuff, you know, just but early on, you know, I was just young and dumb and I traded short term and I lost my ass because I was day trading. I don't day trade anymore. But that feeling and how shitty you feel when you lose that money, and it's an and it's one of those for investors out there, if you're one of those, you have to learn from it and like, you know, getting a hold of your book, reading like, hey, what is this I'm actually investing in? And if you don't aren't comfortable with the risk, don't do it. But I think long term it benefits you because you're gonna get a much better partner if they're educated. You know, they're gonna look at the deal and say, Yeah, I agree with you. This is a good, solid deal. Let's let's do it together. And they're less it feels more like a business partnership than uh, you know, an um like the title investor.

SPEAKER_00 42:14

So I always think that people get upset when they lose money because they misprice risk on the front end. You know, they don't understand, like, hey, it's okay to acknowledge that this is a really risky deal, for example. And you know, the probability of there being a loss is higher or very high compared to something else that has completely different characteristics, but it is worth the shot. And then it's just a question of how much, right, of your personal net worth you're willing to gamble on that. Sometimes I think people misjudge that sort of ratio and that balance, and that's when things get really out of whack. Uh, because if you know what the risk is and you go in and you lose, you're like, oh well, that's what happens. You know, I just shouldn't have done that. I knew that on the front end. But yeah, if you don't know the risk and you lose, that's where there's trouble.

SPEAKER_01 43:03

Yeah. Man, I I think um you've done a lot of uh opening some eyes on this podcast. I appreciate you coming on. It's always educational. I I love your post. You know, you kind of dig a little deeper. You know, sometimes my posts aren't necessarily, even though they turn out to be right, there's they're to get investors to think, you know, like, hey, you know, and then on the money raising side, I think one thing that's you you see a lot of syndicators that are having trouble raising money, and I like the fact that you'll at least comment on it. You know, it's like the tariffs start happening, and it's like all the syndicators are quiet. At least say something. You don't have an opinion. Are you hiding under the dining room table like everybody else in America? You know, I mean, at least, you know, comment on different stuff and you know, I don't know. We're we're we're not supposed to be perfect, but you know, educating on people on the number of things that can happen I think are good. So anyway.

SPEAKER_00 44:00

Couldn't agree more. I think that uh life's a journey, and uh the second you stop learning is is the second you start dying. So you got to keep educated on current trends, but also just expanding your knowledge and your wisdom. And you know, I certainly don't know it all. I I'm looking forward to learning what I have left to learn over the next hopefully long 40 years, 50 years of my life that I've got left. And yeah, uh this business is gonna change. That's that's almost a certainty, and hopefully it's for the better. But uh I think we can all do well and uh and and survive if we if we make smart choices.

SPEAKER_01 44:31

Yeah, I'm looking at some interesting stuff on the broker side. I'm you know, looking at older warehouses in Memphis, uh turning them around into data center type stuff because of the electrical infrastructure around them, uh trying to push them through into opportunity zones, which is a tax. So I'm gonna I'm gonna help my client apply to uh be a part of Oz 2.0. Okay. So, you know, very just interesting. It's really just opened my eyes, like, wow, this is fascinating. You know, after being a capital raiser and stuff, I'm multifamily, it's really like new, and I'm I'm like really happy about it. But you know, there's a lot out there for investors to get involved in and you know, just continue to learn and grow, you know, and every day's a a new day. So what's the best way for uh you know my listeners to get a hold of you? I know you're on LinkedIn and um all that. Do you have an email or anything?

SPEAKER_00 45:27

Yeah, check me out at uh investwise collective.com. That's my company where we we make investments out of. Um, I'm on LinkedIn, like you mentioned. Uh my new book, Both Sides of the Table, is out on Amazon now. And PSD. Is it on either? Yeah. I'm gonna order a copy, man. Thanks, Carson.

SPEAKER_01 45:43

At least I know I got one reader. That's awesome. You know, I was actually selling quite a bit of them because I had a post that kind of went semi viral. I mean, I'm gonna put it on my stack back here and I'm I've been looking for some. So anyway, look looking forward to it. But go ahead, what were you saying? Start in. That's it.

SPEAKER_00 46:00

Yeah, and I'm I'm part of the passive pockets community too, which is a community of limited partners. Um I used to host their podcasts, so I'm in the archives there, and we've got a lot of great guests and good information uh coming out of that as well. So those are those are the best ways to connect with me. Awesome. Well, uh, stay cool there in Indianapolis, man. Thanks, Carson. I appreciate you having me on today.

SPEAKER_01 46:21

Thank you, sir.