Passive Investor Spotlight #7: Active to Passive Real Estate Investing | Aspen Funds
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Passive Investor Spotlight #7: Active to Passive Real Estate Investing

Join Ben Fraser and guest host Ben Brundage as they explore the journey of passive investor, Eric Barnett. Hear his story of how he was able to build an active real estate portfolio while still working a full-time W2. And hear about how he has shifted his investing from primarily active rentals to passive syndications. Eric shares how he finds the deals he invests in, what he looks for in a sponsor, and how his investments have performed. You don’t want to miss this in-depth interview with this successful passive investor.

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Passive Investor Spotlight #7: Active to Passive Real Estate Investing feat. Eric Barnett

Hello, future billionaires and welcome back to another exciting episode of our podcast, uh, ICOs Ben Frazier. And today we’ve got special guest, co-host Ben Brunti. And, uh, we have a fun, passive investor spotlight conversation today. So we love to do these podcasts, one of our favorite segments, talking with a lot of times our own investors and just hearing about their journeys, investing in real estate in alternatives.

You know, how they got, uh, to that point, what was that story and how do they do it now versus they did five years ago? And so lots of great, lots of great things in this conversation. Eric, you know, was an active real estate investor, um, for many years before he kind of transitioned into, you know, becoming a limited partner.

And so talks about his story and that transition, which can be difficult for some people, right? And, uh, lots of great nuggets in this episode. So hope you enjoy and, uh, tune in

Welcome back to another episode of Invest Like a Billionaire. Today we’ve got another fun episode in our Passive Investor spotlight series. So I love doing these. It’s fun cause we gotta talk to our friends and, uh, a lot of times current investors in talking about what are they doing and they’re kind of personal investment journey and in their own portfolio.

And just hearing the stories from. Uh, investors just like you and, um, you know, we’re all investors here and wanna learn from each other. So Eric Barnett, we are super excited to have you on the podcast with us. How are you doing? I’m doing great. Thanks for having me. Excited to be here. Yeah, yeah, yeah. Well, um, Just kind of kick us off a little bit.

Tell us a little bit of your, your story, um, kind of what you’re doing right now and how you started investing in the whole world of alternatives. Uh, you know, back when you did, Sure. So, um, you know, right after college I, I traveled a lot for, for work. I was working in oil and gas, living in hotels, able to live off my per diem and not spend any of my wages.

So I was able to stock away, you know, a good bit of savings, um, for someone at that age. At the time, you know, coming out, my idea was the 401k, the step IRAs, all the basic stuff that you would do as a an L L C, you know, as an S corp and, and thought that was a good path. And then around 2014, so after a few years, uh, you know, started getting into bigger pockets and exploring other options.

Like a lot of people do. Um, bought, uh, a town. Just south of Austin, um, in the first little neighborhood south. Um, started renting that out, then bought a fourplex and, you know, in kind of a C class area. And that was a good learning experience, trying to get more cash flow and, you know, showing up day one and two of the tenants are gone and the place is trashed.

And I’m like, well, I guess I’m. You know, cleaning up a place today,  and, um, you know, kind of went down that route of Reynolds, um, you know, got married during that time. My wife and I would move in about houses in Austin every year and keep ’em as rentals. Um, so that worked out pretty well and she was nice enough to, uh, paint the houses and do a little bit of work and move every year, which was, uh, not always the most fun, but, um, so went down that route, got up to about 40 units.

Um, , you know, all in central Texas, kind of around Austin, Waco temple areas. Um, but at some point started talking to more people as your network grows and started realizing that a lot of the higher network people, um, didn’t really own little single families and duplexes and all that and, and have to deal with the headache of managing those.

And instead they would. , you know, invest in larger deals, kind of get out of the day-to-day more of lifestyle investing. So, uh, you know, I was able to connect with some of those people, get introduced to the people they were investing with. Uh, got invited into one deal with a group out, D F W, uh, for the first one.

And, um, from then just started really networking, reaching out to people. Um, that I had heard on podcast, so similar to like this group and several others and, you know, realized, you know, they are real people on the other end of that podcast and I could, uh, you know, send ’em an email. They were kind enough to reply, set up calls, um, Yeah.

And, uh, we just kind of started rolling that route. Put po hit pauses on the, the rentals. Um, during Covid we sold off some of those Austin houses that were, we were fortunate with a lot of appreciation that didn’t cash flow very well that we had lived in. Um, still have about 35 units there. Um, that we just still manage because they, they spit off a lot of cash flow.

They’re pretty easy, they’re all stable now. But, you know, starting in 2019 until now, we’re in about 40, um, syndications right now with probably three quarters of that being apartments, the rest being some oil and gas funds, uh, mobile home park, um, most recently kind of a, a. Uh, riskier one, but kind of fun was a distillery here around Austin and Fredericksburg that we know the owner of.

He’s a, he’s a lobbyist for my company and he started a distillery, so he is an attorney here in Austin. And, uh, just kind of a passion project for him on the side. And, uh, we’ve been going there quite a bit and really liked it. So, uh, kind of throwing some money at there and we’ll see where it goes. Um, you know, he seems to have a good plan going forward.

Um, but yeah, no, that’s, that’s kind of how we got to where we are. You know, I came outta oil and gas in about 2014 when we started buying rentals and started working in renewable energy. So I developed utility scale, wind, solar, and battery projects for, uh, a large utility based outta Dallas, and I still do that.

So I kind of am doing real estate in a way, just developing something a little different than an apartment complex at the end of the. Yeah. Very cool. Wow, that’s awesome. Thanks for sharing and a lot on back there. You know, going back to the very beginning, what was really the motivation for you to kind of get into the real estate journey, kind of as an active, you know, landlord at that point?

Yeah, the, the thought of the time freedom at the end of the day and trying to just like anyone get to hit that number where I could replace my income. Um, and the thought of it, you know, just being a little bit more in control, um, obviously that’s why I manage my properties cuz I like to have control and I feel that I can do it better than a third property manager might be able to do.

Um, I’ve tried that and never worked out very well for me, um, based on how I like to keep them up. So it was really just more of the, the. The appeal of the time freedom and having more control versus like a 401K or stock market or trying to time something. Got it. Yeah. And has your kind of approach to.

You know, your initial goal of the outset, you know, place your income, and it sounds like you’ve done pretty well if you’ve bought a lot of your, your pr, uh, properties in central Texas, and it’s done very well the past, you know, seven, eight years. Have you kind of shifted your approach or what your end goal is that you’re obviously still working, but you have, you know, pretty substantial real estate portfolio, um, just having that flexibility and you’re enjoying what you’re doing, or talk a little bit about how maybe your goals have shifted over time.

Yeah, really focusing more on lifestyle, so being able to travel. I have two young kids. I have a four and a two year old. We’re going to homeschool them. So that challenge is the next one that we really need to focus on. Uh, my wife is a former teacher, but she started a business kind of in the wine and brewery industry here where we live, where we have a lot of them.

Um, so the, the shift is focused more on lifestyle design, and that’s why buying more of the rentals and the self-management. It’s been a slow go for me and thinking about how it, uh, makes me have to be on call or be available quite a bit if, you know, ACS out in the summer or whatever it may be. Um, so.

Getting into the larger deals, you know, just being an lp. The returns are actually, you know, they’re, they’re pretty good whenever you weigh it out first, managing a few duplexes that you have 50,000 tied up, verse 50,000 in, uh, you know, a 200 unit apartment complex. Once it’s stabilized and, you know, you’re kind of just getting that cash flow and waiting on the, either the refi or the, the divesture.

So just more of a, more of a lifestyle, more of a freedom. You know, my, my W2 job is not all that bad. I work from home. It’s pretty flexible. It’s kind of fun, you know, I get to build cool stuff, um, or at least things that I think are cool at the end of the day. So, um, kind of realizing that maybe my highest and best use is in my W2 and growing that route for the next five to seven.

While focusing on heavily investing in, uh, passive deals, keeping our portfolio rentals, cuz like I said, they’re stabilized and putting off a lot of a good amount of cash flow for the number of them. And, uh, just kind of focusing on my family and traveling and, um, more experiences while their kids are little, whenever their teenagers and playing sports and don’t wanna hang out with me.

Then, you know, maybe we can jump into more active roles of businesses or other. Yeah, I love that. I mean, so much of this, you know, when people get attracted to real estate, it’s, you know, a lot of the lifestyle freedom element of it and you know, to be able to have that control over your time and, you know, buy your time back, so to speak.

But the cool thing too is it’s, you might have an initial goal at the outset, but that can change over time, right? And, and as you continue to build up those passive income streams, it just creates more flexibility. And it sounds like, you know, you, you’ve done pretty well, but you’re still enjoying what you’re doing and you still have.

An element of flexibility and maybe your goals have changed a little bit, but, um, that is, you know, continues to support, uh, what you’re doing in the investing side. You know, one of the questions that I have, and a lot of our listeners are maybe in a similar boat where they, they’ve been, you know, active real estate investors, um, where basically they’re buying their own properties or managing them.

You said it earlier, there’s an element of control that is nice to have, right? And maybe it’s at least perceived control, , but you know, was there, is there a challenge initially going from that kind of active investor to passive investor role? Right. Going from owning a, a duplex to becoming a a limited partner and a much larger deal, you’re now handing the reins over to another operator.

No, definitely the, the first deal we did, um, it was through one of my friend’s dad’s had been investing with this group for 15, 20 years, you know, a long, long time. And he was one of the people that I really, uh, asked a lot of questions about passive investing. You know, how does it worked out? You win some, lose some, but yes, the first time we wired money to someone, even though it was through a referral, and I trusted his opinion and you know, what he thought of them, I was definitely nervous.

One, that the wire was gonna go to the right person and not some, you know, You know, bank in The Bahamas or whatever. Um, and second, you know that they’re being a good steward of that money and then it’s gonna be returned. Because at the time when you’re starting out, you know, you send 50,000, a hundred thousand to somebody, um, that’s a lot of money, right?

And so you’re, you’re really banking on it coming back. Um, and, and hopefully they hit some level of the projected returns they’re looking at. Um, and then also I, I would say more. Uh, more nerve wracking or, or stressful was whenever it was someone that I hadn’t worked with before and no one else I knew had worked with before, but I had met them either in person or had some calls.

Kind of got to know them a little bit over their podcast, which you kind of tend to do right. And, you know, they had an apartment deal in Houston or Dallas and I, I knew where it was. I could actually go drive by it and see it. But then sending them the money and hoping that, you know, they are an honest and good, uh, operator, like they appear to be.

Um, really, we would just look at track records and try to get opinions from others, but it was definitely a little nervous. I was a little nervous in the beginning. But now, you know, I have those five to 10 people that, you know, send deals when they have ’em, and I trust those people and you kind of build your relationships with them and they build, uh, rapport with you by doing what they say they’ll do.

Yeah. Wow. So obviously referrals matter a ton and track record matters a lot. But as far as operators go, what else are some of the things that you’re looking for when you’re talking to operators? Uh, you know, maybe in the beginning, what were those things, and then how is that kind of morphed over time and what are, what are you really asking now and what are you looking for, uh, from those operators that you’re talking?

Yeah. You know, aside from referrals and, and track record, you know, I just really try to get to know them a little bit and then we dive in a a little bit on how complicated they make the structure, you know, that they get into waterfalls and all this kind of stuff, or is it just a straight 70 30, you know, we’re in this together kind of thing, which I usually kind of prefer.

Uh, the structure of that, but for the most part it’s just getting to know the person. Um, a little bit more about them on the personal side, how they got to where they were, where they started. Um, same questions that you’re asking me now. Like, what was their reasoning for, for doing this? Because this is a lot of work, right?

So I feel like as you get to know them personally, um, You know, you, you get to trust them a little bit more. And I just kind of look more for the, the person as opposed to the deal always, you know, not all deals are gonna go great, but it, it says a lot to me when you have one going a little sideways, you know, with Covid and some of the stuff going on that they could man up or, you know, just say, Hey, this one’s not going very well.

It’s kind of slow. This justice of the piece, you know, is backed up on evictions and we can’t get all these people out. You know, we might need to do a cash call or something. So, uh, and that’s hard for them to do, especially if they’ve never done one. So I appreciate the transparency of somebody on their reporting and just how they, how they go about, uh, keeping the investors updated on what’s actually happening and not trying to dance around the, the truth of, of things.

Yeah. I, I love what you said, cuz you know, in inherent way you’re, how you’ve allocated it, it, it is challenging, right. To make that. That first leap into the kind of the passive investment world and, and a part, a lot of it’s trust and, and trust can take time to build. Right? So, you know, one of the things I always tell people is, Just start smaller, right?

The way to reduce your risk in any one deal is to reduce the amount you’re investing, right? And sometimes the minimums are higher, you know, especially if people are starting out than you’re gonna be used to. So it feels like a bigger number, but as much as you can, you know, start, start smaller and, and let them prove it to your time, right?

There’s a certain amount of due diligence that you’ve gotta do.  on the front end of a deal. But then a lot of that is, you know, confirmed as you go along in the deal and you see how they operate. And to your point, especially if there’s challenging circumstances going on, you wanna see how they’re gonna perform.

How are they gonna communicate if something’s not going well? Because unfortunately not every real estate deal goes, you know, perfectly. And that’s just a part of this business. Right. And that’s part. Being an investor, you have to diversify. It’s important. But, you know, finding those, those partners that you feel you can trust and that, that, that, that takes some time.

And so from what it sounded like, you’ve told me, you’ve, you only work with about five or six operators, but you’ve made, I think you said about 40 different passive investments, right? So you’ve made follow on investments with those kind of smaller group of operators that you feel good with and that has given you confidence as you’ve built that track record with them, right?

Is is that kind of.  been your approach or how do you think about the number of sponsors you work with and how much you’ll invest with one or how? How does that kind of work? Yeah, so we, we look at it geographically, you know, where people are really focused. Um, you know, some are in the southeast, a lot are, you know, we look a lot in Texas.

Um, Texas just has seen a lot of growth and still does. But now we’re, we’re starting to kind of look at other markets where we’re meeting those people. But, you know, the, the five to seven or so people work with are going to those markets and they’re actively pursuing deals in those markets and we’ve just built a good relationship with them to where whenever they have a deal, um, assuming.

It kind of fits our little box. Like do we want B class apartments or do we want more oil and gas right now, or do we wanna do more self storage or, or whatever it may be. Um, you know, they’re actively bringing those deals up and, uh, we, we look more to. That small little group as opposed to trying to expand and just cast such a wide net that you don’t really know what’s going on and you’re gonna catch some bad ones here and there.

I think if you try to go too broad, um, and like you, to your point in the beginning, we started small. You know, we would talk to people that had 50 or a hundred thousand minimums and say, by any chance, since this is our first, you know, we’re just getting to know each other, can we, can we lower that to maybe 25?

And you know, more times. That, uh, operator understood and they said, sure, let’s do that to kind of build the relationship. And then to your point, it kind of built on and we, you know, were in with five or six deals with a lot of these people. Yeah, no, that’s great. Great point. You know, I think it’s a good thing, you know, uh, to ask, you know, an operator if they’re willing to, you know, if you’re not comfortable at that number, that there’s their minimum, you know, to see if you can come a little smaller.

Cuz the reality is you’re gonna be in a deal generally for five plus years. Right? And so it’s, it’s a long-term commitment in a lot of senses and you don’t know all the information that would, you know, you general would like to know before you can make that, uh, decision on a deal. So, Again, minimizing risk is the easiest way to do that is limit the amount that you’re putting in initially.

Mm-hmm. , going back to kind of the, the active to passive journey, you know, what was kind of the, the calculus in your mind of, you know, one, getting comfortable with that, but then two, you know, as an active investor you can make a little bit more. Potentially, especially if you’re managing your own properties, like you said, you’re doing, but you are trading your time right for doing that.

And I think, you know, part of the, the misnomer of real estate sometimes is that it is, you know, passive income and there’s a certain element of passivity as a landlord, but you’re also kind of creating a second job for yourself right there. It’s, it’s not a hundred percent passive, right? It’s, it’s maybe more passive than w2, but there is still work involved.

You know, you can make some more, but what was that kind of calculus? As you’re kind of shifting more of your portfolio to passive, you know, um, how do you view that, right? Is it, if I can hit expert term, it’s a little bit lower than the active, but again, my, my time back, I don’t have to worry about this.

Get bigger deals, you know, potentially better deals. Talk a little bit about kind of how you thought about that. Yeah. To me it was all about time. You know, in, in the early stages when I was adding more properties quickly, you know, during a few years buying three and four, you know, every few months, and doing rehabs on all of ’em, which is very time consuming.

Um, it was just a lot of time. I was driving an hour and a half north to go. , you know, check on them, make sure things were getting done. Um, so it was really just more on the time and the returns. Once I started looking at the projected returns of deals, cuz this was kind of before we really started jumping more into LPs, it seemed that at the end of a three or five year period I would come out about the same.

Granted, I wouldn’t be holding the asset anymore. So there’s a downfall in that, not being able to refi down the road. But, you know, getting my time back was, was number one because, My wife and I have a couple other businesses that are already side jobs. So the real estate, I needed a very easy side job, which is kind of where we’re now, where it’s like, okay, I’m just texting contractors and HVAC people and, and relaying requests and just trying to cut out that 8% because, uh, just trying to make ’em pencil a little better, but the returns ended up looking.

The same, if not better, for less time. I mean, no time really. Um, just reading some reports and building the relationships with the operators, um, on the front end and then keeping up with what they’re doing. And then just in general, you know, the market and trying to make decisions the best I can on when to invest or when to kind of sit back and, and watch and wait.

Um, and then also my time. You know, is limited. And I wanna focus a lot of that on, on, I have my W2 still. And to be an active in real estate, especially if you start doing bigger stuff, which really is where you start making more money in the gp, you can’t be, it’s hard to do a w2. I mean, people do it, I know, but really if you want to do it, everyone I’ve talked to, they’re like, dude, you gotta quit your job.

You gotta really just go for it. And, um, You know, with two little kids and uh, a job, I actually don’t just hate or anything. It’s hard for me to do that right to walk away cuz it would take a good bit to replace my income by going and trying to be active. And there’s no guarantee on that. You know, it could be two years of eating lunches with brokers trying to find deals and I’m competing with other people that have been doing this for years and are gonna get that first call before I ever even, you know, am able to look at the finance.

So my thought was, let the professionals do it. I can do my W two. We can work on a couple side businesses that we have, that we have an advantage on to run and, and do better on the return on our time. And then if I wanna do other side things, why not focus more on the things that I do for work, like and do more.

Do more skill, do more jobs that my skills would fall into where it’s a better ROI on my time. As opposed, cuz I, I’ve tried to go the active route, you know, I thought I was gonna figure it out and start buying like, you know, 10 to 20 unit, 30 units. I couldn’t make ’em pencil. I was like, this is, this is a pain in the butt.

Like I don’t really have the time to do all this and I don’t. I kind of learned, I don’t really want to, you know, um, whenever I, I, I can let the people that do want to and wanna get out there and hustle and knock on doors all day and cold call and this and that, let them do it. Give ’em my money, get my 15, 20% return and everyone’s happy.

You know, that, that’s kind of my philosophy cuz I, I can make more, um, starting a different business, running the ones we have or, or doing more like consulting kind of work on the side for oil and gas or renew. Yeah, that makes a lot of sense. And especially if the returns you can get are pretty comparable to, you know, the, the active and it’s, it’s kind of a no-brainer if, if you get that, that time back and spend it on things.

To your point, maybe you’re have more skills that will, you know, give you a more competitive advantage than building other businesses. Um, and or just spending it if you have enough passive income and just spending more time with the family, more travel, whatever, you know, lifestyle you wanna. , that’s pretty invaluable right?

At the time with the family and the traveling, you know, we have a lot of fun trips planned for this year that, uh, I’m hoping just to unplug on for the most part. Um, but you know, I just, I found myself doing a lot of 15, $20 an hour kind of jobs, you know, moving out furniture, painting and apart, like stuff that, because I couldn’t get a contractor, they were hard to find or they flagged and I needed to get something done.

I ended up doing it myself and that’s not a very good use of my time. Yeah. Let’s talk a little bit about kind of your portfolio allocation strategy. So, um, you said you’re about 75% into apartments and a lot of that’s in Texas. Um, you know, when you’re looking at your overall portfolio, do you try to create, you know, diversification across, you know, asset classes, riskiness, um, you know, the.

Other things going on in these deals? Are you looking at that as a whole or are you kind of just building the portfolio one deal at a time and then, you know, kind of shifted as it as it grows? In the beginning it was just building it one at a time. You know, we had a only two or three people that we really trusted to invest with and they were heavy and multi-family, uh, or only multi-family.

So we built up that side of it pretty quick. Um, mostly looking at more work. eClass kind of apartments. Nothing fancy, nothing too big a value add with some light value add. So there’s some opportunity. Uh, typically we steered a clear of a class just simply because there wasn’t a, a ton of meat on the bone for what we were looking for.

Um, j it just didn’t really fit too much Recently. We’ve kind of done one or two of those just as more of a cashflow yield play and getting into those nice safe assets, um, where we. For the next couple years would be a good place to, to park some money. And then while we were apartment heavy for the first couple of years recently, we kind of started opening that up to self storage.

Um, In mobile home parks. We’ve done a couple of those just to, just to try ’em out. They seem like a good idea. More mostly on the land play, right? Cuz you’re entitled and it’s not going anywhere and it’s very valuable to have it where it is. Uh, and then recently, over the last six to nine months, some oil and gas.

Um, cuz I kind of see, you know, our company is basically, you know, we’re a power company, we’re a generator, we’re independent power producer, but we’re also like a commodities company cuz we have to have future contracts on gas. To understand how to operate our plants. And so I get to kind of peek behind the curtain a little bit on that and see how things are going.

Um, so, you know, I always kinda, and coming from an oil and gas background and being in Texas, I, I think there’s a lot, uh, a good amount of value to diversify into some kind of commodities like that. Um, so we’ve kind of jumped into that a little bit. Haven’t done much industrial, you know, kind of been gun shy over it.

But with everything that went during, uh, went on during covid with supply chain and kind of seeing some of that shift back to the us um, makes sense that there would be, um, you know, potentially some, some good opportunity or runway there for, for, for facilities and good areas of, uh, of access, you know, highways, rail, rail, you know, things like.

So yes, we’re, we’re thinking about it, but also if a good deal comes along, that’s an apartment class, you know, a c class apartment in, you know, San Antonio or Houston or whatever, like, we’re gonna jump all over it. Um, so just depends. Yeah, I like that it’s kind of the, you know, brick by brick approach and, um, if it’s, if it’s a good deal, then it’s a good deal.

So it, it makes sense too, as you’re building, right? You don’t necessarily have a big enough portfolio to create, you know, a more diversified. You know, uh, portfolio across asset classes or, or whatever. But as you get, you know, bigger, that kind of makes more sense to, maybe you do have a little, much too concentration just in Texas or migration patterns start to change over the next, you know, decade or whatever it is, you know, you might wanna think, think differently.

Um, how is your approach, you know, going into this year, 2023. You know, in, you know, potential risk of recession, slow down of the economy. What are, what are things that you’re thinking about, you know, from kind of your investing standpoint? Are you wanting to send in a lot more cash? Are you, you know, wanting to keep deployed but into more conservative opportunities?

And how, how are you thinking about, you know, investing going into this year? Yeah, no, no crystal ball, like everyone, right? But we are kind of sitting on our hands a little bit and just watching and seeing what’s going on. We’re still investing in, in some things that come around, uh, just to keep things moving and that’s our plan.

Um, but thinking about where more so than anything, um, and what asset class, you know, we probably won’t do a lot of. Minus C kind of apartments or older assets, you know, 50 sixties kind of things that need a lot of work. Probably stick more to like a yield type thing. But, um, definitely gonna keep some dry powder and, uh, Kind of wait for those opportunities.

You know, we’ve been able to meet some, some smaller operators. You know, that the people that we’ve met and like that are doing more like the 30 to 60 unit kind of plays where, you know, typically, I know you’re supposed to stay above a hundred cuz you get economies and get. You know, labor and everything paid for, but, um, you know, some of the deals that they’re finding are, are, are, seem, seem kind of attractive just cuz they’re off the radar for a lot of the people that need, need the bigger deals to justify the expenses and setting up and, and managing those.

So, um, yeah, we’re just kind of sitting tight and doing a lot of reading and seeing how things go. Um, you know, with, with anything like 401K and all, all the stock market stuff, we were fortunate to be sitting in cash for what felt like forever while the market was going up. But I’m glad that we’re just sitting in the money market accounts right now.

Um, so maybe we’ll start dollar cost averaging some of that back in over 23. Um, probably more the second half, but. . Um, yeah, I, I definitely don’t know as much as the operators who are reading this and watching it every day. So I’m, I’m, I’m looking at the, the emails they send and the podcast they do, and the information they put out of the ones that we like.

And, uh, it seems like there could be a good opportunity in late 23, 24. Um, so we’re kind of sitting and waiting and making sure we’re, we have cash available for. Yeah. Makes sense. Yeah. I’m, I’m curious, and you, you kind of mentioned it here, kind of doing your homework and listening to those podcasts. What are some of the other ways that you educate yourself?

I mean, you’re in so many different asset classes and so many different deals, and where we’re at in the market is really unique. Um, so, so what are some of those ways that you educate yourself to, to feel comfortable getting into a deal, to kind of, uh, decide where you’re going moving? . Yeah, there’s a, there’s a couple masterminds that I’m in that are specifically for, uh, LPs and people that wanna be passive investors.

And it’s full of mostly doctors, engineers, lawyers, stuff like that. Um, but there’s good papers that we kind of share that we all find in there. Um, just paid subscriptions to different white papers, things like that. And so reading those is good. Um, I spend a lot of time traveling. So honestly, podcasts are great cuz they’re not boring.

You know, I can’t listen to, I can’t imagine listening to like a white paper on audio or something. Like, that’ll put me to sleep . So, um, honestly, just still like a lot of podcasts and, and the people on like your side of the desk that are well informed and watching this cuz it’s your business and when you present that, you know, That, that helps me out a lot cuz I can kind of stay in tune with what’s going on without having to dive into a, you know, an 80 page report and find.

Five bullet points that I really want out of it. So, uh, really rely on that. And then again, just at work, we’re kind of keeping a, a view on everything as we go forward because, um, you know, commodities drive a lot of things and power markets kind of show where things are going. Um, and then geographically we look at different reports.

So we do invest. Um, you know, we started moving outta Texas cuz initially I was so conservative. I just like, I wanna know Houston, I wanna know Dallas, I wanna know these little neighborhoods. Um, before going to Arizona or going to Phoenix where I, I didn’t know what these little towns were and what was good and what was bad, but, uh, you know, so, so studying the geographic reports and the migration, you know, the U-Haul kind of stuff that we’ll see.

The little glimpses of where people are traveling. And then keeping in touch with, uh, new players like Samsung and the big tech companies and where they’re moving, you know, which is obviously a lot in Texas, but other states too. Um, and then government contracts like Huntsville, Alabama, and seeing how that market is kind of shaping up.

Yeah, so Love that. Yeah, just a lot of podcasts and, uh, You know, discord channels, talking with other investors and people that, you know, pick up things from other people, um, that they wanna share. And, you know, you have to learn to take everything with a, with a grain of salt cuz some people are, are biased a little bit.

But also I feel like a lot of the people that we listen to on the podcast, you know, they’re not making predictions, they’re just kind of reading and then giving their thought on it. And then I like to kind of make my own assumptions from. Yeah. Well, one of the questions I always like to ask is, you know, who’s in your inner circle that you know is helping?

they’ve given you confidence to be able, you know, to, to allocate, you know, and, um, you mentioned masterminds, uh, for limited partners, which is awesome. And we’ve started, you know, we have a lot of investors that are, you know, participating in these types of masterminds. How, how’d you find these for someone that’s maybe not in a mastermind, don’t really know what it is?

Yeah. And what’s the benefit, you know, how, how, how did you find them and, and what have you found that to be, you know, some value add potentially from those? Yeah, so originally the first one I joined a few years ago was from a podcast and just reached out and, um, started talking to ’em and got an idea. It was a relatively small group, less than a hundred people.

Um, kind of got an idea of what their. Um, occupations were, you know, how we would fit in. And, you know, the idea was, you know, this is no GP stuff. If you wanna be active, this is not the group for you. So you wouldn’t get people trying to get you on their email list to pitch you deals and all that. It was just strictly, um, strictly talking about ways to do alternative investing tax strategies.

You know, I set up my I B C through that group, all that kind of stuff. . So these groups, you know, at first they were a little daunting cuz yeah, you gotta pony up a check and, and pay to be, uh, a part of a social group, which for the longest time, I always thought was a little silly. But I think I’ve gotten the value back.

And then also the network in there, if there was another syndicator, a lot of times they’ve either talked to them before, you know, someone out of that 80 or so, people have reached out to them and they can give you their feedback on. , um, maybe something that you may not catch if you meet with ’em or experience they have investing with them in the past.

So a lot of value in that to, uh, have those referrals. Um, but yeah, just started by reaching out to the podcast, uh, creator and, um, talking to them and it’s turned out pretty good. I mean, uh, I, I like the group. You can talk my, my close friends, you know, the ones I go hang out with and play golf and all that.

Some of them will talk about stuff like this. Most of ’em we won’t. Right. So this kind of gives me another outlet to go talk about the, the boring stuff that some people find boring, I guess. But I find fun to talk about. So, um, it’s good to kind of expand that network and, and, uh, And meet. And that was, that seemed to be a good way to do it.

Cuz you know, striking up a conversation about apartment investing at a bar with somebody sitting next to you doesn’t always lead anywhere. Right. So, yeah, , I love that. And one of the things I always, you know, tell people that are just starting out is, you know, self-education is, The best investment you can make early on.

Um, because unfortunately there are kinds of schemes out there, right? There are people that are, you know, trying to, you know, take your money and it’s, it’s not legit. And as you’re starting out, a lot of the things that you do initially, You may not do the same way five years from now. Right. Looking back as you’ve learned.

And so as much as you can, you can shortcut that process. And whether that is mastermind groups, which I’m, I’m, you know, part of a few of them. And, um, you know, if it’s the right one for you, you know, definitely can help shortcut some things. Podcasts, it’s free education and, you know, learning all about what’s it like to be a limited partner and what are the things to look, to look for in due diligence, you know, doing all of.

On the front end as much as you can, is really gonna save a lot of headaches down the road. And um, you know, it sounds like you’ve, you’ve done that, you’ve kind of had the advantage of being active in real estate for a while, so you knew, you know, a lot of the, the basics, but it was a different game when you’re limited partner, cuz you’re not in the driver’s seat.

So there’s other things you have to look at and, you know, take ’em to your calculus, then you would, if you’re the one that’s doing. Yeah. And in that, that, in one of those masterminds, that’s a good chorus on kind of underwriting deals as an lp, like what to look for and, and understanding all the terminology.

So that was a good education component to it. Um, cuz I, I don’t want to be the LP that invests with someone and then is asking a million questions every week. , you know, what’s going on with this? How are the rehab? Like, that’s not my role. You know, so just also understanding that, you know, you’re, you’re entrusting this person to do what they’re gonna do, and they know how to do it.

So, you know, invest and sit back and, you know, ask questions if you need to, but for the most part, um, let ’em do their thing. Yeah. What, what’s one of the best investments, you know, you’ve, you’ve done in the past, you know, decade or so, have you’ve been investing. Yeah, on the LP side, um, there was a apartment complex kind of around central Texas that we were only in it for 13 months and it hit year four proformas, like real quick

So it was a nice like quick exit, right? Um, to make 70 or 80% real quick. Um, it, it was, it was nice. Uh, I think we did like 60 something actually, but it was just a real quick. And we got very lucky, or, you know, to get in with that one, it was a smaller one. A friend of a friend who, you know, all this person does is they raise three to $6 million.

They, you know, find the guy on the ground that’s doing the guy or girl on the ground that’s doing all the work and uh, you know, they know what they bring to the table. So that was just a, for a quick turnaround one that was pretty nice. Um, most of our deals we’ve been in. I guess about three years, two to three years now.

So we’re starting to see ’em turn over. So I can’t really say which one would be the best one or which one would be a home run, you know? And with things going on where they are now, some of those got postponed a little bit, but luckily it seems like they’re stabilized cash flowing, the debt’s good. . Um, you know, that’s one of the things that we look for initially is, um, the debt structure and just finding some certainty around that and hope somebody’s not playing with the underwriting template a little too much to try to make it look better than it really is.

Um, so, you know, we, we like those boring deals, 70 30 splits, you know, fixed debt, uh, things like that. So hopefully over the next couple years, um, whenever we get another ride back up, we’ll we’ll be able to divest to some of these and, uh, roll ’em into the next. Awesome. What, what are some asset classes that you know outside of multi-family that you’re most interested in right now?

You mentioned oil and gas. It sounds like that’s one that’s on your radar just from kind of the, the inside knowledge you have in your industry. But anything else that’s kind of peaking your interest? Yeah. Um, on the renewable side, you know, I have to be careful cuz I gotta watch out for conflicts of interest since, you know, competing in this space.

But I think there’s a lot. Cheap capital chasing this sector. Um, and I have a lot of friends that have gone to go work for these small private equity groups where, you know, they’re working 80 hours a week and they’re, but they got 3% of the company and if it sells, they’re going to be done. And, you know, taking time off.

Um, so looking at some of those sectors is definitely interesting in finding a way where I can get involved, um, as a passive or maybe even a little bit more active since it’s kind of how. , you know, how I make my living. And seeing where there’s a, a way to get in on that with a little bit of equity upside on something that’s not a direct competition.

So like distributed generation, um, is, is an interesting one, which is just small batteries in pocket clusters of urban areas to kind of balance out the grid. Um, that’s something my company doesn’t do, so I could maybe jump into that space. Um, so yeah. Something like that, cuz I see it every day and I’m in it just like an apartment investor sees it every day.

You know that’s the best use of their investment. And tough time. So, uh, that space. But, you know, self-storage, we’re kind of throttling back a little bit on right now and just kind of sitting, um, like you said, oil and gas. You know, we, we went pretty heavy for us in, in four or five of these things over the last year.

So now I kind of wanna start seeing ’em pay off and stabilize and, and improve themselves. Um, and then kind of see if we wanna get back into it. But, um, somewhere in the green space, just because that, The direction that, uh, you know, the tax code is telling us they want us to go. So, you know, we need to kind of look at that and, and think about where we can best, uh, um, take advantage of those opportunities.

Yeah. Any investments maybe earlier on that aren’t performing well or you wouldn’t do again, and maybe something you learned, you’ve learned from that? Yeah, I mean, maybe not on, uh, asset class, you know, that. The first one we did was through a realtor friend, and, you know, he’s like, yeah, I have this guy doing this.

You know, one of those things. I was like, sure, you know, you’ve helped me on a few fourplexes up here. Let’s do it. And the guy just completely like, we still have it. It’s been three or three and a half years, like no reports every quarter about how it’s going. It’s going horrible. We’re trying to sell it.

I’m like, this is a horrible time to sell. It’s, it’s just everything that could go wrong. Like, I’m glad we didn’t have, uh, hardly any money tied into that one, but, That was just a, that was a bad first example of how things would go. So it really, I’m kind of glad that it happened first with not much capital tied into it, you know, low risk and, um, cuz it really kind.

Made me be a little more alert of what to look for next and not just go with a small person who doesn’t have a great track record, you know, one or two deals, but really look to the people that are the professionals. And you know, the way I look at it is if they have a lot to lose by trying to, to pull something, then that’s a good, uh, common ground.

Or, you know, we both have, um, aligned. So, yeah, that, that one is, uh, it’s on the market right now and it’s, it’s not getting up any kind of nibbles at all, but that’s, that’s the only one that went bad, um, on the, like the little rental properties and everything we have, you know, there’s always hiccups in those things, you know, that happened.

But we had some good wins with the ones in Austin and that was nice because it allowed us to go fund more LP deals that otherwise we probably wouldn’t have had the cash to do. Yeah. Love that. Love that. There’s a lot of wisdom in that for sure. Yeah. And what would you say for, you know, to yourself five years ago, just some golden nuggets of advice for, you know, getting into the, the passive investor role?

Yes. Um, probably to spend more time networking and actually going to the events where those, those operators go and meet them in person more and stop thinking I can do everything on my own. Um, you know, that I don’t need. Just buy little rental properties and you know, it, it’s great and you know, it’s a path for some people.

But, um, for the lifestyle side, I would say go network more and, and meet the people that are doing it and get in with some of the syndicators or the operators that are not starting out, but like in the, you know, they’ve done maybe five or six apartments, so their deals are still pretty favorable to the LP and they’re finding you.

Good deals and they’re, they’re gonna do whatever it takes to make sure it works because their reputation is on the line. Um, so meeting some more of the up and comers, I guess, um, when you’re starting out and maybe aligning yourself with them to be, um, even potentially like a, get some GP shares if you bring in enough of the equity at some point on a smaller deal, um, to learn a little bit more of the ropes.

But, uh, yeah, just more networking, more education. You know, I wish I had joined a mastermind, you know, whenever I was doing. Just the, the small rentals myself, just, so maybe I would’ve gotten out of that a little bit quicker and moved up. Um, which, you know, everything worked out worth, you know, thankful of the way it did.

But same time, um, reaching out for help and educating myself around what else is out there earlier on would’ve been better as opposed to just thinking, um, with the masses. I guess on more of the, the smaller scale. Yeah. Awesome. Well, Eric, this was awesome, super fun conversation and you’ve shared a lot of wisdom here, so I really, really appreciate you doing that.

And, and I’m sure our listeners got a lot of, a lot of good, uh, nuggets from this conversation. Yeah, really appreciate it. Thanks so much, Eric. Yeah. And I appreciate you guys. Have a good week. Bye. Nice 

I know it’s, uh, you know, a sacrifice for you, but we really appreciate it. I’ve definitely learned some good things and um, it’s good to do for you. Let us know. Yeah. And, and one thing maybe, I don’t know, I know you guys are looking more on industrial and everything now. Like I have a call in one minute to talk about liability transfer whenever we shut down power plants and we sell it to a company called Commercial Liability, something.

I don’t know. Basically they assumed the liability of a non demo, like recourse plant. And they demoed out, do all the environmental work, and then they have free and clear land with in infrastructure, like power line substations and all that in place. Wow. And then they sell it, right? So then they’ll sell it to an industrial partner.

And so we’ve sold some sites to them. We’re buying one in California called Cool Water. Um, or we’re gonna build a battery plant from them. Um, but like we sold some, like a big plant in Texas, now we’re trying to get it back cuz we realize that was dumb. We could have, we needed it now,  or something. That’s awesome.

But yeah, no, i, I I hope we, you guys, uh, um, have a good week and I appreciate the time and if you ever, uh, start dabbling around in renewables or find some little, like, I don’t know, filler or battery or some kind of cool thing to invest in, I’d be happy to, to look more into. Yeah. Or vice versa. If you find something that you think’s pretty sweet and he’s a little bit more capital than just a few, few smaller investors, we’d love to see it too.

I mean, I, I love, I used to work somewhat in the renewable space as well. I mean, I knew the Jeff and Tradewind Skies really well, and, um, I think energy’s gonna be a big play. I think there’s opportunities on both sides of. Hydrocarbons as well as renewables. So we love that space. Um, energy is probably our number one asset class this year, and so we actually have several kind of deals we’re teeing up, including some, some mineral rights and other things.

Um, and industrial’s probably number two. So we’ve got, got some, some deals tuned up there, but well, Yeah, there’s some companies that, uh, they reach out. We, we own and operate our projects and a lot of times we own the land underneath it. Um, cuz we’ve had all these coal mines and everything everywhere for a hundred years that we’re reclaiming and then converting.

Um, but there’s companies like, uh, renewa, which is Paloma Oil and Gas. And then, uh, um, some of these guys that all they do is they go, like they own some land underneath one of our solar farms where they bought the landowner out and then they just do a yield play, you know, for, I think it’s like a 12 year rate of return for them.

And basically now they’re just the, the lessee or the less or so we just pay them a rent payment every month. And so they’re, it’s just a cashflow game to them. Right. And they get money pretty cheap from an insurance company. They turn around and make six or 7% of their money, but they own the land underneath the operating solar asset asset.

And so for the life of that project, and then if you think a renewable project will be in that place 30, 50 years from now, or some quarter of form of energy, they own the real estate. So it’s a pretty good little play. They usually work with smaller companies that don’t have the capital to build a project or to buy the.

And they come in and say, sure, we’ll buy the land and you lease it back. It’s just a sell lease back is all it is. Yeah. Um, and they’re, they’re doing pretty good stuff, but uh, you gotta have really cheap money to make it work. Yep. . Well cool guys. Well y’all have a good week and, uh, look forward to some of these more energy plays coming out.

Think it’ll be a good, a good run for that in the next few years. Yeah, we’ll keep you in the now. Awesome. Thanks Eric. Bye there guys. Bye bye.


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