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Passive Investor Spotlight #2: Using Your Network To Find And Vet Sponsors With Jim Pfeifer

ILB 7 | Passive Investing Sponsors

Tune in to hear Jim Pfeifer share his vast experience investing passively. Pfeifer is a full-time investor, who also built a large investor group to share ideas, connections, and resources to unlock access to more opportunities. In our passive investor spotlight series, we talk with individuals who have had success investing passively in alternative investments. Throughout this series, we’ll dive into what’s worked for them, what hasn’t, how they vet sponsors and manage risk.

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Passive Investor Spotlight #2: Using Your Network To Find And Vet Sponsors With Jim Pfeifer

We have an awesome guest, Jim Pfeifer. Welcome, Jim.

Thank you. I’m glad to be here.

Jim Pfeifer is one of the Founders of Left Field Investors and he is a host of the Passive Investing from Left Field Podcast. He runs this group Left Field Investors, which is dedicated to educating investors in the nuances of passive investing and the world of syndication. There are a lot to unpack there. Jim is a former financial advisor and he became frustrated with one size, one path fits all approach and shifted to concentrate on investing in real assets that produce cashflow. I’m excited to dive into that story. Jim practices what he preaches and has invested in over 45 passive syndications across a variety of asset classes including apartments, mobile homes, self-storage, private lending notes, and ATMs, the list goes on and on.

Jim, I’m excited to have you here. One of the things we would like to do in this show is what we call our Passive Investor Spotlight Series. You fit this profile perfectly because a lot of our readers and a lot of investors, in general, want to get to that point where the passive income that they receive can exceed their earned income, functionally retire and have time freedom.

A lot of the different asset classes you are invested in allow you to do that. What we love to do is just know your story, your background, how you’ve got into this, what’s worked well for you, and what hasn’t worked well. Being able to learn from those successes as well as challenges, and things that come up so that we can be better educated.

It’s important to have monthly meetings to discuss blogs and resources for your business. Click To Tweet

I know you are an educator at heart. You used to be a high school Finance teacher and a financial advisor. Now, you are a full-time passive investor. I’m excited to have you on, Jim. If you don’t mind, jump into your background, how you’ve got started in all this, and what was the whole transition from financial advisor to real estate investor.

Again, thanks for having me on. My story is I’m on career number four, hopefully, the final career. I started just in the business working for a reinsurance company and I did that for about 11 or 12 years and then, as you said, I went on to become a teacher of Finance and Accounting in Inner City Columbus schools, and I did that for a few years.

At the end of that, I slowly transitioned into being a financial advisor because I wanted to be more independent work for myself and I have always been interested in finance and money. What led me to this is, I learned about money and finances more than I ever thought. I thought I had it all figured out. I had been in finance for years. I had been investing in the stock market mutual funds since I graduated college.

The more I learned about money, how finance works, and about how financial institutions work, the more I went towards real estate and realized that the paper assets that I was selling were not what I want to invest in. I always prided myself on only putting my client’s money into stuff that I was putting it into.

I slowly found out that I was recommending real estate to clients but I’m not licensed for that. I also don’t get paid for that, which is why financial advisors don’t recommend it. I made the switch. It was a slow switch and I worked both financial advising and my passive stuff for a couple of years. When I’ve got to the point where I was going into the office and 90% of my day was working on my real estate stuff, I figured out, “It’s time to move.”

At that time, I also had sold all of my active real estate investments. That gave me the cushion where I had some money so I could generate the cashflow. I could put the investments in, and then know that the cashflow would come. That’s where I ended up and I have been investing in a lot of different things. In the beginning, I didn’t know what I was doing and slowly, I have learned, I use my community and my network. Now, I can handle it somewhat.

I love to know a little bit more about what we find with a lot of our investors. There are these two worlds of investing, either all stock bonds, mutual funds and the traditional stuff. Real estate is everything and active real estate Robert Kiyosaki-type of folks. What was the point in bridging both of those gaps? Was there a point that a salient moment where it’s like, “This is where I want to go, and real estate seems to be in the path that’s going to get me to where I want to be?” Was it just over time or it developed that way?

It was a little bit of both. The way we came up with the name Left Field Investors is my former colleagues in financial advising always looked at me like I was way out in the left field doing this crazy real estate stuff with these alternative investments. To me, they are not alternatives. It’s where you live, self-storage, it’s where you put your stuff.

These are real assets to produce real income. What I realized was that the stock market and some of those paper assets to me are speculations. You are hoping at some point that you can buy something and sell it to somebody else for a higher price later. I then realized in real estate, that’s investing because what you are doing is, you are buying something, you are making some improvements to it, you are probably forcing appreciation, and then it doesn’t matter what the market says about it.

The whole time you are receiving income and every time you force appreciation or do something to the property, you are increasing the income that comes back to you. That doesn’t matter if you are active and you are doing that or you are passive like I am where you are investing in people that are doing that for you.

ILB 7 | Passive Investing Sponsors
Passive Investing Sponsors: Left-field Investors is a group of individuals who are all interested in building wealth through passive investing in syndications.

I realized that what I want financially is assets that produce cashflow and the paper assets just don’t do that. Also, in paper assets, if something can happen that has nothing to do with the stock you bought, the price can crumble. That just doesn’t happen in real estate. If the price of the asset goes down, I’m still going to get cashflow. It might be a little bit less eventually but it’s not this boom and bust stuff. I think of paper assets as speculation. There’s a place for it but the majority of what I do is invest in real assets.

Can you share a little bit of the genesis of the Left Field Investors group that you started and what prompted you to do that? What’s the purpose of the group at this point?

Left Field Investors started in 2020. I had made the transition and I was doing more passive investing while I was active years before. I had started a local meetup group and I’ve got a lot out of it. I wanted to do the same for passive investing. I wanted to keep it small, to have my own little mastermind of twelve people and we are going to have a dinner club.

Our first venue was March 18th, 2020. I remember that because I believe March 16th, 2020 is when Ohio shut down for the pandemic, so we never met in person. We still haven’t met in person. We transitioned everything to Zoom and that allowed us to invite more people, former financial advising clients, friends and people that were interested. We could get people from out-of-town, and then we realized we can get guest speakers, syndicators and other kinds of people.

As we kept growing our group, we tried hard to keep it small because we wanted like-minded individuals and to build a community. We decided we needed a brand because we were reaching out to syndicators and we wanted them to know, “We are all coming from the same place.” It just slowly grew. We developed tools to analyze deals, screen sponsors and track your portfolio. There are two parts of Left Field Investors. One is, we have our monthly meetings, blogs and some resources. We have what we call the Infielders Group, which is a paid group. That’s more for networking, we have a forum in there, and then all those tools I talked about are available there.

The purpose of Left Field Investors is education and networking for people who are interested in passive investing. That’s what we are all about. That’s our goal. We have people who are super experienced and are in over 50 deals, and we have people who are just working towards their first deal and everything in between. It’s a group of quality individuals that are all interested in building wealth through passive investing and syndications.

Is this an open group? Do you take new members? Do you have a vetting process?

It’s completely open. If you want to be in the Infielder Group, there is a charge for that. We charged $199 a year for that but everything else on the Left Field Investors’ website is completely free and anyone can join.

Jim, do you have a question for him?

I wanted to ask Jim, for myself but also to clarify for our audience here, you mentioned that at one point in time, you sold your active investments to move fully into passive. Were those rental houses, do you mean, development projects or apartments? What were your active assets to make the distinction between active and passive here for some of the audience?

I started as an accidental landlord. We moved and couldn’t sell our house in 2008, and that was great because that got me into real estate. I bought a couple of other single-family homes and rented them out. I learned about turnkey investing, where someone else rehabs the house and they sell it to you with a tenant. I did that.

Once I found out, you can make a little bit of money on a single-family home, I thought, “Of course, you could make a whole lot more on multifamily,” so I started buying some multifamily properties. The market saved me. The cashflow is not coming in. I did not manage the managers. I had to switch managers. They weren’t doing a very good job and that’s when I found passive investing. I realized that that’s a better model.

You have professional people who are managing properties for themselves and us, and it was just a much better model. I ended up selling all of my active stuff. Again, I was rescued by the market. I didn’t get the cashflow but I’ve got the appreciation. I talked to my accountant and he calls them the Lazy 1031. Instead of trying to find a new property to go into when you are trying to avoid these taxes, if you just invest in syndications, you get the cost segregation and bonus depreciation. It wipes out your gains or defers the tax on your gains. That’s what I did when I sold the active stuff.

Thanks for clarifying that. When they think of passive investment, a lot of people think owning rental homes is passive investing and if you have ever done it, it’s absolutely, not. There’s nothing passive about it, even if you have a good property manager.

That’s a great point because I did think I was passive investing and I certainly wasn’t because I was on the managers all the time running reports. It was not at all passive. That’s a good distinction there.

I love what you are doing in this group because we find with a lot of our investors that we work with at Aspen. We did a survey and said, “What are your biggest challenges when it comes to investing in these types of assets and passive investments?” The number two things were, “It’s hard to find good deals and I don’t know how to underwrite them. I don’t know how to evaluate if this is a good deal or not.”

It keeps people on the sidelines. They hear the stories maybe from you like, “That seems like the life to know, and have confidence in investing in these other sponsors and have passive cashflow.” Talk a little bit about how do you guys, and you personally as well in your group, vet sponsors? How do you get a deal flow and how do you educate around these different types of investments?

That’s a big question and it’s the most important question for me. The sponsor is number one. What we do is we evaluate the sponsor, market and asset class, and then the deal comes last. If you don’t have a good sponsor, it doesn’t matter how good the deal is. It’s just not going to work. The big question is, “How do you find a good sponsor because they’re all over the place?”

First, evaluate the sponsor, then the market, then the asset class. The deal comes last. Click To Tweet

I have a podcast and you have a show, and then there are plenty of people that have podcasts that are better marketers than they are operators. What you need to do is not find a great podcaster or a great marketer. You want to find a great operator and sometimes they are both. They don’t have to be mutually exclusive.

That’s why we are building a network and a community because these are some of the least liquid investments you can make. Typically, you are going to get on a call with the sponsor, talk to them for maybe 30 minutes or an hour, and then you are going to be expected to wire them $50,000. That’s a heavy lift.

What we do at Left Field Investors is screen our sponsors. We have a sponsor screener spreadsheet with all the questions that we like to ask and most of those are typically answered when the sponsor introduces themselves and talks about stuff. It keeps everybody on track, so you have your questions to ask but another thing we do is if you build a community, you can refer people and find out who the best operators are.

When new people come to the group, we say, “Who do you work with?” Here’s who I work with, and you just share the knowledge because we are all investing with different people. A referral from someone that you know, like and trust will probably end up with a sponsor that you know, like and trust because that’s the most important thing.

Finding a sponsor is difficult and what I recommend is to use your network, have some dialogue with them and then continually test them. For example, when someone sends me a deal, as I said, we have a deal analyzer through Left Field Investors. There are about 30 metrics that we look at and it has to fit in this box. For anything that doesn’t, the Excel spreadsheet turns red. You may have 4 or 5 red cells and you are like, “That doesn’t mean I don’t invest in the deal. That means I ask a question.”

This is a great way to test the sponsor. What I’m testing for is I’m going to email you the questions that came out of my deal analyzer and I’m going to expect a pretty immediate response because if I haven’t given you money yet and you don’t respond to me in a timely fashion, there’s no way you are going to respond to me after I have given you my money.

That problem really happens.

I’m passive but this is a test because if you are not going to communicate with me effectively, that’s going to frustrate me, so I don’t want any part of that. The other thing I’m looking for is, how do you answer those questions? Not only the speed with which you answer but do you know the deal? Are you annoyed? Do you say, “Go watch the webinar if you want those answers or do you respond to me and give me answers in detail?” That’s just another check on the sponsor.

That’s how we do it. There isn’t a hard and fast way to evaluate a sponsor. It’s very difficult but if you have any funny feelings, you don’t feel good about them or you don’t think they’re good people, then just move on because there are plenty of sponsors and deals. You want to make sure that you are dealing with people you know, like and trust. It’s hard to get there but using your community, helps.

I have heard that another passive investor refers to themselves as an active-passive investor. Instead of being an active real estate investor, you are managing your own properties or the property managers of those properties. You are vetting these sponsors who are the ones using your funds to whatever the strategy is, generate a return or income, and that becomes the focus.

It’s something that a lot of people feel ill-equipped to do but some of you help investors. I would love to dig in a little more on that. What are some of the bright lines that you will be automatic know with a sponsor or if they hit a certain number of criteria to know? Break down to how you do that a little bit because I would be very curious to see what factors make up the decision matrix.

It’s hard to say that there’s anything solid that will tell me no for somebody. If they are guaranteeing returns, that’s a no. Once I look at their deals, if their assumptions are way out in Left Field, I will say no. There isn’t a solid way for me at least to screen people as far as the noes because I don’t want to eliminate someone just because they don’t have experience. If you don’t have experience, I want someone in your team that does. If you don’t have experience doing syndications, I want you to have had experience in real estate.

For example, the worst deal that I have had where I lost money was someone who was a turnkey provider and they decided they were going to go into office buildings. They had never done it before. They didn’t hire anybody who knew how to do real office space and it was a disaster. They did a horrible job and lost money.

Now, I have learned. I’m not going to invest with you if you are doing something new. There’s another multifamily syndicator and they’ve got into self-storage. The first thing I did was I asked, “Who’s got the expertise,” and they hired someone who had significant expertise in self-storage and that was now the person running the show.

I would consider investing with your self-storage there because of that but I’m not going to invest with somebody who has no experience and they are doing something brand new. I don’t want to be the guinea pig on that. Those are a couple of things that are the hard lines and it’s not a whole lot. The rest is just touchy-feely like you have the conversations and you see if you like the people because you are going to be dealing with them, and if you don’t, you move on. I wish I had a better answer but I don’t at this point.

That’s very helpful. How do you approach your allocation strategy personally? You have 45 syndications and you are a part of a lot of K-1s. How do you approach this? What are your objectives? Are you looking for income or growth? Does it depend on the deal? Do you look at market-driven opportunities? Did you look at particular asset classes you like and the riskiness level? Break down how you approach your personal allocation strategy.

At first, it was just whatever crossed my desk. I was like, “I’m in.” When I first started, I had a 401(k) from a previous employer and I put it in a self-directed account. I went to a seminar and everybody I met, I invested with them. Those deals are doing okay. I would never invest in any of those deals now because I have learned that you have to allocate and figure out where to put your money and make sure it all works together. Now, my goal is to diversify by sponsors. I don’t want everything with one sponsor. I’m diversifying by asset class and market.

I’m trying to get deals because, for multifamily, that’s the bulk of this. I don’t want all my deals to be in Dallas, Houston and Phoenix. I want some deals in other places. That’s one of the things I do. Also, when I first started, I was doing the Lazy 1031, there was a sponsor that did a great job at cost segregation and bonus depreciation.

ILB 7 | Passive Investing Sponsors
Passive Investing Sponsors: In passive investing, you have a better model. You have professional people who are managing properties for themselves and you.

I did a bunch of deals with that sponsor, and then I realized I need to get other sponsors in case this isn’t what I think it is because these take so long to play out. It takes you 3 to 5 years before you know if you made a good investment or not, so it’s hard. I have spreadsheets and now we have a portfolio tracker on our website for Left Field Investors so I can see how many multifamily deals and self-storage deals I’m in. I don’t have a hard and fast number for how many I want of each.

I just know that as new deals come in, I’m looking for things to fill holes in places that I have, and I don’t want everything to be of one type. In the stock market, it’s fairly easy. They say, “You want 70% in stocks and 30% in bonds or whatever it is.” I feel like we haven’t figured that stuff out yet for these passive syndications.

I don’t really know and I’m investing for income because it is my full-time job, and I’m hoping that appreciation comes on the back end but cashflow is the most important thing. There are several deals I will do that are strictly cashflow plays like the note stuff that we are doing with you and some of the other companies that maybe do lending.

I try to do that out of my retirement accounts but still, I also do some of that in my taxable accounts because that is income that I know is going to be steady and will come in. You have to figure out what you are doing. Do you have a large W-2? If so, you probably don’t need the income, then you are investing for appreciation. You can do it a little bit differently. I don’t think I realized that at first when I was doing all those cost segregation investments. Now, I’m much more focused on cashflow.

How do you manage the illiquidity factor? You mentioned that earlier and it’s one of the biggest may be hurdles for a lot of investors where you get into a deal with a sponsor and it may be 5, 7, sometimes 10 years depending on the strategy. That’s money that you can’t pull out if you need it for an emergency. How do you manage that being this many? At this point, you’ve probably got enough that are paying off over time so you have liquidity events that are occurring and you have enough cashflow. How did you manage through that to make sure you weren’t maybe over-allocating into less liquid investments?

It’s tough because, while you have the W-2, that’s when you need to start. You can’t just quit because you are not going to have any income at first. Part of managing that illiquidity is making sure that you have income from something else from a job or in my case, I had some income still coming in from financial advising. I also sold a bunch of properties so I had cash and I didn’t invest at all. I kept some back.

Until I had a certain amount of income coming in every month, I wanted to make sure I had enough cash from the sale of the other properties to bankroll that. You just have to figure it out. It takes a long time. This is not a get-rich-quick scheme. It’s a get rich, very slow and steady scheme, and then it snowballs. You have to set your goal and figure out what that is.

Set a monthly income goal and once you get there, then you can start thinking about, “Can I get rid of my W-2? Can I maybe go part-time? Can I figure something else out for the income?” It is very important to manage that cash because these are so illiquid. If you invest in them, you can’t sell them. There’s no buyer for these things. That’s an important thing to think about.

Let’s say I have a decent paying job, and then someone in the family up the line dies and I had to get an inheritance, and now I’m looking at, “I want to be you when I grow up.” I want to be 100% passive and this comes from watching people make a mistake. I would like to know your insight on it. Let’s say, I’m going to put all my money into passive investments that are cashflow oriented. This is assuming all of them keep performing for the program. What factor would you want to see in that cashflow? Would you want to see 120% of your replacement income before the person pulls the plug and turns in their resignation on the day job?

I have seen people leave prematurely because they are so excited about being an entrepreneur or passive investor, and then all of a sudden, 2 or 3 of the deals go south. Now they have gotten used to living on $100,000 a year, and now it’s down to $70,000. That’s even being threatened and they don’t have the job anymore. What kind of a cushion would you suggest to somebody that’s waiting to make that leap into passive investing and quitting the day job?

For me, it’s more of a time cushion than a dollar cushion. If I’m trying to replace $100,000 of W-2 income because of the way you are saving on taxes with real estate, you probably only need $70,000 of real estate income to replace it. What I would want to do is I would want to have that $70,000 coming in for a year before I pull the plug. Some length of time so you have some idea that this is working. You don’t go from 0 to that $70,000 a year in one year. Even if you do have an inheritance, I would recommend investing in that over a year or more so that you can learn as you go.

What I did wrong at the beginning with my self-directed IRA is I went all-in with all of it right away, and then I was just sitting there like, “If one of those doesn’t work, that’s okay because this is my retirement account.” If that was with the money that I need to live on, I would be having problems. As you are learning, you go slow and you join a community like Left Field Investors or others.

There are plenty of other communities around there. It doesn’t have to be ours but you learn from others as you are investing. I would recommend that you set up a plan and say, “Five years from now, I’m going to drop the W-2.” We have people in our group who are doing that but you can’t just say, “I’m dropping the W-2 tomorrow and I don’t have any cashflow to replace it yet. I’m looking at the pro formas and the pro formas say I’m going to get $70,000 a year,” and then you realize, “I’ve got $35,000.”

It’s more of a time thing for me. You should set the amount of money you want or you think you will need, but then I would put a time component on it and I would also definitely put a buffer. If I need $70,000, I might not fully quit until I get $90,000 but I could reduce my hours or go part-time once I see that it’s working.

If you don't have a good sponsor, it doesn't matter how good the deal is. It's just not going to work. Click To Tweet

Where do you find most of these opportunities? At this point, you’ve probably got some good deal flow coming in just by the nature of what you have built. As you are getting started, and that’s one of the big hurdles for a lot of these investors is, where do you source these? Maybe how you started the genesis and then now, as I’m sure, it’s changed.

It sounds repetitive but it comes down to your network and your community. How I started was I went to a couple of seminars, I met people and invested with them. At first, as I said, I didn’t invest in the right ones. Necessarily for me, they’re not bad investments but they didn’t fit, and then I learned some more. I went to some more seminars, I connected with a couple of other people and I invested with them.

The thing is if you go to a seminar, you are not only going to meet the syndicator, you are going to meet their investors and they are investing in multiple syndicators. I met a couple of guys and we started talking with one of them. We started our own little mastermind and we would call each other every two weeks and just talk.

I found out, “He’s investing with this guy. I’m investing with that and we would just share information.” That’s the way to build because you can google syndicators. You are going to get the great marketers, and then you are going to have to sift through and figure out which ones of those are also great operators, and that’s why using a network and taking it slow, especially if you have a lump sum as Jim said.

You are going to be so excited. You are going to want to jump in and do it all. Put the brakes on. The best piece of advice I’ve got from one of the guys in Left Field Investors is he said, he doesn’t invest in a second deal with a sponsor. He tries to wait until at least one year because then you get to see if it’s working. What I have done is once I meet someone and I like them, I might do 2 or 3 deals right in a row.

If they turn out to be not who you think they are, now you are in 2 or 3 deals that you don’t want to be in. Patience is one of the most important things because you want to get to the freedom from the W-2 right away but it takes patience. If you can do it in 3 to 5 years rather than waiting for 20 years to retire, you are going to accelerate it because once you start doing this, it snowballs. It’s not going to snowball right from the start.

Of those 45 syndications you are in, how many sponsors is that broken up roughly?

I don’t know exactly. It’s quite a few. It’s probably twenty. My plan is for the next 3 to 5 years, I’m trying to invest at the minimum with a lot of different sponsors. Not anybody that crosses my desk. Anyone who fits my parameters once I evaluate them, talk to my network and figure out that, “This is a sponsor that could be a possibility,” then I went to invest the minimum with a bunch of them.

In 3 to 5 years, I will be able to see how they performed and I’m going to pick the best three sponsors in each asset class, and instead of going in at the minimum, I’m going to start investing more with them. It’s a hassle with all the K-1s and dealing with all the different sponsors. I don’t want to do that forever. Now, while I’m building Left Field Investors, figuring out what we are going to do as a community, and I’m just getting into the meat of being a passive investor, I want to make sure that I’m evaluating everything. Eventually, I’m going to settle on a smaller number of operators.

Who do you have in your inner circle as we talk with the other investors? It’s a lot of work with all the K-1s, and then building the network and the community but for you personally, do you trying yourself with certain accountants with certain expertise or attorneys and financial advisors? Who’s your inner circle outside of the Left Field investor group you surround yourself with to help manage these investments?

I have a great accountant. He has been really helpful from the beginning and he’s a real estate investor too and that helps. He’s more active but having somebody who’s in the business doing your taxes is a huge advantage. The Founders of Left Field Investors, we talk all the time, sharing information and others in the community.

I still have a financial advisor. I am almost zero in the market anymore and the only thing I have is a dividend-producing stock because I want an income from my investments but he also handles insurance and other things. He’s going to be a real estate investor but he hasn’t really invested yet. He’s looking into it and he’s worked hard to understand it. He works with a lot of real estate investors. I find that helpful as well because he understands what I’m doing and if I need some insurance product or some financial product, he can help me find something that fits with what I’m doing in real estate.

Coming from the world of financial advising, I would love to know your thoughts on this. We found it with Aspen, we work with several financial advisors that refer clients to our funds that are private syndications and private funds. What we have found is there’s this great divide between financial advisors that are comfortable with these types of investments and then those that don’t.

If you don't have a good sponsor, it doesn't matter how good the deal is. It's just not going to work. Click To Tweet

A lot of times, we find that it’s usually a lack of understanding, number one. Number two, they can ride off as well. It’s too risky or too illiquid. A lot of investors are getting excited about some of these types of investments. Maybe find roadblocks with their advisors, where it’s like, “That’s not going to be a good investment, trust me.” Obviously, you want to have outside input and they provide valuable insight but do you find a financial advisor that’s investing in real estate like yours does or do you just keep a portion with them? What’s your approach with financial advisors?

Honestly, if you go to your financial advisor and they say, “That’s too risky or don’t do that,” I go look for somebody else because you have to have the confidence as a financial advisor to think, “I’m going to give the best advice my client I can.” It drives me crazy that they call them alternative investments because they are not.

That’s why people think they are risky because it’s an alternative. I would look for a financial advisor that is going to work with you and say, “You want to do this other thing, real estate or something else.” They need to take the time to go understand it and say, “I might not get paid for this deal or this amount of money that you are going to put there but I’m willing to let it go because the greater wealth that you grow, the more opportunities for me to make money off of you.”

If it’s a financial advisor, who’s saying it’s the stock market or nothing, anytime you mentioned an alternative investment or something that they don’t understand, and they say, “No, don’t do it,” then you are with the wrong person. What you want to find is someone open-minded and willing to look at other things and sacrifice some fees or commissions knowing that they will get paid back because, “If you do a good job for me and get me into this real estate, I’m going to tell all my friends and now you might get new clients.” You have to have somebody with an open mind and willing to help you learn and grow.

The list of people that fall into that latter category is growing thankfully but it’s very small. With our funds, we started doing some events just to test the water. We’ve got these high-net worth individuals and fed them a nice steak dinner. We did our presentation and answered pretty deep questions. These are pretty educated people, professional people and retired people. They loved our deal and they asked all the right questions.

When we followed up to a person, “I’ve got to talk to my advisor,” and none of those kinds of advisors were happened to be in this particular subset. The results were dismal yet all these people saw the deal and they knew it was a good deal but their advisors just didn’t get it or, as you said, couldn’t monetize short-term thinking. Instead of serving their clients and looking out for their best,  they were looking at their own paycheck. We learned the hard way there but we had to try.

ILB 7 | Passive Investing Sponsors
Passive Investing Sponsors: You want to find a great operator. There’s plenty of people that have podcasts that are better marketers than they are operators. And sometimes, they’re both right.

They don’t understand it. That’s the problem also. The financial institutions and the banks, and I used to work for all these companies, are good at marketing and telling you what products you should buy. They market the stock market, bonds and all this stuff. Everybody is comfortable with that. Everybody has a 401(k) they put their money into.

Anytime you venture out of that little bubble, people panic and it’s also much easier for a financial advisor to say, “You need to invest $2,000 a month in this mutual fund,” then for one of you guys to say, “Send me a wire for $25,000.” It’s the same number over a year but in one instance, I’m sending $2,000 to someone who’s going to put it into the market where I can see the value every day.

Whereas if I send $25,000 to you, that $25,000 is immediately gone, I don’t know if I’m going to see it again, and I have to wait three months for you to send me $167 as my 7% return. It takes a mindset shift to understand that my $25,000 didn’t just turn into $167. That’s going to grow and all that, wherein the market, you give them $2,000, it could be $1,000 tomorrow if there’s a drop in the market for whatever reason.

For the fun questions, these are the final questions we would like to ask, but what has been the best investment you have made in the last decade?

I would have to say it was some of the active multifamily investments that I made because although I didn’t have them managed properly, I didn’t do anything right except to buy them, I sold them and more than doubled my money on there. One of them, I sold to a guy who is in my active investing network and he went ahead and doubled it again in another year, so it was a win-win because I wasn’t willing to do what it took to get that second double. That was probably my best because it got me moving into this passive stuff because I finally ditched all my actives and I made good money on that deal.

As a lot of these asset classes are cyclical, what are you most interested in now? Are you seeing the most opportunity in the deals you are looking at? What are you most excited about?

I like mobile home parks now. I think they are not making any more of them. In fact, we are losing them. Workforce housing is a huge issue now. There’s not enough housing for people. Mobile home parks and most of them are owned by these mom-and-pop guys. A syndicator could go in, make the homes or the park a much nicer place, put in improvements, raise rents, and you can make a lot of money on mobile home parks. I like those for sure.

What has been the worst investment that you have made and what did you learn from that?

There have been a couple but one of the worst ones was also my best one because I could have doubled it again and I have done things right. It was one we already talked about where I put money with somebody. They were getting into two new things. One was they were leasing CBD equipment when the big CBD craze happened, the market tanked, and they didn’t know what they are doing. It went belly up.

What that was was investing with people that I did not vet enough. I didn’t run them through my network but most of all, it was investing with people who were doing something new and I didn’t ask them any questions about, “Do you know what you are doing? Just because you know how to do a turnkey, single-family home does not mean you know how to manufacture CBD oil or do office building.” That was my mistake, not understanding that they were doing something new and they didn’t know what they were doing.

Are there any investments or asset classes you will never invest in?

Not that I can think of. I’m in a little bit of Bitcoin just because I like the asymmetric risk part of it. I do some Angel-type investing. Part of my portfolio is devoted to speculation but not the stock market kind, just new businesses and things like that because it’s easy to do. I’m online now, so there are some of the riskier stuffs I do. I can’t think off the top of my head something that I wouldn’t do. It’s all degrees. If it’s super risky, I’m going to put a lot less money in it.

I’ve got a solar-powered Bitcoin mining operation that I want to buy. Do you think that might be something?

Is it also using CBD?

I only need 10,000 acres of desert land to put the solar panels to power the mining but it’s going to work.

That’s one I wouldn’t do. To be honest, I’m open to looking at anything. There are plenty of things I say no to. In fact, I say no to investments more than I say yes but I always like to say, “Yes, I will look at it,” because you never know what it’s going to end up being. You never know who you’re going to invest with or who you are going to meet. I try to keep a very open mind and not say no to anything without getting some information and evaluating it.

Jim, this has been so fun. I love these nuggets that you have shared. What’s the best way to get ahold of you and the Left Field Investors group? If folks are interested and said, “That sounds like me. I want to get plugged into a community of like-minded investors and learn more about these investments.” What’s the best way to reach out to you?

You can go to our website, www.LeftFieldInvestors.com and in the right-hand corner, there’s a Subscribe button and that will get you on our email list. We send out weekly or every other week newsletters with some blogs, our podcast, and information about our meetings. There’s a button on there to click to get on my schedule and have a call with me if you want. I do that all the time.

If you want to contact me directly, my email address is [email protected]. I would be happy to talk to anybody. That’s what I spend a good part of my day doing. It’s part of me building my network, and every time I talk to somebody new, I learned something. What I’m all about is learning how to become a better investor. I’m willing to talk to anybody.

Jim, thank you so much for taking the time and sharing your wisdom with us. If this sounds interesting, definitely reach out. They’ve got some cool things going on over there and join the community. I appreciate it, Jim.

Great chatting with you, Jim.

Thanks for having me. It was a pleasure.

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About Jim Pfeifer

ILB 7 | Passive Investing SponsorsJim Pfeifer is one of the founders of Left Field Investors and the host of the Passive Investing from Left Field podcast. Left Field Investors is a group dedicated to educating and assisting like-minded investors negotiate the nuances of the passive investing landscape and world of syndications. Jim is a former financial advisor who became frustrated with the one-path-fits-all approach of the standard financial services industry. Jim now concentrates on investing in real assets that produce cash flow and is committed to sharing his knowledge with others who are interested in learning a different way to grow wealth. Jim not only advises and helps people get started in passive real estate syndications, he also invests alongside them in small groups to allow for diversification among multiple investments and syndication sponsors.

Jim believes the most important factor in a successful syndication is finding a sponsor that he knows, likes and trusts. He has invested in over 45 passive syndications including apartments, mobile homes, self-storage, private lending and notes, ATM’s, commercial and industrial triple net leases, assisted living facilities and international coffee farms and cacao producers. Jim is constantly looking for new investment ideas that match his philosophy of real assets producing cash flow as well as looking for new sponsors with whom he can build quality, long-term relationships.

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