The 7 Red Flags of Passive Real-Estate Investing – Taylor Loht- Ep 395

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Taylor Loat is a real estate investor and educator who specializes in teaching busy professionals how to build passive wealth through real estate investments. With over $250,000,000 in commercial real estate experience, Taylor focuses on self-storage and multifamily investments. He is based in Virginia and has a strong track record in the industry.

In this episode, host Josh invites Taylor Loat to discuss passive real estate investing and strategies for success in the current market. They delve into the state of the market, the impact of rising interest rates, and the potential for distressed transactions in the multifamily space. Taylor emphasizes the importance of focusing on what can be controlled, such as building relationships and maintaining a strong network. He also shares his personal investment strategies and preferences, including investing in B to B+ class multifamily properties and major markets like Dallas and Houston. The conversation highlights the significance of realistic underwriting, responsive investor relations, and aligning interests with sponsors. Taylor also touches on the benefits of his passion project, Brazilian Jiu-Jitsu, and how it contributes to his overall success.

Key Takeaways with Taylor Loht

  • The market conditions may fluctuate, but experienced real estate investors focus on building relationships and maintaining their business foundation.
  • Investing in major markets like Dallas and Houston can provide stability and favorable landlord-tenant laws.
  • Sponsors’ track records and experience in the market are crucial factors to consider when evaluating investment opportunities.
  • Unresponsive investor relations and unrealistic update or upgrade time frames can be red flags for passive investors.
  • Unrealistically high return projections and unreasonable sponsor compensation should be carefully evaluated to ensure alignment of interests.

Taylor Loht Tweetables

“Newbies oftentimes remain newbies and don't do deals because they're looking for a reason to sit on the sidelines and not take actions that they can take."

“The tenant experience is really what is going to always drive your success in multifamily."


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Josh: So, hey, guys, welcome back to accelerated real estate investor today. I am with a guest that I’ve invited onto the show to talk about passive real estate investing and multifamily and self storage. His name is Taylor Loht. He is a real estate investor and teaches busy professionals how to build passive wealth with real estate focused on his self storage and multifamily investments. He’s been involved in over $250,000,000 in commercial real estate. It’s from Virginia.

Josh: And we’re going to talk today about his journey and some investment strategies in today’s market. So, Taylor, welcome to the show. How are you?

Taylor: Thanks so much for having me. I’m excited to talk with you and your audience today.

Josh: Absolutely, Taylor. So let’s start with the market today, right? Like everybody’s got a different opinion about where we’re going, what we’re doing, what’s going on with the Fed, what’s going on with interest rates, what’s your take on today’s market?

Taylor: That’s a great question and a very important question. So, obviously, rates went up a lot faster than anybody really expected, and we saw the rate of transactions in the multifamily syndication space, at least to a qualitative extent, really slow down. I mean, people were doing a lot fewer deals earlier this year, and it started to pick up a bit more recently. One of the things agreed that I’ve been seeing, that you don’t really see publicly because the people who write articles about it and everything aren’t in the know. But there are distressed transactions happening in multifamily today, and it’s typically all behind the scenes, but they tend to take the form of folks who bought multifamily in 2021, when the rates were at all time historic lows, as everybody remembers, and the business plans and financing of those deals more or less assumed that rates would stay that low, at least for the next five years, if not forever, and that wasn’t the case. And if your business plan assumes that now, that doesn’t mean you went into it necessarily assuming that was going to happen and knowingly assuming that was going to happen.

Taylor: But when your financing is based on a rate cap that’s going to expire in, say, a year or so, which plenty of folks had that come up. But a lot of folks are finding themselves in trouble, and there are transactions happening today that come about as a result of folks who are in distress in that way.

Josh: Yeah, no doubt. So do you think now that things are starting to untaw and unpack, and there’s more transactions starting to happen. We’re seeing more stuff come on the market and more sellers who are definitely more reasonable, understanding interest rates are higher and cap rates are higher, prices are down. Do you see transaction volume picking up in your markets? And do you think now is still a great time to buy? Or are you still buying some time thinking that rates may still go up or stay stagnant? Cap rates might go up, and maybe next year prices are even down a little further.

Taylor: These are all very important questions. And for me, I am an investor in all markets. Now, that does not mean I’m an investor in every deal, in every market. By markets, in that context, I mean at all, quote unquote, good and bad markets, not geographic markets. I only invest in certain areas. But when we tend to say that the market is good and very hot, or the market is bad and very slow, well, I’m an investor at all times.

Taylor: But the deals need to make sense in both good and bad markets.

Josh: Cycles, like another word for that could be cycle cycles.

Taylor: Exactly. Market cycles. So in my opinion, when we buy any piece of real estate, our business plan should be able to withstand a down market cycle. When times get tough, we should be able to hold through that down cycle and look to sell on the backside, because this is not the time when we should be aiming to sell in today’s market condition. As rates may continue to go up, who knows? I kind of expect that they will. With all the inflation numbers and employment numbers still being what they are, I think the Fed is probably going to continue to hike.

Taylor: But stepping back a little bit, I think we should also try to avoid being armchair economists too much. So. I have a college degree. I did a minor in economics, so I’m not afraid of economics generally. But I think we can get kind of drawn into current events too much and get distracted from doing sound deals or paying attention to the properties and deals that we already have and focusing on the things that we can control, rather than all of the aspects that are completely outside of our control, which is say, the market cycle, for example.

Josh: Right? I think too, Taylor, if you were an investor in 2021, 2020, when interest rates were super low, cap rates were super low, values were really high, I think it makes a lot of sense to be an investor now because prices are actually down, like prices are going to be down, there’s going to be some distress. We’re starting to see more and more deals where maybe they’re not under a balloon yet, but the deal is not cash flowing. There’s no incentive for the operator to keep the deal and they might just be selling it or preparing to sell it.

Josh: I think now is a time where our relationships with brokers, relationships with guys doing transactions, mortgage brokers and brokers that listing properties, wholesalers is going to matter the most. Because even back in 20 06, 20 07, 20 08 when I was investing in residential through the last cycle, the best deals happened off market. We’re not on the MLS. Same thing is going to happen here. If you see a loan modification happening with a bank on a 200 unit, a broker or a mortgage broker is going to know that it’s not going to be necessarily on the market and that’s going to get worked out behind the scenes. So how important, Taylor, is it to posture up at this point and really kind of triple down on relationships and really focusing in on getting to know who the players are?

Josh: Because the best deals usually go fast, but they’re usually going to be off market here?

Taylor: Oh, absolutely. So relationships are important in all markets. And I think that’s a perfect question and really highlights the mentality of successful real estate investors is focusing on, again, things that are within your control and specifically your network and building your connections. So important in the real estate investing space, no matter what niche you’re in, it’s all about the people and the relationships. And one of the things that I’ve found over the years, having been at one point a new real estate investor myself, and having built relationships with folks all across the experienced spectrum in real estate. So obviously newbies, but also a lot of folks like yourself who have billions of dollars of transactions under their belt, one of the things that I’ve noticed is that newbies oftentimes remain newbies and don’t do deals because they’re looking for a reason to sit on the sidelines and not take actions that they can take. So, for example, when we’re in a market condition that some might describe as not ideal, you can name the conditions. You could say whether that’s today or six months from now, whatever.

Taylor: I think newbies look for an excuse to sit on the sidelines and not take action, whereas experienced real estate investors use their knowledge and their time to further grow their business. Maybe they’re not doing transactions, but they’re looking at deals, they’re probably still making offers, they’re talking with lenders, they’re building investor relationships, they’re still maintaining the foundation of their real estate investing business, even if it’s a low point when in terms of like a dollar volume of transactions or the number of transactions that they’re doing, they’re still keeping the house together, so that when those opportunities materialize, they’re going to be able to take advantage of that opportunity.

Taylor: So real estate investors are very knowledgeable about the importance of their network and also of their mindset. And those two things, I think really are the deeper underpinning of the purpose of your question, which is what should we be looking to do at times like this? Focus on our network, focus on our capabilities. Look at properties, make offers if we can, really. But again, focusing on the important things we can control.

Josh: Pushing down the roots, right. Pushing the roots deeper into the soil. So it might not be the ideal time to grow and acquire buildings, but pushing the roots deeper so that when the time is ready to acquire, acquire, acquire, that the infrastructure of the business can support that. That’s fantastic stuff, Taylor. Tell us about some of the passion projects and the things that you’re working on today, like things that you’re working on this month.

Josh: Is it along the lines of that relationship building? Tell us a little bit about what you’re working on and then we’ll get into. You wrote and created a seven day course around the seven red flags of passive investing. We’ll talk about that. But how about today? What are you up to right now, both in business and your personal life?

Taylor: Sure, so many things. So my podcast, the passive wealth strategy show, is three days a week, Monday, Tuesday and Thursday. As it stands, one of my business coaches, gentleman named Joe Fairless, who many folks probably familiar with, is encouraging me to go to five days a week every weekday, which is a little bit daunting, but it’s also not when I focus on the gain. So there’s this book out there, the gap in the gain, which I’m currently going through. But if I focus on where I started, which was no podcast, to where I got at one point, which was two episodes a week, where I am today, three episodes a week, going from three to five is so much easier than going from zero to one or zero to two or zero to three. So it’s keeping the mind in the right place and everything. But also, of course, my systems, my team, they’re all going to have to grow to handle that additional volume without taking more of my time, aside from time spent and invested in recording the episode. So, currently working on building out those processes and the team to make the system a bit more robust and continue to grow in that way.

Taylor: As far as personal side of things, I train brazilian jiu jitsu. I’m pretty passionate about telling.

Josh: I was going to ask you about that, Taylor. So when I work out, when I’m in my zone at work, usually I’m also in my zone in the way that I take care of my body and what I’m eating and what I’m working out. I’m sort of in some kind of momentum or some sort of role with the way that I’m treating myself. How much are you able to come up with new ideas, good ideas? How often does that happen when you’re training brazilian jiu jitsu? Because for me, I get my best ideas for work. When I’m not at work, I get my best ideas usually when I’m in the gym taking care of myself because my mind is so free.

Josh: So I know brazilian jiu jitsu is a little bit different because you’re probably rolling around and fighting with someone else. But tell us about that. How has that played into your business success?

Taylor: Sure. So, jiu jitsu, you do need to be paying attention to what you’re doing, or you’re going to get totally destroyed. I’ve been training about eight years. I met my now wife there. So it’s been a big part of my life for a good while now. And I totally agree with what you said about when all of those things in life are in line, when you’re taking care of your body and taking care of yourself, the business things kind of tend to follow that as well. You kind of get more done.

Taylor: For me, Jiu Jitsu has had a big impact in a few ways, so obviously, staying in shape is very important when I exercise and really get the let out, if you will. I sleep better. My mindset’s in a better place. And if anybody out there has ever watched the dog whisperer, he talks about taking dogs out to exercise and everything, and they tend to be less restless and behave better and everything. And I think in that way, I’m a greyhound, if you will. I need to get out there and exercise, but it helps me focus in life and business. I’ve met investors through training Jujitsu, and it’s just good to.

Taylor: It’s a great stress relief as well, I think too many very productive real estate entrepreneurs and entrepreneurs I know in general, who do very well in their businesses, oftentimes will sacrifice their own health and sometimes their families, although that’s not as common as I would have originally thought. And I think keeping all those things together just helps make the whole thing a much more pleasant experience and keeps me a lot more on track.

Josh: Yeah, there’s a guy that I know, I’m not going to mention his name and we’re not really friends, but he became a soccer coach and bought a soccer club. And from what I can tell on Facebook, the dude’s put on like 50 or 60 pounds. How does that happen? Probably because it’s a new business, right? And it’s a new venture. He’s probably putting all of his mind into that business and getting it up and running and making sure it’s profitable.

Josh: But it’s wild to see people like, even football coaches, like my son plays football, and you see these football coaches who are 50 pounds, 100 pounds overweight. It’s like, how do you do that? We see it every Sunday in the NFL. You have a couple of hundred million dollar facility that you’re in and you’re seriously never using the gym. It seems wild to me because I would think just from a mental perspective. Again, best ideas. I think it was Bill Phillips, the founder of AES and body for life, that said he never had a great idea.

Josh: By actually thinking about it, he just got into his joy. He got into his life, he got into his routine of working out. He was playing pool, he was in the shower, he was doing some sort of recreational activity, and bam, the best idea popped in. So love that. Taylor, let’s switch gears a little bit and talk about the deals that you’ve done so far. $250,000,000 in real estate. Tell me about your typical structure. How do you set it up for yourself as a GpLps?

Josh: What kind of markets are you investing in? Tell us a little bit about that structure for our listeners who might be interested in investing down the road.

Taylor: Sure. So I invested in a number of different markets, to name a few. I like the major markets in Texas. So Dallas and Houston, for example, great landlord tenant law situation. Obviously in Texas, you need to be well aware of property taxes, which surprised a lot of people who weren’t prepared for property taxes to go up in Texas as well as insurance, was one that hit a lot of folks, not only in Texas, also in Florida was quite common, but other areas as well. But Texas and Florida were a pretty big, you know, broadening out to business plans and asset classes that I like to invest in.

Taylor: I personally prefer B to B plus class multifamily. I originally started in my multifamily investing career, if you will, investing in C class multifamily. And this was years ago. This is a few years before COVID started, when prices were a lot lower and the spread between CB and a class properties was quite a bit wider. So C class properties were comparatively cheap. So you could buy the property, bring capital to the table, fix it up, and you got it at such a cheap basis that the risk of all of these skeletons that you are inevitably going to find in the closet still kind of made sense at that point. And believe me, I don’t know that we ever found any literal skeletons, but there were quite a few major capex issues that popped up.

Taylor: So buying properties built in the don’t do that anymore 80s is kind of pushing it. I do like the 80s, but if we can get newer, newer properties, so much the better. I like properties that have a few units renovated, but still plenty of classic interiors that we can put capital into and fix up and raise the rents and everything like that. Operational efficiencies as far as looking for ways to cut expenses, I think can be useful, but especially newer investors, including myself when I got started, we can be tempted to focus too much on cutting our expenses rather than raising incomes.

Taylor: And you can only cut your expenses so far until you really start detrimentally impacting the tenant experience. And the tenant experience is really what is going to always drive your success in multifamily, in my opinion.

Josh: No doubt. Yeah, I think responding to maintenance tickets, making sure that the commons and the experience from the front door in the parking lot into their unit. Now if they want to trash their unit, they’re the only ones living there, right? So that’s up to them. But there’s so much that we can do from a lighting perspective and commons and some amenities and the experience of dealing with the property managers, leasing agents and maintenance, all of that is just operationally efficient.

Josh: Don’t have to require a ton of capex to get that right. If you eliminate all of that just to get your p l healthy, people are going to move out. They’re going to probably trash their unit even more because if you don’t care about them, they’re not going to care about the building. So I agree with you on those for sure. Tell me a little bit more. So you wrote this seven day video course, and as we talk through these red flags that you’ve identified that passive investors should be aware of, I also would just like to continue to hear about your structure for passive investors and some things that you want them to know about your deals.

Josh: Not that you have an offer right now or anything like that, but just what are the things that you coach them on as they get used to you and investing in your deals? I often feel like when I’m recruiting a limited partner. I’m not only just trying to convince them about my deal, but I’m trying to help them create a holistic investing strategy. And investing in our apartments is just one of many things that they do.

Josh: But let’s talk about the video course. Why don’t you just start to walk us through those seven red flags? What do you think some things that limited partners should be aware of?

Taylor: Yeah, absolutely. I’m happy to go through them. And I’ll just preface this by saying this is absolutely not covering everything that could possibly go wrong in a multifamily deal or any other kind of real estate syndication, obviously. But we need to make sure we cover that here. These are probably the seven biggest ones that, in my opinion, folks should look out for and hopefully cover their bases.

Taylor: Number one, this is not going to come as any surprise to folks who have been in this space before, but is the sponsor’s track record. Have they done this deal before? Have they done this type of a deal in this market with this team? Say, if they have a third party property manager, have they worked with this property manager before? Those are all questions that you can answer for yourself and analyze for yourself if it fits your goals and risk profile and everything like that. But to me, the sponsor is brand new. They haven’t done the deal before.

Taylor: Then they can take the risk with their own money or somebody else’s money. And digging a little bit deeper in that. One of the things that we saw quite a lot in 2000 and 22,021, and you could probably say before COVID as well, but really, when rates were so low and cap rates were plummeting and all this money printing was going on, there’s a lot of liquidity fLohting around there, and a lot of new sponsorship teams came online where they would have a couple of new guys, and I say guys because it’s pretty much always men that are this brash to go buy big apartment complex, not having any experience. The women I’ve done business with are usually much wiser than that, but they’ll have a couple of new jobs, and then they’ll get one guru or one more experienced guy who has built his own portfolio, and they’ll say he’s on the team, but in reality, he’s not actually on the team. He might put a little bit of capital up, but they might have also just paid him to use his face for sales purposes. So being aware of what’s going on, the roles that everybody has, are they really involved or are they just being presented as somebody who is putting their face on here to help sell the deal. All things to be aware of that if you’re brand new, you might not know to look for sure.

Josh: Yeah, no doubt. How about number two?

Taylor: Number two, very much similar vein, but digging a little bit deeper in that. So to me, if the sponsor and the property manager in the multifamily space are brand new to the market where they’re investing, say the sponsor doesn’t live there, the property manager doesn’t have any properties, they manage there, and they’re acquiring a new property, bringing in this property manager. They want to build up a presence in this market. Hopefully, to me that represents an outsized risk in these deals.

Taylor: They may be getting into the new market because they think it’s a great market and they probably do, but they also might be somewhat blindly chasing yield on an Excel spreadsheet. So that’s just something to be aware of. Wise, experienced sponsors have made that mistake. Certainly not to say that folks who are getting into a new market can’t be successful. Of course they can. To me, it’s a matter of understanding what’s happening, understanding the risks that are not on the underwriting spreadsheet, but in terms of actually executing on the project and understanding the market you’re getting into, that can be a situation of, if you’ll pardon the expression, the blind leading the blind. These folks don’t know this market better than what they can find on looking at LoopNet and other websites. So maybe I’ll let them figure it out with somebody else’s capital before I get involved.

Josh: Right? Yeah, I think. Good point there. Let them find out with somebody else’s capital or invest a lower amount of capital and require some sort of upsized return in exchange for the risk. Right. How about number three?

Taylor: Yeah, number three, unresponsive investor relations. So before you invest in a deal, you’re going to get all these legal documents that folks will be aware of and you’re going to read through them and aim to thoroughly understand them, of course. And you might have questions about those documents. Well, who do you send those questions to? Do they address those questions? Do they address them promptly? Now, I’m not saying that they need to have all the answers right away in ten minutes, but do they respond to your email inquiry in this case and say, hey, thank you for your questions, we’re going to work on it and get back to you? My opinion, that’s totally reasonable, but what feeling do you get when you work with the investor relations people again? Are they responsive? Do they address your questions? Do they understand the deal that they’re presenting all these things?

Taylor: They’re not going to treat you better once they have your money, right?

Josh: That’s a good one right there. Absolutely. If they’re not treating you really smooth and answering all your questions up front. A lot of sponsors say they’re going to give updates, say they’re going to get back to you, especially if the deal is going sideways. I’ve seen a lot of sponsors that just are not getting back to investors or delaying in their responses. So how you get treated up front is how probably the best that you’ll be treated in the lifecycle of that relationship.

Josh: And so if they get back to you, they’re responsive, then you can expect that to continue. If they’re not, it’s probably never going to get better. Right? I think that’s the point you’re trying to make. I think that’s really insightful. How about number four?

Taylor: And you can develop your own feel for what is reasonable, right. This is all just helping, intended to help listeners inform their own judgment. Right. And make your own informed decision. So number four, unrealistic. Update or upgrade time frames. And this digs down into experience and knowledge of what it takes to, say, renovate a multifamily property. Let’s say you have a deal where it’s a 300 unit property and they’re going to renovate all 300 units. Well, how quickly are they planning to do that and will they really be able to execute on that plan as quickly as they’re underwriting?

Taylor: This is very important for deals and sponsors that promote metrics like IRR very heavily. IRR is a very strongly time driven metric. And underwriting spreadsheets, it’s just an Excel spreadsheet reflecting a plan. And if it’s a bad plan or if the timing is wrong, then your return metrics and projections on that spreadsheet aren’t reasonable. So think about what’s it going to take to say, do these renovations in the timescale that they’re saying they’re going to do them? Have they done this before?

Taylor: If they have a track record of doing, say, that number of renovations per month in the similar market, then to me that’s a good sign. But if they’ve never done it before, they’re going to empty out all 300 units and flip every unit in the course of, say, three months, or even emptying out the whole property would be stupid. But what does that time frame look like and how are they going to really execute on that plan.

Josh: Yeah, I agree, Taylor. I’m actually looking back on my other screen here at one of the very first deals I did as a co GP back in 2017. And the sponsor I ended up did co GP this. But I’ve learned a lot in the last six years, almost seven years. 730 units with a two to three year stabilization probably doesn’t match up. And it didn’t, because not only that, but it got delayed by COVID, and we ended up exiting this and selling it for a profit in 2021. But looking back then, I was relatively new at syndications and moving from a very successful residential, and I didn’t know what I didn’t know.

Josh: Right. And looking back, like, 730 units, it was five complexes with a two to three year stabilization plan. It’s like, no effing way would that ever actually happen.

Taylor: How many vacancies do you need at any one time? What does your economic occupancy have to get to and stay at in order to have enough units vacant to be turning them that quickly? How many construction crews and people do you need to do this? These are all very reasonable questions.

Josh: Yeah. I mean, even at 10%, that would be 70 units at a time being turned. I mean, you’d have to have a massive construction crew to be doing that.
0:29:10 Taylor: You’re not doing that from the ground up if you’ve never done it before.

Josh: Yeah, thank God we’ve lived and learned, and that deal worked out, and investors got paid everything a little bit delayed from COVID But post COVID, a lot of people were entering that market and buying properties, and we were able to make a profit on it. But that unrealistic timeframe that you point out, Taylor, is very real thing, and I was very involved in one of those deals a while back. Number five. How about number five?

Taylor: So, number five, again, talking about realism versus unrealism, unrealistically high return projections. And again, this is one of the things that you develop a feel for over time, especially if you’re a more experienced, passive investor or just somebody in the space that has a lot of deals coming to your inbox. If someone is doing a pretty well understood type of business plan, say, a value add, multifamily B or C class deal, and their return projections are way above the kind of average that you see in the market, to me, that’s a red flag. I think some new investors might be tempted to say, man, these guys are going to knock it out of the park. They obviously know what they’re doing, but what are the ODs that they’re over promising and they’re going to under deliver.

Taylor: I’ve invested with some sponsors who I trusted quite a lot and it’s obviously worked out quite well, but they were actually projecting returns that were kind of lower than what I would consider the average. But I dug into the deal, I looked at the assumptions. I knew the team very well, so I had checked that box already. But it turned out that they were under promising and they ultimately over delivered. But this gets to not focusing too much on those return numbers and basing your decision just on that return projection and kind of getting starry eyed over. They’re saying they’re going to do 10% more than anybody else in the market is doing in terms of IRR. Pick whatever metric you want.

Taylor: Are they over promising? You need to understand what that looks like, how those return projections are arrived at and whether again, over promising and under delivering. Or would you rather have under promise and over deliver? I know where I go in that.

Josh: I think some people just felt like because in 2020, 2021, and even into 2022, there were so many syndicators overpaying because of the low interest and because of the high rent growth that was happening at that time, that they were maybe competing with other syndicators for the same investors, and they felt like they had to over promise. And a lot of those guys have really struggled to return those.

Josh: I would much rather look at a deal as a limited partner, which I’m a limited partner in a number of deals, say, hey, wow. Like you said, Taylor, I could actually see them outperforming this. Right. Not only does you feel good about the investment and the upside, but you also feel good that, wow, this sponsor really didn’t have to over promise in order to get me interested or to get me to say yes. And I’m more confident in them now because they were fairly conservative in the underwrite and fairly conservative in the returns.

Josh: I would rather be that guy and say, look, look at our track record. This is what we’ve done in the past. This is what we anticipate. We could do much better. But I don’t want to promise that versus, hey, you’re going to get 20 something percent IRR. We’re going to be out of the deal in three years. Yeah, I saw a lot of that stuff early on and a lot of it did not work out. So you want to be fairly conservative. I think we’re getting back to what I would consider more of the operator.

Josh: It’s going to come down to operator success going forward. Versus market success. Operator. When the market is succeeding, every operator that’s awful can get bailed out by the market. I had lots of people that I knew that got bailed out by the market, and a lot of those guys aren’t even investing today. Some really well known guys that have huge Facebook and Instagram presences that haven’t bought a property in two and a half or three years, and it’s all based off the stuff that they thought they were going to buy, that they thought they were going to do well on in 2019, that are doing nothing today.
Josh: But people still think they’re successful. And ultimately, none of that stuff worked out. Now, people that are really true operators are going to win based on their boots on the ground operations, and that will get, hopefully, outsized returns as the market gets better and interest rates go down. We’ll see what happens.

Taylor: But absolutely, if I can make a little comment on that. I think too often, maybe driven by the media or we see sometimes people who hit a grand slam and bought bitcoin at a dollar and sold at 60,000 or something, we think that in order to, or we’re tempted to think that in order to build big wealth, we need this one big deal that’s just going to do it for us. Whereas in reality, if we do base hits consistently over time, we’re going to have a pretty strong amount of cash flow and a healthy personal net worth.

Taylor: It’s just having that consistency and making the right call and the right investment is so important and not getting taken in by, to use a gratuitous example, the NFT that people say is going to be worth 100 x in two months or whatever.

Josh: I got a friend that I think, I’m not sure and I haven’t asked him, but he was into a crypto for like a million and a half, and that crypto is down 99%. And so a million and a half, 99%, it’s now worth 15 grand. Right. And so what does that do? He had all this wealth he had accumulated primarily from real estate, and then put it into this one crypto, and then it went up a little bit. And then my understanding, and I haven’t asked him. I don’t even know if I have the guts to ask him because I don’t really want to know.

Josh: I hope he got out of it in time. But the rumor mill says that he’s lost pretty much everything. And it took him 20 years to accumulate, 25 years to accumulate that and lost it all, a year and a half. So, yeah, we don’t want to do that. Taylor, let’s move on to number six and seven. And then this is an amazing list, by the way, guys. You’ll be able to get access to this free video course. Seven day video That’s where you can go opt in, get this video training.

Josh: Taylor does a much deeper explanation of these seven red flags for passive investors. So check that out. But Taylor, what’s number six?

Taylor: Sure. So number six, unreasonable sponsor compensation. And again, I’m saying unrealistic and unreasonable. Those are judgment based terms. These are things that you have to build up your own judgment about over time. This one really digs into. Are our interests aligned in real estate? Syndication sponsors need things like fees and GP splits in order to, one, keep the lights on. That should be the point of fees. And two, the splits should be an incentive for them to perform.

Taylor: However, those two things should not come in front of the investors interests, whether that’s protection of their downside or their participation in the upside. So if somebody’s got an unfair gplp split in their deal, by your own judgment, whatever that is, then that would be a red flag. Or if they’ve really loaded this deal up with fees to the point where starting to severely impact your return, or you’re not convinced that your interests are aligned with the sponsor, then that would be unrealistic. And part of the reason that I say this is so judgment based is we all have different wealth and investing goals. We all invest in different assets in different areas.

Taylor: Personally, I’ve actually passively invested in a deal that had a 50 50 gplp split. But I loved the team, I loved the deal. It had a pretty strong pref that put us as investors in a good spot. And that deal is going to sell pretty soon, and it might turn out to be one of my best investments ever, aside from personal residence, that I really knocked it out of the park on. And if I had just focused on that 50 50 split, then I would have missed out on a pretty awesome deal.

Taylor: So there are other factors involved than just the splits. Again, judgment call. But be aware that that’s something to look at and whether it fits your personal goals and judgment.

Josh: Yeah, I got it. Love it. How about the last? Last but not least, number seven?

Taylor: Number seven. Poor underwriting. So we’ve talked about underwriting a bit when we discussed update or upgrade time frames, but this gets even more basic in my mind. Is their math right? Did they set their Excel spreadsheet up correctly? When I was getting started in the space. I made a point to get on a lot of sponsors deal lists so that I could see what they’re up to. And I started checking some folks math, and you’d be surprised how many sponsors.


Josh Cantwell: Well, guys, there you have it. I really enjoyed that episode with Liz. Man, being responsible to others is such a motivator. Giving to others, I feel so good about myself, right? Such and such a good place when I give to others. Number three, making a new decision. I remember when I was diagnosed with cancer and came out of my hospital bed and had an opportunity to restart my life, I had to relearn how to eat, I was not going to go back and redo my life the way I had been doing it, so making that decision. And then finally, as Caleb and I mentioned, don’t quit.

Guys, listen, everybody can do this business. Everybody can be successful. Everybody can be a multimillionaire with real estate. Keep getting your education, keep listening to podcasts like this. But most of all, go execute, raise capital, make offers. Don’t quit. We’ll see you next time on Accelerated Investor.

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