Main Street Business

#571 How to Raise Money For Your Real Estate Deals w/ Hunter Thompson

• Mark J Kohler and Mat Sorensen

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In this episode of the Main Street Business Podcast, Mark J. Kohler welcomes real estate investor Hunter Thompson to uncover how to raise capital legally and effectively in today’s skeptical, high-interest market. From 506(c) strategies to scaling with the fund-of-funds model, this is a must-listen for serious investors.

Here are some of the highlights:

  • Mark and Hunter underline the importance of having the right strategies and tactics to attract and retain investors in a competitive market.
  • Hunter shares insights on the difficulties of raising capital, including the need for effective marketing and investor education.
  • Mark Kohler and Hunter discuss the role of influencers and content creators in attracting and educating investors.
  • The need for real estate investors to become more visible and active in the market to attract capital.
  • Hunter explains the challenges of finding good deals in a competitive market and the importance of being prepared for market downturns.
  • Mark lists the benefits of self-directed IRAs, including the ability to invest in real estate and the tax advantages.
  • The challenges of navigating the regulatory landscape and the importance of staying compliant.
  •  The importance of staying informed and connected in the real estate investment community.
Speaker 1:

Welcome to the Main Street Business Podcast with your distinguished hosts, mark J Kohler and Matt Sorenson. Both are best-selling authors and have over 25 years of industry experience, with 10,000 client consultations, making them the leading tax and legal experts in the nation. Together, they'll unpack the most complex tax, legal and financial strategies crucial for saving more, stressing less and building generational wealth. Today they're your personal advisors, ready to break it down for you and make the tax and legal game easier than ever. Here is Mark and Matt.

Speaker 2:

I've raised around $100 million from hundreds of investors. I've done it with every flavor and basically every real estate and non-real estate transaction that exists. People are freaking scared, and at some point the scales will tip from fear of investing to fear of missing out. When you're having those moments of stealthed out, that's when you can buy the best deals, and so that's the most important part of the whole cycle.

Speaker 3:

Sometimes people need a reality check of this trajectory. That really isn't sometimes all it's cracked up. I got people with more syndications looking for deals. Fewer deals out there. Is it worth it?

Speaker 2:

So you want more top-line revenue. The way that you do more scalable sales is through marketing.

Speaker 3:

So for people out there, they're great in the presentation room, but they don't want to be an influencer. Is there another way to attract these investors? 100%. Well, Hunter, welcome to the show. I'm so excited to be here with you. We have so many clients, followers of ours around the country that are raising money for real estate deals, and it's an art and there's always something to learn there. So we're excited to hear how you pick your brain, understand how you're conquering the world and what you're up to.

Speaker 2:

So first, welcome, glad to have you. It's an honor to be on. Much appreciated.

Speaker 3:

Let's just give us a little flavor here of what you're doing right now out raising capital for a deal, maybe right now and get us kind of in the conversation.

Speaker 2:

So right now we are raising money for a Phoenix multifamily deal and this is basically all I do. We have a basically a 40 mile radius where we buy in Phoenix, b class, a class apartments in Phoenix B-class, a-class apartments usually 1980s to recent 2000 builds and, look man, it's hard to raise money right now. So if you don't have the tips and the strategy and the tactics and the technology that we're going to talk about today, my goodness, you might be left behind and you're going to miss this opportunity. Because 2025, everyone's been talking about survive until 2025. It's here, and the reason they were talking about that is that if you can survive until 2025 and go all in right now, it's going to look very different by 2027. So I'm excited to jump in.

Speaker 3:

Well, tell me what. When you say it's hard to raise money, what type of money? What do you mean by that?

Speaker 2:

I raise capital from LP investors, accredited investors, high net worth investors, but also from institutions and family offices, and what's happening now is that people are still dealing with the wake of many investors lost money for the first time in 15 years. Some investors lost money for the first time ever because the first deals they invested in were in the run up post 2008. And so we went 15 years without you really hearing stories about people losing money in deals. And then, all of a sudden, interest rates rose faster than they've risen in 40 years and all of a sudden you've got potential for distress in the marketplace and it's difficult to raise money now compared to where it was five years ago. But that's how you know you're buying good deals. That's the nature of what means to have a distressed marketplace.

Speaker 2:

Now, it's not broadly distressed. It's not that hundreds of thousands of multifamily properties all over the country are distressed. But when I talk about raising capital, that's who it's from and that's the kind of stuff that I raise capital for. But the stuff that we'll kind of get into today about like attracting leads, nurturing them, converting them, it applies to any real estate asset class or any non-real estate asset class. It's basically, you know how can I get someone who's never heard of me to fund investments? And you know, that's the name of the game.

Speaker 3:

Wouldn't you say that, I think 15 years, long time ago. Everybody's forgotten. You know, there was a multiplicity of reasons why there was a real estate bubble and the quote unquote crash Isn't more of the difficulty in raising capital competition. I don't know if it's the marketplace. People want deals and interest rates can give us other benefits Higher interest rates as an investor, hedging against inflation and buying real estate is a great deal. But I mean, it seems to me there's a lot more people in the marketplace that's got a fund Everybody, anybody, got a fund, you know and they're trying to raise capital and I think the competition for that dollar is more of an issue. But you're saying it's maybe fear or I mean.

Speaker 2:

So I've been in this business for a while, I know you have as well, and so, essentially, we had an explosion of the popularity of non-institutional investments in the private sector, meaning 506B, 506c funds, single asset investments, multifamily self-storage, mobile home parks, office industrial, you name it right. 20 years ago, outside of, like the country club circles, there weren't a lot of people talking about investing in syndications or the common vernaculars like crowdfunded tools, and so, in 2012, the JOBS Act was ratified, which I believe was actually opened up in 2013. And it allowed you to, for the first time, to talk about real estate deals on the internet, and this basically created the birth of the syndicated slash, crowdfunded popularity that I'm talking about. And so, yes, you're right, people got into the space for the first time.

Speaker 2:

People heard that you could go and invest in an office industrial complex in Texas for the first time. People heard that you could go and invest in an office industrial complex in Texas for the first time, and so you got all these new investors into the space, and so, from that perspective, it is more competitive. However, it's more competitive because it's way more popular, so now you've got way more accredited investors that are knowledgeable about the fact that you can invest in these deals, credit investors that are knowledgeable about the fact that you can invest in these deals. So I think the real issue isn't around how many people are out there trying to do this. It's that people are freaking scared. People are scared and at some point the scales will tip from fear of investing to fear of missing out, and so that's why I said in the introduction I'm here to start alerting people that that fear of missing out thing, that scale, is going to be tipped here in the next 24 months and then the deals aren't going to look nearly like they look right now.

Speaker 3:

Okay, okay, maybe we'll come back to that fear point. I want to also put this in perspective. For so many of our listeners, there's generally three ways to raise capital. I can, when it comes to a and the I word is a swear word, you know the investor word is a very dirty word. We got to be careful how we use that right. And so I may say I need money for my project, so I'm going to go get a lender. So a lender might do a first trust deed, I might have a hard money. I might have a hard money, I might have some sort of lend scenario, but they're not an investor, they're a lender. Different rules. And then number two I might just partner with someone and I might be able to get to up to three or four lenders or three or four partners, maybe five or six even in an LLC.

Speaker 3:

Raise capital as a partnership. We're cool. We're not in the SEC, purview, securities and Exchange Commission. I'm not having to build a fund, I'm not having to build a syndication. Heck, I could raise 100 million with five guys or 1 million with five guys, whatever, but I'm partnering. Then we get this investor lane. And, by the way, some people may say well, let's partner and I'll give you some interest and a piece of the equity. So it's kind of a participating loan scenario. But those two lanes. Initially I take it you're not playing over there. You're like nope, we're doing funds, we're dealing with investors and, based on the type of fund, we might not have to go after accredited investors or we might have to. I guess we'll come to that. But are you doing any lending or partnering, or is it all kind of more money raised with investors?

Speaker 2:

Really good question. So the important distinction which you're getting to, which is the third piece, is this element of control. So in your example, where you're having a partnership with five people, or we also call it like a joint venture agreement, all those people basically have an equal seat at the table. All those people basically have an equal seat at the table. But the SEC views it as a material shift when you start to get to 7, 8, 9, 10 investors, let alone 100, there's no way 100 people can all have an active role. At some point you're kind of deferring to a third party, which is one of the criteria of creating a security.

Speaker 2:

So in the world of creating securities, when you have, like, let's say, a hundred investors that are each investing 50 grand or a hundred grand, you've got to do this different level of compliance.

Speaker 2:

You got to hire a really expensive attorney and you've got something like an operating agreement and a private placement memorandum which is set up to raise money from a lot of people into, let's say, one deal or a fund or something like that. And so, to answer your question directly, I prefer that crowdfunded quote syndicated model for real estate, because I want to buy bigger and better deals and maybe you've got a couple of contacts where I can get four people to invest $30 million a piece. But because I mostly hang out in the world of accredited investors investing a hundred grand, 200 grand, maybe half a million bucks, it's going to take a lot of investors to buy this property we're about to buy. That's going to be $20 million purchase where it's about a $7 million capital raise or $10 million capital raise. So when I get into that world to your point, more legal structure, information, more SEC compliance, more dollars with attorneys, but it opens you up to buying institutional quality assets in great markets that require quite a bit of money to acquire.

Speaker 3:

No, no, absolutely. And we have clients they say, well, I want a silent partner. Oh, you want an investor, you're in lane number three. So for people out there that are saying, well, I want to raise a million dollars or $10 million or what, what have you? Um, it's a democracy in a partnership. Um, if you want to have control with, there's still guidelines. I mean, you got to meet your what you're promising your investors but, um, I I'm. This is good. I wanted to make sure.

Speaker 3:

We're talking about lane three today, and that's what I was trying to get at is, for if you're a listener, you may be able to raise all the money you need to and do all the deals you want with a as with, through the lending model or a partnering model. But again, as you're going after these bigger deals, I might need more people, more money than I. Go down to the syndication route. What, what reg do you like right now? I mean, I guess let me say it this way too Could you explain from your perspective, as you go out to raise money, depending on how you advertise, I'm going to have to stick to accredited investors or maybe I can do some non-accredited, depending on how I advertise. Can you explain your perspective on that and which within that lane, which one you?

Speaker 2:

prefer? Sure. So and this is coming from someone just for context for people that are not familiar so I've raised around a hundred million dollars from hundreds of investors. I've done it with every flavor and basically every real estate and non-real estate transaction that exists, and I originally did this as a fund of funds and then later as a registered representative under a broker dealer, and now I do this exclusively as a general partner, buying deals directly, where I raise money only for my own deals. So I've been through a lot in this industry and that's not even a flex, I'm. Actually I wish I hadn't been through so much. I wish I had figured out my current lane way earlier, trust me. But I work with a lot of great groups that have different perspectives and a lot of different attorneys, and so here's my view on all this.

Speaker 2:

There are regulations that allow you to raise money from non-accredited investors, and the most common one is Reg D 506B, as in boy, and what this means is it's an exemption from going public. So when Tesla goes to raise money, they do so in the public markets, but if you're going to raise money for a real estate deal, you don't want to get crippled by the regulatory burden of what it means to take a real estate deal public. I'm not talking about a real estate company. I'm talking about you're raising money for a deal, so in that case you need an exemption from going public, and one of the most popular exemptions is that Reg D 506B, as in boy. It allows you to have up to 35 non-accredited investors in the deal through a syndication, and the rest have to be accredited, and the way they verify this is they basically check a box saying that they're accredited Basically means they make more than $200,000 a year, or $300,000 a year with a spouse, or have a million-dollar net worth minus their primary residence.

Speaker 3:

There's other definitions and I want to digress there for one minute for everybody. I was just going to ask can we define that for everybody? Accredited investor let's just call them a super investor. Whatever they have $250,000, have 250 or 300 grand of income and a million dollars in the bank or per se of equity somewhere not in their home and people raising money out there are going to want to have a letter from an attorney or a CPA to verify that so they don't get in trouble taking money from someone that really is not a super investor.

Speaker 2:

But I would say one thing cause. It's important distinction. With 506B, as in boy, the requirement is that they check a box that they are accredited. And the reason I had to jump in there is that there's a different regulation 506C, as in Charlie where it's actually required that all investors are accredited, but they can't just check a box to say that they're accredited. They have to have that letter from an attorney or a CPA saying that they're accredited.

Speaker 2:

So the reason I mentioned that is that that extra layer of scrutiny has a benefit. Yes, they all have to be accredited, they all have to have that letter, but then, for the first time, it allows you to publicly advertise or generally solicit for deals. So with 506B you can't go on a podcast and say I've got a deal right now, go to asimcapitalcom. If we're using a 506C, I can say that, which, by the way, is one of the reasons why we use 506C, because I'm on a podcast right now. I don't want to be worried about breaking the rules. So there you go. Now there's other things we can get into, but those are the kinds of regulations Most of the people that do real estate deals in our niche those are the two regulations they use.

Speaker 3:

No, absolutely. In our office we do Reg B and Reg Cs and PPMs and I think we should tell people too. You're looking at our office we're around 25 grand to 30 grand to really build that syndication out, and that sounds like a lot to some people to deal with lawyers. But I also have people go out and step into a law firm that wants to charge them 60 or 70 grand and it's just highway robbery in my opinion. So you got to be careful out there as you shop for that.

Speaker 3:

I really want your take on working with lawyers in this process, which is probably the bane of your existence. So I want to make this distinction for everybody. We've got these two options. You call them public, non-public, and I kind of like that. That non-public is I can raise money from family and friends, but I can't post on the web. I can't say I'm on social media doing this. I can't go on a podcast and say I'm doing this, but it's a lot easier from a regulatory standpoint. But I can't go publicly everybody and go tell them about it over here I can go oh man, I can go public all day long, tell her I'm doing a, la, la, la, la la. But the only people that can invest with me are these accredited investors with a verified letter that they are accredited. And what you're telling me is you like option two, so you can go out to the world and la, la, la la and let everybody know what you're doing?

Speaker 2:

I would just say and this is not legal advice, but from a business standpoint I personally prefer to work with accredited investors only, and I just think it makes the business more scalable. I think accredited investors can invest more. They're far more likely to reinvest. They're far more likely to know other accredited investors. Don't misunderstand me. It doesn't mean that I don't like non-accredited investors. In fact, I very much got into this industry because I wanted to help all people get money out of the stock market casino. But after dealing with trials and tribulations over the last decade or so, that's just my personal perspective. So I wish the regulations weren't written the way they were. But because they are, that's the way we decide to go.

Speaker 3:

I hear you. I hear you, and a more educated investor actually makes it easier to do business. I get that for sure, yes. So well, now we're to the crux of the conversation Going out and attracting accredited investors, finding them, letting them know. What you're trying to do and I know that's been one of your main topic of one of your books and what you talk about a lot is how to help other real estate investors find accredited investors. You say a lot of them are afraid right now.

Speaker 2:

okay, but maybe your first thoughts on helping people find these accredited investors and get them to take action, I think when I got into this world of finance and real estate, it's probably because of the same reasons that a lot of people listening to this show get in this world is that we want to make money for ourselves and our family. We want the benefits from depreciation and cashflow and later appreciation and these types of things. We got in this industry because we want to do deals, and what I have found is that we become real estate or private equity nerds in pursuit of the right thing, which is focusing on deals, but what ends up happening is, when you want to raise money from, as you said, silent partners, when you want to raise money from LP investors call them dentists, doctors, lawyers, high income professionals they are not real estate nerds, they are nerds of their profession. And so what I did is the first time I tried to raise money, I found this perfect deal and got in a room of 30 accredited investors. So think about $30 million in net worth or something like that and I just presented the crap out of this deal or something like that. And I just presented the crap out of this deal 10% cap rates growing in robust markets.

Speaker 2:

It's the mobile home park industry, where they don't even own the parks themselves. You just own basically a lot and the homes are positioned on the lot. They basically pay you rent. It's the best business model of all time. The problem is, nobody cared Even though they knew, liked and trusted me, nobody was interested in investing in the mobile home park business. They didn't know what a cap rate meant, they didn't know what debt service coverage ratio was, and so I was finding myself pitching this deal to people that were uninterested, not motivated, not emotionally ready to invest, and I fell flat on my face. I raised $0 on my first capital raise, and so what I've done over the last, however long, is never gone through that again.

Speaker 2:

I built a system for attracting leads, educating them through things like podcasts, events.

Speaker 2:

We have an event coming up, there's also my book and stuff.

Speaker 2:

I'm doing all of this in a pursuit of building notoriety and reputation and getting attention, which is the top of what we call the funnel, which is an inverted triangle, and at the top you have attention. Then you convert that attention to a lead by doing things like webinars, podcasts, download reports, economic updates, excel models that people can put their first name, last name, email address, phone number in and exchange for that digital knowledge product, and then I have them in my world, and so that has a lot more to do with raising capital than just forcing debt service coverage ratio down the throat of a doctor that doesn't know what that term means, and so that's what we do at raisingcapitalcom we help people build that kind of system. Does that make sense? I know it's not new to you, but for some people they never thought they would be in the world of content creation and podcasts. But of course, that's how you generate a lot of your business, and I'm just hoping people listening to this will start doing the same for theirs.

Speaker 3:

Yeah, it's a great point Raising capital. If you can increase your credibility and get them drinking your Kool-Aid and get them in your world, it definitely generates those leads and helps you close them. And that's very uncomfortable for some people and they don't know that they're better out finding the deals, they're better out managing the deals and they're great in the presentation room, but they don't want to be an influencer, they don't want to be out there top of funnel. Are you saying a syndication real estate investor should partner with someone that wants to play that role, or is there another way to attract these investors without being an influencer?

Speaker 2:

There's two things I want to touch on, because all of those are options, but what I want to call people out on is that, if you're the kind of person that's obsessed with the details, right, you're focused on operations. You know the market like the back of your hand, you know all the comps, you know focused on operations. You know the market like the back of your hand, you know all the comps, you know all the competitors, you know all the property managers in the area and you've got a strategic advantage. You owe it to your investors, or potential investors, to rise to the occasion and do what I'm outlined. It doesn't have to be me, you can listen to anybody, but we're all saying the same thing to raise a bunch of money and to buy bigger and better deals and more deals, and to get more people out of whatever crazy investments they're in and into your predictable cashflow type of opportunities. You've got to be able to be a louder version of yourself, and so the people that cringe the most are the exact people.

Speaker 2:

I want to do this because the engineers, the scientists, the people that are sometimes crippled by analysis, paralysis and also, by the way, imposter syndrome, which is more common for people that are more intelligent. Those are the people that I actually want to succeed in this industry, because they will actually be the ones that are skeptical of doing bad deals. But what I'm talking about is so powerful that if idiots do it, they will also raise a bunch of money, but the deals will go bad, and so that's kind of the reality. I don't want people to shy away from the fact that you want more topline revenue, and the way you get that is by raising capital, and the way you generate more top-line is by sales more scalably, and the way that you do more scalable sales is through marketing, which is what this conversation is all about, whether people know it or not.

Speaker 3:

It's about marketing attention and in converting that attention to dollars 20 years ago, marketing consisted of holding a dinner, inviting people out or not. It's about marketing attention and in converting that attention to dollars. 20 years ago, marketing consisted of holding a dinner, inviting people out having a little presentation. Now we've got all these platforms and ability to get in front of people. Do you ever feel like it's so much work to do the big deal? You're like I could just make as much money with the little deal, that constant pursuit. You're like you know what? It's not worth it. You could have three guys on a deal and make the same as managing 40 investors on a massive deal and all the headaches I prefer, let's say, a $20 million deals.

Speaker 2:

But the reason I prefer them is I can't buy $100 million deals yet not consistently and so I want to be in quality assets in prime markets and so, generally speaking, there's usually some really good deals in the $40, $50 million range. You start to be competing with institutions that have lower cost of capital at that range, so sometimes 20 million is kind of the perfect little element there 20 to 40 million but I never want to go to 10 because the amount of work I have to do is very similar between a 10 million, a 20 million, a $50 million deal. So that's just my perspective. I'll give you some other nuance there, which is that once you start buying deals that are, let's say, 60 units or less in multifamily, you don't really have the economics of scale. Economies of scale to have a full-time property manager on site. You also have smaller physical structures, so there's not as much tenant diversification. So it all makes sense to kind of plant your flag in the ground at a certain point, but most of the time people are planting their flag in the ground not because of anything I just said, but because they can't raise the money.

Speaker 2:

That's the number one limiting factor in almost every private equity business that exists is that they don't have leads coming in, they don't have a system for attracting and educating and nurturing and closing them, and so they're stuck playing, going deal to deal, scrambling every single time they put something under contract. And I don're stuck playing going deal to deal, scrambling every single time they put something under contract, and I don't want people to be limited by that. I want you to be able to play in the space where you want, regardless of the money you can make. I don't want you to be limited by capital. I want you to be limited by the space and the amount of deal flow and the economies of the market.

Speaker 3:

I love that and I like how you said that this conversation really is about marketing for all intents and purposes. How do you attract those investors and, like you said, bring them into the funnel and nurture them and close them? I guess what I'm getting at and I'll ask it in another way is sometimes people shouldn't do that. Like you know, just because you can doesn't mean you should, and I have some clients that are like oh, I can't wait to do my $20 million deal. I go do you know what you're going to be doing for a $20 million deal? It's very different than a $2 million deal. You're not going to be wearing a tool belt anymore. You're not going to be doing this, you're not going to be doing that. You're going to be on the phone and kissing the ass of investors every day and the emails and dealing with accountants and getting out reports and dealing with audits and that.

Speaker 3:

That is that what you want to be doing. Or do you want to be doing a deal? You want to be on the dirt or do you want to be behind a computer screen? And they're like, well, no, but I want to's big deals, and it's like, no, you don't and I don't know. I think sometimes people need a reality check of this trajectory. That really isn't sometimes all it's cracked up to be Dude that was the story of 2019, 2020, 2021, 2022.

Speaker 2:

And then, all of a sudden, all this distress takes place, and it's not widespread, but it's very specific to multifamily and prime markets, where people use floating rate debt, and only then can you actually figure out if you want to be in this industry. I mean, it's easy when real estate's the number one wealth creation vehicle in the history of the country. It's not as easy when you've got people that invested money and lost money, even if it wasn't on you, even if it wasn't even in your deal, but you just got to hear stories about people that have lost money. That is a weight that few can and should bear, and so I mean that, to me, is the kind of thing like are you actually cut out for this industry? Like, because people talk about I'm going to go left, when everyone's looking right, yeah, right, okay, cool. Why don't we wait and see what that actually feels like? Because what it usually feels like is that when that actually happens, when that moment takes place, people go well, not like this, this doesn't freaking count. This is an insane once a generation black swan event. Every single time.

Speaker 2:

It happens every seven to 10 years and I get that and I've had those thoughts and I've lost sleep over things and I have done deals that have lost money. I've done a lot of deals and most real estate investors that have done a lot of deals have lost money on deals. But does it kill me? Yeah, but I owe it to my investors to keep freaking going, because I know that when it comes to due diligence and operations, I mean, we know what we're doing, and so I owe it to overcome those challenges and that frustration and those self-doubt feelings to stay when it matters, because, holy crap, that's when you can buy the best deals. When you're having those moments of self stealth, doubt and you're hearing stories about investors having lost capital, that's when you know you're buying right, and so that's the most important part of the whole cycle.

Speaker 3:

So what are your biggest challenges in your process right now for raising capital and the deals? Is it finding deals or finding investors? Two, both are difficult.

Speaker 2:

Both are difficult and the emotional element of both of them. But I will say that, like you know, going back to, let's say, 2019, 2020, if we would put out a deal in a prime market in a asset class that people are familiar with, you could fund it in a matter of hours or minutes in some cases, and what ends up happening when there's hesitation in the marketplace is that people start finding reasons not to invest in deals because the FOMO isn't there. That's still. The emotional rollercoaster that they went on is still present in their mind, and so what ends up happening now is like this deal that we're about to close. On every metric that you could use to determine how risky an investment is compared to two years ago, it's cranked all the way the other direction, Meaning fixed rate debt, five-year term, sub-70% loan to value agency financing a business plan where the property is already renovated and the seller is simply selling at a basis that's 22% to 25% below where they would have sold two years ago. So you're literally just buying-.

Speaker 3:

There's not as many deals. Yeah, you're looking for deals and they're not out there.

Speaker 2:

That's right. They're only out there if they're forced to sell. But the challenge is that when you present that metric where all those metrics are cranked the right direction from my perspective, investors now are like wait a minute, this is a 1979 deal, we only want to do 1980s or new. Those are the kinds of things that happen. Everybody's greedy. Yeah Well, they're very hesitant and so good for them. I wish there was more greed. What I see now is that that fear is hey, 1979 is not 1980. So we're not going to invest in this deal. But what ends up happening is that in a couple of years you don't hear any questions about vintage or agency financing or fixed rate versus folding rate. The money just flows through. That's when it's easy. That's when you should maybe take a pause.

Speaker 3:

All right, I want to throw out what I think is going on out there and I want you to argue with me or tell me if tell me I'm wrong and give me a little bit of background. I think back from 2016 to 2021, everybody started to go all right, single family homes, we've done our thing, we're going to multi-unit, we're going to commercial, we're going everybody and their dog. And there's only so much inventory. In the U S, you can go to any mid market major market city. A lot of investors. They've got a spreadsheet of every apartment building within 10 to 50 million right there on their spreadsheet. Everybody knows what's available. It's not, you know, millions of homes. These are, you know, hundreds of thousands of apartment buildings. There's only so much inventory.

Speaker 3:

So in 2016 to 2021, everybody that was anybody and the institutional money started buying this crap up, rehabbing it, creating a cap rate, fixing it, and there's just not as many deals right now. No one's like, and. But meanwhile everybody else started to say, well, I'm going to get on the bandwagon and I'm going to have a fun too. And so now I got people with more syndications looking for deals fewer deals out there that haven't got an edge with some sort of intrinsic value that you can improve on. You're just buying cap rates and they're not afraid. There's just not deals. I'm competing against private equity in institutional money that can write a check, and so it's made the market much more tight and difficult. I don't know about fear, but I think that's what's going on and it's okay. Go buy a cap rate. That's all you're buying. You know we got to get. I don't know your thoughts.

Speaker 2:

So some of this is market dependent. But in Phoenix, for example, deal flow is down like 85% of multifamily deals. So that'll tell you a huge part of the story. But, like I said, every single metric that you would use to determine whether or not you were buying right, like things like positive leverage or cost per door or things like that that's all like way more favorable. So the idea that someone would except for interest rates, by the way, which is, of course, extremely material, but there's a big caveat to that, which is that you would much rather buy in a high interest rate environment and sell in a low interest rate environment than buy in a low interest rate environment, sell in a high interest rate environment. So the combination is both are happening and it's not a coincidence that both happen at the same time. You would only want to sell when you're distressed in today's valuations, so there's way that's both happen.

Speaker 2:

Deal flow plummets, valuations also plummet, and also investor confidence and investment rate plummets, despite the fact that there's plenty of dry powder and plenty of new market participants and plenty of people sitting on cash. So this is the nature of the market cycle, whether or not it's deal flow or not deal flow. I mean looking at the deals that we're looking at. A lot of the deals we're doing in Phoenix right now are off-market transactions. The last two we closed are totally off-market. So there wasn't this massive bidding process. There wasn't this massive 26 offers. It's just a matter of people trying to sell quickly because they're distressed.

Speaker 3:

Okay, so you're out there trying to attract investors, and you're doing it through top of funnel, getting investors trusting you, believing in you. So when you have a deal, you've got your investor pool ready to go, and then your book is about hey, be like me. And so you're creating competitors for that same dollar, which is a little surprising. Why do you do that? Why, I mean, there's only we. We just identified the fact that the with interest rates and the deal flow down 85%. We've got every Tom, dick and Harry setting up a fund Holy crap, snoop Dogg has one and then now you're going to go out and teach everybody how to do what you're doing and compete with you for that powerful space on the web and for book sales. Is it worth it?

Speaker 2:

Yeah, probably not, probably not for book sales, but there's two pieces of this. One is really easy to justify One. I freaking love it Honestly, like this is my calling. In life, I've raised a lot of money. There's people that have raised way more money than me, but in terms of like getting fulfillment from seeing people go from no background in private equity to raising their first million, or people that have already raised $300 million and raising a next hundred million way easier because of something I've said, this is like the thing that this is the reason I'm on this podcast right now is I freaking love this game. You can add a zero or a comma in my bank account. I would still be doing this exact interview, right? So you've you've made your millions.

Speaker 3:

You're like all right, I'm going to teach people how to do it, even if they take deals from me.

Speaker 2:

Oh don't no, no, no, no, because it's always self-storming in some way. The first reason is fulfillment. The second reason to that, obviously A we can partner with other people that can raise money.

Speaker 3:

Oh so you're wanting them to bring you deals. There's your deal flow piece, baby and capital Right.

Speaker 2:

And capital. So I'll break down this from a structural standpoint. One of the things I talk about frequently is this concept of a fund of funds, and so essentially what we do at ASIM Capital is my private equity company. In every deal we do, we have a special class of shares where, if you invest a half million or more, you get about 30% more economics into your entity. So if you invest half a million, you get an 80-20 split, versus a typical investor investing 100 grand.

Speaker 2:

That gets a 70-30 split, and what this creates is an opportunity for someone that's a doctor to pull 10 doctors together that are investing 50 grand a piece to invest into our next deal, and that way I teach people how to do this. They can do it for their own deals, whatever they can also do fund to funds for other people, but of course, I'd much rather them create a fund of funds to invest in our next deal, and this is how we raise a lot of our money, given the success of the book and our conferences and things like that. So that's your answer. And also, by the way, we have a coaching program, which is you know, it was scaled from zero to 10 million in 31 months. Those are very self-serving issues and not just based on the fact that I want to be a good person. Okay, there you go.

Speaker 3:

I like it, I like it. So when's your next conference?

Speaker 2:

We have one coming up in Phoenix February 19th through the 22nd. It's called Raise Fest. You can check it out. Raisefestcom. It's just about raising money, so not about what a cap rate is, not about how to find good markets, but basically what we're talking about today.

Speaker 3:

Okay, and that's great, talk to me about your accounts and lawyers. What's your challenge there as you work with professionals?

Speaker 2:

It's so integral to the process and when you do events and all that 100%, and it's a big part of the industry and it's a big part of why some people leave the industry, because it's a very regulated and potentially litigious industry and there's a weight associated with that. And what's also interesting about this industry is that, because the nature of market cycles, you can be a market participant for 10 years and not even know the regulatory implications until something goes wrong and, by the way, when something goes wrong, usually a lot of things go wrong and all of a sudden, this regulatory burden can collapse these businesses. So that's the first thing I'll say. However, when I married my wife, we did our vows. Her vows were really great. I cried a lot, by the way. We changed rings and I turn and I see my securities attorney smiling back at me and I go how much money did I give this guy that he's literally at my wedding?

Speaker 3:

And um see how much his fee is for a PPM yeah, exactly.

Speaker 2:

So I mean, he may have ruined my wedding, but I love him. By the way, his name is Peter and um, so that should answer your question right. Like we have an ongoing relationship, and it's important, though, to remember that attorneys and I think you'll probably agree with this their goal and I a friend of mine mentioned this metaphor. I quite like it they're essentially the referees of the game. They're not technically the regulators, but they know the rules of the game.

Speaker 2:

If you wanted to learn how to play the game, though, you probably wouldn't go to a referee. You probably want to go to someone who's actually playing the game. Some do both, but you get my point. You don't want to go to an attorney and be like hey, how do I raise money? You want to go to an attorney when you're like this is the deal I'm trying to do, this is the structure I want to use, this is what the waterfall is going to be, and it's buttoned up. And, by the way, attorneys will agree with me, because they don't want to be consultants in this capacity. They'll burn themselves out of a client running through legal fees. So you want to go super buttoned up after you actually have, like, a marketing deck. That's a good time to go to an attorney, because they can basically use that to craft your legal documents.

Speaker 2:

And how much have I paid? I paid as little as 10 grand. I've also paid as much as $80,000 for one deal. So you know and you, by the way, generally speaking, you get what you pay for. So the numbers you were talking about before they don't scream red flag to me, it screams. You probably know what you're freaking doing. It's just an expensive thing to do, since 2008.

Speaker 3:

As you know, our directed IRA fastest growing self-directed company in the space 2 billion this year. Do you see a lot of self-directed money in your deals? Do you like that? I don't even know. We're probably at your event with a table, I don't know. But anyway, do you like that self-directed model for your projects?

Speaker 2:

Absolutely, and this is a massive opportunity. So it's a good tie into what we were talking about before, which is that most people don't know that this is possible, and that's the reason you're experiencing. Look, you're crushing your competitors. That's amazing, but there's also a massive tailwind to the industry because people are now figuring out that they can self-direct their accounts, and so the likelihood that you've got people that are in your world that don't know this is high, so you can lead them to this truth and then what you know, help them self-direct their capital and they can invest in your deal.

Speaker 2:

Now, there are some stipulations around this, which is not news to you, but like, for example, you don't want to have more than 25% of the money invested in your deal to be ERISA funds or these tax advantage accounts that can trigger all sorts of regulations, but other than that, it's a pretty good opportunity to raise an extra dollar here or there quite a lot of money, by the way through these types of accounts. And also, if you're the person that exposes someone and educates them on the fact that they can take, like old 401k capital from a job they no longer work at and convert that to a self-directed account, there's going to be emotional buy-in there. That's going to last way more than just the 100k they may invest with your deal. So that's my perspective, I mean. I'd like to hear yours, though, as well well in one sentence.

Speaker 3:

When you go out to those quote, unquote, five doctors or dentists or whoever executive and you say, hey, that's raised 500 grand. Um, it's a lot easier for them to go get five buddies that have a hundred grand sitting in an old IRA or 401k than 500 grand cash in a bank account or a brokerage account where they got to go look at their buddy they golf with and take it out of stock. So the retirement accounts can be so much more accessible and easy to raise capital with, in our opinion, and the tax benefits just are crazy. So fun, all true. Well, where do people get more information about you, your event and tap into some of this training you're doing for people raising cap?

Speaker 2:

There's a bunch of great content at raisingcapitalcom that's our company name. Just go there. But this event is going to be insane. Raisefestcom I'm going to be speaking there, pace Morby is going to be speaking there, cody Sperber is going to be speaking there, ken McElroy is going to be speaking. I mean, what do you want, right? Some of the best in the business and also some people that have raised their first half a million dollars and it's like, well, how did they unlock that Right? So, no matter where you are, there's going to be an opportunity to learn, and one of the reasons I do the event is that I want to freaking learn. I want to stay ahead of the curve as well. So that's how I get my playbook for 2025. And hopefully I'll see you there. Just check it out at raisefestcom Love it.

Speaker 3:

Well, hunter, thanks again for being with us. Love it. Thanks so much, so much good info, and we truly wish you the best, and thanks for sharing these insights with our followers. So onward and upward, good luck, and the way that you do more scalable sales is through marketing.

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Mark J. Kohler

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