Discovering Financial Freedom Treasures Through Real Estate Syndications with Rob Natale

[0:00] Welcome to the REI Agent, a holistic approach to life through real estate. I’m Matthias, an agent and investor. And I’m Erica, a licensed therapist. Join us as we interview guests that also strive to live bold and fulfilled lives through business and real estate investing. Tune in every week for interviews with real estate agents and investors. Ready to level up? Let’s do it.

[0:24] Welcome back, REI agents. Hey, I should call you guys that from now on. That’s kind of fun. I am here alone again today. We have had a kind of a crazy week. My wife, Erica, has been sick. She’s had a very bad cough. And so she’s actually, today, she’s done a whole day of counseling, I think telehealth mainly. But she has to talk all day, which is I’m sure exhausting. But she’s also been not getting enough sleep because she’s up coughing at night. But so yeah, sorry, Erica could not be here for this one. It is just me. This episode is a little bit more technical. We didn’t really get personal too much, but it is about syndications and then also fund to fund. So if that is something that you are interested in, if you have no idea what it is, I definitely recommend learning this world because it is a powerful, powerful investment vehicle.

[1:28] Something that can really, really benefit any real estate professionals like realtors from a tax side. It can make you a great return on your investment if you do it right. So it’s definitely a worthwhile episode. It does get technical, but I hope that you can push through and try to understand a little bit more if it’s something that you’re curious about. And if you are already familiar with it, hopefully there are some new nuggets in this episode that you can tease out of. But before we get into that more, I wanted to talk a little bit about fear, maybe fear of failure, fear of inadequacy and how that might be holding you back. I am most of the time not affected by this. And I do not mean this to be arrogant and say that I’m so brave and macho man, right?

[2:25] I tend to err on the overconfidence side probably where I will maybe take on more than I should and more than I’m capable of. And that’s kind of where I probably go too far of. And so it’s not a familiar thing for me. Um, and, and usually I’m kind of, I see what I want to do. I see the direction I want to go in and I, I just kind of jump in with confidence that I can get there. And, and often that has, I might not have everything like scheduled out perfectly, all the steps I need to do to get to that point. Um, but I do usually have a pretty good idea, a pretty good understanding of kind of in my head where I need to go, what direction I need to do. And I just show up and repeat, repeat, repeat to try to get there.

[3:11] Um, and, and the point of all this and the reason I’m bringing it up is not to brag. It’s that I, um, am, I’m going to, I think I mentioned it in another podcast, but I’m going to play music with some friends for the first time in a long time. And music has always been a big part of my life, been very excited about it, but it also, I found myself being very anxious and afraid of it today, which is a weird thing for me. I, uh, have played, uh, with people in the past as, uh, you know, had great success had, you know, you know, did some concerts with another guitarist. Um, and then I’ve had some experiences where I just, we didn’t mesh for whatever reason. And, uh, I think maybe that brought up some memories for me of like, you know, maybe just, I’m not going to be good and maybe I just won’t be able to play and they, it will all fall apart.

[4:07] Um, so, and I guess, I guess the point of all that is it made me realize and made me think a little bit about how probably a lot of people feel that way about a lot of things and how it can probably be very, uh, debilitating and makes you stop from, from going and trying to do new great things. Um, but you know, I think just like anything, it, it, it’s a, it’s good to push through. Um, I’m going to go, I’m gonna have fun. Uh, I’m gonna, I’m gonna learn to relax and just have fun with it. Um, maybe next, next podcast recording, we’ll, you’ll hear a little bit more about how that all went, but yeah, I guess I just wanted to encourage people out there that, uh, may have more fear, more, um, anxiety, more, uh, apprehension towards taking on things that seem big, um, and daunting and intimidating because they, they, they feel like they may not be good enough.

[5:05] They may fail and, and hopefully realize that that really is a state of mind. And, uh, I don’t know the cure, uh, for dealing with it. Um, but if you show up and you do give it your all and you keep showing up, that’s the key. You got to keep showing up. Um, it, you should be able to get past it. And usually the things that are the scariest or the, or the, you know, the hardest are kind of the things that are worth the most, that they mean the most at the end. Um, some of my favorite moments, um, have been through music and playing with other people. I think it’s a lot of fun. And so if I were to let myself, um, not go and just be afraid that it won’t work, I mean, obviously it won’t work because I didn’t go.

[5:51] Um, but I, I, I also lose out on that possibility of, you know, having a really good, meaningful moment. I think I talked about in the last episode, that, that state of flow where you get into this state where everything else melts away and you are just in that moment, enjoying yourself. Um, so anyway, I hope that’s encouraging. I, like I said, I, I don’t encourage, I don’t, I don’t have that feeling very often. And, and so it’s just was interesting to think through and realize that, you know, it is, it is a real thing that people struggle with a lot. And, um, I encourage people to push past it and, and to believe that they are capable of doing whatever they want. And I really think that’s true.

[6:33] You should know your strengths. You should know, um, what you’re good at and lean into them, but don’t. Think that you’re not worthy of the dream life that you want. Go after it. Um, so anyway, uh, like I said, we have a technical, uh, we have a really good conversation here, uh, with Rob Natali. Rob is coming out of Boston. Uh, Rob is running a fund of funds model, um, helping people invest their capital in things like real estate syndications. Uh, but he’ll get more into the details about that. Um, I have had a few people on that haven’t been familiar with what real estate syndications are. I’m sure a vast majority of agents aren’t aware of, uh, what real estate syndications are, but they are really, really, really an interesting and, and a big opportunity for real estate professionals specifically.

[7:27] And that is because of the real estate tax benefits you get from being a real estate professional. Um, so if, if you are a real estate professional and you don’t know what syndications are, or if you are a real estate professional, understand what syndications are, but want to learn more about it, I highly recommend this episode. Um, it is something that you will, uh, benefit from greatly. Uh, it might be something that if you do ever invest in one, you might have to kind of get through that fear a little bit as well. But if you are doing it the right way, if you’ve done your homework, um, you can, uh, yeah, do a lot better and have it to be a lot more passive than if you just invest on your own in just, you know, a house on the street.

[8:08] So there’s a time and a place. I think there’s a building up wealth through real estate that you own directly and you’re actively managing is great. Uh, but I think there is a place for syndications and, uh, it’s something that you should definitely understand if you are an agent because knowledge is power. So anyway, without further ado, here’s Rob Natale.

[8:30] Welcome back to the REI agent. I am here with Rob Natale. Rob, thanks so much for joining us. Uh, you were coming out of Boston, right? I am. And thanks for having me on, Matthias. Looking forward to having our, our chat today. Yeah, Rob, uh, you are a timely, uh, guest because we just recently spoke to an agent that was wanting to learn more about the syndication world, um, and kind of demystified a little bit. It was something that she wasn’t familiar with. And honestly, that’s a big goal of this channel is to help, um, agents understand, uh, kind of what syndications are. Uh, many probably haven’t even heard of them. Um, and now you are a fund of funds. We can, let’s, let’s, we’ll get into what that all means.

[9:12] Um, but you are helping, uh, people like medical professionals, uh, invest their money. Is that, is that correct? Correct. Yeah. At a very high level, what I do is really our mission statement. What we’re helping folks do is help individuals predominantly a lot in the medical community due to my family’s background in particular, really help you become work optional through passive real estate investing. That’s at the, at the highest level of what we help our clients do. So if you can, could you break down a little bit of what a syndication is and how it’s different from a fund of funds? If people aren’t familiar with those terms. Yeah. And actually I was going to even say too, I might throw you a little curve ball here, Matias.

[9:58] One of the things you said that even caught my attention. That’s so spot on is you were speaking with an agent who hadn’t heard of syndication before, doesn’t know what it is. And that’s what I come across. And that’s 90% of the population does not know what they are, how they work. And there’s a lot of reasons behind that. So before even getting into the fund of funds in the syndication world, I just want to share with the audience how I got into this space, why I’m so passionate about it. For me, I used to work more or less in the wall street world. And I was calling financial advisors out in the Pacific Northwest. So it was Washington state, Oregon, selling different investment products like mutual funds, separately managed accounts, ETFs, college saving plans.

[10:51] And I was interacting with a wide range of folks and individuals who might be working with solo practitioners, managing a book of business of about 20 million to what we call these almost mini family offices that managing four or five, six plus billion dollars in assets under management. And that’s when I noticed that these teams that were managing the billions in assets were utilizing and are utilizing strategies that 90% of the population plus do not know exist. And one of them in particular is real estate syndications. So to me, it felt very much like a good old boys club, the wealthy keeping strategies amongst themselves. And then for those out there who maybe are working with a financial advisor, and you might be wondering why I’ve never even heard this from my financial advisor before.

[11:41] Why not? A lot of the times it’s because they don’t have the ability, two reasons. They don’t have the ability to hold these type of investments on their platform. Another reason could be is because since these investments didn’t really start becoming mainstream the past maybe eight years, they got approved through the JOBS Act and then enacted in 2016. So maybe they don’t have the knowledge base around it. And that’s also tied into not having the ability to hold on their platform. A lot of advisors, they’re getting compensated assets under management and also some even still being commission based. And if they don’t have the ability to hold these assets on their platform, they’re not going to talk to you about them.

[12:26] Because if they do, that could be assets that leave their book of business, which is going to impact how they get paid. So I started noticing these things that kept stacking up in my career working with advisors on a day-to-day basis. And what it really all led to for me was I felt that, and it’s not, there are good advisors out there, don’t get me wrong, but I experienced that it wasn’t a bad seed, but a bad tree. And that advisors were not operating in the best interest of their clients, weren’t operating as fiduciaries, and it was more or less what can you do for me versus how can I actually help the end client of mine. So I got to a point where moral compasses did not align, did not want to stay in that industry anymore.

[13:16] However, the experience I had working with some of these larger teams and learning about the syndication space, which we’re going to get into, investing in real estate in a passive manner, was very intriguing to me. And that’s what got me to think, what if I start a company that can help folks like my family, who are all, or were in three of them in the medical space, you know, start building wealth in real estate. And what if I can show them how there is a path for you, you know, to become work optional, utilizing these types of strategies. And that’s what led me to start North Square Capital, where like I share with you, the mission is to help our clients become work optional, utilizing passive real estate investing as one of those vehicles to do so.

[14:09] So I just want to at least share a little bit of my background and how I got into the space, why I’m so passionate about it, seeing what some of the things were happening and the disservice that is happening to a lot of people on the financial services industry, for those who are relying on experts to help build their portfolio, I did not see. So I want to help fill those gaps. That’s a really good point. That’s my story. Yeah, that’s a really good point. And I guess something that I had realized too, at one point I was talking, I wanted to meet up with a financial advisor to discuss, not for me personally, but maybe that if they’re any of their clients would have interest. And then I just dawned on me, I was like, wait, they’re not going to make any money from some sort of real estate syndication.

[14:52] And so they’re going to have no interest. And you kind of assume that, I mean, to be fair to this person, I didn’t actually approach them and talk to them about this in detail and to actually find out if they would have any interest. But to your point, I think that if you’re going to a wealth advisor thinking that you’re going to get every kind of facet. I mean, the wealth is very broad. It’s not wealth from stocks, right? You would think that you would also get advised to do things like invest in a real estate syndication if it makes a lot of sense, if it makes more sense than other things. But yeah, you’re right. I don’t think you’re going to get that kind of advice. And conversely, if you’re going to go to a real estate syndicator, you’re not expecting to get advice on stocks.

[15:35] Right? I mean… Oh, no, you’re going to get both. So this is the piece for folks to think about is… Yeah. Right? You have, let’s say, advisors that are working at a Morgan Stanley, a Merrill Lynch, a Wells Fargo. So they’re going to be much more based on the public markets. It’s like the stock market. Versus if you go to what we call a registered investment advisor, an RIA, they are strictly compensated based off of assets under management. That’s number one. Number two, they are true fiduciaries. Right? As far as acting in your best interests. Right. And there’s documentation that even states as such. And the other piece is they take a holistic approach to portfolio construction. They follow a lot of what the largest pension plans in the country do, like CalPERS or New York City State Pension Plan, where it’s incorporating both stock market and private placements, including real estate.

[16:36] So for folks who are thinking about it, I would very much advise you all to go look. If you’re looking for an advisor, a wealth manager, go to the RIA route, a registered investment advisor. Because they take a holistic approach again. And I’m a believer in both. Stocks, real estate, the whole gambit. We might argue about that.

[16:59] Oh, yes. Then we might have to have a conversation for sure. Absolutely. You let me know that. I’ll see you out in the parking lot. No, I do hold stocks. And I have contributed to an IRA, a self-directed IRA and stuff. But yeah, I’m becoming more and more convinced that with the tax advantages and being able to use the profits and leverage now that I am preferring real estate personally. But that is also primarily a very hands-on approach, which funds of funds or syndications would not be. But we don’t have to have that argument now. That’s awesome. Yeah. But anyway. Oh, you go, Matias. Yeah, I was going to bring it back. So yeah. So get into a little bit of the syndications and the fund of funds if that’s where you’re headed.

[17:55] Yeah. Yeah. That’s exactly where I was going to save Wang Lang. So a syndication at its highest form is when you’re pulling together limited partners, which could be you that’s listening right now, LPs, pulling together assets to acquire a property or properties that you could not acquire on your own. Okay. And like you talked about, Matias, you’re utilizing leverage, you know, many versus one. And then you’re relying on the general partner or partners to execute that business plan. It’s usually, right, you have the two spokes here from syndication. You have an LP, limited partner, and then you have the GP, the general partner. Now, what a fund-to-fund manager does, and this is what I do specifically, is I am in my role responsibility is to vet out the general partners.

[18:51] I want to vet them out as individuals, team overall, and then the opportunity, and then present that investment to my client base and say, where North Square Capital, myself, we are going to invest. Would you like to invest alongside ourselves in this investment? So what happens is folks invest in a specific fund designated to that specific investment opportunity. They invest in my fund, and then my fund invests into the GP. Now, why would folks want to do that? One, I am going to the general partner and saying, hey, I’m going to bring a certain amount of capital to this investment. And because of that, I am negotiating better returns for my clients that would come invest through me versus investing through the general partner directly.

[19:49] The other major piece, too, is from a communication perspective, right? Capital is needed everywhere in any facet of life. So if you can bring capital, you are very attractive to individuals. They want to make sure they would like to build a longstanding relationship with you. And if I’m bringing investors a certain check size to an investment versus, let’s say, it’s one LP that’s bringing $100,000 into an investment. Right. In case-wise, if I’m looking to get an answer on something, it’s going to be much more efficient and much faster than if someone just goes out on their own and is looking for some information on that. That makes sense, yeah. And the other last piece is we can have the ability to negotiate lower minimums on behalf of our clients.

[20:42] Because, again, we’re going in as one big fund. A minimum, let’s say, if you go directly through the GP, maybe it’s $200,000. Where for us, if you invest through our fund, maybe the minimum is as low as $50,000. So it’s a much more attainable way to start building wealth and real estate in a truly passive manner at a lower minimum. Let’s say if it’s at a quarter million dollars. Yeah. Yeah. And that’s key right there, the truly passive. And to add to what you were talking about with the syndication stuff is you can think about, yeah, like the general partners. They’re managing, they’re operating. They’re the ones that either have a team or they’re the ones taking the calls from the tenants and fixing the leaky toilets.

[21:26] They’re the ones that are operating all that stuff. You, as a limited partner, are simply putting your capital into it. They have, like you said, a business model. They have a game plan as to how they’re going to, usually they’re trying to improve the property. They’re trying to make it perform better so they can have a capital event down the line where they’re going to refinance or they’re going to maybe sell the property. And they do so by, you know, increasing the profits. That’s how they basically make the value grow. And yeah, as a limited partner, if you’ve, you just, you just collect checks. Yeah, no, it’s, you are, some folks like, is it really passive? And I tell people all the time, your risk is your capital.

[22:09] It’s at-risk capital. It’s similar if you invest in the stock market. Similar if you invest in mutual fund, crypto. Other than that, that is it. You’re not signing on to a loan, right? You can’t be sued, right? Your risk is your capital. All those other risks and responsibilities are falling onto the general partners. I always use, and you were talking about too, Matias, like the four Ts. Like, you’re not the one who’s dealing with the trash, tenants, termites, toilets. That, you just do not deal with any of that. When you are truly hands-off. And again, my role, not only in the vetting, is providing you the updates, whether that be on a monthly basis or a quarterly basis. It’s not a hands-off, hey, you invest and call it a day.

[22:55] It’s relationship-based. And for the long term, where this consistent communication that you hear from me throughout about what is going on with the business plan. Yeah. And to add to your points there, your risk is your capital. And so really, your job is to vet the investment and the general partners in the team to make sure that that is all good. And so that’s obviously something that you would be helping with. You would obviously not be wanting your investors to invest in a bad deal. Correct. Because then if that happens, then I’m out of a job, right? Who would want to, if I’m investing, putting my clients in deals that aren’t performing, then who’s going to want to invest through me, right?

[23:39] Like everything. Exactly. So my value is, if you think about it, it’s you don’t know what you don’t know. Right. And I always use an example, because I feel like this has happened to everybody, is at some point you have gone to a doctor’s office for some sort of ailment, and there is something that you should have asked, and you just didn’t even think to ask because you had no idea to even think about asking. Right. Maybe you thought about it after. I’m like, oh, shoot, I should have asked that. Oh, why didn’t I think of that? It’s because you just didn’t think of it because it’s not your world, right? It just happens. So for me, this is my day-to-day. This is really all I do. So that’s where one of my major value adds comes into play.

[24:25] Yeah, 100%. That totally makes sense. What are some examples of things that you want to make sure as a bare minimum that the team has or the deal has? What do you look for? Yeah. So I’d say I’ll answer this a little bit differently as far as before the deal. It’s all about the people. Number one. Because you have the destination of where you want to go, right? Regarding any business, anything, what’s going to lead you to succeed is ultimately going to be the people. You have a destination that you know you want to go. You have your journey that, hey, we wanted to go this, this, but it never is going to happen 100% of the way you think it’s going to happen. Something’s going to come up. Do you have the team in place to be able to navigate those challenges to get you to your ultimate destination?

[25:16] So I always start with the people. And some of the questions I ask are, you know, talk to me about a certain deal that’s happened that hasn’t gone according to plan. What did you do about it? And what did you learn from it? What happened during that situation? How was that communicated to your investors? Were any capital calls ever done? And the capital call, meaning for those listening, is the GPs are requesting more capital that’s needed maybe for improvements in the property. Maybe it’s even more to cover the mortgage for the debt. It’s just not performing the way they think. And you have the ability to not put in more capital. Now your shares, though, your percentage of ownership is being diluted, which is not ideal.

[26:07] I asked that question. What’s your historical performance? Not only how did it do, but how did it do compared to projections? Viewing that piece. Asking about conflicts of interest. Tell me about conflicts of interest that may exist within the organization. How do you avoid them? Running background checks. So one of the questions I’ll always ask groups is, as a courtesy to my clients, I conduct background checks with any groups I potentially partner with. Before doing so, is there anything I should be aware of? And I’ve had instances where folks have told me there is something to be aware of. I’ve had that conversation. It pops up. Then we have the conversation again. Say, okay, is this really something I would feel comfortable investing in and having my clients invest alongside with me?

[26:55] I’ve had people tell me that there’s nothing. And then something comes up. And then it’s automatically like, oh, I forgot about that. Like, give me a break. And then it’s, okay, we’re just going to 86 it and just call it a day there. So those are some of the types of questions that asked really during this interview, quasi type of process, multiple conversations, because the biggest piece at the end of the day for me is not losing money. Like, how do you, like, so when you’re talking about it on a deal now, Matthias, it’s, let’s say then you say, okay, I feel good about this team. These individuals are moral compasses aligned, have the confidence they can execute. Now, let’s say there’s a specific investment opportunity.

[27:40] Like, talk to me, first question, like, how can this deal fail? What could go wrong? Based on your projections, okay, what if this happens? So maybe there’s a sensitivity analysis that’s put into place. And the sensitivity analysis might show, okay, we’re projecting, you know, 3% annual growth, rental growth rate, let’s say in a large apartment building complex. What if it’s 2%? What if it’s 1%? You know, how is the debt structured? If folks are Googling multifamily syndication right now at the time of this recording, there’s been a lot of turmoil in the space. And that’s because a lot of organizations have got, they acquired floating rate debt in 2021, some in 2022 that either had two or three year caps where the rate was fixed for that specific period of time.

[28:33] And then after that, it’s no longer. So what happens to that? If you didn’t buy insurance, which is what we call essentially an interest rate cap, think of it as an insurance. It caps it at a certain percentage at a certain rate. Let’s say you structure the debt at around 3% when you underwrit the deal in the pro forma. Now, if you refinance the debts at 6%, the deal now might not pencil out, meaning it’s underwired and either become a four seller or you get foreclosed on. So those are some of the type of things and questions that I’ll look for, both from an individual basis and then on, let’s say, deal specific. I know one of the questions you asked, Matias, is what do you look for then in a deal?

[29:19] There are so many different asset classes out there between self-storage, mobile home, RV, multifamily, data centers. So each asset class has its own unique attributes. I historically have done large apartment buildings, short-term rental portfolio, and currently a private real estate income fund. So for the, I’ll speak to a current one I have now, what I looked for is what would need to happen in order for my clients not to get their monthly distribution? That’s one of the questions. And in order for that to happen, half the loans that make up the overall portfolio would have to default. The underlying borrowers would have to miss their payments. That is an extremely, extremely low percentage.

[30:10] And for those listening out there, this type of investment that I’m speaking to, it is our operating partner, the group that I vetted out and partner with. They are hard money lenders, and they are lending out to professional fix and flippers down in Carolinas, Georgia, and Ohio. So the underlying real estate is three beds, two baths. These borrowers are pledging the property as collateral. So in case they did default and get foreclosed on, we would take the property back. That’s the other question I have is what do I look for is, again, around risk mitigation. Yeah. So those are some of the pieces that I look for. Deal. Then obviously, too, if it’s a cash-flowing type of investment, what type of cash is it spitting out?

[30:55] It’s supposed to be a cash-flowing investment. It’s spitting out 3%. It’s not too much juice. You know? So what’s the objective of the investment? Does it meet that objective then from a return standpoint? Is IRR something that you factor in as well? I know that can be pretty confusing to people. Is that one of the metrics that you use as well? So I will look at that. And for those listening, it stands for internal rate of return. That takes into account, right, the time value of money. I pay attention to that, though, and that, the annual rate of return, what your annual percentage is going to be, and then the equity multiple. So if the equity multiple is 2x, that means over the projected hold period, you’re expected to double your money.

[31:43] Internal rate of return, you might see huge internal rate of return numbers, and you’re going to find a lot of that with syndicators out there that may be gone to deals in 2019, 2020, and then sold it a year later, much shorter than their projected business plan was. And that’s because you could, I feel like you could litter the property and it would still exponentially go up in value. Just everything real estate was exploding at that time. That’s going to drive up the IRR so it can be a little bit skewed. You want to look at all three to paint the whole picture. Yeah, maybe one way to describe that, too, to help clarify that more is, like, if it takes you one year to double your money versus 10 years to double your money, your IRR would be much worse over the 10-year time because it’s factoring in how long it took you to double the money versus if, yeah, if you turn around and did it in the first year, then it’s really high.

[32:40] So, yeah, that’s interesting. Makes sense. Yeah, so that’s all, I think that all helps people that are listening kind of understand more about what you do and kind of what syndications are and how these are opportunities to invest in. When I’m hearing the hard money thing, I’m guessing that doesn’t come along with a K-1, but I would imagine the apartments. It does. It does? Okay. It does. So, again, a K-1 for those listening, right? K-1 is just a document that you’re going to get from the IRS showing what your percentage ownership in a partnership is, right? And, again, you are a limited partner listening. So, it will show your percentage and ownership. Now, there is, I break down the benefits in this type of real estate in four different categories.

[33:35] You have cash flow, appreciation, tax benefits, liquidity. Each individual is going to rank those higher in their respective situation than others. So, for multifamily, right, you can get cash flow. Depending on the deal, the market’s right now a little, I’d say, less cash flow heavy. It’s more appreciation and tax benefit heavy. Sure. If you’re in an RV park, tax benefit, I’d say cash flow and appreciation. What you alluded to, Matias, about the real estate income fund, the one that I’m partnering with a group on now, that is liquidity, cash flow, or appreciation. Because you have the ability to take monthly distributions or you can let it stack in the fund and let it compound. I call, like, a singles and doubles type of strategy, especially with how much high-yield saving account rates, those rates are going to continue to go down.

[34:36] Kind of view this as the cash bucket of one’s overall investment portfolio. But all these are still partnerships, and you all will get a K-1. Okay. So, the tax benefit piece, especially in the apartment buildings, as an example, there is a specific line on the K-1 that shows net income or loss in brackets. And the loss is what we call a paper loss. And what you can do is you can take that paper loss and offset some of your passive gains. Or, and I know a lot that may be listening who are real estate agents, what we call real estate professionals, it’s the holy grail where you can take those active losses and offset it against your active income, which is enormous. Yeah. Yeah. Yeah. This is exactly why there’s a stereotype of a lot of medical professionals’ spouses becoming real estate agents so that they can get this tax designation.

[35:40] And so, when you’re talking about all this, if you’re new to it, it might all kind of sound overwhelming. But really, it just means that you can take more off on your taxes. And in a syndication with an apartment, what they’re doing is they’re doing cost segregation studies on these apartments. And so, instead of dividing the value of the building, the structure outside of the land and dividing that by 27, which is what most people understand for depreciation, they are actually going through and figuring out every single HVAC unit, every single refrigerator. Correct me if I’m wrong here. And each, the IRS designates each of these items as they have a certain shelf life. So, you know, the refrigerator might have eight years.

[36:22] I don’t know it off the top of my head. And so, they can then value the refrigerator at 800 bucks or whatever it is and divide that by eight. And so, from that, you will then get a higher amount of depreciation, a higher amount of taxable write-offs from this kind of deal. It’s one of the big advantages. Yeah. So, you’re speaking to, yeah, Matias, you have the cost segregation studies. So, they put like a refrigerator or cabinetry as personal property. So, it’s average lifespan between five to seven years. Land improvements, 15. And then why that’s so important is a lot of these investment opportunities that have the tax benefits, say average hold time is three to five years. So, you want to capture as much of that depreciation up front so you can use more of it to offset some of your active income.

[37:14] Yeah. Yeah. So, yeah. And let’s just combine both our worlds here. So, we’ve got a dentist or we’ve got a surgeon that their spouse becomes a real estate agent. They are then able to just try to roll as much money as they can into these kind of deals through, you know, Rob would be a great person to go through to, you know, analyze, make sure that what they’re investing is sound. They get a great return on their money and then they also start getting great tax benefits. And then within, depending on the structure again, Rob, you talked about a few different ones. But, you know, there could be that you get your money back in five years or it could be that you’re getting a distribution on a regular basis but you could get all your money back in a certain amount of time and still have ownership in a deal.

[37:59] Or you could get all your money back plus whatever the profits are. So, that could be, you know, like we talked about, double could be an example of that if they went ahead and sold that asset. So, it’s a great investment vehicle. It really is. Yeah. Yeah. You’re preaching. Yeah. You are preaching to the choir on that one. Yeah. Yeah.

[38:21] And that’s, again, that’s where I get, you know, super, it’s harder and harder for me to invest in something like a SEP IRA. Even though I understand there is tax benefits there too, simply because I can, you know, use this, the distributions, I can use it as they come in if I need to. I could try to reinvest them or if I’m with you, Rob, you could, I could just, I guess, let that compound in your fund depending on the deal and take the tax benefits. And then whenever there’s a capital event, you know, roll that into something else, roll that into a new one. And if I’m trying to set a goal for, let’s say, investing in a new syndication every year, you come around year five and you’re starting to reinvest that what you invested five years ago back into something else.

[39:09] And it really starts building. So, yeah, it’s awesome.

[39:17] But, yeah. Well, Rob, that, is there anything else that people should know that want to, you know, think about syndications or think about fund to funds? Is there anything else critical that we’ve missed at this point? Yeah, I would say for folks that are, that are thinking about it or thinking about, oh, is this the, should I invest? Is this the right time and invest? Right. There’s so many different. And then the educational aspect. There’s a number of different podcasts out there. I can educate and start teaching at a very high level what’s going on. Like even Matthias and what you’re talking about, you’re doing, like, what you’re speaking is beautifully explained of high level what’s going on in the syndication world.

[40:07] Right. So that’s the REI agent podcast. There’s a lot of folks have heard of Bigger Pockets podcast is one that people talk about. That is a very well-known one. And there is one of a Rich Tobin. That’s a very good podcast. Then there’s also books, the Hands Off Investor by Brian Burke. Then there’s Rich Dad, Poor Dad by Robert Kiyosaki that talks about. So YouTube, there’s so much education. Like I myself have put together an educational resource that talks about the benefits, the risks, sample investment scenario, types of asset classes that can start helping you get thinking. And then the other piece that I really want to hit home with folks is you don’t need, we talked about it briefly, too, Matthias.

[40:55] People think, oh, I need all this. I need hundreds upon hundreds upon hundreds of thousands of dollars to start doing this. And start getting the ball rolling on average at $50,000 on a minimum investment. And the other piece that some others might not be thinking about is if you worked at an old employer or if you have an IRA, you can convert that, either an old 401k, maybe an existing IRA, into a self-directed IRA. It’s another thing you probably haven’t heard of to no fault of your own. You can convert that to a self-directed IRA. There is no tax penalty. It’s a like-kind exchange. And then you have the ability to invest in whatever you want, including real estate, including syndications.

[41:46] So that’s another piece that folks don’t know about that they should because that’s another way for you to start investing. If you want to get involved with real estate and you think, oh, I just don’t have that right now, you can take retirement money and start investing through this way through retirement. No tax penalty. I heard somebody, the strategy of if you can realize a big loss in a year, you can try to roll your traditional IRA into your Roth IRA. And you would normally have to pay taxes on that because with the Roth IRA, you’re paying taxes on the front end and then not paying taxes when you get it taken out, when it’s grown. And if you’re able to write off enough taxes, you’re able to offset those fees that you would normally pay to roll it into a Roth.

[42:40] And all that being said is then you could theoretically turn that into a self-directed IRA that you could then invest in real estate, syndications, real estate, and just a house on the street if you wanted to. I mean, that’s all possible. So that’s something you definitely should talk to a tax advisor on. Yeah, right. I’m not one. But it’s just an interesting strategy I’ve heard along the way too. But you actually bring up a good, though, point, Matias. For those listening too, it’s very important that you form a good financial team. And what is the financial team we’re talking about, right? CPA. CPA. A wealth manager. Maybe an estate attorney. You want to – and not only do you want to form this team, you want to make sure that they’re all on the same page working for you.

[43:32] And one way that you can do that is what you call you create your own family office. And what I mean by that is maybe every quarter it’s you and your financial team all on the same call talking about what’s going on. And the reason why you want to do that is you don’t want to have everyone siloed in isolation because then people aren’t going to be able to help you as effectively as they can. And think about it as if you go to – you know, you go to the doctors, then you have to see a specialist, then you have to see another specialist, right? Everyone’s siloed. Like the communication is not good. You have to repeat yourself repeatedly. People aren’t on the same page. You want to bring that all together in your own house.

[44:20] It’s also a good way for you to determine, hmm, if my – if this specific individual, let’s say it’s my estate attorney, isn’t comfortable with that, well, why? Maybe they’re not comfortable in their capabilities. You know, like there’s really no reason why not because then that can then help you to determine, hmm, maybe this isn’t the person I want to be working with long term. So that’s another piece that, Matias, that you brought up that made me think, right? You’re talking about, like, I’m not a CPA. Yeah. But forming your team and then having your team all communicate together with you on quarterly calls because at the end of the day, like, you got to take – you got to look – no one’s going to look out for your money and your well-being better than you.

[45:04] So taking the bull by the horns and setting that up is a very good approach. Yeah, I love that. That makes a lot of sense. And just – it also made me think of that, you know, that sounds expensive. And we’re talking about – Which piece sounds expensive? Huh? Just having all the professionals. And the reason being is I just want to also add that we haven’t really talked about being an accredited investor for these kind of deals. So you might not be in the stage of having all this going because you’re not investing in syndications yet. You need to build up some wealth typically, right? I mean, so do you want to address that yet and explain what the qualifications are for investing in one of these deals?

[45:44] Sure. Sure. So there’s two different buckets. So you can be a 506B as in boy or 506C as in cat. So 506B deal and 506C. What Matias is speaking to is a 506C is for accredited investors only. And that’s defined in three major buckets. It’s $200,000 gross income, past two years and expectation of the current year, $300,000 married, combined income, or a million dollar net worth, not including your primary residence. And that’s what there are a few other pieces that are much more than a trust. And that’s what there are a few other pieces that are much more in the lower tier as far as if you’re in, I believe, like a trust, but it doesn’t come across very often. Those are the three buckets. Now, and I’d say about 80 to 85% of investment opportunities fit a 506C as in cat, a credit investor.

[46:38] However, that means about 15 to 20% of investment opportunities are 506B as in boy, and those for accredited and non-accredited investors, meaning none of those net worth or gross income requirements apply. So in my experience, I’ve raised, I’ve done both. I’ve done 506B deals, and I’ve done 506C. Now, one of the major reasons that you’ll find 506Cs being more prevalent is you have the ability to advertise those on social media, emails. You do not need to have a pre-existing relationship with that individual individuals in order to advertise it publicly. Versus in a 506B deal, you do need to have a relationship, pre-existing relationship with that person. And you’re also capped at 35 non-accredited investors per investment opportunity.

[47:42] Yeah, that makes sense. What are the differences between the two? Yeah. So even if you are not needing to be an accredited investor, a minimum of $50,000 is an expense. And so you do really need to be in a place that you are comfortable with these kind of investments and comfortable with hiring that kind of team. And so I think one of the goals here at REI Agent is if you’re a new agent, if you’re out there hustling and trying to buy your first house to live in, we’re teaching you how to get to that point. Because if you buy your first house to live in, and then you save up enough money to buy another house to go move into, you can keep that one as a rental and you start building up your net worth outside of your primary residency.

[48:26] So this can be kind of like the goal. I know some investors who are just accumulating properties at this point, they are accredited investors, but they just want to accumulate a lot of properties in general to have either enough cash flow or enough assets that they can then roll into syndications and take a more passive approach later on in their investing career. Yep. Spot on. A lot of folks do that for sure. Because then it becomes a second job of its own managing all the properties. Yeah. Yeah. I mean, burnt out tenants or burnt out landlords is one of the ways that we get properties, right? Yeah, for sure. Well, Rob, this has been a great conversation. I got to ask, you mentioned a couple of books earlier, but do you have any favorite books, fundamental books that you think everybody should read or one that you just really enjoy right now?

[49:15] Yeah, it’s actually my second time reading it. It’s called The Power One More by Ed Milet. So Ed Milet’s a motivational speaker, best-selling author, performance coach. And the reason why it really resonates with me is it talks about how you might be one conversation away, one meeting away, one experience away, one situation away from your life dramatically changing for the better. And he also talks about another really theme that sticks with me is, you know, uses an example of, let’s say, your body temperature’s running at 100 degrees. And if you’re surrounding yourself with people with body temperatures at 70 degrees, they’re going to bring you down. You want to be surrounding yourself with individuals who are at 105, 110 that are going to bring you up.

[50:13] So I really, and those are just two of the specific, you know, really themes that stick out to me in the book. There’s many others, but I really like Ed just by reading and following him. He seems like I’ve never had a conversation with him. Seems to be a really good guy. And I enjoy the messaging in the book. And those are two specific reasons that I find is really good and very impactful. So Power One More by Ed Milet. Power One More? The Power of One More by Ed Milet. The Power of One More. Okay. Yeah, that’s the new one. I haven’t heard that one. I got another one to add to the list. One day I will actually read all of these books. Between that and the audio books, try to attack it in both ends.

[50:59] Oh my gosh. I’d love to have the Whisper Sync that’s available with Kindle so I can listen to it and read along so that, you know, if I need to stop, if I’m in the car, I’ll let it run. I’m not trying to read while I’m driving, right? But, you know, if I can pause it and then come back and highlight it, you know, I think that’s just a powerful, powerful duel. So that’s my favorite way. Rob, if people are interested in your Fund to Fund model or want to follow you somewhere, what’s some good ways for them to reach out to you? Yeah, I’d say the easiest way is just go right to my website, NorthSquareCapital.com. Everything’s tied to that as far as my contact information, my socials. I’m pretty active on Instagram and LinkedIn.

[51:42] But if you just go to NorthSquareCapital.com, that’s where you can find me. If you’re interested in having a conversation, we can take it from there. Rob, that’s great. Thanks so much. We’ll make sure that it’s linked in the show notes. But, yeah, thanks so much for being on. This has been a really fun conversation. Hopefully, if anybody had any questions about syndications or maybe weren’t even familiar with Fund to Funds, they will be a lot more enlightened now. Thanks again for having me. It’s a fun conversation. Thanks, Matias. Thanks for listening to the REI Agent. If you enjoyed this episode, hit subscribe to catch new shows every week. Visit REIAgent.com for more content. Until next time, keep building the life you want.

[52:24] All content in the show is not investment advice or mental health therapy. It is intended for entertainment purposes only. Thank you.