Unveiling the Superpower of Real Estate Syndication with Bethany LaFlam

[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 to the REI Agent. Today, the theme is know thyself. Um, I’ve been, I’ve been kind of reflecting a little bit about, uh, knowing personalities. Uh, this is also stemming from a episode with, uh, Rosie, uh, Noel, who is a personality strengths coach. Um, I believe this episode will be out. If not, it will come out here shortly where Erica and I actually dive into our own Clifton strengths personalities. We reserved reading each other’s until the being live on air to be coached through how we work together with Rosie. Um, it was really like giving us language for maybe things that we understood intuitively to a certain extent. Um, but, but really the point of the Clifton strengths is to, to really focus on what you’re strong at.

[1:14] Um, and, and, and, and know that there are other things that you’re not going to be quite as strong at. Uh, but you know, if you can really focus in on your strengths, uh, that’s ideal. And then understanding how others work, uh, and how their strengths would be different than yours. And, and, you know, in a, an environment like, you know, certainly a marriage, it’s important to understand those things and, and know kind of where we roll, where our roles are, where, where we kind of naturally tend to be or, or what we need to work on. Uh, it’s important to understand ourselves well. Uh, we, we talked about this a lot, but you know, I kind of tend to lead the conversation, um, and, and start the intros and, and all that stuff when Erica’s on the podcast.

[1:52] And I just asked her, I was like, you know, are you good with that? Like, do you want to lead this? She’s like, no, I’m good. You go ahead. Um, and, and, and, and then she, you know, obviously brings in awesome insights and, and, and chimes in, uh, but she very much wants me to do that. And that’s just kind of, you know, when, when you see that episode and you see our personality types, it just makes sense, uh, that that’s kind of the way things roll in that kind of, uh, yeah. And that kind of role. Um, but, but I think more generally, I think the goal for a lot of people when they’re starting out in real estate sales, real estate investing is to build up a team. Uh, it’s hard to do that at the very beginning.

[2:34] You can’t, you know, unless you have tons of money, um, it’s hard to, you know, feel like you can spend the money to have people do the things that you’re not as good at. But I think it really should be the goal. And I feel like you should really know from the beginning that you’re going to get to a point where you can start doing this. And that’s going to be a challenge. It’s not going to be easy. You’re going to be used to having everything done yourself, but you’re going to start feeling burnout. You’re going to start feeling like you have a kind of a limit to how much you can do. And part of that is because you are doing things that you don’t really like to do as well as the things that you do like to do.

[3:08] And if you really look at it and you really analyze it, you can really see that there are things in your business that are going to move the needle forward a lot more than others. And some of the things that you really enjoy, like normally, if you were successful in a business, the things that you enjoy, the things that you come naturally to that your strengths are things that will move the needle forward. If you’re a real estate salesperson and you are a very big people person, that’s not true for everybody, by the way. But if you’re a big people person, being with people, interacting with people, that is going to be what moves the needle forward for you. There’s other people that are systems people, and they are able to maintain connections with people through their systems.

[3:48] And that is something that they can rely on and be good at. But that can mean that you need to outsource other things that either are not energy giving or at the end of the day, aren’t moving the needle forward enough to be worth your time. Because at some point, your time is going to be more limited. You’re going to be more busy. And you’re going to need to delegate more to have higher sales to be bigger and to achieve the goals you have. So we get into that a little bit at the end of this podcast. But I think I’ve just been reflecting more and more about the personality stuff here recently. And I think it’s just important. Maybe one of the first steps in the growth and probably something that should never really stop is just understanding yourself, growing in knowledge about who you are, how you operate in the world, what brings you happiness, where your weaknesses are.

[4:44] Maybe not something you have to focus on as much, because I think there’s a trap of people wanting to fix their weaknesses, to work harder, to be more disciplined, to fix their weaknesses, as opposed to just focusing on their strengths and really delegating the things out that just don’t give you energy if you don’t want to call it a weakness. And I think that’s true as well in goal setting. I think everybody will approach that differently. And I think there’s a lot of books. There’s a lot of courses. There’s a lot of things that have kind of a one-size-fits-all methodology to goal setting, to living your dream life. And it’s just probably not the case for a lot of people. And one very clear thing for me, personally, is that I live in the visionary world.

[5:33] I am a dreamer. I am thinking about five years from now and how I want to get to this place and knowing the things that I need to do to get there. And I don’t have that written out in a clear plan. I don’t have that, you know, like, you know, by year three, I need to be here. I don’t have that, you know, each month I need to take this on, this on, this on. I don’t have that written down. But I have this, like, constant visual or constant kind of path, this guiding star for me that I keep going towards. And I keep working towards this goal, this five-year plan. And I am taking daily actions towards it. I am working towards that thing. But to actually sit down and write down the goals or to track daily actions for it is not as energy giving for me as just kind of having that in mind and actually working towards the goal as it is, if that makes sense.

[6:28] So I think that’s something I want to explore more. It’s something that I think more people should consider is how they can be successful, not only in focusing on their strengths for what they do, what the work they do, moving the needle forward, but also how they think about their life and how they structure their goal setting, their vision for the future. And I do think, I will say, if you’re hearing this and reacting that, you know, it doesn’t matter. I don’t actually need to set goals. I don’t really need, that’s not really who I am. I would argue, I’d push back on that. I think that there is definitely something to setting goals, being intentional about how you’re living. Because I think if you’re not, it’s easy just to kind of go through life and it happens to you.

[7:20] You go to work to keep the bills off, you know, to pay off the bills. People living paycheck to paycheck, you know, it’s just a way that a lot of people live. And I think that one way to live a higher, more fulfilled life, and if you’re living paycheck to paycheck, that’s totally fine. I think you just have to know that you can get to a different place by being intentional. And that’s the whole point. And so, if you want more out of life, if you want to live a dream life, it doesn’t just happen to you. Unless you happen to, you know, win the lottery or, you know, inherit a bunch of money, it usually just doesn’t happen to you. You have to be intentional. And if those other things do happen to you, usually if you don’t have the skill set, that money goes away.

[8:05] So, teaching yourself these skills, being intentional about living the life you want, that can be wealth generation, that can be, you know, living a fulfilled life with your family. I would argue that both are possible. And I think that it just really takes being disciplined to a certain degree. Being intentional is probably the better word. So, being intentional to get to where you want to go and thinking about that, reviewing that, and figuring out what the best way is for your personality to get to that point is where I think you really need to be focused on and to start from. Because I think you can feel defeated if you’re going about a system or route, a method that doesn’t suit you well.

[8:49] So, without further ado, we have a securities lawyer on the podcast today. She is awesome. She knows her stuff and has really good advice. If you are thinking about anything in this space, whether it’s fund-to-funds, starting your own syndication, investing in a syndication, and we get into weeds, we get a little bit more detailed, but we do also bring it back so we make sure that everybody could understand what we’re talking about, or I hope we did, at least. So, if you don’t have any idea what a syndication is, this is a perfect episode to listen to. And we’ll give you some insights about how to go about the process, what would be some good first steps, what would be some good ideas to help vet an operator, which, again, we’ll get into.

[9:36] But without further ado, we have Bethany Laflamme.

[9:43] Welcome back to the REI agent. We are here with Bethany Laflamme. Bethany, thanks so much for joining us. Thanks so much for having me. Bethany, you are a syndication attorney. Is that correct? Correct. Yes. So, we got an expert in the house. If you don’t know what syndications are, stay tuned because they can be a very, very, very, a very awesome tool. It’s such a great, unique win-win that maybe a lot of people don’t fully understand or know what they are. But before we dive into that too far, can you tell me a little bit about your journey into getting into this syndication space? Yeah, absolutely. So, I started practicing law 25 years ago now. And I started off actually in litigation. And then I kind of moved my way to more of the transactional side.

[10:30] And I was actually doing mergers and acquisitions. And I was doing securities work for tech startups and oil and gas companies and aerospace and like really big tech deals. And I did not love it. So, I actually left the law for a little bit to start my own fund. And it was this sort of brilliantly complicated fund. And I failed miserably. And so, I was like, all right, I got to figure out what I’m going to do. I didn’t want to practice law anymore. But that’s sort of the, you know, default of, well, at least I know I can make money practicing law. So, I met my former law partner, Mauricio Raul. So, a lot of your listeners might know Mauricio. Oh, yeah. And I started helping him. He was looking for someone to help him with his practice.

[11:13] He’d been sick and was realizing that he didn’t want to go it alone any longer. So, I said, all right, I’ll help you for a little while, but I’m not going to end up here. This is, I’m done. I, you know, I was licking my wounds and trying to figure out my next move. So, I started doing some deals with him, helping out his clients. And I realized that this didn’t suck like my past law sucked because the people didn’t suck, right? So, I was doing these deals with tech bros and, you know, trust fund kids and nothing wrong with that necessarily except for that I did not love being treated like the help. And when I started working with the real estate community, it was like, all right, let’s roll up our sleeves and partner on how to do this.

[11:54] Let’s, you know, they were, they were excited to listen to not just the legal advice of, yes, you can do that. No, you can’t do that. But sort of, how can we do this? How can we help you build your business? And there was a lot of strategy involved. And so, I was like, all right, this I love, the people I love, I think I’ll stick around. So, I actually ended up running the firm and then I’ve since bought Mauricio out. Now, I’m running the firm. Okay. Yeah. Wow. Yeah, that’s awesome. And that’s a good, good, I think a good analogy to what you’re talking about is, I mean, I think, you know, often people will hear horror stories about investing in real estate, you know, having, you know, the property flood, having the headaches of the tenant that doesn’t pay, that, you know, moves a whole bunch of people in, that’s a hoarder, you know, the list goes on.

[12:36] And, and, and may just kind of throw the baby out with the bathwater. I’m not going to be a real estate investor. But syndications, like we can get into are a perfect, you know, way of investing in real estate, getting the benefits of real estate without having to deal with any of those headaches. Um, so maybe we should, uh, next start off with like maybe just a high level. What is a syndication? We can get maybe more specific with real estate. Assuming you do primarily just real estate syndications. Is that correct? Or do you? Yeah, that’s pretty much it. Yeah. And I’ll tell you syndication. It’s a word we actually didn’t use in the tech space much. And it really is boiled down to a bunch of people get together and lend whatever it is they have into an entity, whether it’s money or it’s time and sweat equity to buy something.

[13:23] It doesn’t have to be real estate, but to buy something together. I did an interview with Pace Morby a couple of years ago and he was like, why do we have to use such a scary word? Isn’t it just like people getting together to buy something? And it really is people just getting together to buy something and everybody has their role and you can be passive or you can be active. And it just depends. Do you have more money or do you have more time? You’re going to want one of those two things, right? To do it. But, um, I love syndication for building wealth though, because, you know, not everybody has both, right? And you can get into it without having a ton of your own money. Totally. No, I think that’s well said.

[13:58] And, uh, there’s advantages on either side. If you have a successful business that is taking up all your time, um, you know, you may have the money and you may have the requirements needed to be a limited partner in a syndication, um, and lend your capital to have somebody else, you know, successfully carry out a plan that will then make you money, um, and give you tax write-offs, uh, to, yeah, take advantage of all the benefits of real estate without actually having to have the headaches or the learning curve. Because, you know, usually the syndications, we’re getting above and beyond the typical, you know, single family rental, townhouse rental, condo rental, these are apartments, these are mobile home parks, these are big commercial deals that, uh, you know, require more capital, um, and are more advanced.

[14:44] And so, you know, certainly knowing who’s the operator, et cetera, is very important. Um, what are some of the things that you suggest people, you know, look for in a syndication operator? So, you know, I get this question a fair amount and I’ll tell you, I think, first of all, this is the most important thing to look at, uh, more important than the underwriting and the dirt itself is the team that’s going to be operating it. Because when you’re passive, you are really relying on these other people to do a good job to, to get a return on your investment. That’s actually why the SEC gets involved in the first place is that you’re relying on someone else’s efforts to get you a return. And so those someone else people, those other people are really, really important. So I think the first thing to look at is their track record.

[15:29] You know, does that mean that a first time syndicator can’t do a good job? No, it doesn’t mean that, but it means that they really should surround themselves with someone who’s done this before. They don’t, you don’t want somebody learning on your dime necessarily. Right. And, and when I say track record, I mean, what have they done before? And even if it didn’t go well, how did they overcome it? Right. Because actually I don’t even want someone making their first mistakes on my dime either. I would love for someone who’s already made some mistakes, learned some lessons and figured some stuff out before I give them my money. Or again, at least surround themselves with people who have. So the first thing is to look at, I think the track record and then the rest of the team who’s around them, who are their advisors, who are their partners, who’s doing what. Right. And we see so many times, I mean, in this, in this space, there’s a lot of influencers, right. And some are good and some are not as good. Right. And we see that their face is on there to raise a bunch of money because people are excited to invest with a certain

[16:24] person. And that’s not necessarily bad, but you’ve got to look beyond that and say, okay, but who’s doing the work? Or is that person actually doing the work? If they’re the ones out there talking and promoting the deal, because if that person is just promoting a deal and has no idea what’s going on, they’re actually probably raising money illegally. So somebody cutting corners and doing things not legally, where else are they going to do that with your money? So I think that’s really important is, is who’s on the team and what are they doing? Yeah, that’s a key piece there. And, and you can explain this more than I can, but yeah, you can’t be a general operator in a syndication. If you are only bringing capital, if you’re only raising capital, you have to be actually involved in the operations of the steel. Is that correct? That’s correct. And we get this one a lot. I mean, I get it. You have to raise money if you’re doing a syndication. That’s the whole idea of a syndication.

[17:16] You’ve got to raise money. And so there are a lot of people that are like, okay, but I don’t, I don’t know how to raise money. I need someone whose job it is. And the reality is in order to be allowed to raise money, right? And if you’re not a broker dealer to be allowed, you have to find some exemption. One of those exemptions that we’re relying on in this space is what we call the issuer exemption, which means you’re allowed to go raise money to operate your own company, right? So you see all these tech companies do it. They’re out raising money and it’s to operate. It’s not one person’s job within the company to raise money. It’s everybody who’s in the company’s job, unless they’re a broker dealer, right? It’s everybody who’s in the company’s job to raise that money.

[17:55] And that is not even their primary job. So you really need everybody on the team to kind of roll up their sleeves and get in there and have a real job. So if someone’s primary skill set is raising capital, they better also be good at something else. And that, we’re jumping around here, but that just kind of keyed me into the fund to fund models. I don’t know if we want to talk about that a little bit and how there are some people that are creating funds that basically will choose to invest in different syndications, but they are not necessarily operators themselves. Is that the inherent, a problem there with a fund to fund models that they are not actually an operator in the syndications they’re investing in? Or is there a loophole there or some kind of work?

[18:40] It’s not really a loophole. And I think that’s an important distinction that you make because a lot of people treat it like one, right? And so I know you’ve heard a lot of people tell you, oh yeah, I kind of got around the rules by doing this. No. If you have good counsel, they’re not trying to get you around rules. They’re trying to get you what you want within a construct that’s already legal, right? And so a fund to funds is no exception. Legally, you can do a fund to funds. And what that is, is simply as you described it is you’re out raising capital. So you’re selling securities in order to be passive in someone else’s deal. So you’re selling securities to buy securities. That’s what is the difference between that and just syndicating a deal you’re operating yourself, right? So selling securities to buy securities, that’s going to be a fund to funds. And it doesn’t necessarily have to be another fund. It could be investing into a single asset syndication. So the name itself is a little bit weird, right? So people do that legally, you can do it if you follow all the rules. The problem is, is that most people don’t follow all

[19:38] the rules. You’re looking at two legal constructs here, you’re looking at SEC regulations that say, if you’re going to sell securities, these are the rules, you have to have an exception, exemption from registering that security, right? Which you do. That’s the truth if you are doing your own deal as well. But then there’s another layer to that when you’re also going to go buy securities as well. And there are advisory rules. So if you are acting like an investment advisor, which you are, you’re telling people how they should invest their money, you’re not saying invest in me to do this, you’re saying we’re going to place your money somewhere, then you’ve got to find an exemption from or an exclusion from being a registered investment advisor, right? So the structure gets a little bit complicated. It’s state by state. And there are certain things that you should still do.

[20:22] So for example, when you do a fund of funds, you let’s say you went and raised, you know, a million dollars to put into my deal, okay, so you raise the fund of funds, you put into my deal. That doesn’t mean that I can pay you for raising that money. So you’ve got to bake in a way to make money there, which means you’ve got to provide value to your investors, that you can take a cut that doesn’t screw them if they had just gone into my deal, they would get a better deal, for example, right, you should be providing enough value, and you can, maybe it’s they didn’t know about my deal, maybe it’s that they couldn’t have gotten into my deal, because it’s my deals, a minimum of 500,000, and they only wanted to put 50 and they put 50 into yours. Maybe it’s that you did a bunch of diligence on me. And this is where I see people lacking a lot. When you’re selecting these investments, you’re telling your investors where to invest, you better have done a ton of diligence on me and my deal. So you should have underwritten it yourself, you should have flown out and visited the property, all those things that people think they’re getting away from because

[21:20] they’re just capital raisers. Nope, you still have to do all that diligence. And that’s where people usually fall short, I think. That’s a really good point. I mean, it’s a lot of things. It’s also the due diligence on operators as well, right? I mean, you need to really trust and have an effort. So yeah, a couple of things to your point. So I mean, you can you can add additional value by making sure that the operators are good. And you maybe have like a certain criteria that you require to have them meet in order to consider them as investors. And then you have the deal itself that you want to make sure you’re considering. And there can be different deals. Again, like we talked about, it’s not all real estate or even within real estate, you’re going to have different types of performing properties. You might have something that’s going to be more depreciation heavy, you might have something that’s more capital heavy, you might have something that’s going to be a sale in a few years that’s going to, you know, double in value potentially. So they’re all kind of different goals that might suit people who are investing differently,

[22:16] or have different investing goals. But then also, my understanding is that sometimes you are able to negotiate a better return by providing more capital to that syndication. I think that’s the best way, actually. So that’s a really good, that’s a really good point. I think the best way to add value, the baseline is you already have to do the diligence. So the best way to add value, though, is to say, Hey, operator, your minimum is 100,000, I’m going to bring 500,000, or a million or whatever, I want an extra point, I want, you know, a higher split, whatever it is, and then you structure your deal, where you shave a little bit off so that your clients are your investors rather are in no worse of a position, having invested with you versus directly with me.

[22:59] The other thing you can do, that I think really adds value is to actually have your fund of funds be a blind pool fund to fund. So you’re not raising just for me, you’re raising for the criteria that you just mentioned, this is the asset class I’m investing in, this is the region, this is the kind of investment that we’re going to do. And then you go find multiple like that. And now you’ve given your investors diversification within your fund to funds. And it looks a lot less like you’re just out raising capital for a fee. Right, you’re actually operating a fund to funds. Yeah, yeah, totally. That makes a lot of sense. Something else that you touched on about some, you know, operators that are not as good, you know, moving away from the fund to funds and going into the general partners side of the syndication deal. We’re coming out of a season where a lot of people are struggling, or we’re maybe still in that season. If you’re not familiar with what I’m talking about, basically, we had, you know, very historic low interest rates, and then they switched really fast to higher interest rates. And so a lot of people are using we’re using short term debt,

[24:02] which would have a certain period of time at a certain interest rate, and then it would go to whatever the, you know, given rate is at that current time. So a lot of people’s short term debt is, you know, getting to this higher interest rate, which makes their underwriting not work anymore. And so a lot of people who even thought they were being conservative on their analysis of a deal were not factoring in interest interest rates getting this high. So there is definitely some probably good operators, I would venture to guess that, you know, just didn’t foresee it. I don’t know, do you have any comments about about this current environment and how maybe people shouldn’t just write off syndications in general. In fact, if a deal pencils out now, it probably makes a lot of sense to get into it’s a lot safer than interest rates. Yeah, I wouldn’t write it off altogether.

[24:52] I mean, multifamily got hit prior harder than a lot of other asset classes, and it was riding high for a while, right? If you bought a deal in 21, I mean, people were just like, you could trip over a property in 21 and make money. And we saw that a lot of new operators come into the market then. So a lot of the experienced operators or people who’ve seen it since 08 and up, right, have seen these cycles. And so they were able to predict it maybe a little bit better, not everybody. But some of the new operators kind of, you know, got caught swimming naked. And so I think we, we saw the sort of cream rise to the top, it doesn’t mean that this whole industry is bad. And it doesn’t even mean that those operators are necessarily bad, they just might not have been experienced or seen as many deals. And I think what where people got into trouble, some of these operators got into trouble, is that when things started to go sideways, and they weren’t getting any money going from operating, they would go buy more deals, on the same terms, knowing they weren’t penciling to get the acquisition fee for cash. And, and that is

[25:54] where people are getting the trouble. And now they’re completely overextended, they have more more properties than they can possibly manage. You know, and the other thing we saw is a lot of these education companies pop up. And it’s really sexy to talk about finding the deals. And it’s really sexy to talk about raising capital. And that’s what you see everywhere. How often do you see these courses talking about managing the asset? That’s where that’s the business right there. That’s how you scale, you’ve got to be able to manage the asset, you got to do the work or get someone who knows how to do the work. You can go find properties, and you can raise money all day. And people think that’s the hard part, it’s not, you know, or at least, at least it’s not the most important part, you are allowed to raise money, because you’re going to operate the business. So then you got to operate the business.

[26:39] Yeah, and due diligence probably is also not as fun to talk about and think about in those courses.

[26:48] Let’s take a step back, like, I just want to kind of give a high overview of what syndications are, again, and just kind of maybe explain a little bit what you’re talking about with that, that acquisition fee. But so basically, you know, let’s say there’s a $5 million, you know, apartment complex that somebody wants to buy, they will raise money from other people, they might, they probably have a team, they should probably have a team of people. So there’s gonna be multiple general partners that are putting this deal together, they think that they can basically better run this business. So if you think about a commercial property, like an apartment complex as a business, it needs to be run more efficiently, that could mean that they’re improving the property, that could mean that they’re just making things more efficient from a managing side.

[27:32] So overall, they’re increasing the income of the property, and or subtracting the expenses so that the net operating income is higher. And then when you use the magic of a cap rates, that makes the value go a lot higher. And so effectively, these, you know, properties can be flipped, you know, if you will, to be worth millions of dollars more. And so in order to make this all work, they are asking investors to help raise the capital from what they can’t get from from other kind of lenders, etc. And then to put all this deal together, and to kind of keep the lights on a little bit, they will often ask for an acquisition fee, sometimes they will then reinvest that acquisition fee, it could be $100,000, it could be it can be whatever they write into their terms, you got to look over it. But sometimes they reinvest that money into the deal itself, so that they can kind of get the returns that you would be seeing on the limited partner side as well. And it kind of gives you faith in you know, their confidence.

[28:36] But what you’re saying is that people to keep their lights on to keep this operation going, because they weren’t really making money on these failing deals, is they’re just continuing to buy deals to get that $100,000 or whatever it was acquisition fee, to kind of keep that whole process going. Is that a fair summarization? Yeah, it is. And so let’s talk about the structure a lot of these deals, right. And so you got the syndication. And and like you said, it’s, you’ve got an operator who says, okay, maybe but they’ve been doing single families or we see this a lot, right? I’ve been doing single family, I’m bumping up against the limits of my ability to pull credit, I’m bumping up against the limits of the cash that I have to go buy more, and I want to expand now. Okay. And that’s where a lot of people start. And I actually really liked that way of starting because then you’ve got people who’ve already gotten dirty a little bit, they’ve done the work, their operators, right. And now they’re expanding.

[29:27] And I think that’s a good order to do it. And it doesn’t mean that everybody else is wrong. It’s just, I find that the people who started off with like house flipping, or doing single family, and then they kind of graduate up, they’re already operators, right. And so I like that model. So what happens is they say, Okay, I need more money. So now I’m going to go out and I’m going to ask some passive investors to trust in me to go keep doing what I’ve been doing. Right. But to do that, you there are some fees that people take. And so generally, what will happen is they’ll set up a syndication where it says, Okay, investor, you give me $100,000, I’m going to give you maybe a preferred return from from the cash flow that we that we create. And that just means a percentage on your your money. So let’s say it’s an 8% preferred return, you give me 100,000, you’re going to get $8,000 a year. Okay. And that’s before I get paid. It doesn’t mean by the way that 8% is guaranteed. So I want to make that very clear, there’s no guarantee here, what it means is if there’s profit, I’m guaranteeing that you’ll get yours first, if there’s a preferred part, right.

[30:27] Yeah. And then a lot of times then we’ll split the upside or the profit above that. So let’s it’s usually you kind of start with an 8020. And then you kind of play with the numbers and see what works to get a return. Okay, so let’s we do that. So a lot of times the the active investor, the syndicator, the GP, whatever you want to call it, right, all those are appropriate terms. They’re doing all this work. They’re waiting until this is profitable, maybe three, five years down the line, possibly in some cases, right, depending on how much of a value add or if it’s a development or whatever. So they’ve got to do something to to make a little money. And you want, by the way, these sponsors or these GP’s to be incentivized to do the work, you want them to make some money and keep the lights on, because they got to keep going, right. Right. Acquisition fee is usually the first one, it’s usually based on a percentage of the purchase price. Two to three percent is usually what we see.

[31:21] So another thing when you ask like what to look out for, I would look out for really high fees, five, six, seven percent. Sure. Right. That could be that could be a red flag. It doesn’t necessarily mean that it is for sure, but it could be. But the other thing that people typically take as fees is an asset management fee. That’s usually a percentage of gross income, one or two percent of gross income. The problem we’ve been seeing is there’s no gross income. So there’s no money to take to keep the lights on. Even, you know, forget about the prep or whatever. There’s no money even to take the asset management fee. That’s when you see people going, I guess I just better buy another property then, because the only thing we can do is take it off the top because there’s no operating income. So, you know, it’s OK to take fees as long as you disclose to your investors. And that’s usually my role, right, is disclose, disclose, disclose. The reason you can raise capital from passive investors is you’ve got to tell them all the risks and you’ve got to tell them what you’re getting out of it. Right. And so we’ve got these operators. They didn’t do anything wrong necessarily because

[32:19] they said they were going to take an acquisition fee and the investor said, OK, sure. Right. But they weren’t looking at the prior track record to say, OK, but how are your other deals doing? What is your acquisition fee in line with what you know what it should be? And are you know, are we what are we doing here in this problem time to kind of turn this around? So those are the questions I’d be asking of the operators, too, is I get it. Lots of people are having trouble. What are you doing about it? It’s sometimes people have to have capital calls. What are you doing about it? That’s what I was just going to ask or or ask, lead you into next is what happens when they do need more money to make the deal work or to keep things moving forward, which is a capital call like you just mentioned. Can you explain what that would look like to an investor? Sure, sure. So a capital call, it is. It’s just that you go back to your original investors and say, OK, our projections are off a little bit. Could be because of interest rates, could be because of a fire, could be because we just miscalculated, whatever it is. You have to be honest about what what all it is. And a lot of times it’s a lot of things,

[33:18] right? Because usually you’ve got a buffer in there to account for one or two things. And sometimes it’s sort of just this perfect storm of everything went wrong. And I’ve seen a lot of that. Right. So you say, OK, investors, here’s the deal. We need some more capital. Usually they’re not required to put in that capital. Right. But if they do, then in an ideal world, you say, OK, here’s how much we need. Here’s what we’re going to use it for. Everybody puts up their fair share. You move on. Everybody’s on the same the same footing. But what you would tell the investors is, listen, if you don’t put up your fair share and someone else does, you’re going to get diluted. And diluted just means you now have a smaller piece of the pie because the pie got bigger, but your share didn’t. Yeah. So with the $3 million raise, now it’s five, but your piece stayed the same. The other thing that that operators can do, and this is usually found in the operating agreement, which is just the rules, the contract where everybody becomes a member of this company. And it’s the rules for how you operate the business.

[34:13] It’ll say, OK, if we have to do a capital call, here’s how we’re going to do it. If we fail to get all the money that we need in a capital call, which, by the way, happens most of the time, then we can look to other ways to get this money. We can loan money as the operators. We can loan money with interest. We can go borrow more money. We can go raise more money from outside people. And that can be problematic for your current investors because usually to get someone to come into a deal that’s now struggling, you’re going to have to offer them more than you offered your original investors. So now what? Everyone’s getting diluted anyway. Yeah. So it’s really a touchy subject. Do you think that that’s a fair question?

[34:52] Or sorry, that’s not the right way to word that. You should ask if they’ve done capital calls before as an operator and what, how, the circumstances that we’re involved with if they have. But do you think it’s a fair thing to say if they have done a capital call before, that means I’m not investing with them as a general rule? Like, let’s say you were a fund to fund or just being very careful with your investment. Yeah. I mean, that really depends on your investment goals and your risk tolerance. I wouldn’t necessarily write off somebody who’s had to do a capital call, but I would dig deeper. Yeah. I need to know why. How did you present that to your investors? Tell me what you said. And even just how they explain it to you when you ask the question is going to be pretty telling. Do they get really defensive?

[35:35] Is it, it’s not my fault? Or yeah, you want someone who’s going to communicate with you in a way that you’re comfortable with being communicated with. And I think that’s almost as important as the numbers. So I would say if you’re super risk avoidant, you know, averse, then yeah, if they’ve done a capital call, that could just be one of your criteria that you go, you know what, I’m just going to go find someone who hasn’t. Yeah. Yeah. That still has experience.

[36:01] And you know, I do know some multifamily operators that have never done a capital call, but they also didn’t haven’t bought a deal for a little while just because it’s not penciling right now, which is also fine. You know, that’s a good sign probably. Right. Yeah. Yeah. Yeah. That makes a lot of sense. Yeah. I mean, so when, when, when if you’re, if you’re thinking about this, you know, we talked a little bit about, you know, why people would be doing syndications and we talked about not having to deal with the headaches of owning real estate. I know that you, you can’t really give details about tax benefits and, and, and accountant is really the right person to do so. But you know, any real estate agents that are listening to it, if they are considered a full-time real estate professional there, there is some extra benefits to investing in real estate that other people can’t afford that usually results in you being able to depreciate more than somebody who is not a real estate professional or sorry, take advantage of the depreciation. So most investors in these type of situations will go through a process to accelerate depreciation. Is that correct?

[37:08] Yeah. A lot of them will, depending on the asset, but yes, for multifamily and single family. Is that something you can explain or, or is that getting into the accountant territory? We’re getting close, but I can, I can give a high level explanation. Sure. So you’ve got depreciation really your, your, well, bonus depreciation too, I think is what you’re talking about, right? Where you’re accelerating. So you’re accelerating the depreciation. There’s a certain schedule that the tax code allows for, and you’re accelerating that and you’re taking a lot of the depreciation earlier than, than you might otherwise spread out over multiple years. So that in that first year, you’re going to get a bigger tax benefit. It can be recaptured later and there’s all kinds of different factors that, that weigh into it, but it’s a lot of times a really nice way for someone to kick the can down the road and go, okay, well, I need it this year. I’ll figure out next year, next year. Right. And so if, but if you’re a real estate professional though, it allows you to take a loss against active income is my understanding, which is really what’s beneficial,

[38:06] because otherwise there’s active income and there’s passive income. And if you’ve got a passive loss, you can only take a loss against passive losses or income rather. So you’ve got to have that passive income. So for a real estate professional and why that’s so valuable is that you can actually take that loss against your active income. You know, your, what other people might call it a W2 income, although I think most real estate agents aren’t W2, but, um, but it’s your active income. And that’s Yeah. So, I mean, I can give a anecdotal example of what I’ve, I’ve done in the past. I had, and I probably got a little bit spoiled with this deal, but I was able to invest $50,000 into a mobile home park syndication that cash flowed over 10%. Um, and then also I was able to depreciate about $66,000 off my taxes, uh, which again, I think I was a little bit spoiled on this first deal.

[38:57] But if you, it, I mean, that’s, if you think about, you know, the, the power of that, um, it’s, it’s been a great investment. It’s going to be something they’re going to hold long-term. I’ll still have ownership in, uh, whenever the capital event happens, uh, which I guess we should probably explain too. But, um, essentially I’ll get my money back. I’ll be getting a good return until then. And, um, probably not going to get as much depreciation in the years to come, but I should still get something for it. So it’s one of those things you can really stack up and, and, you know, some people, a lot of people think about buying a car, um, as a, as a way to kind of decrease their income. A lot of agents do. Um, but, but this is another option and it gets you involved in an actual investment. Obviously that’s different than purchasing a car. Um, so yeah, you want to explain capital event, uh, since I mentioned that. Absolutely. Um, so a capital, we call it a capital transaction event. That’s usually going to be a refinance or a sale of the asset. And what happens there is you’re, you’re hopefully getting some cashflow along the way, depending on what’s going

[39:55] on with the performance of the asset or what kind of asset it is. So that’s where you, you get, you know, some quarterly or maybe even monthly distributions, but when there’s a refinance or a, a sale, we call that a capital transaction event. A lot of times you’ll get a chunk of your money back, your initial investment, and then you start getting some upside from there, which is a share of the profit above and beyond all the expenses that it costs to get there. And so if there’s a refinance, for example, a cash out refinance, that’s when you go get a new loan on the property. There’s some extra cash available. You distribute it to your investors and now your risk basis is a lot lower. So you put in a hundred thousand, let’s say you get 80 back. You’ve only got 20,000 at risk now and you’re still getting money, right? Depending on the structure. I mean, and, and syndicator structure deals a lot differently, but usually what ends up happening is you’re still getting paid based on your initial investment. Um, at least on the upside, right? Your press might go down. Um, a lot of times your

[40:52] prep will go down and it’s still going to be only paid on what you’ve got at risk, but now you’ve got a lot of your capital back and you can reinvest that in something else and you can kind of start the depreciation process over. You can start, um, you can start, uh, the, the investment process over and now you’ve, you’re kind of exponentially expanding your wealth that way. So it’s really just how do you get some of your cash out from the property? And usually it’s through a refinance or it’s through a sale. Um, there are some other ways that maybe that could happen that are probably beyond the scope of what, what we need to get into. Cause it’s just not likely. Yeah. Okay. Well, yeah. And, and I think that I’ve seen, I’ve heard, I’ve been presented to opportunities where the, it was expected to in five years or so the, the, the amount I invested would double. Um, for example, that, that was before, I don’t show, not sure if that’s still happening now, but that would be another, that would be a sale. That would be if they’re, they’re, they’re planning on fixing up this property, getting the operating income higher than selling it,

[41:49] um, based on that cap rate thing we touched on earlier. Um, but, uh, yeah, the one that I’m in, in now is, uh, I would hold ownership that are going to do a refinance. And so I would still maintain ownership until they do eventually sell, which, you know, at that point I would still have whatever my percentage is of the deal still, uh, to receive if they do sell it at that point. And I’ll get a much lesser return at that point. But at that, you know, again, why it doesn’t really matter. I don’t really care because I’ve already got my capital back or most of it. And you know, I’m still getting a passive income from it. So it’s, it’s cool. Cause again, at that point, like you said, you can reinvest it into another indication if you wanted. Um, and it’s, it’s one of those snowballing things. If, if you want to look at it that way, you can, you can, you know, put in, try to work really hard, put in a hundred thousand dollars a year, if you’re able to into a good syndication and then roll those ones when they come to that capital event, roll, roll it into something else. Um, and then you can really start getting traction,

[42:47] uh, that way it’s, it’s again, don’t have to worry about property management. No, don’t worry about the headaches of, um, there is risk, but you don’t have to worry about, um, you know, actually doing the operations, which is one of the huge benefits. Right. Yeah. I, I love passive investing in real estate, uh, for wealth creation. It is, I think it’s amazing because you can have your W two job or your active income. Um, that if you, if you make more than you’re spending, right. And you invest the rest, you’ve just got that passive income that can keep exponentially growing until you’ve replaced all of your expenses or covered all of your expenses rather through that passive income. And so now you need less of your W two and you can just keep investing and investing and investing. And I think that is such a great way to create wealth and provide more safety for yourself than, than any job ever could. Right.

[43:37] And the thing. Yeah. So I, you know, that, that back when I’m, I’m older than you, but back when I was a kid, it was sort of, you know, find a job that pays you a lot of money and then retire and you’re going to be fine. And I, that’s almost never true anymore. You just got to figure out a way to invest and, and create passive income for yourself. No, a hundred percent. I think you’re, you’re absolutely right. The, the safe, I think it’s still preached this way that the, the safe bet is to get that stable job. Uh, but somebody else controls that. I mean, you can get it, get that taken away from you. You can lose your job. Uh, things happen where markets shift or, you know, companies go under, et cetera. And it’s, it’s really not as safe as what seems maybe more risky, which is getting out there and doing things yourself and investing. And, um, that doesn’t have to be syndications. It can be, you know, rental property as well, but you know, building that wealth on your own and having that, uh, that passive income coming in that, that does replace your, your needs. And that means also maybe delaying the Porsche, uh, for a little bit. I hate to say it,

[44:35] but yeah, I mean, that’s because that’s a, that is something that you have to kind of work up to, right. And get yourself comfortable and stable and, and you’ll get it though, a lot faster if you plan and invest and let that your, your income grow exponentially that way, then you will, if you buy it and you stop working, that’s the problem I have with this sort of this, just get a higher salary mentality is you got to keep going, you got to keep going and keep going and keep going or else you’re that, that stops. You get yourself trapped in your lifestyle. That’s a risk that is, is far worse than any risk of investment. Yeah. Yeah. It’s, it’s funny. It’s counterintuitive to a lot of people. Um, cause it does seem like a really big, uh, and it is a decision you need to make. You can’t make lightly, but, um, you know, trying to, to build, uh, first before you tear down by buying depreciation, depreciating assets or not even assets, liabilities and yeah, making your lifestyle really high is, uh, definitely what I preach. So yeah. Is, is there anything that we haven’t covered, uh, about syndications that you think would be important? Yeah. I think, um, I think when, when people are

[45:54] looking to get into syndications, um, you know, I always, so obviously I’m a securities lawyer. And so my job is to help people raise passive investments legally. And so what I always tell people that’s because you’re under the securities and exchange commission rules at that point, because you’re selling securities. And the first thing to remember is what is the security, right? And a security is if you are taking money from someone who is passive in a deal, who is relying on your efforts to generate a return on that money, you’ve sold a security. So the sec cares what you’re doing. And there are really only, we always say three options, but the last option is it’s illegal. So spoiler alert, there’s just two options. And the first option is you register that security. And we’re talking like Microsoft, Facebook, public companies, those register securities. That’s almost never going to work in a real estate situation, right? You got like 45 days to close and it’s, it’s, you know, you don’t have hundreds of thousands of dollars to spend on the legal. So you’re looking for an exemption. And that’s where I live, right? Most of my clients live in an exemption called Reg D.

[46:57] So what I always say, and I joke around, and this is how people remember it is I help people practice safe sec. So if you want to get into that world, but you should only do that with someone you trust and when you’re ready. And a lot of your listeners might not quite be ready yet. And so I can help them abstain effectively. And that might look like a joint venture to start off with that might, people are like, Oh, gosh, I really want to expand beyond what I’m doing right now. But I don’t know if I’m ready to deal with the SEC yet. I don’t, that’s scary. I don’t know. First of all, if you’re not a little bit scared, you probably shouldn’t do it because you really need to be a good steward of other people’s money. However, you shouldn’t be so scared that it paralyzes you. That said, if you’re not quite ready, though, they can kind of tiptoe into this this world with joint ventures and other ways, as long as they do it legally. And remember that you don’t, you don’t just get to call something a joint venture because you don’t feel like dealing with the SEC. It’s one or the other.

[47:51] And the facts are what dictate that not your desire to avoid the SEC. But that’s what we help people do, though, is figure that out. Like, okay, I’m not ready to deal with the SEC. So how do I do a joint venture not accidentally sell securities? Because a lot of times when I’m speaking to large groups, I’ll explain what a security is. And I look out and I see panicked faces like, Oh, God, I’ve built securities. And a lot of people have and they didn’t realize, right, which is why I like to educate people on what that means. And does that mean you’re all going to jail who’ve done that? No, not necessarily, especially if you didn’t lose money for the person, because probably no one’s going to tell on you if they didn’t lose money. Right? So, but it’s good to know if you’re going to expand beyond that, or figure out like, Okay, what can I do? So let’s say you and I, we’re gonna, we’re going to go into a property together, and you’re going to be completely passive, or you want to be completely passive. And it’s maybe $300,000, you’re going to put into my deal. I don’t know if the compliance cost is worth me

[48:48] doing a whole big PPM, a private placement memorandum, which is that risk document I said earlier, right? I don’t know if it’s worth it for 300,000 and one guy. Okay, but let’s assume you’re an accredited investor, we can have a contract that just lets you have the high level risk disclosures, and we’re okay, or I can give you some voting rights and some oversight that’s meaningful. And we can actually partner on this deal where you’ve got a real say where you’re considered active, and not passive. Right? And so there are ways we can structure deals that keep people out of accidentally selling securities if they’re not ready yet. Okay, so those are then be considered joint ventures. You can you can figure out how to do that. Yeah, okay. Okay, and typically joint ventures would just be like, like you said, like two people, for example, buying one property, and they just do everything 5050. Yeah, okay, it should be a few people, right? And there are just some some things you need to do to be careful that you don’t accidentally. So I would say don’t do your your agreement on chat GPT or legal zoom professional about how to structure the deal. Yeah, yeah,

[49:54] that makes sense. And especially if it’s not as expensive. You know, like you said, if you’re only bringing $300,000 to the table, that’s all you need. It can make a lot more sense. And it can be a lot less involved to get it set up. Just a lot more simple and a great way to go. That’s, yeah, definitely a route that I’ve been considering as well. But yeah, it’s a good way to just sort of expand without going so far into it if you’re not really ready to syndicate yet. Yeah. Yeah. Okay. Well, when we get to the part of the show, I’m going to ask you about your favorite book. Do you have one that you think is fundamental that everybody should read or a favorite book of yours right now? Yeah, so I have two because the first one I always say, I really love Who Not How. Dr. Benjamin Hardy and Dan Sullivan, it was a life changer for me, game changer, and mostly just about how you need to find the right people around you. And in fact, there are some elements of it in my next favorite book, which is my book, it’s coming out next month, called The Power of OPE, Other People’s Everything. So we’ve all heard of OPM, that’s pretty much my

[51:04] whole career of other people’s money. But what I’ve learned over the years is that OPM is not enough. You really, in order to scale and exponentially grow your wealth, you need to leverage other people’s everything. So that just means finding what is your unique superpower, what lights you up, what you’re really, really good at, that’s your lane. Staying in your lane as much as humanly possible and only doing those things and finding literally someone else for everything else that you can do. So The Power of OPE, Other People’s Everything, that gets released February 18th, 17th, sorry, February 17th is officially released. Where will people find it? Is it going to be on Amazon, on a website? It’ll be on Amazon, it’ll be on my website. We are promoting it in my Community Conscious Capital Collective. And people can find all that information about me on Instagram. That’s where kind of all this lives. And my Instagram is at Bethany underscore LaFlam.

[51:56] Okay, we’ll have it all linked. Thank you. I was also going to just comment a little bit about that topic. It’s so good. But I think that’s one of the things that I, so I’m kind of, you know, straddling the worlds between real estate sales and real estate investing. And I don’t, when I first got into, I started as a salesperson that got into investing and didn’t really, it just blew my mind how different those worlds were. And that was kind of part of the, this is part of the goal of this, this channel is to kind of like, you know, have people understand both a little bit better. But I think one problem consistently in the sales space, and probably in the investing space too, is just the, that solopreneur kind of mindset feeling like you have to do everything and do it well and like beat yourself up if you’re not good at something like marketing or not good at something like accounting. But to exactly to your point, like, I mean, it is, there, there are things that you hate that other people love. And like, give it away, like focus on giving them an opportunity.

[53:04] You know, and honestly, it is actually safer legally speaking, to not be doing stuff that you either hate or suck at. I mean, it’s so you know, it’s it’s safer legally, if you need permission from a lawyer. There it is, you know, go find someone who loves to do it, who’s really great at it. Because we live in this, I mean, you open up Instagram, and we live in this hustle culture world, where everyone’s shouting at you in your face of just be more disciplined, be more, you know, whatever, and get up at 5am and take a nice bath and journal and do all that. That might be great. And I’m not saying you never have to hustle. What I’m saying is, you should try to hustle only at things that really matter to you. Because that’s what’s going to move you closer to your goal. So know when to hustle I there’s my one of my favorite stories that I that I’ve read is about Wayne Gretzky, arguably one of the greatest hockey players of all time. And the story was that he was known when he would when he would skate, that he wouldn’t just skate up and down the ice hustling all the time during the whole game, he would kind of hold back, watch what was going on, figure out where he needed to be,

[54:11] get up ahead of the puck, do his thing, and then dial it back, right. So that does a couple things. One is he doesn’t get in his teammates way, he lets them do their thing. So they’re not all pissed off at you know, this guy showboating. And it does another thing, whereas he’s got enough gas to turn it on when he needs to turn it on, be excellent at it when it matters, and then hold back. He wasn’t trying to show everybody, look at me, I’m just up and down the ice, I can do it forever, ever, ever. So he was a better teammate, still considered one of the greatest players of all time, and not killing himself to do it. Right. And so if he can do it, and be considered one of the greatest of all time, then why can’t we, you know, turn it on when you need to turn it on, be excellent when you need to be excellent, and then let your other people shine when it’s their turn to shine.

[54:54] Yeah, absolutely. And I think that’s where, you know, I think, I think really one of the the start places for anybody kind of getting into business or real estate or just life is is understanding yourself. I think the more you can get a good idea of what you’re good at, what you’re not good at, and be real with yourself, it’s okay, nobody’s going to be good at everything. That just will help you to guide how you’re going to make decisions and be like, yes, okay, I can I can focus on these things. And if you’re an experienced sales agent, and you’re doing well, and you have done it all yourself so far, you’re there’s probably things that you reasons you got there, you might be really good with people, right? And you can lean into that you can help some you can and you might hate paperwork, you might hate managing the transaction after it’s close or under contract, you can lean on other people to help you with with those things and just focus on what’s actually going to move the needle forward. And that’s going to be your people skills with with yeah, Yeah, I have a free resource that I created. It’s it’s referenced actually, it’s in my book,

[55:56] but there’s a free resource you can download. If you go into Instagram or in our community. I don’t know if I can swear in here. So I won’t. It’s called the F. Yet. It’s called the apps definitely analyzer. That’s what I call it. Because that was like, impactful for me. But basically, all it is, it’s a way for you to analyze opportunities against your specific goals and your your morals and ethics and what’s important to you. And it lets you take opportunities and put them through that. And if they don’t get through there with an F. Yes. And it’s got to be a no, or it’s taking you further away from your goals. And so it’s a free tool that I provide to people on my page. Awesome. That’s cool. I love it. Well, yeah, this is really fun. I mean, I feel like we just opened up something new we could probably talk about for another 40 minutes.

[56:39] But I know you’re busy. So I yeah, without further ado, I mean, thank you so much, Bethany, for being on here. This was a really fun conversation. I think we enlightened people who weren’t maybe familiar with syndications and even they thought they were, I’m sure they learned something new from you today. So thank you so much. Thanks for having me. I really appreciate it. Thanks for listening to the REI agent. If you enjoyed this episode, hit subscribe to catch new shows every week, visit REI agent.com for more content. Until next time, keep building the life you want. All content in the show is not investment advice or mental health therapy. It is intended for entertainment purposes only.