S4E10 – Patrick Grimes – Earning 18% – 40% with a Real Estate Fund

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Key Timecodes

• (01:07) – Show intro and background history
• (02:43) – Deeper into his background history and business model
• (07:05) – Understanding his big loss
• (08:35) – What is the biggest lesson learned with that experience
• (16:28) – Understanding his real estate business model and strategies
• (19:45) – A bit about his real estate numbers
• (25:16) – Understanding his oil and gas business model and strategies
• (28:47) – A bit about his other assets
• (39:10) – Guest contacts

Transcription

[00:00:00.000] – Intro

Hey this is Sean Tepper, the host of Payback Time, an approachable and transparent podcast in building businesses, increasing wealth, and achieving financial freedom. I’d like to bring on guests to hear authentic stories while giving you actionable takeaways you can use today. Let’s go. Investing in real estate is a great way to make passive income, but you really don’t make a lot of money when you invest in single-family properties. You make a lot more money when you invest in syndicates.

[00:00:28.580] – Sean

My next guest talks about his journey of losing a lot of money in real estate investing in ’08. He talks about the mistakes he made, and he talks about pretty much a 10 year time period of trial and error and eventually creating a fund. He runs his own fund now that helps people invest in large syndicates. And with that, he talks about returns that can be on the low end. We’re talking 18 % and on the high end between 30 and 40 %. Really impressive returns compared to other real estate investors I’ve had on this podcast. Okay, if you want to learn more about real estate investing, this is a good one. Please welcome Patrick Grimes. Patrick, welcome to the show.

[00:01:09.160] – Patrick

Hey, glad to be here. That’s very near and dear to my heart. And I’m looking forward to diving in.

[00:01:15.430] – Sean

With you. So Patrick’s calling in from Hawaii at 7:00 a. M. He’s up bright and early. Thanks for joining me here. And first thing I like to do is have people kick us off and tell us about your background. So why don’t you take it away?

[00:01:27.240] – Patrick

Yeah, I woke up before the Sunrise, which was a good carrot here to get on this show because I had a beautiful sunrise as I ran around the conference here. Thanks for letting me join you all on vacation.

[00:01:39.340] – Patrick

Absolutely. So I started out as a Machine Design Automation and Robotics Engineer. Probably like many of you, our listeners, a very busy professional. I was doing successful, started earning substantial income and bonuses, and then I was looking for where to invest. And I was in stocks and the market, and I had asked that I’m a high tech owner of the company I work for, what should I do and where should I invest? And surprisingly, he told me to go invest in real estate. I said, What? He goes, Well, high tech is a rocky, bumpy road and you should diversify and get into real estate. His only regret whether or not to do more sooner. And so that’s how I ended up building up a real estate company, some ups and downs, Strauss and Tribulations, lost it all in 2009 and ’10, built it back. Then eventually, we came full-time. And so now we have a private equity firm with a bunch of apartment buildings, Oilet, Gas, Wells, doing a bunch of recessionary buys right now, and we’re a debt fund as well.

[00:02:43.680] – Sean

Nice. Thanks for the context there. Before we jump into your current business, I want to talk a little bit about the transition. I like to drill into that a little bit. The reason is for people out there listening, it can be harder for them to make that transition. Like, how do I make the leap here from my nine to five to doing what you’re doing? So it sounds like you were working full-time. You got into real estate investing. How long were you investing in real estate before you went full-time?

[00:03:10.590] – Patrick

Long, long time. So back in 2006 and six and seven is when I really started approaching real estate. And I invested into a pre-development, all my own money, all leveraged, and I lost everything in 2009 and ’10. So it took me a while. I was still a gamefully employed robotics, automation engineer, and it took me a while to financially recover from that. I went back to math. I got a Master’s in Engineering in an MBA, started doing change companies, started doing very well. That’s when I dove into single-family and I was moonlighting it, to answer your question. So I was working full-time and traveling around, putting together one of a kind automation systems and programs. And by night, by lunchtimes, and by early mornings, buying stress properties, collaborating on the renovation of those contractors, and refying out and holding them and repurposing and analyzing more deals. Actually, it was when I met my wife that I decided I need to take a break because I just couldn’t hack it. It was brutal. It’s like the American dreams to become a landlord. But man, too, if you’re making a lot of cash flow at your primary job, then adding another one of landlording is really tough.

[00:04:27.560] – Patrick

So I was back into two and a half years before I retooled and we got married then to get into larger apartment buildings where I could partner up. And that’s when I started to see a work-life balance because I could work with better, more experienced professionals in various markets, and we started taking down bigger properties. I went from three-bedroom, two-bath to 86 units. It’s a big jump there.

[00:04:54.310] – Sean

In.

[00:04:54.890] – Patrick

My calculus, there’s nothing valuable in between that the economy is scale, the risk, it really take it above 80 units. You might as well stick to three-bedroom, two-bath. But now they’re 200 and 300 unit. But once that started happening, it was about two or three years down the line from there where I started to see the ability through partnering with other local operators and individuals that I could potentially walk away from engineering. And I didn’t want to. I am a geek at heart. I’ve always been that way. But as the voice still in my head echoes, and Dave, the guy who gave me the original advice to jump into real estate, he said real estate, that’s really going to provide that financial security for your family. And he was right. Although I was doing well in automation, it was time for money and bucket money, right? And passive income avenue for me was in real estate, and now in oil and gas, and now in diversified, non-correlated investments in addition to the stocks, portfolios, right? Right. Sowell-rounded. And just so you know, I look at my passive investor guide, it does show the allocations of the wealthy and 26 % to 27 % is in real estate.

[00:06:13.310] – Patrick

So it’s not all of your portfolio, it’s part of a will of balance portfolio. And it was two or three years before I became a contractor and that gave me more time freedom during the day. And that was really important, being able to control my daytime. Because when you get really big into something and you’re working with the players that this is their job, they don’t want to be talking to you in their morning or their evening. They want to be talking to you when they’re working because they want work-life balance. So I had to transition to a contractor-type role offsite where I had more ability to work on investments during the daytime and I could squeeze in the automation and robotics evenings and weekend. And after I did that, it was only a matter of time before I could walk away from engineering, and that’s what happened.

[00:07:05.920] – Sean

Nice. So just to lay this out on a timeline, ’08, ’09, you lost it all. You really went all into your full-time career as an automation engineer. And then when did you officially go full-time?

[00:07:23.240] – Patrick

Yeah. So, let’s see. Let me add them up. So, yeah, about 2012 was when I got my Master’s, finished my Master’s degrees, started it and did a gap year, did two gap years abroad, but did a gap year and then came back. It was 2013, 14, when I started building a single-family portfolio. And then it was, I think, 2015 or 16 that we started scaling, looking towards larger apartment buildings. And then it wasn’t until just a couple of years ago that I shook off the engineering. I think things got real slow in real estate during COVID. So I picked up. I was doing a bunch of COVID automated assembly test kits. But after that, right up, that was that. I could always go back. It’s in the back of my mind, I could always go back and live a happy life. I really enjoyed the engineering stuff, but we’re in Hawaii right now.

[00:08:24.500] – Sean

Yes.

[00:08:25.310] – Patrick

It’s very different.

[00:08:26.530] – Sean

Enough said. It’s about a 10-year time period to go full-time.

[00:08:30.490] – Patrick

Right. Well, actually, it wasn’t my plan to ever leave engineering. I was just looking for a job.

[00:08:34.570] – Sean

Sure. Got you. Now, that’s an inspirational story. Good for you. I know some people out there, they have that fear. What if I lose at all? Well, it’s not the end of the world. It’s you learn a few things and then you apply forward. It sounds like that’s what you did. Let’s drill into that a little bit. What were some of the biggest lessons learned from that? Losing all your money and then later starting your own private equity firm focused on alternative assets?

[00:09:03.450] – Patrick

Yeah. Well, the way that I did it the first time, I was a snort, I was an engineer, very aggressive, looking for the highest returning deal. I actually have articles. I write for Forbes. I’ve got articles on asset protection, Patrick Grimes, Forbes asset protection. I’ve got a single-family versus multi. I’ve got lots of articles to talk about how I did things. I just did one on recessionary, Patrick Rymes for recessionary acquisitions, the upside from downturn, to talk about how I did things wrong and to try and unveil how you can do things right. But I had gotten huge loans, and personally guaranteed, signed it out of my own name, put it in my own credit, and it was on a development, something that didn’t cash flow. It was on a pre-development, something that even wasn’t ready to build yet. And so I was hoping to really get the full appreciation. But when you buy something that doesn’t cash flow, but you have to pay on a loan, you’re hoping that the market will stay stable enough. So when you get to the other side, you have something you can sell or something you can rent.

[00:10:09.280] – Patrick

And so it turns out that if you don’t do that and you personally guarantee in your own name, and if you don’t get sued in the meantime because somebody tripped and fall or something because I bought it, I’m not even an entity. The lenders came after me. When the property went upside down, they came after me because I had cross-collateralized, as they say, by what you do is you’re a single-family home too. You sign on your own name, your own credit, cross-collateralized. So all my other assets were at risk. And so I didn’t buy assets for cashflow like cash on day one. I didn’t buy income-producing assets in recession-resilient markets. I didn’t even know what recession-resilience was, and I didn’t know what recession-resilient asset classes were. There are some investments that we learned during COVID that will tank. There were some assets that like workforce housing and BNC-class apartment buildings that stay strong through the recession, the essential needs. And so I learned how to get lower leverage debt that’s not personally guaranteed, that’s collateralized by the asset. And that means even the bank believes this is a really good deal and they’re willing to just take the asset if something goes wrong.

[00:11:18.560] – Patrick

It means it’s very unlikely something would ever go wrong. So I learned how to be able to use my amount. And when I reapproached it, I wasn’t doing deals in the same markets. I was actually doing them in places like Houston, where if you look back on the past recessions, a steady, slow, sloping growth market just leveled off for a couple of years before it started going up again. And in other markets like Phoenix, Orlando, it dropped out 14 to 15 years before it broke even again. So if you look for those markets with diversified employment, ones that have strong recessions, resilient employers, you can find markets that will stay strong. They’re tax-advantaged and landlord-friendly, then they tend to have people coming and moving to those places, including businesses. So you’ll have that steady-state growth. So it led me to a very different tortoise, not the hair. Don’t try and double and triple my money. Be much more calculated, do my homework. And I’m an analyst by nature. So I just applied similar tools that we do automation and robotics to real estate at that point. And once we figured it out, it was just a rinse and repeat.

[00:12:30.350] – Patrick

Very cool.

[00:12:31.180] – Sean

I love that. Some of the key takeaways there is don’t buy properties that are not cash flow on day one. And I’d really like to call out there to finding properties in areas that have employers. I’ve had a lot of real estate investors on this podcast, but none have phrased it this way, is you want to be investing in areas that have employers that are recession resilient. So what comes to mind, because we’re big into investing in stocks and we like to look for companies that are also resilient to recessions. And I remember Walmart was pretty resilient, is like when tough times come, people are gravitating towards buying cheap stuff. And when we’re in good times, they’re buying lots of cheap stuff. So it’s a win-win. I remember researching the recession of ’08. Mcdonalds actually performed Wells’ cheap food. It’s not very good for you, but people would gravitate towards McDonald’s, and sure enough, their share price did actually pretty decent. So yeah, great lesson there. Very logical.

[00:13:39.190] – Patrick

I love that you said it’s logical because in my mind, it just comes down to evaluating markets and trends, as you say. I was on a panel on economics in Chicago. And what I thought was really cool about speaking of ’08 is all the other guys that were on that panel had gone through ’08 and really struggled. And I felt like people that can get up and talk about economics today in this climate, when things are a little bit unstable, there are people that have been through it before and this is not their first rodeo. So your recession resilience is absolutely right in building diversified income streams and recession resilient markets, asset classes, cashflow, and appreciate. I’d add in tax advantage as well has been our mission, and that’s our investment thesis. I think that’s got us to the point where we have a great, solid portfolio where we can ride out this recession. But during this recessionary time, deals are structured very differently. And I think that’s what’s really cool too, is ability to pivot. It’s very sure you can create a part of the ride out of recession if you’re in the right locations, the right asset classes are structured in the right way.

[00:14:49.570] – Patrick

But our current funds right now, the recessionary income fund, the real estate asset backup fund, takes advantage of the really high interest rates right now in this market. Takes advantage of the fact that the banks are pulling back in this market. We can cash flow in a very low risk way on first position debt, high interest rates. We’re originating a 13 % interest loan plus two points on a 50 % loan to value property. And it’s incredible cash flow for very low risk premium. Our Recessionary Acquisitions Fund does the same. It looks towards being a financial relief to operators instead of through gap or bridge loans, but just through acquisitions. We’re just in cash from properties. We can get in there and make a return on the buy. Forget holding and renovating and approving. Right now, there’s performing assets with distressed operators that are struggling. We can just swoop those up in cash and get a great deal and then refi out, buy another one, sell the first one, buy a third, and compound. And so the ability to win in this recession or the upside of down turns, recessionary acquisitions and lending is really what we’re laying into right now.

[00:16:03.000] – Patrick

It’s exciting for me because I was raked over the coals in 2009 and 10 because I didn’t have a recessionary portfolio. I wasn’t positioned to be able to pound. And all of our investors, they all want to know how to win from the downturn. Because they know in 2009 and 10, there were billionaires made because they fought right at the right time, and this is that time. And so we have a lot of interest.

[00:16:26.610] – Sean

That’s awesome. To back up a second, I do have to call this out. Your story is similar in the way that we’ve had people on this podcast that invest in real estate, and they’ve all graduated from single-family and duplexes on up to large syndicates like what you’re doing. You said 80 units for a property and sometimes more. You probably have some larger ones, but we’re talking hundreds of units, property. It’s safer, a steadier income. It’s a great place to be. So that sounds like you’re completely done with the days of doing single-family and these small onesy-toosy opportunities. Is that correct?

[00:17:10.510] – Patrick

Yeah. I was actually the other day that the single-family homes I was so proud of, they’re now more of an annoyance to even have to sell off. I did my first 86 unit. It took about the time of two and a half single families.

[00:17:27.220] – Sean

The.

[00:17:28.150] – Patrick

Scale is just out of this world and maintaining and owning it. I don’t have to have me, myself, or a property manager run all over to each unit all over town or in many towns. I have with 80 units, you can have onsite property management, onsite leasing, on-site maintenance to get that economy of scale. Instead of me chasing the property manager, they’re giving me a report every Monday.

[00:17:55.800] – Sean

The.

[00:17:56.170] – Patrick

Loans are big enough to where you can get Fannie and Freddie loans that are very low interest rate because at that point, they’re income cash flow and producing companies, essentially. And they’ll give us a non-recourse loan. So it’s just safer debt. I don’t have to put your own name on it. You can put it in an LLC, and you can have the property collateralized itself. That way you’re not cross-collateralized anymore. Right. And I have an article like Forbes, Patrick, Ryan, Single-Family versus Multifamily. I address a lot of the asset protection component as well. The gurus on TV that talk about flipping. I got into reading books, not from TV shows, but it’s glamorous. What people don’t realize is that you’re risking all of your assets every time you do one of those deals where you’re signing on the note yourself, signing on the debt, signing on the property yourself. And it’s for a quick, easy win. Took me a while. Took me two and a half years before the analysis paralysis guy was comfortable graduating to a private equity, larger acquisition, learning a new industry. I feel like that was my third master’s degree, but the one that really mattered.

[00:19:07.270] – Patrick

But then the principles applied to other industries. Once I learned how to diversify in oil and gas, like I said, and private lending, and we have another one coming up, I’m not going to talk about it right now, but another asset, non-correlated asset that is appreciating tax advantage of cash.

[00:19:29.010] – Sean

Let’s get into the numbers a little bit. We have investors on the podcast, some may be accredited, and that’s exactly who you serve. You serve the accredited investor. And let’s talk about the real estate first, and then we’ll jump to the oil and gas opportunity second. So with the real estate, what is the minimum investment size?

[00:19:48.980] – Patrick

So all of our investments have always been for accredited investors at 100,000 minimums. I’ve always had it that way.

[00:19:56.420] – Sean

Got it. And when you invest in the real estate fund, what annual returns can the investor expect?

[00:20:03.340] – Patrick

Well, traditionally, say for the last three plus years, our large syndicates, which were one large apartment building, as you say, 200-300 units usually, those would yield some around an 18 % internal rate of return.

[00:20:18.830] – Sean

Year.

[00:20:19.670] – Patrick

To year. Now, during this specific time, our recessionary acquisition is fun, which is not a single property and a single fund. We’re raising capital where we quickly count on like Whac-A-Mole, these opportunities that come up where we can make the return on the buy. We don’t have to buy it and slowly improve. We just bought a property that was four million dollars and appraised right after we bought it at five, but the property was six % occupied. When we don’t put any capital into it but to lease it up, it’ll appraise at eight. But it was a distressed operator, the owner that didn’t know what he was doing, was distracted, and we were able to swoop it up. Closed in 14 days, I’ve reffinished utilities. Those kinds of investments, those kinds of opportunities were not around two years ago, five, 10 years ago. Those are around now. So the Recessionary Acquisitions Fund looks to make outsized returns just by buying right, not by any long term risk you hold or improvement operations improvement. And so the returns for that are higher. In fact, if you look at the case studies, we were able to almost double our equity in a year on average for the four that we did outside of the fund before we created the fund.

[00:21:35.080] – Patrick

And we’re on our way there. So the returns on that are 30 to 40 % average annual return over a three to five-year-old.

[00:21:43.280] – Sean

Wow!

[00:21:44.110] – Patrick

And we’re on our way there. And people associate risk with return sometimes. But also in real estate, if you’re buying right, that’s a very low risk proposition. You’re not hoping to execute a business plan to make your return and you just do it on the buy. Something I can easily calculate. And that’s why we’re very confident in those and the proofs and the putting and the acquisitions we’ve already done just happens to be this very unique time in 2-3 years from now. I don’t know if I’ll be able to do this because I couldn’t do it 2-3 years ago. So that’s the Recessionary Acquisitions Fund. And normally, these are returns that are double what they used to be.

[00:22:26.310] – Sean

Yes. Let’s take a quick commercial break. Are you a beginner investor and want to increase your confidence with investing? Tickeredu is now live, which includes investing courses. The first course is titled Stock Investing for Beginners, which includes over 60 videos that take you through modules, including Overcoming Myths, the Difference Between Stocks, ETFs, Index Funds, and Mutual Funds, Investing versus Trading, the number one reason why stocks go up and down, knowing when to buy, knowing when to sell, increasing confidence, how to your first thousand dollars, and real life examples. It’s like looking over my shoulder to see how I buy and sell stocks. Simply go to edu. Ticker. Com or go to ticker. Com and click the courses link at the top of the page. Okay, back to the show. Just a pause there for a second before you go to oil and gas. With other guests I’ve had on the show, average return is usually the expectations about 10 % per year. So the 18 on the low end here, and then just to rephrase this correctly, that was 30 to 40 % with some of these properties?

[00:23:36.670] – Patrick

Yeah. So 30 to 40 % within the fund and a three to five year hold. Yeah. And we’re already on the way there and we just did it four other times. So that’s the reality of where we’re at.

[00:23:47.100] – Sean

That’s very good. This is outstanding. Now, these properties, where are they located?

[00:23:52.240] – Patrick

In Recession, Resilient Markets, the same exact strategy. We use specific markets, mostly the Southeastern states in Texas, a little bit in the Midwest and Heartland, and very narrow, targeted places where we see recession, resilient, diversified employment.

[00:24:07.450] – Sean

Got it. Okay.

[00:24:09.650] – Patrick

That’s great. And we pass through tax advantages that’s traditional to real estate.

[00:24:13.790] – Sean

That’s what we talk about with our audience. If you want to use a tax strategy, stocks, you can make a lot of money in the stock market. But then if you sell your shares, you’re going to have to pay taxes on that unless you can go into real estate. So it can work very well with investors in the stock market if you also at some point get into real estate. I am very interested in syndicates. After talking to a lot of guys like yourself, my interest in single-family duplexes, any of that? No, not at all interested.

[00:24:49.570] – Patrick

Well, you can get similar returns as owning large apartment buildings by being a limited partner. Yes. You can get an apartment building without any of the risk. And so I talk about that too. And you don’t have to take trade time away from your family, friends, and hobbies like I did when I was slaving away at SinglePay. As a partner, you’re limited to risk of the capital you have in the deal. And oftentimes, we can re-find and get that capital back to you pretty quickly.

[00:25:15.620] – Sean

Yeah, that’s great. Let’s dive into the oil and gas. You said 100,000 in minimum investment. What returns can investors expect?

[00:25:25.980] – Patrick

Well, so we’re not doing oil and gas right now. We launched two funds last year and they’re on their way and the returns are traditionally higher, but there’s a risk premium with oil and gas. And like I say very frequently, the intention behind oil and gas investments is to a couple of things. One, get an investment where you can write off your ordinary income. So a lot of investors look at that write-off as a significant return. In fact, the first fund had a… It was an 86 % paper loss in the first year of your ordinary income and the second had an 87-90. So if you’re a dentist, doctor, attorney, you’ve got 100,000 ordinary active income. In that first year, you invest 100,000. That first year, 87-90 % gets written off as an intangible drilling cost. So you don’t pay taxes on that piece, which is huge. Now you have more money that you didn’t give up to Sam that you can then put into another deal. So that adjustment of income, a lot of the high income earners, that’s why they go that way. Now it’s part of a diversified portfolio. So you don’t want to go all in in energy or oil and gas.

[00:26:40.510] – Patrick

It happens to be really good timing. Oil tends to be really high. We saw that market trend and we jumped on it. My family collects from an oil trust from my great-grandpa, Kaiser. We’ve been in the industry a little bit, so I don’t recommend anybody jumping in without knowing what they’re doing. But it happens to be a really good time and we foresee it only growing, especially with the inflationary trends that we’re at right now that tends to hit the energy space. And what’s happening right now with the bricks is that it’s only driving oil prices higher. So we saw the projections on that are north of the 10 % cash on cash return and in 2-3 X multiple over three to five years, which means you have an exit. So you have this big discount on taxes, solid cash that builds over time because it takes a while to deploy the capital, drill wells, and they happen. And we do diversified funds. So we’re not so worried about any individual well working out because we have a larger strategic plan for building in multiple basins, drilling multiple basins. So that’s how that works. And those are a great piece of a diversified.

[00:27:49.650] – Patrick

And really it’s think about the energy, food, and housing are what the government subsidizes. That’s where they need us to invest. You go buy a Ferrari, they’re going to tax you on the money that you use to buy the Ferrari, then they’re going to tax you on the Ferrari because you’re not helping the economy. You’re not helping the government. If you invest in these housing, food, and energy, and also medical, and I’ve actually got some other things we can talk about there, but these ones are where the housing and food essential needs where you can get significant tax advantages. I’m very much a proponent of a calculated diversification play into energy. People are interested, certainly opt-ins, because we have more funds coming up. We’re very strategic. And the timing of when we launch those, when they open, oftentimes we’ll get $20 to $40 million dollars and we’ll close it real fast. Those are ones that need to be very asset-focused, very opportunistic-focused. Those are ones you want to get lined up, teed up for. The other asset that we do have open right now is the real estate asset-backed debt fund, which is an income fund.

[00:28:56.230] – Sean

All right, talk about that.

[00:28:57.800] – Patrick

Well, just like the Acquisitions Fund, because it’s actually called the recessionary income fund. We have the recessionary acquisition fund. And normally I wouldn’t be saying, Hey, let’s go buy mortgages. I wouldn’t be saying, Let’s go buy asset-backed debt, because people get like 5, 6, 7 % taxed income on that. And it’s just not my traditionally, it’s not what I’m interested in. It’s a very safe return traditionally. And so you’ll see that if you look at the Tiger 21, which is 20 plus million network group, they actually publish their allocation. They have seven % of their wealth and fixed income. And that’s not tax advantage, it’s fixed income. So oftentimes those are in these senior secured notes and these asset-backed type debt funds. And you’re in a very safe position in those because we’re, for example, targeting 50 % loan to value. Real estate can sway 50 %. And you won’t lose opinion to that investor. Maybe the common equity would get completely wiped up, which is what happened in 2008. But many of the lenders were safe in them. Now, what happened during this time is a couple of things. What you used to get a very low risk investment for at six %, seven %, became 8%, 9%, and 10 % because of interest rates rising.

[00:30:21.800] – Patrick

Same asset, same loan, same property, 50 % loan to value, performing cash flowing, experienced operator, high net worth, personally guaranteed, same exact risk profile. Now you’re getting twice the return. Then what happens is the regional banks that tend to loan on these properties, they begin to have liquidity issues and they see some banks collapsing and some pencils down. And part of the reason is started buying bonds that now are no longer worth as much as they used to. And so you’re selling out bonds at a discount. There’s a lot of reasons why banks are destabilized. So what does that mean? That means there’s a bigger demand. So what you used to get, a 5, 6, 7 %. Now, just with interest rates, you can get 8, 9, 10 %. And with the demand, because banks take 60 to 90 days and they keep retrading or they one day say, No, never mind. We can do 11, 12, 13%. And we actually have 14% we’re looking at for the same underlying assets because we won’t move quick and they can trust and rely on us. And so we’re looking at a loan right now, which is 50% loan of value, 13% interest rate plus two points.

[00:31:35.350] – Patrick

That’s amazing. It’s like 15%. That’s great. Six-month loan plus a one-point extension, that’s 17%. In the first year. Strong personal guarantee, strong cash flowing asset at a 50% loan of value. That opportunity at a time when it’s harder to cash flow in real estate because interest rates are up, taxes are up, insurance is up, inflation has driven our cost to shrunk our cash flow. You can invest lower on the capital stack, senior secured position in real estate on the debt. We get almost 2-3 times the return for that same risk premium. So that income fund is a real estate asset-backed debt fund that allows you to take advantage of these extraordinary returns that we can get in asset-backed debt. It’s a diversified pool of GAAP and transactional loans. And that’s what the income fund is all about. And as we call it the recessionary, because again, 3-5 years, it will probably be back down to 6-7 % return. But right now, it’s just an incredible time to talk to some amazing cash flow.

[00:32:44.790] – Sean

And just to rephrase back to you how this works, because this one’s a little newer to this podcast. You essentially are raising funds from investors to almost become a lender. You’re lending to maybe a developer, real estate developer who’s going to either develop a new property or acquire property. And by being the lender, by being the bank, everybody’s making these returns, as you said, could be 15 % plus another two points of 17 % the first year. Is that essentially what this model is?

[00:33:18.170] – Patrick

Yeah. Now we’re not a bank per se because banks are actually a very different contract, but we’re a private lender. We’re a private equity lender, which puts us in a whole different category, and we have a lot more flexibility and they don’t force us to diversify in ways that cause these banks to collapse. But yes, we’re raising capital into a pool and then we’re an originator. So then we get requests through our company, PIM Rapid Lending, and we then request for loans. We underwrite those loans and we issue those loans and we’re building a diversified portfolio of those loans right now. And from an investor perspective, if you want to invest in the fund, the returns are uniquely flexible. Because of the way that our loans work, some are short term, some are longer term, we offer a range of different investment options. And this is going to be unique to you as well, probably, because there really aren’t a lot of people out there doing this. But because I believe in fulfilling that asset allocation chart that’s in our slide decks for the wealthy, you need to have a % fixed income. You need to have % liquidity just on the sidelines.

[00:34:29.770] – Patrick

You need to have private equity. You need to have real estate. I keep getting questions from my investors. Hey, I’ve got a hundred to some five million dollars in cash sitting in the bank, and they’re worried about investing it into something because they’re in fear. I would say, Well, hey, let’s put it in Acquisitions Fund. But you still need, because right now you can win big time from the recession there, but you still need a place for your liquid capital. Where are you going to put that short term capital that is losing money with inflation? If it’s in a Wells Fargo, City Bank, or Chase, you’re getting a 0.01 %. And if it’s over 250K, you’re not insured, right? And if it’s in a brokerage account, you’re probably getting four. A high interest rate-bearing account, you’re probably getting four, right? You’re not keeping up with inflation. Published inflation is above four right now. Actual inflation is not adjusted by all these fake indicators. It’s closer to seven, eight, nine, ten, right? So where are you going to put that capital in a senior secured, safer position where you’re going to at least keep up, if not beat inflation?

[00:35:40.260] – Patrick

And so we give these options for investments in the Debt Fund because of that. I really want to be part of the solution here. So we have one option, which is a 90-day note, senior secured note. We have a 180-day note and a one-year note. What does that mean? That means you can put your capital in only for 90 days. And ifIf you want to keep rolling it forward 90 day, 90 day, you can. You can put it in there for six months. You want to keep rolling that forward or a year, keep rolling that forward. In that sense, you could be 90 days out from your capital at any time. That allows people to then say, Okay, I’ll keep the reserves that I need to feel comfortable without fearing that I’m losing the deflation. And that 90-day note right now for a limited time, typically we’re offering seven % for that. But for a limited time, because we’re doing such… We’re originating high notes, we’re getting eight and a half % annualized fixed interest on that 90-day note. We’re doing 10 % on the six-month note. It’s insane. 10 %. But look at the loans we’re originating right now.

[00:36:44.640] – Patrick

Now it may not renew that high. It may renew that high, actually. I think it’s going to renew that high because we’re seeing a trillion and a half commercial real estate debt coming due by 2025. This is only going to increase for the next 2-3 years in my mind. And then we have a one year, which is an 11 %. So it’s senior secured fixed income monthly distributions, or you can reinvest for compounding. You don’t need the capital. Just to do it through IRA, it’s amazing. Or our sub-direct 401(k), because then it’s all tax-free too. We’re in cash. But so those fix secure, or in cash. Those fixed secure… Or if you’re interested in jumping in for three years, we’ll partner in the upside with you. Because you may be asking like, Hey, well, if we’re giving eight and a half, 10 and 11 % to these short term notes, where’s all the upside going? Well, so if you jump in for three years, we’ll partner with you on that. So if you jump in for three years, we’ll give you right now Class A shares, which allows you to participate with us and I’ll give you a 10 % preferred return.

[00:37:42.430] – Patrick

Plus, we’ll split all the upside, your investment upside and all the notes upside. We’ll split that with you. And those returns are high. Those returns are high because if you’re willing to stay in longer, it’s a different allocation. Short term notes are much lower risk and then low risk membership with upside. You’re going to stay in for three years. And so that’s how that’s made up. And we’ve seen a lot of interest. People buying the 90-day notes because they have cash in the bank and they don’t want to be more than a couple of months away from it. People buying them one year because they’re like, I’m not really going to spend this for a year and it’s better performing than my CDs and my brokerage account. I want 11 % right now. Coming in. And then some individuals are like, You know what? We’re projecting 12.5 % on the three-year hold, but we’ve beat that. So we’re beating that by a margin. And they’re looking at that saying, Hey, that and a senior secured position, lower risk, much lower risk than buying a place, istrying to think. We’re actually returning higher returns than buying a place right now.

[00:38:48.690] – Patrick

And it’s the first position on a capital stack. It’s the first person paid and it’s insulated from the market volatility right now because it’s a common equity that we lose. We can always take the asset. So we’re seeing a lot of people shift from equities debt on that aspect on the membership units. So that’s what the income fund is. It’s a little complex.

[00:39:10.540] – Sean

But you know what? This is a good segue here to where people can reach you if they’re interested in getting involved in any of your investment funds.

[00:39:19.290] – Patrick

Yeah. So passiveinvestingmastery. Com. If you’re interested in a copy of my book, you can go to passiveinvestingmastery. Com/book, and we ship it out, sign as a free welcome gift to anybody interested in our Persistence, Pivots, and Game Changers. I share my story and hope to inspire others along the path. And on that site, we have our recessionary income and acquisitions. I also have my calendar. And part of what I love about being full-time is I get to talk to investors where they’re at big passion for that. We have a series of educational webinars. We do alternative investing series, jump in and register for those. We have some really cool people. Our last panel was we had a laundromat guy, we had a self-storage, we had an ATM, we had an oil and gas. We all just got on there and duked it out, talked about all the different ways you can invest in alternative investments. So jump in there. Either way, happy to educate and also discuss investments and get you pointed in the right direction.

[00:40:21.820] – Sean

Awesome. All right, Patrick, thank you so much for your time. This is great.

[00:40:25.490] – Patrick

Oh, I enjoyed it. It’s a really good chat.

[00:40:28.040] – Sean

All right.

[00:40:28.570] – Patrick

We’ll see you. Hey, I’d.

[00:40:29.720] – Sean

Like to say thank you for checking out this podcast. I know there’s a lot of other podcasts out there you could be listening to, so thanks for spending some time with me. And if you have a moment, please head over to Apple Podcasts and leave a five-star review. The more reviews we get, especially five-star reviews, the higher this podcast will rank in Apple. So thanks for doing that. And remember, this show is for entertainment purposes only. If you heard any stocks mentioned on this podcast, please do not buy or sell those stocks based solely on what you hear. All right, thanks for time. We’ll see you.