0:02 Who are you? And where are [music] you going? What do you want?
0:18 >> Hello and welcome to people making money. I'm your host Kevin Bemmel and this is the fifth episode of our mini-series Money in Motion with my colleagues John Rubino and John Clark Jr. AKA JC. And we're
0:37 >> [laughter]
0:39 >> He's JC. Look at the mirror, it's off. Oh no.
0:43 >> He said hi. We're moving. We're swapping.
0:50 >> I'm not I have to tell you not big on the virtual background. I like I like how it looks but like I don't like this sort of weird thing going on here.
0:58 >> You're moving so much, that's why.
1:00 >> Well, yeah, I'm standing. See, you know, I'm the oldest one in this group. I have to stand if I want to stay alive [laughter] basically.
1:10 >> You shouldn't say that. Don't go there.
1:14 >> [laughter]
1:16 >> Well, we'll take off after your hair, man.
1:19 >> Exactly, that's what I think. He's afraid of that. We go from age to hair. He knows it's coming. Start with the head.
1:28 >> You know, I you know, I should have what I should have done is I should have called John Clark John and you Curly.
1:33 >> Curly.
1:36 >> This is our this is our mini-series Money in Motion where we are talking about investing and and how things have changed especially over the last few years. It's it's based on the core concept of the Way to Wow shows which is the three pillars of attainment. We're dealing in the pursuits pillar in the finances realm. And then it also is based on John Robino's concept of the wealth pyramid. So, we're
2:09 >> [clears throat]
2:09 >> we're in the top part of the pyramid, the wealth accelerators. We're talking talking about investments now. Uh as we're coming into the kind of the home stretch of the mini-series. If this is if you're watching this episode as the first in the in in the series so far, I invite you to go
2:26 >> Oh, no, just kidding.
2:27 >> What?
2:28 >> [laughter]
2:28 >> I said shame on them if it's the first time. Just kidding.
2:31 >> Always always a good viewer getter. Shame on you.
2:36 >> [laughter]
2:37 >> We encourage binge-watching. We love it.
2:40 >> There you go.
2:41 >> So, we I encourage you to go to youtube.com/thewaytowowshows and you can see previous episodes there. You can also watch them on Spotify and Apple Podcasts. The those three, of course, are the three largest podcast platforms in the world.
3:02 >> World.
3:04 >> [laughter]
3:04 >> Right. So, last week we talked about where we're seeing investment dollars going. We were I suppose egotistical enough to claim it was the smart investment dollars cuz we don't deal with anybody who's not smart. That that's just the bottom line. And today we're going to talk about the risks. So, you know, it may not have seemed like it in the days of ultra-low interest rates, but the reason you get a return is because you're taking you're taking risk. That
3:40 that never changes. If so you know, when people would come to me and say, "I've got this great investment. You're going to make 17% compounded 3 years in a row and it's no risk. Yeah, go away. So, but before we get into the topic, just gentlemen, real brief introduction of the two of you so people know who you are and from whence you have come. JC, why don't you go first?
4:12 >> All right, thank you. We live JC lives near DC and what and the area of Mid-Atlantic for United States of America. I'm a husband of one wife for 37 years and four children who are adults and five grandchildren and have the pleasure of running businesses and helping people invest their money and finance their investments in real estate.
4:36 >> Very cool.
4:39 >> I am John Rabino. I don't have a cool JC DC, but um I live in Northern Virginia with my bride of just recently 24 years and children and God has been good all the time. All the time God is good. I've been have fun in my first adventure serving in the in the United States Navy and now I get to wake up each day like I said last time and have fun in what I do where I help folks invest and learn more about passive real estate investment. Been doing that for 20 years and with my business for 13 years. And
5:14 I love what I do and I love being around you guys. So, great to be here.
5:19 >> Okay, so obviously you're crazy cuz you love being around us, but that that's okay. We'll let you say. So, just to set the scene here a little bit, the kind of investments we talked about last week were non-financial investments. So, you know, stocks, bonds, those kind of things. Talk to your wealth advisors. If you don't know a wealth advisor, let us know. We'll be happy to connect you with someone uh that we recommend. We're talking about other types of investment, real estate, IP, entertainment, businesses. Uh even I
5:55 mean, we didn't talk about crypto last cryptocurrencies last week, although I I suppose we could have, although um I to be candid, I don't I don't know a whole lot about it. Um but um so now, you know, uh John, set set the scene for us here in terms of what are the kind of risks about which we need to be aware um as we look at these various uh types of investments? How do we make sure we don't end up, you know, kicking ourselves in in our in our backsides because we didn't analyze them correctly?
6:30 >> Well, it starts with first, like you had mentioned, um who's on your team, right? And depending on what you're investing in, um if it's a more traditional type investment, you've got, hopefully, a good financial advisor, uh good accountant, folks that can help you that do this for a living. So, they're the ones that you go to if um there's there's questions, if there's um need for advice, consultation, uh guidance, those are the folks to go to. If you get into the alternative world, um it it's not as much hand-holding, right? You don't get as many disclosures as you do on an institutional type investment. Folks
7:06 that are in a 401k or an IRA, they get those disclosures every month or quarter with their statements. Not necessarily like that when you're in the alternative world. It's a little bit more um you know, looser, a little more liberal when it comes to investing. So, uh a lot of it really it it falls on the uh responsibility always of the investor to make sure they do their due diligence. And so, um again, it starts with the education. It's it starts with the understanding the market you're getting into, um the types of investments, the asset classes. Again, I think I mentioned this in the first or second
7:41 episode, um I've got a blueprint of how I look at investments and it always starts with the core four that I call sponsor location asset class risk and return. And so, I can tell you honestly that 80% of the deals I look at or I I come across my desk, if they don't meet me, most of them if they don't meet any of those three or four rather, I don't look at them because it's just a waste of time. Money is is very important, but your most critical and valuable resource is your time, right? So, that's got to be what you look at. So, you've got to have a little bit of a blueprint. Um
8:16 what could go wrong and usually does?
8:18 >> I'm sorry, I'm going to interrupt you cuz I want to jump on something you said and take you to task.
8:23 >> Please.
8:24 >> So, and correct me if I'm wrong, you made the statement that alternative investments, they're they're they're more open, perhaps more liberal, and so therefore riskier than institutional investments. Have I Is that a
8:41 >> Yeah, that's correct because the alternative investments, and again, if it's in the alternative world, institutional versus private placement, it my comments are probably more towards the private placement side over the institutional. Institutional is like you've got a BlackRock fund that's investing in single family houses across the country, and you've got an advisor that is bringing those types of investments to usually a registered investment advisor.
9:11 >> So, you're talking about institutional investments in institutional investments in alternative
9:17 >> alternatives. More disclosures because they're required by by law, right? There's There's a much higher compli- a compliance bar there as opposed to private placement where the bar is a lot lower.
9:31 >> Right. So, here's here's here's my bone to pick with that.
9:34 >> I know it is coming.
9:37 >> I think there's a perception that there's less risk because there's all these disclosures. But in in my experience, there isn't necessarily more risk.
9:52 >> I agree 100%.
9:54 >> sword. It's a double-edged sword.
9:56 >> does not necessarily translate into less risk. That's what we're taught to believe.
10:01 >> Yeah.
10:01 >> That's right. It doesn't necessarily play out that way.
10:05 >> No, it doesn't.
10:06 >> Right? And so in in in the four that you mentioned, where you start I think your first one is sponsor, right?
10:12 >> Yeah, sponsor.
10:13 >> So, I think you're correct in putting that number one. It's like sponsor sponsor other three.
10:22 >> Well, now I'm I'm going to say sponsor and location and then the other two.
10:26 >> Some some investments, location isn't isn't relevant because it's not relevant.
10:31 >> You're thinking real estate, yeah.
10:33 >> Okay.
10:33 >> Yeah, for real estate of course. It's of course the three most important things are location location location, but I did hear by the way just just to be honest I heard recently they added a fourth one. You know what it is?
10:45 >> Tell us.
10:46 >> Location.
10:47 >> LOCATION.
10:47 >> OH, HEY.
10:51 >> In a real estate deal in a real even in a real estate transaction, the sponsor I would argue is still the most important because that sponsor has to know is always should know should know far more about the location than any investor does. If that's not true, that that investor should not be investing with that sponsor.
11:15 >> That's true and that's how investors should expect the assumption, but it's not always the case. And what I mean by that is you could have a new sponsor in a new market that's never done that type of investment before.
11:31 >> Mhm.
11:31 >> And you could have a sponsor that's really good at multi-family and Charlotte, North Carolina that wants to get into senior assisted living, has never done that before. So, you know, you have to look at the three the four kind of together, but you are right that if you don't have a sponsor that could be competent, knows the markets, knows how to carry the business plan as well as managing the real estate, it's not it's not a it's not a good opportunity.
12:02 >> And what makes a Blackstone institutional investment, at least presumably safer, is not the regulation, it's Blackstone. They've been doing it for a long, long time. They have trillions of dollars of investment. They have a lot of very smart not infallible, I'm not saying they're infallible, but it's the quality Blackstone is they're a known quantity, they're a high-quality sponsor. The the the security one has is not all of the regulatory compliance, it's that Blackstone is doing the regulatory compliance.
12:37 >> Yeah, and John's going to jump in here, too, cuz I want to hear his part, cuz this is important, but as you're putting those bigger eggs into the bigger basket, and that risk comes down, that correlates to your return, like you mentioned in the last episode, right? So, you know, the more risk you're taking on, hey, I'm going to invest with a new sponsor that's only been doing this for 3 years, they only have five assets, they've never done a full cycle deal, and it's in a pretty challenging market, you better be getting fantastic returns, and you better be in a position that you may be call the shots, depending on your size of your investment, right? As opposed to Blackstone, where, you know, they've got
13:14 the name, they've got compliance, they have transparency requirements, they are governed a little a much more stringent, and so, you know, that correlates to the type of returns you potentially get, depending on the type of investment. But, Johnny, jump in, cuz I know you got a lot of stuff to
13:29 >> I guess here's a thought about what can go wrong and usually does is I think it all hinges on people, right? All business hinges on relationship between two people or more, and I think it comes down to the two. You focused on the sponsor or the leader of an investment opportunity, whoever's presenting the opportunity should be studious, highly knowledgeable, deeply invested and and every way and should have a breadth of knowledge. And so, I totally agree with that. And likely likely should be greater to to bring some safety and
14:05 confidence to the investor, should have a greater degree of understanding than even the investor does. However, it's it's unfair to not put some of the weight on what usually goes wrong is at the bottom of the triangle, this wealth pyramid that you built and use and we've been referencing throughout each episode is financial awareness and financial education. And if that individual investor is a newbie and the sponsor's a newbie, wow, watch out, you know? And but even if the there's a little weight that needs to go to the human investor as well to say, "Did you get the
14:41 education? Did you read the documents? Have you become aware of things around? Did you do some due diligence of your own? Have you sought advice?" You know, because I'm I'm not saying I don't want to scare anybody else from getting into alternative investing, because I think it's actually more stable. I would go into a lengthy dissertation about that, but not here on this show to say I think it's actually more stable and secure than the securities title that's on the traditional investments. Yet, there is a responsibility to the people involved in that, both sides of the equation, the investor and the
15:16 sponsor need to be accountable for what their roles are. And I think where usually goes wrong is when one of those didn't do their job.
15:24 >> Well, right. Then I agree with that 100%. I I I think the the um one of the key risks, and I don't know that this is talked about in quite this way, and I'll be interested to hear what you gentlemen say about this, is is when an investor is getting ahead of of where he really is in his investing career.
15:44 >> Yeah.
15:44 >> Right? So, I I mentioned a few couple minutes ago, I don't really know that much about crypto. I mean, I have I have a crypto investment. It was given to me by my next-door neighbor as as kind of a joke, right? I've got the [laughter] Dogecoin. I mean, I know I know virtually nothing about it. I wouldn't I don't invest in it, and the only reason I have it is because my next-door neighbor is such a sweet guy, and and it's something we talk about from time to time, and and he he's just really into it, right?
16:14 >> Sure.
16:15 >> for me to be making those kind of investments as experienced as I am in other areas, I'd be getting way, way ahead of myself.
16:23 >> Yeah.
16:23 >> Excellent.
16:24 >> And I think there's a chasing of returns that happens, too, don't you, John? I mean, people see a double-digit number that's approaching between, you know, higher closer to 20 than it is 10, and they're going to chase that return and [snorts] neglect to do some of the actual proper assessment that goes into whether that's a valid thing for them or not. I think that's related to what Kevin's talking about, getting ahead of yourself. Sometimes it's just in the sense of looking for the goal and the return and disregarding as much attention you need to put into what makes that up and why is it that high.
17:01 >> Listen, investing is a team sport, you know, and and it's a team sport if you're investing real estate, Bitcoin, whatever it is, right? There's somebody that's going to be managing, it's going to be overseeing the investment. And so, they're the quarterback of the team, and that's typically going to be the person that brings forward the investment that's going to be potentially signing on the loan for personal guarantees. They're going to be leading the construction efforts, whether it's insourced or outsourced, right? That person has to know how to do that, and and they could be really good at doing it in Atlanta, but they've never
17:39 done it before in Charlotte. So, the market in Atlanta they're comfortable with because they know the regulatory process, how to bring permits through, who to talk to as far as property management. When you get into a new market, that totally changes, right? So, they may they may have the good processes, but the people they're talking to are different. So, these are the little things that you got to pull apart. It You got to go in with assumptions when you're looking at an investment, and when you're looking at the person that's going to be you taking your money and putting it into these places with very little control on your
18:15 part, that's something that you have to be comfortable with. And if you're not, then you probably want to do something else. And I'm not trying to say that to discourage you, but I'm saying that this is a a team sport, and you have to put a level of trust into these groups. So, trust isn't just given to you, you have to get that built. And how do you do that? You go through your due diligence. You ask the questions. You build your spreadsheet to say, "What are the key questions I have to ask the sponsor in order for me to continue on?" I always joke and say,
18:50 "I want to go through an entire deal and find something wrong with it." And if I go through the entire deal and I don't find something wrong with it, I'm ready to invest into it. But I always go into the deal [clears throat] saying, "What is wrong with this project?" Something wrong. And if you can't see it, here's a thought, John, that I was just thinking about that goes exactly in line with what you were saying is either you spot it as the investor or another great way is to ask the person who's offering and bringing forth that investment, what could go wrong? What's your biggest threat? Kind of that that SWAT mentality and
19:26 say, "Okay, what's the T? Where is your biggest threat? Where's the downside? What happens if that actually occurs? What are you going to do? Have you experienced that before and how did you handle that?" Behavioral interviewing if you will to say, "Don't just give me a hypothetical. Talk to me about real terms. Is it What's the challenge of this project? And if you faced anything like that before, what did you do when you didn't know the property managers, you didn't know the ordinances, you didn't know the civil uh servants that were, you know, lording over that local area as your example and you didn't know
20:03 that, what did you do? How did you get caught up or did it did it halter the deal or did it impact you? You know, those types of things."
20:10 >> I want to jump in here because it's it's interesting, John, what you said that if you go through a deal and you don't find any problems, that's the deal you invest in. That's the deal I don't invest in. Because I I operate under the basic assumption is if I can if I go through a deal and I see nothing wrong with it, [laughter] it means I haven't seen the deal clearly enough. And to to follow up on what you were saying, JC, when I talk to someone and I and I ask them that question, "Where are the holes in your deal?" and they say, "Well, there are no holes." For sure I'm not going to invest in that deal. Because there are always holes. So, I look at I look at risk, there are
20:46 basically two categories of risk the way I look at or two categories of things that can go wrong. There's the category where I have I I have at least some control over it. So, for example, if we're talking about a real estate investment uh and we're talking about let's let's take let's take an existing property. I can send my inspectors through to determine what's the condition of the plumbing, what's the condition of the electrical, is it, you know, in compliance with building codes, etc., etc. I can I I probably can't get rid of the the risk of problems with the built
21:21 structure, but I can mitigate a lot of them. But then there's the category of risk that I cannot mitigate. So, for example, John in a in a in the episode last week, you mentioned multi-family is is is is a great investment in but not not everywhere. I would I I tell all my clients, do not buy multi-family in California. Because the regulatory and political risk is so high and there is no way to mitigate it. Not even if you have good legal representation.
21:56 Doesn't matter. It's It's just It's It's It's It's too risky and there's no way to reduce It's completely uncontrollable. So,
22:04 >> Yeah, and that's your point. That's to your point. So, let let me rebuttal your your comment on when I get to a deal and I'll find an environment that I want to invest I'm I'm going through that deal and pulling everything I can possibly out of it to see where in my thought, in my process, in my experience that I find something and it could be a simple question like, what happens if we can't get through this deal on your plan A? And they say, well, then you're going to possibly lose your money. Bad answer. What I want to hear is, well, we can refinance at this portion or we can
22:40 recapitalize in this portion or we can turn it from condo sales into apartments for rent. These are real-life things that have happened in the deals I've been in. And those are the questions you want to ask before you invest and before you start getting into bed, if you will, not literally speaking with your sponsor so that you're comfortable. But you can't you can't Let me exactly
23:04 >> [laughter]
23:05 >> You can't You can't like and I and I see this all the time. I mean, you have to eventually say I'm going to invest in this project, right? You got to say that I've done everything that I possibly can. I've talked with other people. I've got references. I've bounced this deal off of my small circle of trust and everybody's coming back and saying, "Hey, it's a great deal." Yeah, you have risk. You Kevin, you can't control uh a a shift in in the market due to inflation or COVID or whatever. You could You could look at things through stress testing and break-even analysis when you're analyzing deals. But I mean,
23:41 if you go into a market and say, "If this market, you know, dumps at 40%, I'm going to break even, that's that's a good deal, right?" Because if it goes If you lose 40% in that market, you're still getting your money back. So, that's you know, that's where I say you have to spend the time to get to that point. And that's the big thing. And so, if you don't get those through those four, then it's not worth it digging into it to the point where you say I'm going to find something wrong with this deal and then if I don't, I'm ready to go in. Now, the risk is very important because
24:16 nowadays people are very risk-averse. That's all they hear. They don't want to lose their money. And so, you you go in with the mindset of that risk-averse and if you see 15% IRR or 45% IRR, there shouldn't be a difference in your mindset of risk. It's just that you're looking at the return and how does it correlate based on my risk personally. And then the deal risk, the market risk, what could happen in the environment, right? So, that's what we're talking about. The last thing and then I'm going to turn back over to you guys and I've seen this a lot happening lately
24:52 Well, not lately, but since the COVID hit is that people weren't ever paying attention to unfortunately what was in the legal documents and what was in the private placement memorandum which is governed the governing document for private placement investment, right? In alternative investments you have this monster document that's got everything in there and when things were good people are just signing the document, right? Um unfortunately when the market when the market, you know, unfortunately got hit hard with COVID people were being told that they have a mandatory capital call or that they have to pony
25:27 up more money or that um hey, we have to give the keys back and and we lost our money. People were then realizing what's a capital call and I'm not trying to put anybody down but asking these questions that's not the time to do that. That that's really not the risk that could be the more you could take that risk not necessarily off the plate but to find mitigation to get it lower off the plate the better. And [clears throat] um yeah, those are some of the things I typically see is that oh, I didn't know that I have to bring in mandatory money. Oh, I didn't know the insurance can go up another 20% cuz hurricanes are more
26:02 prevalent in that market. Just these little things that you pick up and we and we have that. We we can help folks with that cuz we've gone through it. We've experienced it.
26:11 >> you guys have done a great job describing the two people that are involved that I was mentioning cuz you just just talked to both, right? If you have someone who's presenting way too much good oh, you know, overly optimistic assumptions and there's nothing ever going to go wrong with my ideal. I think Kevin was like mm bogus advertising and not enough information, right? Yeah, too good to be true.
26:33 >> That's what I call it. TGT P. Too good to be true.
26:36 >> talking about what we call of you know, the other side of that is RTI, read the instructions, right? Most people don't read the information. Most of us are too egotistical, too busy, too heavy on ourselves and so we think oh, we we got this. we don't need to worry about those little details. He's a good guy looks like a good deal. I'm going to go for it. And then they don't read. Right? I mean how many guys on Christmas are putting a toy together with a screwdriver and saying now leave me alone I got this for the kids.
27:07 >> That's the fun of putting stuff together if you use instructions it's no fun.
27:13 >> [laughter]
27:14 >> I know. I know but we but we can't treat $100 bills like that. Yeah, that's a
27:19 >> Flathead not the not the Phillips head the flathead.
27:23 >> [laughter]
27:23 >> The flathead.
27:25 >> No John you're right. I mean it's it's all about you you have to practice too. You can't you know like if you're going to invest on the first deal you look at I don't care how good it is. You got to practice. You got to go through the evolutions. You got to ask yourself the right questions. You've got to say on paper this deal looks great but now let's bounce it off the market. What is the market actually telling us? Are rents growing at 3%? No, they're growing at 1 and 1/2%. Now you go back to the sponsor you challenge that. So that's that's where you got to take some of that intellectual mindset and
28:00 you learn that. You know, there's there's no get rich quick scheme plan etc. with this. You got to put in the time work and effort even if you're really well versed in identifying these risks. You still have to put forth the effort to look at it.
28:16 >> That's right.
28:17 >> That time and that effort and then we've also mentioned you know, focus as much on the downside as you do the upside that gives you a balanced perspective on the investment that you're looking at. Both of those you mentioned time in our last episode you mentioned again today. I think it's just important. We could talk about that for a while time and timing both of those are really important and they pull they pull into strategy in my mind. If you don't put enough in education awareness and time and and then look at timing, personal timing and market timing, then you're really going to be off on your whole
28:52 perspective. You you really it's like it's a going down a road in the middle of a forest with no map and no roadway and don't really know where we're headed, but you're hoping you're going to get to where you're going. It doesn't make any sense to
29:03 >> Well, two this is kind of a follow-on remark, I think for both of you because because J.C. you were talking about there's kind of two key people, if you will, the sponsor or the investor that we have to examine from a people standpoint. I would argue while I agree those are probably the two most important. There are also other people involved in in an investment typically and a smart investor wants to look at what is the risk that the other people
29:38 are taking on? So, I'll give you an example that something I'm working on right now and and of course it's always the small deals. It's always the small ones that seem to be like this, right? So, I'm trying to close a small loan and the devil is getting the title company to agree to issue title insurance cuz it's secured by real estate, right? I've spent a lot of time with my lawyer trying to figure out why are they reluctant? What is the risk that they're concerned about
30:13 that we're not seeing, right? And and because in the end while I don't, you know, what? One time out of 100,000 a title company actually has to pay off a claim, right? So, it's never a big deal to have title insurance per se. The bottom line is if you're dealing with real estate, you're going to have title insurance on an investment. So, I think we we need to learn to assess the risk from the perspective of others involved in an investment, not
30:49 just the two primary characters, because they've got their perspective that's that's probably different than ours, different than the sponsor. And and and that may be important in understanding better the overall risk profile of an investment.
31:10 >> Sure. I I definitely think that the the number of the there is a this third party is really more than a person. This third party you're talking about I think is is either related governmental people, third parties who are providing insurance or dollars or engagement or property management like John mentioned earlier, where they're related to the project. And then there's the third parties where the advisors, the people further down the road, the people that you could be leaning into that are on your team. You hope we have some form of team shaping up where you can get a complete well-rounded vantage
31:48 point and perspective because everybody's going to see it a little differently. And when you blend it together, you have a less narrow view, you have a much broader view which includes downside, upside and around the sides what you're bringing up now. Like there's there's these other vantage points on the side that can come in and impact that. If we're not looking at that, I think one of those that obviously came out during COVID, brought out some weaknesses in maybe people's structures and perspective was debt structuring and interest rate exposure because if interest rates swing wildly
32:23 at all, it doesn't have to be, you know, what they did during 2022, but you know, even if they moved a decent degree, is the deal can the deal withstand that pressure? And what is the impact of that? What is going to happen? And am I okay with that risk? And what are the timelines associated? And is the cash flow resilient? Or is it going to be a, you know, downtrodden by the rate risk and the increased cost? And And is it going to cause people to run, you know, especially when you're looking at real estate cuz there is all these different elements involved. I think these are the
32:58 factors that determine whether something's going to [clears throat] perform during market shifts or not.
33:03 >> Yeah, and I, you know, the deals I look at now and I I really like when sponsors do this and the operators, they're the ones that are running the project, general partners. I love when they put in, you know, "Hey, here's our base case entry and then here's what happens if we get a 20% or 30% drop in the market. And hey, oh, by the way, if the market does show a better sign, here's some upside, right? So, they're willing to show you um, upside and downside rather than just one case. Now, either way, you're still going to do your due diligence if they don't show you the upside and the downside. But, at the end of the day, at least you see that. You can get some experience from that and then you can go
33:38 and say, "All right, how bad is the cap rate been over the last couple of years? Or how bad could it get?" Um, I I think that when something goes wrong, which always does, which is part of this episode, when something goes wrong on a deal, an investment, we become the finger pointer and it's everybody else's fault. Um, that potentially could be the case, um, if you've got a really bad sponsor that's unfortunately a scammer or whatever, you should have caught that at the beginning of the investment. You should have did your due diligence right
34:13 uh, or properly or got references or whatever you had to do. But, there are things and it's happened 90% of the time if there's something bad goes wrong that it's out of their control, right? Like, I I can't control what interest rates do when I get a call from an investor that's angry that we're going an extra year or 6 months. Or right, control that The The returns are coming down. That That's where we sit in the capital stack. So, you got to You got to be comfortable with that. You've got to be comfortable with that. You've got to be comfortable with the fact that you may be illiquid for 3 4 5 years. So, if that investment's going to be illiquid for 3 to 4 to 5 years, and it turns into 7
34:49 years, are you okay with that? Right? Or do you need access to that money in in a year or 2 years? Then Then that's a That's a risk you've got to answer. So, these are all the different things you're looking at. At the end of the day, you've got to make a decision if this is what you want to do. And And the second thing is you've got to make sure that you're comfortable. And if If those two things don't line up well, then it's not something for you to get involved in.
35:15 >> Okay.
35:15 >> So, gentlemen, we're going to wrap this episode up.
35:19 >> Yep, I was just going to say, you know, after you're identified that there is an opportunity, and then you've evaluated risk, there's still one critical element that's left that many investors overlook, and that is how the investment is actually totally structured. We've talked about some of the elements, but there's a complete structure, and many people are just looking at the icing, if you will, on the cake, the return, or they're looking or they're just downtrodden and beaten, and all they care about is the risk. I think there's got to be a balance, and then you want to look at the complete structure. We talked about titling if it's a property. There's all these different third-party elements. So, all of that needs to be considered,
35:56 and when you don't, you know, cuz the structure, I guess in my view, determines how risk is shared, how the investors are protected, and how wealth ultimately flows through as an investment.
36:07 >> It's a great point, John. And to to piggyback on that, and I talk to people a lot about this, whether I'm talking to a investor or coaching, or whatever it is, hey, you need to know where you are in that structure, because you may think you're here, but you're actually down here. So, you know, understanding that structure, you know, we love to put out organizational charts on how things are connected to the property and where you sit. So, you actually know, right? Going in on paper what things look like. You know, Kevin, if I were to wrap this up in my mind and looking at today's world of of what things are doing is that um you just got to be a little more conservative and you've got to look at
36:43 these deals and investments with more of a conservative eye given where the economy is, but not be afraid, right? Don't let it scare you to the point where you throw out all your foundational analysis and due diligence that you do. Stick to that and you get through these projects and if it's if it's a good deal, um tell me about it cuz I'll invest with you. And then um let's let's let's jump on the train and and get it rolling so you can you can see your money working. You can see good results.
37:14 >> Well, I'm going to take I'm going to exercise host privilege by by uh giving three quick thoughts here before we wrap up wrap up. One is I don't know that we necessarily um need to be more conservative per se, but I think we need to look at investments more critically than maybe we did in the past because the the the price for a mistake is probably higher now than it was in an ultra-low interest rate environment. And so, it's important to really dig in. So, that's number one. Um number two, I think that the the most um
37:51 the best compliment I ever received in my life was when I was uh a chaplain in the Navy. I was working for a Marine Corps Colonel. And uh at the end of my tour, um you have what's called an award ceremony and I was getting my end-of-tour award. I was getting my gold star for showing up every day. Um and the Colonel said to me in front of all my colleagues, he said, "Chaplain Dimmel, you speak truth to power and I appreciate that. We want to be investing with people who will speak
38:26 truth to power, whether it's the sponsor, whether it's the our our advisors.
38:32 >> Yeah.
38:33 >> To to to get along, to go along, that is a disaster. If everything we hear is something we want to hear, we're we're we're we're we're not getting what we call in Hebrew the emes, the truth. And we we we need to hear the truth. So, people they don't need to club us with the truth, but they need to speak the truth to us. And the final thing is, and this this I think piggybacks on what both you gentlemen were saying, is if we're going to be investing, I I know this sounds a little corny, we got to put on our big boy pants. In the end, I think the responsibility is ours. Yes, there are circumstances
39:09 where we get cheated, where despite all of our due diligence, there was, you know, a very clever operator who cheated us. Those certainly happen. But in the end, we have to assess the risk, knowing that it's there, and we have to accept it. And if the worst case happens, we have to accept that with with maturity and say, "Okay, this is why I make money on the other investments, because sometimes investments go south and I don't make money on this particular one. And it's And I have to share in the responsibility for that." That is That
39:45 is For me, I know that those are those are the clients that I work with. Those are the kinds of investors um and sponsors with whom I want to work, so that it's not a matter of pointing fingers. When it gets to the point of it's your fault, it's your fault, now for sure the whole thing's going to fall apart. If something happens, I want people saying, "Okay, how do we How are we going to fix this?"
40:09 >> That's right.
40:10 >> Everybody accepts their share of the responsibility. Let's get together and let's fix it. And And the end, that is really from my perspective the only true hedge to risk is that the people in the investment are committed to doing whatever they can possibly do to make an investment go right.
40:30 >> Wisely stated, my friend.
40:32 >> I love it.
40:32 >> I love it.
40:34 >> So, thank you, gentlemen, for joining me. I really appreciate it. For all of you out there watching this, thank you for watching. Uh just real quickly again, if if you didn't tune in right at the beginning, uh this is the fifth episode of our mini-series Money in Motion. You can watch pre- previous episodes on YouTube, the way to uh youtube.com/thewaytowowshow. You can also see it on Spotify and Apple Podcast. Uh if you look right down below you, you will see show notes, links to our social media. If you have comments, criticisms, questions, our email
41:09 addresses have been scrolling across the bottom of the screen. Hopefully, you jotted them down. Feel free to reach out to us. If you think we're crazy, prove it. Come on. Prove [laughter] it. And if you can do it, we will talk about it on next week's episode. Episodes drop every uh well, not every Thursday, but they'll be dropping for another couple of weeks on uh sorry, not Thursday, on Wednesday at 10:00 a.m. Pacific time, 1:00 p.m. Eastern time, of course, an hour in for Central and Mountain. So, again, gentlemen, thank you so much. For
41:44 all of you watching this, thank you for joining us. And that just leaves me to say, I hope you have a wonderful rest of the day. Courage at all times, my friends, and remember, Marie darling, you are my bell.