Latest / Real Investor Radio Podcast / Ep 85 | Turnkey Properties, White Collar Crime, Property Management, Syndications with Ron Philipps

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Ep 85 | Turnkey Properties, White Collar Crime, Property Management, Syndications with Ron Philipps · Real Investor Radio Podcast

• Craig Fuhr (00:13) No repercussions. All right, let's roll. Hey, welcome back everyone to real investor radio. I'm Craig fewer joined again by the great Jack Bavier hair is lush today. If you're not watching on YouTube, you're really missing out. And I don't know what's going on with our show guests lately, Jack, but it appears to be always you in the middle with the most amazing head of hair ever. And then like you got two guys beside just like a rose between two thorns. like, you know, Rod and I look like we we both stepped out of the same ad. So it's. Ron Phillips (00:49) Mike my grandpa my grandpa told me the grass doesn't grow on a busy street. I don't know what's going on with Jack. Craig Fuhr (00:54) That's so true. Jack BeVier (00:55) Hahaha! Craig Fuhr (00:57) We could end the episode right there. That's prime content, indeed. So Jack, we've got Ron Phillips here with us again today. Ron, I don't know if you recall Jack, but Ron was, think, our very first guests. Our very first guest. And so we feel like, Ron, that we've kind of ironed out some of the hurdles. It's not that there were ever any, but it's good to have you back. Jack BeVier (01:01) sage advice. Yeah, number one, baby. Craig Fuhr (01:22) And yeah, man, I was just thinking last night about about how I know Ron Ron and I met probably about four years ago now. We were in a mastermind together. And Ron was always like the guy that was like, never really said much. But when he did, people were probably leaning in and listening. And so I always enjoyed that about him. And it was great to get to know Ron. Haven't talked to you in a while. So it's great to see you again. and it's great to have you back to talk about the exciting stuff that you're working on. We had a chance to talk for a few minutes before the show today. So dude, welcome to the show. It's just, it's great to see you. Ron Phillips (02:02) Thank you, man. Yeah, I'm excited to be here. And not to belabor the hair thing, but Jack didn't have hair like when we did the other show. So, what a difference some time makes. Craig Fuhr (02:13) It is lit. Jack BeVier (02:13) You were here eight inches ago. Ron Phillips (02:15) That's right. That's right. Craig Fuhr (02:17) Nice. so Ron, for the listeners who may not have caught the very, very initial episodes, we're up to almost a hundred now. Can you fill them in on, sort of what you've done over your career? It's, it's fascinating what, where you started damn near, you know, ended and then resurrected yourself into what you are and what you're doing today, which is so fascinating. so yeah, if you could just fill folks in briefly, yeah, give us the give us the background story. Ron Phillips (02:48) Yeah, so all the way back like 25 years ago now, is, gosh, that makes me really old. It's your seems like anyway, 25 years ago, when I started real estate, I did what almost everybody does. I started, you know, wholesaling and flipping houses and then quickly moved into rehabbing houses. We did that for a while in the early 2000s. And, and then there was some fraud in Kansas city around 2004 and, we were selling mostly HUD back then. HUD changed their guidelines and, we had to have a year on title. So we had to season the properties for, for a year before we could sell them, which de facto put us out of business because we couldn't, we couldn't keep doing what we were doing. so we had to, we had to pivot. And, um, you know, I pivoted hard. We, pivoted into rental properties and then I started hanging out with, with landlords and people who own rental properties and quickly realized that that was actually a pretty good, good deal. I mean, that's, that's a pretty good gig. I also realized that there's a whole bunch of people who wanted to do it. Um, I met a guy who was selling to people in California at time I was living in Kansas city and, um, these people were buying from out of state and holding these properties. In the beginning, I didn't understand. But I quickly figured out this is a pretty good deal. Since 2005, when I met him, I've been helping people buy real estate, buy investment property all over the country. We opened up tons of different markets and sold literally thousands of properties in that time. And during that time, we built that business up. We had a I don't know, nasty partnership dissolution. and then I started all over again in, 2012 and, yeah, it's been a, been a fun ride. Craig Fuhr (04:42) So you gave the bullet point version of it back in. So when did you start? When did you start? Was it 2005? You said that you started basically finding turnkey properties for better landlords, right? Ron Phillips (04:51) Hmm Yeah. And, um, that was back before they were called turnkey. So, uh, yeah, back when we just called them rental properties, you know, that's right. That's a country song. I should, I should write that and, uh, have you sing it. want to, um, yeah. Uh, I mean, we sold in 2005, we sold, I think 250 properties in Kansas city alone. And then we opened up Omaha and Oklahoma city and, Craig Fuhr (05:11) Yeah, you return key before turnkey was cool, man. I just did. Jack BeVier (05:29) Wow. Ron Phillips (05:33) just kept growing. and then 2008 happened and, we had to pivot again. we moved pretty heavy into land and, buying properties at auction. and then we were, we were selling these properties after we bought them at auction, marking them up like idiots. We should have kept every freaking house we ever bought. I should have raised money. And I just didn't know what I didn't know at the time. So, I mean, I thought it was, I thought we were killing it, man. We were selling these houses that we were buying in Florida for $35,000 at auction. Just to give you a good, the people who didn't live through this, there were 200 properties in Lee County, one county a day going to auction. Craig Fuhr (06:11) Yeah, that's it. Ha! Ron Phillips (06:21) I mean, the scope of the foreclosure, people today they talk about, this is like 2008. No, no. I don't think anybody has any conception of what 2008 was unless you actually lived through it. There were so many properties going to auction every day, you couldn't go actually see the properties. That's how many properties. You had to stake out a piece of the county and like kind of own it. You couldn't do the whole thing. It's insane how many properties. Craig Fuhr (06:36) something. Jack BeVier (06:42) Mm-hmm. Ron Phillips (06:50) Anyway, we were buying these things for like brand new never lived in houses for 35 grand selling them for 75 grand. You know, they were renting for 850. Unbelievable. I mean, it's just unbelievable. Craig Fuhr (07:01) Jack, were you and Fred sort of doing the same at that time or just really basically trying to buy low and renovate and then hold on to them? Jack BeVier (07:10) Yeah, no, we were doing some of the same in Baltimore in 2009, 10, 11, we started selling turnkeys. it was basically, turnkeys were the only thing that we could do to create revenue because the market was so thin on the retail side, the homeowner side that like, it was, you know, it just wasn't very predictable in a lot of markets. And a whole chunk of the market was just completely not homeowner sale-able. So, Yeah, man. We sold a whole bunch of like nine cap houses to, uh, to out of town investors that we managed for. Um, I mean, we didn't do nearly the same scale. We might've done like 150, like over the course of a couple of years, but at the time that was like the, that was the, you know, that was the opportunity was that, I can, I can make money selling you an eight and a half nine cap, you know? Um, so, you know, selling you a property at 65 times monthly rent, you know, that we were buying them at 50 times. That was the math. was. We were buying it, if I was buying everything at 50 times monthly rent, selling it for 65 to 70 times monthly rent. And that's how we kept the lights on. That was what made payroll. Craig Fuhr (08:15) Ron, there was a minute where I was buying houses in Indianapolis and you would basically just show up to the to courthouse to I think it was like the sheriff's department or something like that. And there was a big whiteboard. It was like completely like 1970 whiteboard, all the addresses what the starting bid was, and they gave you like three hours go out, check out as many as you can, and then come back and the bidding starts when you get back. And it was a very interesting time to be finding houses out there. What wasn't the problem back then though, you basically, you had to find people with cash because banks weren't really like talking to real estate investors at that point. So what did that look like? Ron Phillips (08:53) Yeah. Yeah. You had to have cash. and you know, the, people who had it, there was, there was another guy who bought and literally like the, the, the auction room was, was small. They had to move it several times because it kept growing. How many people were in this auction room? Most of the people who were there were people who were trying to buy their own house and you know, they would outbid on the property that they wanted, but there was a dude that like had his own spot up in the corner. And he had some attorney's money and, and he literally bought everything he wanted. So once he spent himself out, then the rest of us would, would buy. He would, because he would just bid up, he would just bid you out. And I'm, mean, and yeah. So, you know, it was funny. He like had no hair. think he had like a scar on his head over here. I still, never forget this dude. He just like, he would just, he just bought everything and then he would, and then he would just leave. Craig Fuhr (09:35) that same guy was in Indianapolis. Like there was one of those guys in every room. Ron Phillips (09:50) Once he ran out of money, he would just leave we didn't even have like a whiteboard. They would just get up like there were so many attorneys. The attorney would go read and then. everybody would bid and then that attorney would do his list and then the next attorney would show up and they would do their list. And, it was so much fun. That was so much fun. Jack BeVier (10:07) did, we did Atlanta from 2011 to 2014. And that was really fun. I really enjoyed that. And we'd, and it was 100%. You had to show up with 100 % and certified funds run your own title beforehand. So you were getting, know, you were getting whatever title they were selling, and you had to put up 100 % of the money in certified funds. So it was like, big boy stakes, I'm used to like 10 % of the statement of debt. And I also and I always get clear title, but up in Maryland. So this was like going from You know, this was like going from high school football to the NFL and it's on one Tuesday for the entire month. So literally the entire, yeah, an entire months of foreclosures on one day. So you can imagine it's just a madhouse and it was Georgia. was Atlanta. You know, it was like the most bank, the most bank failures in the country spot, you know? Um, and they're just open this stuff that sold for like, you know, $180,000 open it for 18. Ron Phillips (10:44) wow. Yeah, it's huge. Yeah. Jack BeVier (11:03) And like, can I get 19 and everyone grimaces and like, don't know 19 five. Ron Phillips (11:09) 19, the replacement, the, and then here's the thing. Like I would go and present to try to sell these things for, whatever, $75, $90,000. These, these brand new houses and people like, yeah, but Florida is a horrible market. I'm like, look, look, the replacement cost, like to build this property would cost you 180 to $200,000. Jack BeVier (11:12) We can see. Right. Right. Who wants to buy in Atlanta? We built too many houses. Ron Phillips (11:35) It's half price of cost you're buying this for. And it's like a 15 cap. What is your problem? Like I don't understand where the disconnect is. Like we were begging people to buy properties back then. The people who bought back then absolutely roped it. I mean roped it. And many of them are still our clients today. Jack BeVier (11:42) Yeah. Yeah. We got to. Craig Fuhr (11:53) roped it. Indeed. Ron Phillips (12:00) Because we made them so much money so much Jack BeVier (12:02) Yeah. Yeah. We, um, we started, uh, one of the guys, sold a bunch of turnkeys to just started selling them off. You know, it's been whatever it's been 17 years and, um, you know, 16, 17 years and he just started selling them off and he's, and he'll, he'll come in and be like, Hey, guess what I just sold this one for. And, uh, and it's like, you know, five X what we sold it for him for. Yeah. Yeah. Like you're like, yeah, yeah, we know. know. Yeah. I remember. Yeah. Craig Fuhr (12:19) haha Ron Phillips (12:22) Stop it. Just stop it. Yeah. We don't need any more salt. Thank you very much. Craig Fuhr (12:33) Soon Jack BeVier (12:33) We, Craig Fuhr (12:33) we're Jack BeVier (12:33) but till I just to illustrate like how difficult it was at the time, like we went around. we went and we had never raised a fund before. So we raised this little, we raised this little $5 million fund. And that to us, that was like the, you it was a huge fund for us, you know, raising $5 million. and, and so we go around and, know, and we're doing our little road show amongst the people that we can call and trying to use the, you know, the reputation and the track record to be like, Hey, you know, we're know what we're doing. I know it's a new market, but like, check out these pictures. How much do you think this one was? Right. And they just trying to. pull people off the sidelines and man, we got, we got shot down and shot down and shot down and sat with a bunch of lawyers. One time I remember, and they had a bunch of money. So we were kind of excited about that. We kind of had a personal and we were like, ah, this could be a couple of million bucks right here. And they were like, you know what? You should really get into real estate education. You guys like really present well. And I just, you know, real estate's not good right now. You really should think about it. They were just like patting us on the head, you know, with this condescending tone and telling us that like, Ron Phillips (13:27) Real estate's not good. Jack BeVier (13:28) that, you I think you guys would present really well and teach people how to get involved in this, you know? And we were like, these motherfuckers, like... Ron Phillips (13:37) Yeah, you know, I love this, this real estate's not good right now thing because it doesn't matter what the market is doing. Someone, the majority of the people are gonna be like, yeah, real estate's not good right now. It's not, it's not a good time to buy. Which I, I, I'm the guy who's like real estate's all, it's always a good time. It's always a good time to buy real estate. Just don't buy it wrong and you're fine. You know, we're, we will probably never see. Jack BeVier (14:00) Mm-hmm. Ron Phillips (14:04) another to like everybody's been waiting for 2008 to happen again. People have been prognosticating about it since 2018. In all in. and then when COVID hit all like it all of the groups got together like my gosh man like in six months, the world's gonna you know implode and it's gonna be 2008 all over again and we're gonna mop it up and whatever I'm sitting on these calls I'm like Based on what is that going to happen? know, and we're, you know, we're there. like every single year, 2019, 2020, 2021, 2022, 2023, 2024, and now 2025. The market's going to crash. The market's going to crash. The market's going to crash. The market's going to crash. Okay. I mean, at some point we're going to have a little correction, but 2008 we will not have. It is, it is not set up for that right now. And most of these people weren't even in real estate. Most of them were in high school. when, you know, 2008 happened, they don't even know what happened. Craig Fuhr (15:05) Ron, two questions that I, so could you have ever predicted the meteoric rise from like 2013 to now? Would you have after living through 2008, were you bullish on the sort of epic rise in values that we would see over that time? Ron Phillips (15:27) Yeah, knew it was like it's like a stock market when the stock market went down to like six, whatever it was. Well, you know, it's not going to stay at six. It's it's going to go. I mean, at the bottom bottom that it's been forever. It's definitely going to go up. I would have in 2008, you know, I would have assumed we would have had some kind of a slowing or a correction in like 10 years. But the problem is people don't realize the government got involved after the crash. They completely exacerbated the crash. They elongated it because of things that they did. You know, they forced the banks to dump properties all over the country in tons of markets where there really wasn't a problem because the problem was the mortgages. It was the insolvency of the banks and the mortgage-backed securities. It really wasn't the properties nationwide. It was the properties in certain markets for sure where they were overbuilt. But there are markets that weren't overbuilt that got destroyed. And it was because the banks were dumping things at 50 cents on the dollar. And then right after they did that, they changed the guidelines on appraisals. So now you can only use, you can't use cost approach anymore for loans. You can only use comps and they can't, they wouldn't even let them adjust the comps for a foreclosure. So now everything that hit the market in, in like in Kansas city where it really wasn't overbuilt, everything reset at like 50, 60 cents on the dollar. And so when you reset like that, and then, and then the appreciation has a real hard time actually coming back. Jack BeVier (17:04) . Ron Phillips (17:14) in those markets because of the regulations that they put in place and that scared the hell out of the appraisers. It was really hard. You couldn't even get new construction even going until like 2014, 2013, 2014 because the builders couldn't build because they were comping them at all of these ridiculous comps. The government screwed things up really bad for five, six, seven years. Jack BeVier (17:40) You know what I missed? I missed that by 2000. I thought that by 1617 things were like steadying out. and we would get it. We were, hitting a new equilibrium and like the world was going to be like kind of normal again. And then what I missed is rents going up. Like they did, like they just took off and I didn't see it coming. And we sold a bunch of stuff back in that, back in that period in that 15 timeframe and Craig Fuhr (17:40) Could you? Go ahead Jack. Jack BeVier (18:05) God, worst decision ever. Like I wasn't paying enough attention. I guess I wasn't paying enough attention to something going on macro wise. I didn't realize my until like three years later. So I never like actually went back to look and figure out like, Hey, how did you screw that up? I should do that. cause I'm still not quite sure how I missed that, but I did. Ron Phillips (18:21) Well, think that the thing that people weren't looking at, right? When I was doing presentations, I think starting in 2013, 2014, you actually take a look at the construction numbers. Like they fell off a cliff in 2009, right? Because, Jack BeVier (18:41) Yeah. Maybe it was just that. Yeah. Maybe if I'd been buying John Burns research, I would have held onto those things and been a lot richer for it. Ron Phillips (18:50) I mean, if you actually look at the trough, it is the deepest, longest running trough for construction ever in the history of our country. is an astronomical number because to maintain equilibrium, need between one and 1.5 million, depending on who you ask, units. And we were down like 400,000, you know, maybe 500,000 forever. It was years and years and years. Jack BeVier (18:56) of construction permits. Mm-hmm. Ron Phillips (19:20) Only in the markets where it was overbuilt did they have a glut of homes. They treated the entire country, the banks and the government like we had a glut of homes everywhere and we didn't. And so there's not enough properties. Then we finally started building properties. We couldn't build them fast enough because it takes a little while to really ramp that up. And then, like you said, right about the time when we actually started to get some equilibrium and like things were starting to be like they were supposed to, then we have COVID. Jack BeVier (19:39) Land development, yeah. Yeah. Ron Phillips (19:49) and COVID, which no, yeah, Jack BeVier (19:49) And then we just printed a shit ton of money. Yeah. Ron Phillips (19:52) yeah. And we still didn't have enough houses, which created this massive problem. Yeah, nobody could have seen that coming, but. Jack BeVier (19:58) Yeah. Let me, let me, hit you from left field with a related concept, but, I might draw the same analogy to what's happening in office right now, because we are not building new office buildings, right? No office buildings have been built since 2020 and we, and nobody's even thinking about starting it now is office in 2030 going to be like, you know, if you're buying class a right now, you know, cause there's certain stuff that's just like, depreciating and becoming, you know, becoming undesirable, right? Just cause it's getting older and older and older. But like, is, know, buying the 2019 vintage office building going to be the equivalent thing? Because for 10 years we built no office buildings and no one wants to be in the seventies and eighties and early nineties built stuff. But if you're, know, but you got to know you own an office building in 2019. That's the prettiest girl at the dance in 2030 question mark. Ron Phillips (20:53) Yeah, it could be. It depends on what happens with the resetting of all of these loans. You know, because I haven't seen this massive drop in price point. And I don't think we're going to see that unless the banks have to start dumping assets. Like, but Jack BeVier (21:12) Mm-hmm. Ron Phillips (21:15) I don't think on the commercial side and I, and I don't think on the, residential side that the banks are in a position where they are going to be forced to have to dump a whole bunch of assets. And so. Jack BeVier (21:26) I think they've been, I think they've been conservative for a long time. think bank balance sheets are more, are stronger than they have been certainly for the next three years. They're going to be, have a very friendly environment from a regulatory perspective. And I haven't, I haven't seen them doing stupid lending. you know, I haven't seen them being aggressive. They've been like the conservative guy in the room. and if anything, people are just going to banks out of like, you know, muscle memory of, yeah, that's where the money is the banks, but like, Ron Phillips (21:40) No. Jack BeVier (21:51) private credit options have been much more aggressive for a number of years right now. So I don't see a buildup of like risk on bank balance sheets in my day to day. Ron Phillips (21:59) I don't either. I, I have a hard time. Um, unless there's a reset of the price, like there was, you know, it won't be, it probably won't be as bad as 2008 for residential, but unless there's a resetting of the price point. You know, the cap rates have to change in order for there to be, you know, any real play there. And I haven't seen that happen, you know, like, and there is a movement back to the office building. don't know how big of a movement it is, but there is a movement back to it. you know, you see this with the, with the federal government right now, right? Where Trump is telling everybody, get your butt back to work, go to the office and do your work. And I think there's several companies who doing that too. I don't know what kind of scope that is. I don't know how to really... Craig Fuhr (22:44) Yeah. Jack BeVier (22:47) Yeah, quantify that. Yeah. Ron Phillips (22:48) Yeah, so Craig Fuhr (22:49) Run. Ron Phillips (22:50) I don't know, man. It could be. Craig Fuhr (22:52) Ron take people back to sort of the hysteria that you saw when you would, you know, do a presentation. You know, you're looking, you're looking to, you know, find turnkey buyers, you have properties available. And I know at times you were you weren't you weren't the only one in the room doing a you know, a presentation like that. Give us give us a really great story about what it was like. Ron Phillips (23:11) Yeah. Craig Fuhr (23:15) sort of back in the heyday and frankly, and then and then and then I think all of us all of the people that were investing back then you just knew that like, hey, man, something's coming like it's 2007 it can't it can't, you know, like there's people in line waiting for condos, you know, before they're even built and then selling their selling their option to buy the condo to the back of the line. And so Ron Phillips (23:27) Yeah. Yeah, they were flipping them before they were even done. I mean, it's. Craig Fuhr (23:40) Like talk about, give us a story on that. And then I really want to kind of juxtapose that with what you saw over the last several years in B2R and like multifamily and, obviously syndications as well. So, yeah. Ron Phillips (23:54) Yes, I mean, back then, people, people, again, people think we're in 2008. We are not in 2008. In 2008, I I would present to groups out West and These people were using home equity lines of credit. Yes, like, you know, two, 300, 400 people all there to buy. This was a buying event. It wasn't an educational event. You know, like we have today, this wasn't an educational event. Nobody paid to be there. They literally came there to buy property. Out in the hallways, like, you know, where they have vendors that like support what you're doing. It was vendors. Craig Fuhr (24:10) It's like a ballroom setting, right? so. Ron Phillips (24:33) in areas like selling properties. That's what this was. Like, so we had a booth. We had a booth. We had brought like 50 properties from Kansas City. Kansas City was cashflow market, but it was boring as far as appreciation goes. It was like a 4 % at the time, I think, 4, maybe 5%, which was boring, right? Because there were areas literally doing 20 routes, like over and over, like 20, 20, 20. It was insane. Craig Fuhr (24:36) Just taking checks. Ron Phillips (25:02) And I remember I did a presentation one day. I've told this story before. don't know if I did last time here, but, I did a great PowerPoint presentation, you know, almost everybody that came there was kind of dressed up. You know, the, the, guy that was running the event wanted us all to be dressed up, you know, and, and present. Well, do your PowerPoint presentation. Craig Fuhr (25:16) For the listeners, Ron's not a big suit guy, so he put on a suit and really put a sharp presentation together, so yeah. Ron Phillips (25:22) Yeah, man. The next guy comes up. He didn't have a slide deck. Like the guy told us we had to bring a slide deck, right? He didn't have a slide deck. You know, so I got done. Nobody gets up. You I do this, you know, you should have some cash flow. Craig Fuhr (25:38) Iran's actually teaching people what a good investment looks like. Ron Phillips (25:41) Yeah. So this dude, this dude gets up and he's in Tommy, Bahama shorts, like shirt unbuttoned, like down to his navel, you know, gold chain, flip flops. And he gets up there obviously from Florida, right? Nothing against Florida, but, but the dude, this was, you know, I guess not business casual. This is like business attire in Florida. and he, he says appreciation. Jack BeVier (26:00) Florida Florida man gets in front of the room. Yeah. Ron Phillips (26:09) appreciation appreciation. Basically what everything that that dude just said sucks. He put the microphone down and I don't know how many people got up like just mob of people followed this dude out to his booth. Jack BeVier (26:17) you Craig Fuhr (26:17) Yeah. Ron Phillips (26:25) I wasn't even really out of the room before the dude was done. So I watched this happen. They mob his booth. They're trying to get like there's he doesn't have enough properties to supply the mob trying to get properties. Now my booth is empty down the way. But people are literally like wadding up checks for their security deposit and throwing them over people to try to get properties because they couldn't get up to the front to get on the reservation list to be able to get one of these properties that's not built yet. Right. Not going to be built probably for eight months and most likely never got built. Let's just be honest. Those people probably spent $300,000 on a slab. and that happened all over Florida. So The craze that we saw after COVID pales in comparison to what was going on in 2007. So do you want to know why things collapsed so hard in Vegas, Phoenix, Florida, know, places like that? That's why. They were overbuilt, almost, I don't even remember what the percentage, but the percentage was ridiculous how many investment properties were being purchased. These people were buying them, they were going to then sell them. to pay back their home equity line or cash out refinance them to pay the negative cashflow payment on their negative amortization loan that they got with no income, no in and no documentation. It was insanity. 100 % no income, no asset loans, negatively amortizing. Craig Fuhr (28:10) on investment properties. Ron Phillips (28:12) I mean, unbelievable. And we wondered why we had a crisis. There you have it. You couple that with subprime loans and I mean, almost none of the mortgage-backed securities were worth anything. It was a joke. So. Craig Fuhr (28:29) So let's pivot to some of your thoughts on syndications over the past several years and sort of where we find ourselves today with some of that. I know you've been often, you can find Ron on Facebook and sometimes he has some really silly posts on sort of what he's seeing in the market and has seen in the market. I was being kind. Ron Phillips (28:47) I don't know if salient is what I would use, the, angrily salient maybe. Craig Fuhr (28:52) Yeah, I mean, like the thing that I've always loved about you, man, is that you just tell it like it is. And, you know, there's there's really no fluff. It's just very straightforward. So I know you have some thoughts on what we've been seeing over the last several years with that. Ron Phillips (29:07) Yeah, I there are some great syndicators. There really are. the problem is trying to figure out which ones are great syndicators and which ones are masquerading as great syndicators. it is really hard to tell the difference. I mean, it's really hard until, until there's no covering that you are masquerading anymore. And at that point, you know, they usually have millions of people's dollars and they've lost them. Right. even the good ones today are doing capital calls. they're struggling with cashflow. I'm gonna tell you on one of my properties, my insurance in two years went from 37,000 to 68,500. Jack BeVier (29:55) So I got a question for you. What's your perspective on like, what's your perspective on, they victims? Like, what's the difference? Where are the lines between victims of the market? Because like you said, even great syndicators had their insurance double, right? Ron Phillips (29:55) I mean, you just. Yep, and taxes. Taxes have gone up dramatically too. Yep. Jack BeVier (30:12) Yeah. So like, where do you draw the line between victims of the market? I mean, how much can have been solved by good operations? Just roll your sleeve up in their show houses on Saturday and Sunday. Like don't let, know, just work until you don't let people lose the money that you took from them. Right. Like, cause there's, there's folks who are who, you know, when push comes to shove their work and nights and weekends and other ones who keep the blue suit on and are still posting on Instagram about their next deal. Right. And those are two different humans. and then just the, and then just the complete charlatan, who, know, who was just, you know, always selling snake oil and never knew what the hell they were doing. Ron Phillips (30:46) That's where I draw the line. Jack BeVier (30:53) That's the other line in the work ethic. Uh-huh. Ron Phillips (30:53) I don't find a whole lot of difference between the last two. And I'll tell you the reason because I'll tell you specifically where I draw the line. I draw the line with honesty. Look, if you screwed up, you're not the only one who screwed up because the market has, I mean, the market changed really fast. Now, if you didn't know what you were doing and you bought a, you know, an operating four and a half cap, you thought you were going to raise rents and you know, turning it into a five and a half cap and make, you know, millions and millions of dollars from people or from the market and give it back to people. I mean, you should have known better than that. Anybody should have known better than that, right? That's a person who just doesn't know what they're doing. Now, that even that person, when everything is going to hell, if they're at least honest about, hey, we screwed this up. We have a couple of choices, right? We can keep dumping money into this thing, or we can pull out or We can ride this thing out until the market gives us a gift. It's going to be a long run. We're in it for the long run with you guys. We're not going to let the asset go to hell. We're going to work this thing until it works out. That's a stand up human being, even if they screwed up the numbers, right? They might not have known what they were doing, but at least they're working weekends like you were talking about. The last two, people who are still like if you screwed up two or three deals really bad, and you went and got another deal in your suit or maybe your your shorts and your unbuttoned shirt standing with your in front of your Lambo. If you if you're going and still raising money and you didn't you you haven't fixed what you've screwed up. And you're counting on the next raise to fix what you screwed up. You're a piece of crap. And if you, worse yet, are the third guy who knows you screwed everything up, still hasn't told anybody you've screwed everything up, and you're raising money and co-mingling funds to keep everything afloat, then you're a piece of crap that should be in prison. Yeah. The only difference between the two pieces of crap is that one ought to be in prison, and the other one at least knows they shouldn't co-mingle funds. Jack BeVier (33:02) You're a fraudster. Ahem. Craig Fuhr (33:15) Jack, what went wrong there? Was it the fact that they're buying these things at insanely low cap rates, the performer that they're basing the rents on and sort of stabilization didn't work out, interest rates went up, maybe? What went wrong in a lot of these syndications? Jack BeVier (33:33) Yeah, yeah, all that. know, interest, yeah, they were buying based off of the spread to the current interest rates and then interest rates went up significantly. They were projecting because the money was easy to get. They were looking for deals, motivated to find deals, and then they created a story and backed the model, you know, start backed, backed into the IRR that would sell by changing the assumptions in the Excel spreadsheet, as opposed to objectively looking at reality and then seeing what the IRR actually Ron Phillips (34:00) Yelp. Jack BeVier (34:02) you know, they actually thought the IRR was going to be, I think a lot of people did that, right? It was amazing. Right? Like every multifamily syndication offering memorandum had a 20 % IRR uncanny. was unbelievable. It's amazing. Every, every deal on the, every deal on the market, every nothing's overpriced. Everything at the asking price, was still a 20 IRR crazy. and so that was just like, you know, manipulating Excel spreadsheets. And then a lot of, and then I, we, we, Ron Phillips (34:12) Somehow. Somehow. Jack BeVier (34:30) saw or stuff that I saw was, lot of folks didn't understand the concept of interest rate caps and, didn't hedge or like, you know, for when that expense, and so didn't, didn't manage their interest rate risk appropriately, took, you know, took full floating rate debt, you know, or projected that they were going to refi into IO lied about exit caps. you know, knew how the Excel model worked, but didn't understand how the Excel model translated to the real world, like how the real world actually affects the Excel model. And I just think they just, you know, they knew how to do Excel. They knew how to do math, but didn't know how to, didn't have a mental framework for how changes in the world could affect what those cell formulas meant. Craig Fuhr (35:03) Yeah. So one, I asked this question to both of you. Jack, I know you and Fred, you know, evaluated quite a few syndications, you know, a few, yeah. And then same for you, Ron. And so how many of those guys were actual real estate investors or just dudes with finance degrees that like knew a little bit about capital and, you know, could put on a good dog and pony? Like, what's your take on that? Like, I think I would like to think, Jack BeVier (35:24) and got into some shitty ones. Craig Fuhr (35:44) that the guys that were better operators who were trying to scale, you know, maybe they were a little bit more honest, but what's your take? Cause I know you guys know many, you know, what's your, what's your take on sort of the mix of the two? Ron Phillips (35:58) Yeah, I I think that, I think the people who are either actual operators or real estate investors that could grow into an operator. I think for the most part, they're, they fall into the category one that Jack was talking about, right? They're, they're still fighting the good fight because they believe in what they, what they bought. things have changed, but Real real estate investors are creative. Like they're trying to find solutions to this massive problem that they would find themselves in. Right. And I don't think that they got most of their numbers wrong. Like they didn't buy based on some ridiculous cap rate exit. But the market caught them. And those people can operate out of the market caught them. It's going to suck, but they can operate out of it. The other people went to a seminar. They don't have any idea what they're done. I think you were being generous telling them they had a finance degree. I don't think they had a finance degree. think they got a spreadsheet from the class they went to and they filled it out. That doesn't take a finance degree. Craig Fuhr (36:59) how to learn syndications in 48 hours and be an Excel jockey. Ron Phillips (37:04) Well, there was tons of people teaching syndications, then like thousands and thousands of people who don't know what the hell they're doing to go raise millions of dollars to do their first real estate deal for hell's sake. Jack BeVier (37:08) Yeah. Craig Fuhr (37:18) Yeah. Jack, what's your take on that question? Jack BeVier (37:21) Yeah, we tried to, I mean, I completely agree. Of course. we tried to, align ourselves with folks who had skin in the game and like, cause we didn't really have. And, know, in the raising money in the syndication context and you're putting a little bit of money to work, you know, you're not putting like huge chunks of money to work. you know, just the time frankly, to like really dig in and diligence, what this person's gonna, you know, what, what their chops are on the real estate side. what they're going to do when, when push comes to shove. We screwed that up. We spent less time. We spent too little time on that. Right. In retrospect, we spent too little time on that idea. We spent most of our time because it was easy or easier on alignment. Like how much money did they have in the deal themselves and what, what, how, what was their view of interest rates and like long and debt, long-term debt. We spend and like, we focused on those two things, which was better than nothing. but the market still hit everybody. and so like, we're okay. Like I'm not getting, I'm not getting goose egged on anything, but no one's coming close to hitting their pro forma. Right. and so, you know, how, you know, to do it over again, I completely agree with Ron. I would have spent much more, energy and time on like figuring out what the, you know, assessing what this guy was going to do when push came to shove. I avoided a ton of stuff that like really screwed up. So, but I'm still not like pat myself on the back with with respect to our decisions. Craig Fuhr (38:44) We prior to the, you know, hitting the record button today, we were talking about how it's just, you know, for, some of these nefarious guys, it just becomes like a shell game, right? So maybe you guys can touch on that quickly of like, you know, they're still out there raising capital, but the capital is not going towards the project that they're raising for. It's just kind of being, you know, filtered and co-mingled with the projects gone bad. Ron Phillips (38:54) Thanks. Craig Fuhr (39:08) And so what's it like? We were talking about what it's like to try to if you're an investor in one of those syndications, what it's like to try to get your money back when you get goose egg. Ron Phillips (39:18) here. Jack BeVier (39:19) Yeah, there's a, um, I don't know if you were in there, Ron, but there's this Facebook group called the, uh, I'll them a shout out. So I think it's called, I think it's called like the five Oh six investor group or something like that. Something to that effect. Um, referencing the five, you know, five Oh six C five or six D. Um, and, uh, it's a bunch and they have like a screening process to let you in there. And then it's a private forum and they talk about deals and people are comparing notes and they're very like, you know, very locked down. No, no sponsors allowed. So if you're a sponsor and you're like, Oh my God, that's going to be a great place to, to raise money. Yeah. They see you coming. Don't even bother there. You know, they're going to keep you out. Um, but if you're an LP investor, it's a really interesting place because it's a bunch of other LP investors who were talking about the deals that they, um, are in and what's going on with them and the, you know, investor relations communications that they're getting and are they, how are they doing versus pro forma? Um, so there's at least a forum to kind of compare this. private market, all these private market investments, right? It's far from comprehensive only like, you know, mostly it's like the bigger syndicators that are, that have like, you know, hundreds of LPs are the ones, those are the deals that are being discussed on there. but you see a lot of, you guys see a lot of frustrated people going through the stages of grief on there. because there's a lot of deals that have gone sideways. Ron Phillips (40:39) Yeah. I can tell you that the, the trying to get money back from one of the charlatan guys, that's, that's tough. mean, that's, those are the guys who, so I, know, one of these guys, and I know several of them now. but one of them, I like to think most of these people don't start out thinking, hey, I'm going to be a complete douchebag here and I'm just going to raise much money and just in essence, steal it. That's, what I'm going to do. I think they get it out and over their skis and because they're prideful and they have a public persona, they can't let anyone know they're failing. And so because of that, they do things behind the scenes that they, I, and initially I think Maybe these people are just ignorant. Maybe they don't know that you can't commingle funds, that you can't raise money from this syndication over here and then put it in for other syndications that you have and keep them all afloat. Maybe they just don't realize you can do that. Then once the lawsuit happens and discovery happens and you start to look, you realize, no, they actually planned on this. Because they have all of these accounts, they're moving money all over the freaking place. They're doing it purposefully. They're shutting this account down over here, opening up another one over here in another name. They have like for mine, like, you know, and just for my business, like just take any business, right? Because a syndication in essence is just a business that people have invested in. Right? How many, how many bank accounts do you need for one business. I mean, I have two. have, you know, I have an operating an account, then I have account where I kind of park money. And, you know, maybe depending on the business that you have, maybe you have a couple of other ones, right? Craig Fuhr (42:22) You tell us, Ron, how many do you need? Jack BeVier (42:37) Maybe you an escrow account or a security deposit account, something like that. Ron Phillips (42:39) Yeah, depending on what you're doing, right? But if you're running a syndication on an apartment building, like, do you need 10 accounts? And should those accounts be, you know, staggered by months when you open them up? And why would you have tiny little amounts of money moving between all of these different accounts? and then why would those accounts be moving money into other accounts of different names of different companies. Like that, that shouldn't happen. Right. So then you start to realize that at some point they cross the Rubicon. They didn't maybe start out saying, I want to be a douchebag criminal. But at some point they crossed the Rubicon and they're a full bore criminal. problem is they still don't look like a criminal. And so people can't tell that they are. That's the problem. Jack BeVier (43:32) Yeah. And like, and the white collar and the, the, you know, the amount of, the amount of energy that goes into white collar crime enforcement, in my opinion is like way lower than it should be. Like my, one of my favorite shows in the world is American greed. I love American greed because I love seeing these fuckers get their comeuppance. Right. And, and that's how the, that's how the story always ends there. And so like, I at least get my fix there, but like, dude, like the, you know, We lock away somebody for stealing a car, but you know, a $10,000 car, you know, because it's, grand theft auto, but the person who lost $150,000 of their, you know, their life savings who lost half of their 40 years of work, right. And they, and they had a half a million bucks saved up and they lose half of that to some criminal. That's really hard for the justice system to track down, like to Ron Phillips (44:18) Yeah. Jack BeVier (44:29) One, to prove that there is malicious intent. And then I just really don't think that we have the same level of like, you know, the consequences aren't as high, right? Like the white collar prison, the white collar crime prison experience is not the same as the drugs and assault. But I'm like, dude, I don't know, man. You wipe out 20 years of someone's work. To me, that's way worse than beating somebody up or trying to shoot them. I think that I'm straight to execution. You steal someone's net worth? I'm much harsher about that if I was a legislator, which of course I'll never get voted into office probably because of it. But guy, I think white collar crime is the fucking scum of the earth. Craig Fuhr (45:08) Hahaha! Ron Phillips (45:10) Yeah, I'm unelectable too. I agree, know, the deeper I go into, you know. I'm probably never gonna see the money. But on in most of the time in my business, you know, when it's, it's, it's an amount of money and you know, I talked to my wife and she's like, dude, you gotta like, you know, I go after him and you know, whatever. I'm like, it's not worth my time. It's not worth my energy. It's not worth the money. Problem is people know that they know it's not. Well, this time It's just the principle of the thing, man. I'm just, I'm a dog on a bone. If you, so if you're listening, he knows who he is. I'm not going away. I'm not going away. You, you, it's the wrong guy, the wrong guy. And I'm, going to the mattresses, man. So if I can't get to your money, I'll go drop all my discovery off at the FBI. Jack BeVier (45:52) Yeah. You I got one too. Ron Phillips (46:17) and screw you dude and and the Jack BeVier (46:20) I got one. Uh, I got one right now that like, they like, to your point, like if they don't, you know, if someone steals, someone steals five figures from you, there's kind of no justice, right? Like it costs too much to pursue somebody. Justice is too expensive in America to pursue a five figure issue. Six figures. You start to think about it, but still by the time you get to trial, you're probably, if you make an actual business decision and job cost your time, it's like low six figures. It's still like, That's kind of like the edge. You really got to get into like the high six figure, seven figures before like it is a, before it's the right business decision to actually pursue it. And then that process is going to take you years and you're poisoned, right? Like as the victim, you're poisoned the entire time because you're thinking about it. Your mental energy is there. The negative energy is there and it's going to, and you're going to carry it for years, right? So to go. to enter that process, you have to make a decision to like carry that negative energy meant, you know, negative mental energy for multiple years and it's poison, right? Like it's gonna make you live less, right? Like, you know, we're gonna die earlier because of carrying this angst, but I also can't wake up in the morning and look myself in the mirror without doing it. You know, like I just can't be me and not. Ron Phillips (47:38) Yes, someone has to, someone has to hold the line. And, um, you know, most of these people, like you're saying they're 50, a hundred thousand dollar investors. It's 10 % of their net worth. And, you know, some of these people are in like the, the, the, I'm not the only judgment. This guy has another guy that has got a judgment on him for 1.2 million. never going to see it. He'll never see that money. He's never going to get it. And I happen to know because I know several of the other investors, this guy has millions and millions of dollars. And I know what he's doing. And so because I know what he's doing, I just, I feel like I've got to do something. Like I can't let this guy just keep taking people's money. It's not right. Craig Fuhr (48:32) Jack, I begged Ron to name names, but he's way too classy for that. Ron Phillips (48:38) man, I have so many times. If you guys, if you guys follow my posts, I mean like I get this close. I get this close. You know, I'll drop friggin yeah, I'll drop big hints. People in the industry probably can pick up on the hints, but I'm just I hate those guys who get on and just rail on people. Because 90 % of the time. They don't even know the real story. Craig Fuhr (48:43) You do get so close to the alignment. Yeah. Ron Phillips (49:05) They just heard it from somebody else. And so they're just out there slapping stuff, you know, and I don't, that's a bad look. but, yeah, I may just start dropping links to, you know, public records, you know, just, just start throwing some links around, you know, Jack BeVier (49:18) lawsuits and yeah public records there yeah Craig Fuhr (49:20) There you go. There you go. Jack BeVier (49:26) Yeah, there's a fine line between fine line between torches interference and just talking shit. You know, I was the you got to walk it. got to walk it. Ron Phillips (49:34) Right? Yep. Yep. mean, listen, if, if, somebody is, um, I, because I think there's a lot of, um, I think there's a lot of smack talk for people who just, are hurting themselves and they're not doing anything nefarious. They just have people's money and they're trying to work it out. And I feel, I really feel bad for those people that made really bad mistakes. but the ones who were trying to work it out, doesn't do any good to be a Dick to those people. It doesn't. Right? So if you're an LP and you're in a deal and it's not going well, it, it serves no one. to be a jerk about it. However, once they cross the Rubicon, It's a different game. It's a completely different game. So, yeah. Craig Fuhr (50:26) Jack, why don't we tie this episode up with a bow Ron, can we get you for another one to talk about what you're doing today and some of the exciting stuff we were talking about before the podcast today? Got time? Awesome. Well, I meant like right after we finished this one to do another quick episode with you. You cool with that? Ron Phillips (50:35) Anytime, anytime, man. Yeah, sure. Yeah, I mean, if everybody's cool with me wearing the same shirt in another episode, I'll be down. Yeah. All right, cool. Craig Fuhr (50:47) Yeah, we're pretty easy when it comes to wardrobe. But so so Jack, and you run like, what's the state today of syndications? Are we still seeing the same volume? Are you? Ron, especially you know, like, the numbers just don't work. And people realize that now there's none. There's no LP capital on the sidelines waiting to be to jump into these things. What is it? Jack BeVier (51:03) No. Ron Phillips (51:04) Mm-mm. Yeah, the deals don't pencil very well. They haven't, but I think now the, the, the operators are now the sponsors. They're like, they've had their lunch eaten and the numbers haven't changed. Jack BeVier (51:16) Yes. Yeah. And then the, and the deals haven't come out where there are, they're not enough deal, not enough good deals have come out where there's like, you know, where it's interesting for that industry to get like regain momentum. So everybody who was in it is, is like licking their wounds and there's no new product anyway. That's like a great number. So, you know, from time to time, I think there's some friends, you know, from time to time, you'll see a friends and family deal happen, but, but the volume is down. Like, I don't know, very significantly. Craig Fuhr (51:55) I tell you what, why don't we end this one here excited to come back and talk about sort of your the RP capital and what your what you've pivoted into most recently, Ron, which I think is really exciting. And so that's the episode with Jack and Ron love. Thank you guys for listening once again. And we're going to jump right back on with a second episode of Real Investor Radio with Jack Bevere and Ron Phillips. See you on the next one.