Latest / The Academy Presents podcast / Building Wealth Through Passive Real Estate Investing with Charles LeMaire

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Building Wealth Through Passive Real Estate Investing with Charles LeMaire · The Academy Presents podcast

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  Did you know that 90 % of the world's millionaires
• 0:05
  invest in real estate? Well, I'm Angel with the
• 0:09
  Academy Presents Real Estate Investing Rocks
• 0:11
  and I'm here to help you if you want to go for
• 0:15
  your piece of that pie. Are you new? Are you
• 0:19
  new to this and you just don't know where to
• 0:20
  start? It's okay. Are you someone that has invested
• 0:25
  but you feel stuck? You feel like you've lost
• 0:27
  momentum? You don't know where to really head
• 0:30
  from here? Are you a seasoned real estate investor
• 0:33
  who is doing great but maybe you just want to
• 0:35
  hone a few skills here and there? This is the
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  place for you. The Academy Presents Real Estate
• 0:41
  Investing Rocks podcast will connect you with
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  industry experts so that you can save time, avoid
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  costly mistakes, and begin living the life you've
• 0:52
  dreamed of all through real estate investing.
• 0:56
  You're already taking the first step. just by
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  joining us here today. Hey guys, it's Angel and
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  you are here at the Spring REI Rocks Summit.
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  You know, it's been an amazing three days because
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  these are my favorite six days of the year because
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  we do this twice a year. Remember that we do
• 1:15
  have the live side too. If you want to join us
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  over there. The sneaky, stealthy, and least expensive
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  way to do so is through the VIP subscription.
• 1:23
  You'll get access to all of the sessions we have
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  ever done. This is our seventh one, so you're
• 1:27
  going to get like 425 hours of content, tons
• 1:31
  of information. And as long as you're a subscribing
• 1:33
  member, you get free access to everything we
• 1:35
  do live. So it's kind of a win -win -win situation,
• 1:38
  and I think it's a neat way to learn. So we're
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  going to go ahead and get going with our presentation,
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  because our presenter is Charles LeMaire, and he
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  is What is it you say? You're a serial passive
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  investor. That's right. He's been in like a bazillion
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  deals and has war stories and happy stories.
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  And, you know, Charles, I'm going to turn it
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  over to you because I just want to hear what
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  you have to say. Well, okay. And I would just
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  be clear at this moment in time, it is 70 deals
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  gotten into 70 and 37 of those who've sold. So
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  I guess we're holding 33. I don't think it's
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  closed yet. So just to be, you know, right on
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  the cusp and be accurate. Well, we're like one
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  10th of that. I think we have seven passive deals
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  going. Well, you know, but you're smarter than
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  I am. You do it as a GP. You make more money.
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  See, I'm, uh, we're, we're in seven deals passive.
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  We've got two active sites. A limited partner
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  can only make money on his money. A GP can make
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  money on other people's money. So there's a different
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  math involved in that thing. And so I congratulate
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  people. Of course, GPs also take risks that I
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  don't have to take. They put money in on deals.
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  And so they earn what they get on those, as long
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  as they're not taking too much. That was a paid
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  political announcement. I realized, and Angel
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  said it, I feel that I'm a serial passive investor.
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  If you kill three people, you're a serial murderer.
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  So I've done multiple deals, so I'm a serial
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  passive. It's sort of the same thing. And I do
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  it as an LP. LP stands for lazy person. And so
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  I just sit back and let other people do the work.
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  It's not a big deal. It's pretty easy. Let's
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  see, I got that. So there's a lot of jargon,
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  and if I use something, I'll try to define it
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  as I go. But if I forget, there's always, I guess,
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  a Q &A that you'll never get a chance to do.
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  So we'll let it go with that. I want you guys
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  to consider listening to this. I'm advertising
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  at this point, because you've got all those 400
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  and something hours to listen to, and you may
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  find me to be just as boring as a lout. But I've
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  done it a few times. If you're a beginner, I'm
• 3:46
  going to hit a lot of things that maybe you'll
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  want to look for. If you're a GP, you might want
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  to know what some of your investors think like.
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  I'm not sure I'm an average investor, but by
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  and large, a few of us might think this way.
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  And two, I'm hoping Angel pays me by the hour
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  number of people listening. So there's what I'm
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  after. All right. Gayla, my lovely bride and
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  I started this journey in 2010. It actually goes
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  back a year or two before that. She felt that
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  she wanted to be a real estate agent. She worked
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  for an airline on the ground. And so she was
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  going to retire at some point. She thought, well,
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  I'll be a real estate agent. And her dad had
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  done some real estate. And so she felt it was
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  in the blood. I don't know where DNA, which DNA
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  part, you know, the 23 and me and all that stuff
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  where it says real estate agent, but you know,
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  we won't go there. Anyway, she took all the classes,
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  got good grades, got hired, sold a couple of
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  houses and determined immediately that working
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  weekends, working nights, making cold calls was
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  not her. And so she dragged my butt down to a
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  real estate meeting. It's something, you know,
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  I can use the name Lifestyles Unlimited. They're
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  still around. They do a good job, I guess. And
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  we walked out on the first one because it seemed
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  like it was a scam, you know, and honest to God,
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  you know, my little arms were going off. So we
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  thought about it a while, went back. And if you've
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  ever watched the movie, The Sting, it's a great
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  old movie, a little slow for today's standards,
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  but you'll understand this if you've ever watched
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  it. I counted the number of people there. I divided
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  that number into the amount they were charging.
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  And I said, there's no way this would be a scam
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  because it's not worth it to them. So anyway,
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  we went. Oh, they had... a weekend class training.
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  It talked about single family. I wanted nothing
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  to do with single family. It sounded like too
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  much work. Then they talked about multifamily
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  and they talked about this thing cap rate. I'll
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  talk about that in a little bit. And so they
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  went on about this and I said, hey, that math
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  makes sense to me. And I like math. I am a retired
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  and recovery engineer. So it was good. We went
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  to the training, went through the whole thing.
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  It was great. learned a lot. So for the next
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  three or four months, because we joined the group,
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  they have all these tape training sessions, we
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  spent every night for dinner for like that three
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  or four month period watching these things. And
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  I watched them a few times, and Gayla watched
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  them typically once. I'm more number oriented,
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  she's more people oriented. And surprising she
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  got me, but I will not go there. So we went through
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  these things, and they were great. There's a
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  few of them I still remember, and they were just
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  really nice videos. But we learned what we could
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  learn. And I thought that anybody who does this
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  really ought to learn what you can. You got to
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  read some books. Don't don't, you know, sit there
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  forever reading books. You know, you got to make
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  a step. You got to jump off that cliff at some
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  point with the parachute, hopefully with the
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  parachute. But, you know, you do need to make
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  a step forward. But you do need to know what
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  you're doing. Let's see. All right. So I joined
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  that group clearly. And then the guy who was
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  teaching the class and you know, I like Brad
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  Sumrock, he's a very good instructor. He jumped
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  out on his own. We followed him. We're still
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  in his group. And I'm not advertising him per
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  se. I'm just trying to say that if you're going
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  to do this, you're going to have to get the knowledge
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  somewhere. And everybody in this thing has to
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  bring something to the party. So anyway, you've
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  got to get the knowledge. You can read books.
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  You can go to meetups. You can listen to podcasts.
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  You can do all these things in combinations thereof.
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  As a passive investor, you don't necessarily
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  have to be in a mentoring group. Make the jump
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  to GP and you're handling other people's money.
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  And I guess it comes down to if you want to start
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  off as a GP, do it without any other experience.
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  I hope you got a wealthy family, because at that
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  point, that's where you're probably going to
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  have to go because I can't imagine you know,
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  you got to ask your question who in their right
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  mind would invest with me? What am I bringing
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  to the party? So given that that statement's
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  in, I think a mentor is one of the many ways
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  you can do it as a GP. You know, you can co -sponsor
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  in a deal, have somebody, you know, bring you
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  up as a journeyman or, you know, what is it?
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  What do you go through? Yeah, you can do it as
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  an apprentice to become a journeyman. Yeah. So
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  anyway, there's multiple ways to get there, but
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  you'd better have somebody holding your hand
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  on the first deal. There's way many things you
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  can do wrong. We'll go back to the war stories
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  after a while. And They all cost a lot of money
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  when you're talking about multifamily. And it's
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  other people's money. So it's real embarrassing
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  to you and very annoying to me. That's enough
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  said on that one, I suppose. Let's see. All right.
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  It is a business when you buy a multifamily.
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  Now, I only do syndications. And so that's sort
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  of my focus. You can, in fact, learn how to do
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  this and buy your own place. I've known people
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  who've done that. And typically, you'll start
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  with something small. you'll flip it with a 1031,
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  you'll have direct ownership, and there's huge
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  advantages to that. If you in fact have plenty
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  of coin and you want to be the manager of this
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  thing, or at least the asset manager of this
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  thing, you'll typically still hire a third party
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  manager. And there's other things you can do.
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  I mean, you know, there's storage and all these
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  other things you can do in real estate. But,
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  you know, my focus has been multifamily because
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  it makes some sense to me. All right, so you're
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  proceeding down along these things, and you think,
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  well, let's see, I could buy it by myself. I
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  could get a partner and buy it. The two of us
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  could buy it together, but then we're limited
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  by our money and the bank. Or we could get three
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  people. And all of a sudden, you get to 50 people,
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  and maybe you should have been syndicating in
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  the first place. Well, syndication is where two
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  or three people put together the deal. They get
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  some passive people like me. I don't look good
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  here. I've got to look better. There we go. Now
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  I look good. So you get some passive people in
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  on the deal and it's now other people's money.
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  It's a sort of a legal thing. It's managed by
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  the SEC. I'll try to hit on that in a second.
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  So, you know, we're sharing the ownership. I'm
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  depending on a GP to make me money. And so I'm
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  relying on them. And that's pretty much the definition
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  of this syndication kind of concept. And the
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  deals vary over time. I mean, different people
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  set up different deals. I have seen where it
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  is a 50 -50 split. I walked backwards for a ways,
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  but when I heard that, I've seen it as low as
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  I do. I actually was in one with a 5 % split,
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  but that was early on. It was the guy's first
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  deal. And I remember not too long ago as 17,
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  an 83 -17 split. So, I mean, it's all over the
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  place depending on what a person's doing, their
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  experience level, what you believe they should
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  be worth, et cetera. All right, let's see here.
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  Let's see, it's a team sport when you do syndications.
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  There's a bunch of lawyers in on the thing. There's
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  brokers in on the thing, both money brokers and
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  land brokers. And when I talk lawyers, there's
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  land lawyers, property lawyers, and there's SEC
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  lawyers if you're doing a syndication. And they're
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  not cheap. And by the way, that's where that
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  GP is putting their money upfront. And they're
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  risking it because if the deal falls through,
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  it's not on my nickel, it's on their nickel.
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  So do realize that they take some chances out
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  there. Don't cut them short on that one. They
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  do put some effort into these things. And they
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  got to do all these reports back to you and this
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  other stuff too. OK. Now, on most deals, you
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  make money. It's just like a casino. Almost everybody
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  wins at the casino. OK, well, maybe not. I have
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  had one deal. I lost a small amount. And in all
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  the other deals, I've made money, a few of them
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  not enough, and in many of them, way too much.
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  And so we'll try to concentrate on talking about
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  all of those because I think it's only fair to
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  hear all the stories. I do have three important
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  points. Number one, and this is a hat tip to
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  home alone for those who remember the movie.
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  Let's see, multifamily real estate, all real
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  estate is non -liquid. You're not going to be
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  able to get, you know, go to there and write
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  a check on your investment account for your real
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  estate. Do not put money into these things unless
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  you've got money that can sit there for a long
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  period of time. And I'm talking five to six to
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  seven years. I'm in a opportunity zone. It is
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  going to be there for 10 years. So, you know,
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  it is not a short time, a short term, get my
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  money back right away. Some of them have been,
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  you know, it does happen. but it is not necessarily
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  what will happen each and every time. Hey guys,
• 12:10
  it's Angel. In case you didn't know, I put on
• 12:12
  a three -day virtual summit twice a year. It's
• 12:15
  the Real Estate Investing Rocks Summit and I've
• 12:18
  been hosting it since March of 2020. The next
• 12:20
  one, number 11, is March 25th, 26th, and 27th.
• 12:25
  Three full days, no cost to you. My friend Sandy
• 12:28
  is speaking and she's supported me at every single
• 12:31
  summit since I started. Joe Fairless, Cathy Fedke,
• 12:35
  a Tony Award winner, another friend who's raised
• 12:38
  literal millions from people met on LinkedIn.
• 12:41
  And the list goes on. You have to join our Mighty
• 12:44
  Networks community to gain access. And that link,
• 12:47
  it's in the show notes. It is vacation money
• 12:55
  when they make distributions. And by that, I'm
• 12:57
  saying that they'll tell you that they're going
• 12:58
  to pay you 5%. Well, that money is vacation money,
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  because if you're planning on eating on that
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  money, you're going on a diet in all likelihood.
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  Today, I've got three or four deals, and my money,
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  the money they would be paying me, is going to
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  the bank, because the interest rates went up.
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  It's life in the big city. It's the risk I take.
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  It's what I do. I fully expect to, when we sell
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  the place, recoup. as much as I can and make
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  a nice return. But distributions are not eating
• 13:27
  money. They are vacation money. You should treat
• 13:29
  them as such. Do not plan to eat on it. They'll
• 13:32
  always say, oh, it's the cash flow. Well, it's
• 13:35
  nice to have the cash flow, but it doesn't always
• 13:36
  happen. I will say today, and I believe I said
• 13:39
  that I had 33 going at this time, one of them
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  is paying me 32 % or 4 % or 5 % return cash on
• 13:48
  cash. It's a little hard to explain all that
• 13:50
  on the thing. And several of them are playing
• 13:52
  me zero. So on average, it's doing pretty good.
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  But it ain't eating money. And then thirdly,
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  not all deals make money. I did lose $5 ,000
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  over a three year period on one property in Edmond,
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  Oklahoma. And I'll put it down in the stories
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  section later on. Let's see. Now. When you sign
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  up for one of these things, and I'm thinking
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  you're going to be a GP or you're going to be
• 14:23
  an LP, the GP is going to get these things created
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  and hand them out. I'm going to be the receiver,
• 14:29
  they're going to be the sender, but I'm going
• 14:30
  to get something called a private placement memorandum.
• 14:33
  It will scare the daylights out of you. It is
• 14:35
  just like going to your doctor, you know, you
• 14:37
  got this hang nail on your toe or something like
• 14:39
  that or hang toenail, I guess. Anyway, you go
• 14:41
  there and they will have a sheet of paper and
• 14:43
  it'll tell you, you could go blind because of
• 14:46
  this procedure. I'm not sure how, but by and
• 14:47
  large, they will scare you in every which way.
• 14:49
  It will list all the things that can go wrong.
• 14:51
  Don't get too excited about that. Pay attention
• 14:54
  to how you get your money, how much of it's yours,
• 14:57
  when they're going to pay, when you get to vote
• 14:59
  on stuff, what rights you have in the deal, you
• 15:01
  know, what happens if you die. you don't really
• 15:04
  want to die. That's a bad side effect. But by
• 15:06
  and large, it does happen. What happens when
• 15:08
  you get divorced? How does your ownership change?
• 15:12
  But pay attention to that piece. Then there's
• 15:13
  an operating agreement, which should have the
• 15:15
  same kind of information in it about how the
• 15:18
  deal works, but not all the scary stuff. I tend
• 15:21
  to be a little hesitant if they don't match.
• 15:24
  So be aware of that. If you're doing this, you
• 15:27
  should definitely read the first two or three
• 15:29
  or four of these things so you get used to what
• 15:31
  they say. And you can start skimming them after
• 15:33
  that. And lawyers talk funny. It is absolutely
• 15:36
  true. But they're not talking a different language
• 15:38
  in most cases. There's a few funny words in there.
• 15:40
  But you can read these things. It is not that
• 15:45
  hard. But if you want to, you can pay someone
• 15:47
  to review it with you. And you can pay someone
• 15:49
  to talk about it with you. Often there are meetups
• 15:53
  and they will get a lawyer and he'll read through
• 15:55
  parts of these things and explain them to you.
• 15:57
  And after you once hear that, it will help you
• 15:59
  read the one that you're thinking about. Don't
• 16:01
  get in the first one. Read a couple of them before
• 16:03
  you jump into these things. Just be that way.
• 16:07
  And the last thing is a questionnaire. I always
• 16:08
  laugh at this one, the investor questionnaire.
• 16:10
  And this is for the 506B deal mostly, I think
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  every time. And I'll get back to that in a second.
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  on this deal, this is a sheet of paper on which
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  you're going to tell every reason that you know
• 16:25
  what you're doing because the law says that you
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  have to be sophisticated or accredited, which
• 16:30
  means I'm not broke and I'm not stupid because
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  the law only protects the broke and the stupid.
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  I should say the uninformed. Anyway, so I'm,
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  you know, I'm saying I know what I'm doing. And
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  then later on, when you say, Oh, crud, I don't
• 16:45
  know what I'm doing. Too bad, your sponsor has
• 16:48
  a piece of paper where you swore, haha, I know
• 16:50
  what I'm doing. So just be aware that that's
• 16:53
  what that piece of paper is for and laugh as
• 16:55
  you saw it. All right, let's see. So I mentioned
• 16:59
  this accredited versus sophisticated deal. The
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  SEC, which governs anything that's a syndication,
• 17:07
  they have 506B, reg D, 506B, which allows up
• 17:13
  to 35 sophisticated persons to get into a deal
• 17:17
  with accredited people additionally, all of which
• 17:20
  have to have a substantive relationship, pre
• 17:23
  -existing substantive relationship with the sponsor,
• 17:26
  a sponsor, one of the many sponsors, whatever
• 17:28
  you want to read it like. So that says that it's
• 17:31
  a friends and family kind of deal. All right,
• 17:33
  no advertising. The Reg D506C Charlie will allow...
• 17:39
  advertising, and so those people can put it out
• 17:41
  on the web. I actually prefer the B's because
• 17:43
  I get to know the people better. At least I think
• 17:45
  I do. So anyway, that's what we're going with
• 17:47
  that. If you do a C, you have to prove you're
• 17:50
  accredited and only accredited people can do
• 17:53
  the C's. If you're going to do the B's, then
• 17:56
  you do that investor questionnaire where you
• 17:58
  swear, I know what I'm doing. Sure. And you can't
• 18:01
  get out of it if you want to at that point. Anyway,
• 18:03
  realize, oh, when you do these things, You're
• 18:07
  going to find somebody who's doing a syndication.
• 18:10
  They're going to tell you a presentation about
• 18:12
  the thing. They're going to tell you all the
• 18:13
  wonderful stuff about the thing. And then you're
• 18:15
  going to get the paperwork, and you get the choice
• 18:17
  after you read it of going yes or no. It's not
• 18:20
  a negotiation. You don't really get to say, well,
• 18:23
  I'd like to change this, or I'd like to change
• 18:25
  it. Nope. You get the choice of being in it or
• 18:27
  not. So be sure that you like. not necessarily
• 18:31
  love the GP, but you respect them. You think
• 18:34
  they have integrity, that they seem honest. Being
• 18:39
  an engineer, we tend not to go with salesmen
• 18:41
  too much. People that look too much like salesmen,
• 18:43
  it scares us. But be comfortable with the person
• 18:46
  you're dealing with because you're betting on
• 18:49
  the jockey, not the horse on these things. And
• 18:52
  then you're going to invest with an expectation
• 18:56
  of getting what you want back out of the deal.
• 18:58
  and then watch the deal as it goes. Now, some
• 19:00
  people will sit back and do nothing. Some people
• 19:02
  will watch it very carefully. I try to be the
• 19:04
  careful watcher, but with 33 deals at this point,
• 19:08
  I'm not as good as I should be. All right. Oh,
• 19:12
  how does it work? Often you'll see that, oh,
• 19:15
  I'm going to double your money in three to five
• 19:17
  years. I'm going to pay you 5 % cash on cash.
• 19:22
  What they're really saying And let's use 100
• 19:24
  ,000 for a round number. The typical minimums
• 19:27
  are 50 in most cases. I've seen 25. I've seen
• 19:30
  35. I've seen 10, although it doesn't make any
• 19:33
  sense to go that low. So there are all sorts
• 19:37
  of numbers that could be thrown out there. I've
• 19:38
  actually seen one that had a 250 ,000 minimum.
• 19:42
  I'm not in it, by the way, just in case. Anyway,
• 19:46
  so let's say you put in 100. Well, what they're
• 19:48
  trying to say with all this fancy words they're
• 19:51
  using is at the end of the deal, you should get
• 19:53
  back your hundred plus another hundred. And that
• 19:56
  other hundred will consist of the five years
• 19:58
  you're holding it times the 5 ,000 per year,
• 20:01
  25 ,000. So at the end of this thing, you should
• 20:03
  get your hundred, 75 ,000. And during the period,
• 20:08
  you should have gotten 25. And you add all that
• 20:11
  up and you go, oh, I got an equity multiple of
• 20:13
  two. So it's good. Or I made 200 % total return,
• 20:17
  whichever way you want to put that. Anyway, so
• 20:20
  that's sort of what they're saying. Don't be
• 20:21
  confused by that. And you can click out the IRR
• 20:24
  on these things. If they return the money a little
• 20:26
  faster, you get a higher IRR. 16 to 18 % is not
• 20:32
  unusual these days. I've seen one with an unbelievable
• 20:36
  number of up in the 70s percent because it was
• 20:40
  a quick deal. We made a nice profit and all that.
• 20:43
  And I don't expect to see that again, but I have
• 20:45
  seen multiple way above 40%. Anyway, but don't,
• 20:50
  you know, times are changing. It all depends
• 20:52
  on the way the wind's blowing as to which one
• 20:53
  you do. How do we make money in these things?
• 20:56
  You know, so if a person gets into a house, you
• 21:01
  can do anything you want to. You just buy a dumpy
• 21:04
  house on the street and you can put in marble.
• 21:08
  You can put in, you know, glass, all this stuff
• 21:10
  and make it really fancy. And you will not change
• 21:12
  the price of that house above the neighborhood.
• 21:14
  It just doesn't help you one bit on an apartment.
• 21:18
  if you put in fancy stuff in the apartment within
• 21:21
  reason, you can raise the rents. The rents will
• 21:24
  then increase the NOI, that's your profits, you
• 21:27
  know, what your income minus your expenses, you
• 21:30
  make the NOI go up and there's this thing called
• 21:32
  cap rate. We'll come back to that. But essentially
• 21:34
  that cap rate, the expectation of how much you
• 21:38
  return just like a bond in the Wall Street area
• 21:41
  is what they're willing to pay for this place.
• 21:44
  For instance, If they're expecting a 5 % cap
• 21:48
  rate, then they're going to pay you $20 for every
• 21:52
  dollar of return, $2 million for $100 ,000. If
• 21:56
  it's a 10%, they're going to pay you $1 million
• 22:00
  for $100 ,000. So essentially, what the prevailing
• 22:04
  rate out there in the world is, I'm expecting
• 22:07
  this much return for my money, that's going to
• 22:09
  push what the value of this property is when
• 22:12
  you do this. Cap rate is important. It is not
• 22:16
  a solid number. It is not dictated by the government.
• 22:19
  It is dictated by the 10s and 20s and 30s of
• 22:22
  people who are bidding on the property. Whoever
• 22:24
  pays the most sets the cap rate. And that happens
• 22:27
  on every property, multifamily property in the
• 22:30
  area. And so there will be a prevailing cap rate
• 22:32
  in the area. When you want to go buy a building,
• 22:35
  you look at the other cap rates that have been
• 22:37
  sold, selling there. That's how you judge given
• 22:39
  the people's, um, NOI. what you're willing to
• 22:43
  pay for this place. And then you calculate in
• 22:44
  the back of your napkin and in your head and
• 22:46
  you say, I can raise that. I can keep the expenses
• 22:49
  pretty much the same. I can make the rent higher.
• 22:51
  And that's going to make me some money. So it's
• 22:53
  worth buying this place. La dee da. I made a
• 22:56
  big example, but I've read through it and I said,
• 22:59
  I can't do this verbally. So anyway, someday,
• 23:01
  you know, it might be worth doing that.