The Opportunity is Coming in Commercial Real Estate (How to Take Advantage)

The multifamily and commercial real estate crash seems to be nearing its end, which means some incredible buying opportunities are on the way. Big apartment owners have been decimated after their occupancy rates dropped, interest rates shot up, and loans got called due. But when prices fall and the masses turn away from an asset, it’s usually time to buy, and 2025 could be one of those times for commercial real estate. But YOU don’t have to be the one to go out and find the deal yourself, do all the renovations, and deal with tenants—you can invest all while someone else does it for you. That’s exactly what today’s guests, Jim Pfeifer and Paul Shannon from the PassivePockets podcast, are on to talk about. They see coming opportunities to invest in multifamily real estate deals passively and will teach you exactly how to do it. Both Jim and Paul previously owned rental properties but moved over to real estate syndications, a passive real estate investment, as they grew. Now, they can have someone else do all the work for them while they reap the benefits. The best part? 2025 is looking like an opportune time to get in on investments like these, as many of the inexperienced syndicators have fled the market. Still, the veterans remain, ready to buy underpriced assets and pass the profits on to you! In This Episode We Cover: Why the historic commercial real estate crash could be close to over Real estate syndication investing 101 and how to invest without the stress of landlording Better, safer multifamily real estate deals that are coming to the market How to analyze a passive real estate investment AND the syndicator running it What to ask any syndicator before you invest in their deal (this is crucial) And So Much More! Links from the Show Join BiggerPockets for FREE Let Us Know What You Thought of the Show! Ask Your Question on the BiggerPockets Forums BiggerPockets YouTube Sign Up for BiggerPockets Momentum 2025 to Supercharge Your Investing This Year Maximize Your Real Estate Investing with a Self-Directed IRA Grab the Book on Passive Investing, “The Hands-Off Investor” Property Manager Finder Invest Smarter with PassivePockets Connect with Jim Connect with Paul Connect with Dave (00:00) Intro (03:53) The Multifamily Crash Explained (06:48) Has Multifamily Hit the Bottom? (11:16) Investing Opportunities Coming? (13:17) How to Take Advantage (20:58) Analyzing a Deal/Operator (28:02) Massive Passive Investing Benefits (32:31) Join PassivePockets! Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1073 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected]. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:05Dave Meyer?

  Hey everyone, welcome to the BiggerPockets Podcast. I'm Dave Meyer. There has been, and I do not use this word lightly, but there has been a legitimate crash in commercial real estate over the last couple of years. We all know that office space is tanking, but this is happening in other asset classes too, like multifamily. It's lost a lot of value since the pandemic, and it's generally just been pretty hard out there. But real estate usually moves in cycles. Things go down, they hit a bottom, and then they start to go back up again. And personally, I think we might see a really unique and pretty exciting buying opportunity in the coming years for multifamily and commercial real estate as a whole.

• 0:48Dave Meyer?

  So today on the show, we're talking about how to potentially spot the bottom of the market so you're getting maximum value and how to take advantage of these opportunities, even if you're not in a position to go buy a massive apartment building all by yourself, like most of us are. Joining me for this conversation are Jim Pfeifer and Paul Shannon, who host the PassivePockets Podcast and are both hugely experienced commercial real estate investors. And just to clarify, before we jump in, I'm going to use the term "commercial real estate" and "multifamily real estate" interchangeably throughout this episode. Commercial real estate does actually refer to all sorts of things, like retail space, industrial, but because the BiggerPockets community in general is mostly interested in multifamily when it comes to commercial,

• 1:33Dave Meyer?

  I'm going to be using both of those terms interchangeably, just a heads up. Let's jump into the show. Jim, Paul, welcome to the BiggerPockets Podcast. Thank you both for being here.

• 1:44Speaker 01

  Thanks for having us. Excited to be here, Dave.

• 1:46Dave Meyer?

  Yeah, let's get our little BiggerPockets Podcast Host crossover event underway. Let's just start with introductions, since our audience may not know the both of you. So Jim, let's start with you.

• 1:57Speaker 01

  Yeah, I'm Jim Pfeifer. I work for PassivePockets. I'm one of the co-hosts of the podcast. And you know, I got my start in investing in 2008, so I was an active real estate investor, some small multifamily. My family, some single family turnkeys, but I realized I was not a good asset manager. And so I discovered this thing called real estate syndications where you effectively hire an asset manager and they do all the work for you. All you need to do is a lot of work upfront to analyze the deal, vet the sponsor, and then you give them your money and they, they run the show. And I just found that that's kind of where my strength lied. And so I started a community called Left Field Investors. It eventually became Passive Pockets and now I'm a full-time investor as a limited partner in syndications.

• 2:42Dave Meyer?

  Awesome. What about you, Paul?

• 2:43Speaker 02

  I'm in Indianapolis, Indiana. I'm the co-host now of the Passive Pockets podcast. I got my start in real estate, buying a duplex, worked my way into flipping single-family homes, doing BRRRR investing, got into small multifamily and then worked my way into, I call it midsize multifamily, so like 40 unit buildings. But during that time, I also found passive investing and was really interested in it because it diversified away from me as an operator myself into, you know, other sponsors who had expertise that maybe I didn't, into different asset classes that I didn't have expertise in and to just different geographies that had different characteristics than where I'm at in the Midwest. So have enjoyed kind of the benefits of being both an active and passive investor. Today I'm, I've invested in

• 3:25Speaker 02

  about 40 deals from a passive standpoint. We also launched about a year and a half ago, our fund Invest Wise Collective. So now we help other passive investors get into deals that they otherwise wouldn't be able to get into via high minimum investments, for example, or we try to negotiate better terms with sponsors and raise money for their deals and then pass those better terms along to our investors through our fund.

• 3:45Dave Meyer?

  Awesome. Great. Well, it's a pleasure to have both of you here to talk about the state of multifamily. We're going to get into syndications and all of that, but let's just sort of lay the scene here because in my analysis, definitely not as expert as both of you, we're in an interesting part of the cycle for commercial real estate and multifamily. I'd love to get your takes on that, but maybe you could just help fill in the last few years for our audience here, Paul, and tell us a little bit about. Where we are, at least in your view, in the commercial real estate market?

• 4:20Speaker 02

  Yeah, I mean, we really have to back up to the pandemic to understand what's happening today. And if you remember, as we were all kind of shuttered in our homes and businesses were closed, it necessitated the federal government and the Federal Reserve to step in to sort of rescue the economy. And they did that through unprecedented monetary and fiscal stimulus. This all led to eventually inflation. And you've got a situation now where those that acquired in that era, 2021, 2022, did so using floating rate debt. They bought at the peak of the market. Expense growth has caught up now since we had such inflation. Things like property taxes, insurance are a lot more expensive. Interest rates have gone up considerably. The federal funds rate has gone up by 500 basis points in about 18 months it took to

• 5:05Speaker 02

  reach that. So, you know, all these factors essentially have led to a situation where pro formas have not been hit. And now there's this debt maturity wall where a lot of these deals either need to be sold or refinanced, and they're just not worth as much as they used to be. So there's a problem that, you know, basically, and there's, there hasn't manifested in the form of distress. A lot of lenders have sort of extended and pretended, quote unquote. And we're going to see in 2025 if we see that wall of distress.

• 5:30Dave Meyer?

  Would you call it a crash? Because as cap rates have expanded and operating incomes have stagnated at best in some cases, from my analysis, we've seen prices drop 15%, 20% multifamily on a nationalized basis. Would you, would you consider it a crash? I know it's kind of an arbitrary word, but Jim, how would you describe this just to, to people who might not be as intimately familiar with the details here?

• 5:56Speaker 01

  Yeah, I think it's, it's where you're sitting, whether it's a crash or not. I think it's asset dependent almost because if you are someone that did deals on the floating rate debt, the bridge loans, then yeah, I think it's a crash because a lot of people lost all the equity in those deals. If you, for investors, we had capital calls, paused distributions, things like that, and very few deals going full cycle. But if you have long-term debt or fixed debt, then I think there's time to get through it.

• 6:20Dave Meyer?

  Sure. Yeah, that makes sense. And honestly, I've been surprised. By the lack of public distress in multifamily, like you hear about it if you're in the industry as we are, that people are struggling, but I don't think it's it's as obvious to people that prices in commercial for the deals that are transacting are often at lower valuations than they were just a couple of years ago. So I'm curious, one, Paul, why do you think it's taken so long for this distress to start sort of working its way through the system?

• 6:59Dave Meyer?

  And two, is there any hope or line of sight on a bottom here where things might start to grow again soon?

• 7:08Speaker 02

  Yeah, so I think that a lot of the distress is in a certain segment of the market. It's that 1970s, 1980s vintage value add that was acquired with floating rate debt. So it's a specific type of borrower, and I don't think it's going to be making, you know, top of the Wall Street Journal news. So will there be opportunities for LPs to capitalize on that distress? That's that's yet to be seen. I think why it hasn't materialized as much is because lenders have been willing to extend loan terms where maybe it was a three-year loan initially, and they realize that their borrowers are underwater and they don't want to take back the property. You know, they remember 2008 and what had to go down at that period, and they don't want to be property owners. So they're willing to,

• 7:49Speaker 02

  let's say, give that borrower another 12 months to figure out what to do. And I think this year will be the year where it's like, okay, if you haven't figured it out at this point, we can't pretend anymore. We've got to figure out something here. If you can't refinance, we're just going to force you to sell, basically, and you're going to have to absorb those losses and let's clean the slate. Now, the second part of your question was, are we seeing a bottom? Yes, I think. I don't have a, you know, a crystal ball per se, but, you know, is now a good time to enter into the market? I think so. I mean, if you can find deals that cash flow, I'm always, you know, a fixed rate debt guy because that's just one variable that you don't have to worry about over the course of your hold period. If you can acquire a fixed rate debt, if you can get into a growing market and

• 8:32Speaker 02

  have that upshot potential, then, you know, I think it could be a good deal, especially because there's such a housing crisis in this country too. Right. I think the long-term thesis for multifamily is strong. And now there's a lot of yellow lights. It's not like the green lights are all flashing, go, go, go. But I think eventually, you know, things will clear and now could be a good time to get in a good basis.

• 8:53Dave Meyer?

  I'm glad to hear you say that. I mean, I, I just kind of see it the same way. So I'm glad to hear some of my thoughts about this at least confirmed. But I, I'm always skeptical, particularly in the residential market about trying to quote unquote, time the market. It's very, very difficult to do. But I'm always tempted to do it with commercial because it just works in more, I think, defined cycles than the residential market does. And there's a lot more institutional money in these types of things. And so I think it's tempting is the right word. It's more tempting to try and tire in the market. Jim, how do you feel about that? You look at a lot of deals. Are you starting to feel like better deals are showing up on your desk?

• 9:34Speaker 01

  Yes, I'm seeing more deals, but you know, as an investor, you know, people are cautious. Unless there's something remarkable about the deal, a lot of people are, are hands off. Is it assumable fixed low interest rate debt? Then that's a story, right? Or tax abatements where you're getting equity right out of the gates. Those are the deals that, that I'm looking for now because I'm just not certain. And so there's a lot of hesitance, but you are seeing more deals. But some of them are just the same as they've always been because people are looking at, well, bridge debt now. Maybe we get back into that because they're expecting interest rates to go down. And that's when a time when maybe bridge debt is, is okay, but I'm, I'm still pretty cautious overall.

• 10:14Dave Meyer?

  All right. Well, I, I want to talk more about the types of deals that you're seeing and thinking about doing. But first we got to take a break. And as we go to break, I want to quickly remind everyone about something we're doing here at BiggerPockets called Momentum 2025. If you haven't heard about this yet, something super cool. We're doing it for the first time. It's our eight-week virtual investing summit starts February 11th. And anyone who signs up for it is going to get direct access to 18 expert investors, two mastermind groups, accountability. And Jim, I understand that you're going to be one of our experts speaking there. What are you talking about at Momentum?

• 10:52Speaker 01

  I'm going to be talking about syndications and the limited partner experience.

• 10:57Dave Meyer?

  I do invest in syndications. We'll talk about that more, but I'm always trying to learn more. So definitely going to be attending that one. If you all want to attend and grab your spot at Momentum 2025, go to biggerpockets.com/summit25. We'll be right back. Are you looking for a simpler way to find your next investment property? Lennar Investor Marketplace is a free platform built for real estate investors. Create an account and get access to investor-ready new construction homes, plus real-time data on projected rents, returns, and neighborhood insights. Everything is one place, so there is no need to piece together information from multiple sites. There's also support for financing and property management to help make the process easier from start to finish.

• 11:42Dave Meyer?

  Create a free account at biggerpockets.com/lenar and start analyzing deals with more clarity today. Again, that's biggerpockets.com/lenar to sign up now. Please consult your own legal and tax advisors to evaluate the risks of any real estate transaction. Lennar is an equal housing opportunity builder.

• 12:02Henry Washington?

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• 14:05Dave Meyer?

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• 14:50Dave Meyer?

  So the bookkeeping happens as I bank and transactions are automatically categorized. So I'm not spending hours at the end of the month trying to piece everything together. I can see what's coming in, what's going out, and how each property is actually performing. So as your portfolio grows, your banking and bookkeeping can actually keep up with you. Open your account with Baseline at baseline.com/biggerpockets.

• 15:20Dave Meyer?

  Everyone, welcome back to the BiggerPockets Podcast. I'm here with Jim Pfeifer and Paul Shannon, talking about potential opportunities in the multifamily space and syndication investing. When we left off, we were talking, Jim, you mentioned that you were still cautious, but you thought that there might be some good deals. Paul, are you viewing it the same way? Are you seeing an uptick in opportunity right now?

• 15:45Speaker 02

  I do see that there's better deals showing up in my inbox from a passive investing standpoint. I wouldn't say the same locally in my market from an active perspective, but I think there's good deals across the country. It's just a matter of uncovering them. And there's good deals in every part of the market cycle. It's just finding those operators in those markets that have sort of what I call an unfair advantage, where they have, you know, maybe economies of scale where they can get labor and materials for cheaper than their competition can, or they can get access to deals before they hit the market, before they go out on a broker's listing, or they have in-house property management and operations that are just buttoned up to a T. Those are all things that can give sponsors a competitive advantage. As far as timing the

• 16:26Speaker 02

  market, if you compare real estate to the S and P 500 and the stock market, you certainly don't see a lot of people having success timing the S and P 500. I think with real estate, particularly maybe commercial real estate, because things move so slowly, you can potentially time the market better. But I'm not necessarily looking to hit the bottom or, you know, time the top. It's more of, hey, are there are there tailwinds? Or are there headwinds? Is the environment conducive from a macro standpoint to invest now where mistakes can happen and issues can come up and the sponsors plan and things still go right? Or does everything have to go right? And if one thing goes wrong, like the federal funds rate going up and impacting borrowing costs on a floating rate debt deal, does that

• 17:09Speaker 02

  destroy the entire deal? Those are the things I try to stay away from. So I want to get, you know, they say, don't fight the Fed, don't fight the macro when it comes to investing in commercial real estate and stay the course that way. And I think you'll do fine.

• 17:20Dave Meyer?

  Good advice. I want to shift the conversation a little bit because I am honestly trying to keep a little bit of dry powder for What I think is going to be some good opportunity in multifamily. Let's talk about if other people feel the same way and you should do your own analysis, of course. How can people get into this? Because it can be daunting to go from residential to commercial real estate, especially if you've only operated smaller properties and now you're talking about bigger properties. Jim, you've made that transition. So tell us a little bit about how you recommend people think about that.

• 17:53Speaker 01

  Yeah, I think if you're switching from, you know, being a single family operator to looking into multifamily, I think you hire asset managers and go through syndications. That's, that's what I did. Because I believe that if you don't have an advantage, meaning you know, a market better than anyone else in that market, or you know how to swing a hammer and save costs there, then being an active investor is, is difficult. If you're just a regular person with a W2, that's where I do syndications. But there's a lot that you need to do. And that's why I think a community is so important. And what I tell people, it doesn't have to be passive pockets, although that's a fantastic community. But surrounding yourselves with other people that know operators and know deals and know markets is super helpful.

• 18:34Speaker 01

  Because this is a different type of investing. These are syndications, right? They are long-term illiquid investments that are completely out of your control. Now, if you have a single family home and it's an investment and something happens in your life where you need capital, you can sell that tomorrow. Now, you might have to take a big haircut. You can get out of it and get some of your capital back. In a syndication, you can't. So you really need to understand how do you partner with the right operator? That's the biggest step you need to make. You need to figure out how to find quality operators. And some of the things that you need to look at now, I think, and there's some people that push back on me on this. I think the next few years, it's going to be easier than ever to analyze and vet an operator. Because we just went through some really difficult times for operators.

• 19:19Speaker 01

  So you can see what happened. How did they make it through these difficult times? What did they learn? What are they going to do different? So it's always been about the operator, but it's more critical now. If they had a capital call, five years ago, that was one of our questions, first questions for an operator. Have you ever had a capital call? And if they said yes, it was. Nice meeting you. Goodbye, right? Well, now that answer is going to be different. It's going to be, okay, what happened? How did you communicate it? Did you effectively communicate it? And did you have a plan and come through it? And that's okay. I'm okay with people having struggles, right? I understand. I lost some money investing in some of these deals because of the bridge debt issue. And so I understand that people went through that. But how did you get through it? And so those are some of the questions.

• 20:04Speaker 01

  So if I'm an investor, I really want to focus on the operator and make sure that they know what they're doing, that they came through this and they had a plan and they have a plan going forward.

• 20:14Dave Meyer?

  Just for anyone who doesn't know what the term syndication means, it's basically just a deal structure where multiple investors pool their equity together to purchase large assets. So just as an example, let's just say you wanted to buy a 50 unit property. It costs $10 million. Most people don't have enough even for a down payment on that. And so people put together, you know, you grab a couple dozen investors to each put in sizable amounts of money. Usually the minimum is $50,000 or $100,000 to get into these types of deals. But you pool your money together and you give it to essentially an operator. Usually the operator is sort of presenting these deals to investors. And one class of investor,

• 20:58Dave Meyer?

  the operator or the GP is a general partner, does all of the work essentially. You know, they, they are managing tenants. They are making decisions about the asset. They decide when to sell. They decide what kind of debt to get. And as an investor, you can be what's known as an LP or a limited partner, which is basically you write a check and then you hope it goes well. And so I think, as Jim was saying, the work as an LP is to do a lot of upfront due diligence because once you write that check, you really have very little control of the outcome of your investment. And that's a very big change for a lot of people who just buy multifamily investments or single family investments. So this is like a whole other world of investing

• 21:43Dave Meyer?

  that feels to me at least, or did when I started investing, just to be like a bit Different than the normal stuff we talk about here on this podcast. And Jim, you mentioned passive pockets. It's a community for syndications. Can you just talk a little bit about what you talk about on that show?

• 21:59Speaker 01

  Yeah, yeah. And it's more than a show. It's a community similar to how bigger pockets is a podcast and a community. So is passive pockets. But we are focused on limited partner investors who want to create financial freedom, just like bigger pockets people do. But instead of swinging hammers, you know, we're analyzing the operators who are the asset managers. And the purpose of the community is to help everybody learn together and grow. So we do things like Paul and I do a deal review series where we interview operators. They have a deal. They present the deal. We ask them a bunch of questions. You know, we ask them the tough questions. And then afterwards, we say goodbye to the operator and then we discuss it on our own and kind of tell people, hey, this is, this is what we see.

• 22:39Speaker 01

  And so you can just learn how to ask the questions. We also have sponsor reviews. So you can go and, you know, if ABC sponsors of interest, you can go on our website and hopefully there's enough reviews. You can see, oh, they got four stars, five stars and get some information about them. And one of the favorite things is there's a forum, just like at the bigger pockets forum, where you can ask questions and talk to actual investors. And it's just a great way to learn and grow because think about it. This is a long-term deal. You're going to, it used to be, maybe you get your capital back in three or five years. Now it's going to be five, seven or 10 years. Well, you can't just throw 50 grand at it and say, okay, I'm going to wait 10 years and decide if I'm going to make my second investment. So what you do is you talk to other people who have invested with that operator and get feedback.

• 23:21Speaker 01

  Why, what did you like about them? What didn't you like? And that way you can use other people. You have a shortcut because other people have made mistakes. Other people have made money and you can learn from them. And so that's why the power of community in this type of investing is so critical.

• 23:35Speaker 02

  Well said.

• 23:36Dave Meyer?

  I totally agree. And it's always sort of been an insider sport previously, I think.

• 23:41Speaker 01

  Yes.

• 23:42Dave Meyer?

  I didn't get into it for the first few years because I didn't know anyone who was doing it. And without a community, it can be super intimidating.

• 23:49Speaker 01

  It is absolutely. And my first entrance into it is I went to a seminar because I wanted to learn about this. And I made some really bad choices because I just I just assumed everybody there knew what they were talking about and were great operators. And I started investing with them, but you know, you need to do more due diligence than that. And you know, then I went to podcast university and started listening to podcasts. And that's a great way to find operators, but then you don't know if they're a good operator or a great podcaster, right? And so now I don't invest with a new operator unless they're recommended to be by somebody in my community who I know, like and trust, who's already invested with that operator. You know, I still do all the due diligence, but you're a hundred steps ahead because you know, somebody has already invested with them. So you know, wires are scary, right? You gotta send a wire. You know, the wire is going to arrive.

• 24:34Speaker 01

  You know, the communications and things like that. So I just can't overstate how important it is to learn from others, especially in this type of investing.

• 24:42Dave Meyer?

  Well, we've talked about due diligence quite a few times and I want to dig into what that really means and what the upside is here. Like, why should people embark on this new branch of real estate investing? But first we do have to take a quick break, so we'll be right back. For my wife's birthday, I wanted to make her a new website for her landscape design business. So I researched a lot of different options. I tried out a couple, but honestly, it was really overwhelming. It was pretty time consuming and still the site wasn't coming out the way I wanted it to. Then I tried Hostinger and everything was super simple. I asked Hostinger's AI to build a clean site for her business and it had a working version up in minutes. No coding or designer needed.

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• 27:56Henry Washington?

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• 30:17Dave Meyer?

  All right, we're back on the BiggerPockets Podcast, talking about multifamily opportunities and syndication investing with Paul Shannon and Jim Pfeifer. Paul, we've talked a little bit about due diligence, and I kind of want to just dig in, if you can give us like the ABCs here, because it is probably intuitive to most people. Yeah, vet the people that you're going to partner with, but you know, in my experience, at least, it's kind of like interviewing someone with a job. Like, of course, you should interview people, but there's kind of a skill that you need to learn to really sort of get under the hood and figure out who you're going to be doing business with. So I'm sure you talked about this in length in the podcast, but can you give us sort of a high level overview of how you actually logistically do quality due diligence?

• 31:00Speaker 02

  Yeah, well, you alluded to it, Dave. I think the most important thing is the sponsor, is the operator, right? And we use those words kind of interchangeably. Knowing who you're investing with, are their personal values aligned with yours? Are they, you know, good people? Do they have a criminal background? You can do criminal background checks, right? You can vet these people via word of mouth. You can talk to other people in communities like PassivePockets and see if they've invested with the folks that you're interested in. So that's all part of it, right? You have to kind of vet that person. And sometimes it takes a while to get to know somebody. So you have to take a chance at some point. You never truly know somebody, I don't think, until things go poorly. So ideally, it never happens. But I think really, it starts with knowing that they can execute the business plan, that they're

• 31:43Speaker 02

  fiduciary of the capital that you even trusted them with, they're a good person overall, and they're going to, you know, honor their commitment to you to do the best they can with their capital. So assuming that you get by that point, and you can trust that individual, and you have enough references to validate that, then it's on to actually evaluating the deal itself. And we could go down a real rabbit hole there, but I think that the more times that you evaluate these deals, the more pitch decks you look at, the more underwriting files you see, the more deals in general you just evaluate, you start to create this sort of memory bank in your head, and you start to understand what a good deal looks like and what a bad deal looks like. So just like you do a back of the napkin analysis on

• 32:24Speaker 02

  On the evaluation of a single family home before you move into a more technical analysis and really get into the weeds, you want to just kind of fly by and exclude and look for a reason to say no right off the bat. And you can usually do that in that pitch deck and say, oh, okay, this guy is, let's just use a egregious example. He's projecting 10% rent growth or, you know, he's got an exit cap assumption that's 2% or something like that. Okay. This isn't interesting at all to me. This is an unrealistic assumption. Uh, let's just get this one out the door. But then as far as taking it to that next level, there's a level of financial acumen that needs to be built up over time to really understand the actual market that you're investing in. Are the projections realistic?

• 33:05Speaker 02

  What are the equivalent financial ratios that you need to be evaluating to make sure that this is in line with your risk tolerance, et cetera, et cetera? And it just comes from reps. Brian Burke's book, The Hands Off Investor. I think that's a fantastic place for listeners to start as far as getting kind of the, the bones of the structure of how that might look.

• 33:22Speaker 01

  I use a tool. It's a, it's a multi-family deal analyzer that we have at Passive Pockets. And basically you can take the pitch deck and just dump the financials in this spreadsheet. And a lot of the information we got was from Brian's book, the, the metrics. And it basically just turns red or green, whether those metrics fit with the averages. And it doesn't tell you this is a good deal or bad deal, but as Paul said, the repetitions, you do 10 of those and throw all that info into the deal analyzer 10 times. You're going to know, oh, here's the things that are interesting to me. Here's things that, that I should ask questions about. And that's what you want. You want to get to a point where you have questions to ask the operator. Because one of the most important things to me when evaluating an operator is communication. Because again, these are out of your control, long-term, right?

• 34:07Speaker 01

  So what I do is I test the operator and ask them a bunch of questions. And what I want to see, are they going to get back to me in a reasonable amount of time and with quality answers? And then when they respond, even if I don't have any more questions, I reply and ask them more questions. Cause I want to see, are they going to handle it when I'm a little bit of a pain in the butt, right? I have some more questions.

• 34:26Speaker 02

  Yeah.

• 34:26Speaker 01

  So you gotta test them and that's a critical part of it. And then I'll say one more thing. Paul said, you know, you gotta check the operator, they a good person, the values match yours. But also you're in a business with this person and with this company. You're a limited partner, but you're part of their company. So I recommend you don't invest with people that you don't like, no matter how good their deal is. Because if something goes wrong or something goes well, you're not going to want to call them up and be like, you know, having a conversation because you don't like them. So do business with people that you like and can tolerate.

• 34:58Speaker 02

  Good advice.

• 34:59Dave Meyer?

  I think that's such good advice. I have the same policy about investing in different markets. I want to invest in markets I don't like going to. It's the same kind of thing, like you should make your investing comfortable for you. Obviously there's still risk, but like on a personal level, you should do that. And you said something, Paul, I wanted to add on to like, I am an optimist when it comes to residential real estate. Like I go into every house, I'm like, there's a way to make this work and there's usually not. But like, I'm always like, kind of like going in there like, I can make this work. I am such a skeptic when it comes to syndication investing. Every deal I look at, I'm like, there's no way this is going to work. And then occasionally people can convince me that it's going to.

• 35:39Dave Meyer?

  And I've just always found that it's like better to be really skeptical about operators that you're potentially working with. And if they can woo you, they've really earned your money. But I think you got to pass on a lot of deals, especially in the beginning, before you really find good ones.

• 35:53Speaker 02

  Stay that way, Dave, never change. That is going to keep you out of a lot of trouble. And I'm always looking to kind of tear apart, you know, what is it that I don't see? What is it that I don't know what's being kept from me? And maybe it's nothing, but I want to go in with that skeptic's eye and really analyze and know what I'm getting myself involved in.

• 36:11Speaker 01

  Especially because these are all salespeople too, right? Nothing wrong with that, but they are trying to sell you on this deal. When you call them up and talk to them, it's the best deal they've ever seen, right? Because they want your capital and that doesn't mean they're dishonest. They're excited about the deal presumably because they bought it. But going in, trying to find a reason to say no is absolutely the best approach. And Paul's really good at that. I'm trying to get better at it.

• 36:32Dave Meyer?

  Yeah, and like, there's always more people who want your money, right? Like if you, if there's no rush, I think, once you get into this, you'll see that there's an abundance of deals.

• 36:42Speaker 01

  Yes.

• 36:42Dave Meyer?

  So don't feel like one deal is precious. You should just take your time and feel comfortable, especially on the first few.

• 36:48Speaker 01

  Yeah, I had one guy, MC Laubsher is a guy that I've been on his podcast a couple of times. He's been on ours. He came, I don't know if he came up with it, but instead of FOMO, fear of missing out, he coined the phrase joy of missing out, JOMO. And that's what I try to look at like, okay, I just saw five deals. I'm going to be happy to pass on all of them because there's always the next best deal is coming down the line.

• 37:08Dave Meyer?

  I've had some JOMO the last few years where I look, when I see or hear people in deals that I pass on. I'm like, oh, I don't have a perfect track record. Don't get me wrong, but being a skeptic the last few years has been beneficial. So let's wind down here, but we're just talking about the benefits. So Jim, you mentioned, you know, sort of being passive, but there are downsides, the lack of liquidity. You know, you're entering a new business. So Paul, let's start with you. Like what makes it worth it to you to invest in syndications? And perhaps you can tell us a little bit about what type of investor you think is well suited for this type of investing.

• 37:43Speaker 02

  Sure. So what type of investor? It's probably somebody who sees the value in real estate, but doesn't want to pick up the hammer. So to speak, doesn't want to deal with tenants and toilets, doesn't want to have property management responsibility, doesn't want to trust the property manager in their town. And this is a way to kind of do it and create that passive income and reap the benefits of real estate without that direct active involvement. So there's an acronym that I really like that summarizes what real estate is all about. It's I deal. So I is for income, D is depreciation, E is for equity buildup, A is for appreciation and L is for leverage. So using money basically that's borrowed to buy something that's bigger than you could otherwise afford.

• 38:24Speaker 02

  And I think you could take that last piece, leverage and leverage the sponsor, you know, their skill sets, their business, what they've gone through to grow to the point where they're able to acquire a hundred plus unit apartment building, for example. So if you can leverage that person's expertise, not just leverage capital, you can get yourself into some deals that you otherwise wouldn't be able to get into. And I think that's probably the biggest benefit. But as I mentioned at the top of the show, for my personal portfolio and for others that are looking to diversify, this is a great strategy. To do it in real estate because it's not that easy to diversify in real estate. You know, in this way, you can get into different markets that you don't have expertise in. You can get exposure to different areas of the country that are experiencing different, you know, economic or population booms.

• 39:09Speaker 02

  Again, you can leverage that sponsor and you know, you can leverage the ability to get into different asset classes. I don't know how to operate, let's say, an industrial facility or a retail strip center or a mobile home park. But these are all things that you can invest in as a limited partner without that specific expertise as an operator. You leverage other people's skills.

• 39:30Speaker 01

  Yeah, I think diversification is probably the, the number one exciting thing about this type of investing because as Paul said, by market, by operator, by asset class, and you can just get a really breadth of investment and you're still in real estate. And the other upside is Paul mentioned, you're effectively hiring an asset manager. This is their profession. This is what they do all day. Right? So they're going to be better at it than you probably if, especially if you're going in an asset class you know, nothing about, right? Like there's car washes, there's RV parks. I mean, there's everything. And as far as the downsides, you mentioned it, Dave, one of the things that I did not think about enough is liquidity. Right? Because I just kind of went all in and then I realized, oh yeah, I need to save some cash

• 40:15Speaker 01

  in case there's other opportunities or emergencies. And so I think liquidity is something to think about. And also to be honest, this isn't something that, you know, you can't get in it by house hacking or wholesaling. You need capital and you mentioned it, $50,000 is typically the minimum. If you're part of a community, oftentimes you can get into deals for 25,000. But that's like, you're not going much lower than that unless you do some, some different types of things. So you have to have capital and you have to understand that you need to protect liquidity because once you invest in this deal, you could get your capital back in two years or 10, and it's completely out of your control.

• 40:48Dave Meyer?

  I agree with you. I've used it for diversification and to open up skillsets. I don't have, like, I think what sometimes when I tell people I invest in syndications or more passively, I get pushback. They're like, I don't want to pay someone else for something like, you know, you have lower. And I just don't think that's true because I'm not going to rehab a 50 unit building myself. I can't even rehab a five unit building myself. So, you know, I hire people to do that, you know? And so I'm just going to hire people to expose me to these bigger opportunities because I'd rather get, you know, pay someone 2% management fee to get these huge opportunities for equity gains

• 41:31Dave Meyer?

  that you can get in these markets. And I encourage people to think of it that way. You might be giving up a little bit, but you're paying, as Jim just said, you're paying an expert to help guide your investing. And oftentimes that can lead to much bigger profits because it's run really efficiently and you're going to get exposed to opportunities you wouldn't otherwise. Well, that's what we got today. Thank you both so much for being here. Jim, if people want to learn more about passive pockets and syndication investing, where should they do that?

• 41:59Speaker 01

  Go to passivepockets.com. You can sign up for a seven day free trial. Check out the community, check out the tools, the resources, the forum, all of it completely free. If you love it, stay on. If you don't, you know, seven day free trial, but passivepockets.com.

• 42:13Dave Meyer?

  All right. Well, Paul and Jim, thank you both for being here.

• 42:16Speaker 01

  Thanks for having us.

• 42:17Speaker 02

  Thank you, Dave.

• 42:17Dave Meyer?

  And thank you all so much for listening. We'll see you for another episode of the Bigger Pockets Podcast in just a few days.

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