Crowdfunding Real Estate Inside a Self-Directed IRA or 401(k)

Transcript:

(00:00) the key thing with buying real estate is you make your money at the purchase you’ve got to buy it right I think that’s something that’s really important as people understanding how they get their deal flow you know whether you’re investing yourself trying to find your own deals for your retirement account or your non-retirement account dollars or you’re investing with other people is do they have a competitive Advantage welcome everyone to the directed Ira podcast I am in Studio with Jameson mannering I on an away game okay I’m on
(00:28) Jameson’s home turf but um we were recording on his podcast the kiss my assets podcast where I was a guest I’m like dude we’re sitting here let me just do a podcast and I want to interview you so um thanks for being on the direct to di podcast yeah really excited to be here uh I love homefi advantage and brought you over here I was in your studio last time so glad to have you here today it’s fair that’s how it works you know you have an away game a home game we kind of split it up so um well I want to talk about self-directed Ira in
(00:56) real estate I mean obviously we’re on the directed Ira podcast what are we going to talk about but the reason I want to talk about it with you right now is you have had over 1,000 investments from people using a self-directed IRA their Ira 41k money to invest in real estate so why don’t you just tell us about neighborhood ventures in what it does and why people are even using their Ira to invest with you guys yeah we launched neighborhood Ventures uh six years ago in that time we’ve done 19 total investment offerings okay uh 15 of
(01:29) those are individual properties which are done uh as syndications is what they’re uh kind of referred to historically so meaning like an investor goes in on that one property correct okay so they you like Market this is the property and these are multif family yeah we’re we’re doing all multif family we do it a little different because we do everything online we we’re a investment platform and we use crowdfunding laws to enable this yeah and so each of our investments has a lot of investors uh compared to a traditional syndication so we we we’re
(02:06) in the the hundreds every time uh 200 300 investors in each of our projects we’ve also done a couple of funds yeah and we have one fund currently and then we also have a Reit NV Reit yeah which um is uh kind of our Flagship fund now as we’ve done these individual projects and what we have found is uh our invest ERS have found us and many of them had already discovered uh the ability to self-direct their retirement account some of them come to us and they’ve uh We’ve educated them about that opportunity and we’ve helped them uh
(02:47) facilitate that with uh direct your company direct. Ira so that they could create those accounts but there are so many tax advantages to using retirement accounts and we’ve we initially learned a lot of that from our investors and we saw how many of those investors were doing it already yeah yeah and uh so it’s it’s certainly caught fire uh for me personally and across our investment base we try to get as many of them to uh understand it and so that they can utilize that as as possible yeah I mean I think one of the things that’s
(03:20) interesting about what you guys are doing is I mean you’re working with a lot of everyday investors you know it’s not like you’re going to the family office or the uber wealthy to go get a million dollar check or something I mean you guys are raising on you know and could be $25,000 minimums I think even in your in your crowdfunding stuff with the minimum is five grand or yeah yeah so we our in our reat is a $100 per month minimum we have a lot of people who put in $500 a month on the 15th of every month and it’s automatic um we
(03:51) have big investors as well but we have uh your your everyday investor when we when we created the company uh and and founded it and I came from a Wall Street background my clients were hedge funds and mutual funds and I didn’t want to spend any more time Jon worked at Goldman Sachs you know he doesn’t like to say that out loud but you know he he works on Wall Street for the evil empire depending on the on the news of the day that’s a good thing or a bad thing but um I was talking to hedge fund managers who were
(04:23) trying to take you know uh their billion dollar fund and and get a 20% return on it and when we launched this company I knew that I wanted my customers to be people who were like me and like my family that were entrepreneurial working hard so we opened it up to everybody not just the wealthy so we have we have wealthy investors we have everybody in between and our offerings are structured that way so that everyone can participate in this great asset of multifamily yeah and I think that’s great because a lot of people are
(04:57) interested in investing in real estate whether you their Ira or not and one thing with neighborhood Ventures that I thought was just so unique is that you guys are approachable in that way where it’s like oh I got a million bucks to deploy I got 10,000 you know I mean your team will talk to either one of them and kind of go over the deals and what you have available and there’s opportunity for everyone they don’t have to be an accredited investor necessarily either right yeah so um so I think that’s that’s pretty cool and I remember one of
(05:25) the first times I came over here um to your guys’ offices you guys had like a little get together with some of your investors and like a lot of them like have like been to the properties that you guys have bought and they’re like we got to talk about the countertops that we’re going in the remodel right do you still do that yeah our one of the things our investors love the most is our open houses so when we go buy a property we remodel it and we do an open house so all the investors can come and see what they’re investing
(05:53) in and one of the things that I learned both with my own Investments and as I worked with uh our investors and investors in general is the more access you can have to where those dollars are going the better you feel about it yeah the more you understand it and the beauty about real estate obviously is it’s tangible but a lot of times when you’re investing in a in a Reit or a big uh syndication or fund with real estate you have no idea where that money is going so we want to keep it to to where our investors can go and Drive by the
(06:28) property and there’s just something that that about that yeah and uh so so our open houses are are a a a big thing with that and we’ve also got a lot of good feedback from our investors so one example is we’re in the process of converting a a hotel into a an apartment building we’re in the final stages of this get some local press on that yeah yeah we public just uh just did an article about it and you know housing is is a big shortage right now espe AFF housing and we’re in the process of conting a hotel that was a of
(07:06) a neighborhood and and had multiple calls to the police city the city of Mesa Police a day we we bought it we we’ve uh those calls uh since we bought it have uh basically gone to zero we’re operating it still as a vacation rental but we’re converting it to an apartment building and we had over 300 of our investors sign a petition as well as a bunch of the local community sign a petition that we sent to the city as we applied for this um resoning yeah and um and for us that’s a a big strategic advantage that we have
(07:43) local yeah investors and stakeholders who are supporting this because that matters a lot to the city when they see that yeah and plus your partner John I mean I know you had this uh career on Wall Street you go to be LifeLock you’re an executive there and um and I remember you tell me your story before is you were the money you’re making on Wall Street or in Corporate America you were buying real estate right right right and like that’s where you were deploying that Capital despite being in that space every day which I I think is so
(08:13) interesting and then your partner in the space too uh from the real estate brokerage side right and um and I’m you’re telling me about him too that he like The Brokerage is like they sell more multif Family Assets in the southwest than anyone yeah so I met uh my co-founder John kabowski uh when we when I was actually looking to buy a building myself his one of his his broker showed it to me and I told him I was really interested in crowdfunding it and he said well oh my boss talks about crowdfunding all the time and I I said oh what’s his name he
(08:46) said John kabowski and I just jotted it down and I sent him an email a few days later and um we ended up meeting having this long conversation and decided to to partner together to create neighborhood Ventures so John spends about half of his time running ABI multif family they’re the largest apartment broker in the southwest yeah they sell more apartments in Arizona than anyone and about half of his time working with me at neighborhood Ventures and we’re here in the same office which helps but we’re able to Source our
(09:19) deals from uh ABI multif family and just to help people understand when when you’re selling an apartment building most sellers would prefer to sell it off Market yeah rather than have to put it on a multiple listing service or to list it with a broker and have people doing tours they would rather sell it directly so uh I would say 80% of the properties that we’ve purchased have been off Market deals directly with a seller and now we are um also seeing uh direct deals from banks that we have relationships with and that ABI has
(09:58) relationships with that they’ve taken back on some of these deals yeah and we we saw some buyers for apartments come in and buy them at the top of the market in 2021 2022 uh they they got them at four or five% interest rates and now those rates are at 10 11% and they’ve reset and they paid top dollar for them and they’re not in a position to try to service that debt going forward and we’re uh We’ve launched our fund uh Arizona multif Family opportunistic Fund to go buy some of these distressed assets yeah so uh the key thing with buying real
(10:39) estate is you make your money at the purchase you’ve got to buy it right you’ve got to buy good real estate uh but you’ve got to buy it right and if you want to have a good return then you have to manage it well and you have to sell it at the right time yeah but if you miss the first one if you buy it wrong uh it’s really tough to recover from that so that’s our main Principle as we look at buying our our assets and taking them uh put either putting them in our reat or offering them to our investors is ensuring we’re getting a
(11:08) really good deal on them yeah so right now I know one of the things you have is a distressed opportunity fund right now that you guys are raising for looking for those distressed opportunities and I told you even before I came over here uh this morning I was talking to a another uh relationship of ours that does multif family syndication and you know he’s had some tough deals he’s had some good ones and bad ones had to work out but he said man I wish I was in the position to just acquire more deals right now
(11:35) because the rates out there right now with what you have to pay if you can make the deal work now he’s like that deal is going to be awesome in five years because I could likely refinance get a better rate and I’m going to look like a genius in five years but you have to buy right right and so I think for a lot of people using their self-directed Ira whether you’re doing your own real estate deal right or you’re investing in someone else’s deals is uh You’ got to buy right and I remember I had a um a client of mine that was a that
(12:04) was just a flipper in Southern California he’d flip houses and did hundreds of them when I say just a flipper I mean he was he doing very well okay he’s great dude um he used to always say he’s like you make money when you buy you realize the money when you sell right and so he’s like I never like if if I I knew what type of money I could make when I bought it so what are you guys specifically looking for right now as you’re buying um that maybe be helpful with other people that are looking to invest either with you guys
(12:36) or doing their own real estate purchases and Investments like what should they be looking at right now so the big thing that we’re looking at right now uh from a macro point of view is what’s happening with interest rates which has a big impact in the value of apartment buildings in commercial real estate sometimes not so much with residential but with commercial it has a big impact because you’re dealing with sophisticated buyers who are always putting debt on a almost always putting debt on buildings and so the the cost of
(13:10) that debt has a lot to do with what they’ll pay for a building and we know that we’re uh we’re at the peak of where interest rates are most likely going to go the FED has said rates might be higher for longer but they’re already in a restrictive territory and so going forward they are going to keep them in a restrictive territory until inflation gets to where they want it to be but the Outlook over the next one to four years is interest rates are most likely going to go down that’s the bet that we’re making yeah interest rates if they go up
(13:45) a little bit from go out from here it would likely be just incrementally not a lot they’re most likely to go down into more uh more traditional uh range and so when rates go down the value of real estate will go up uh as those rates come down they there’s an inverse effect kind of like with bonds as interest rates go down real estate tends to go up and as as rates go up value real estate goes down so we expect interest rates will move down over the next few years if you can purchase good real estate right now
(14:19) at a discount from some of these situations where uh the current operators are not able to service that debt yeah uh I think right now is a rare opportunity as a younger guy who was not in the the business during the great financial crisis uh right now is the best time to buy real estate in the last 15 years this is kind of the first time we’re seeing an opportunity like this so we are raising Capital to go buy these assets you have to have the capital ready right now because the best assets that you have access to you have to
(14:54) close quickly sometimes it’s in a week or two so you have to have the capital uh ready dry powder mhm and we want to buy Assets in core neighborhoods so we’re not buying stuff out in the tertiary markets we want to buy stuff near mass transit near employment centers core areas and uh in those core locations and uh we’re looking to buy stuff at least a 25 or 30% discount to where we think it would be normally in a normal Market interest rate environment and we’re seeing those deals there not hitting uh the General market but we are
(15:32) seeing those deals through our our relationship with with ABI and and these lenders I think that’s something that’s really important is people understanding how they get their deal flow you know whether you’re investing yourself trying to find your own deals for your retirement account or your non-retirement account dollars or you’re investing with other people is do they have a competitive Advantage because on the oneand you could say well I’m still going to invest because I believe right now is a good time to buy just from a
(15:58) macro stand Point like you explained like it’s just a good time to buy because the the market in general is discounted because of where rates are at and so I think there’s there there’s good reason to do that right and you could buy into that philosophy but even better if I can get the better deals within that General market where there is some distress or there is some reason I get at a better deal than the property next store that’s not distressed and so I think when you get that now you’ve really got an awesome investment
(16:28) opportunity and that’s where we’re at we’re a little picky right now because we have such good deal flow yeah um we have friends who have bought some deals that we’ve looked at in the last six months that we passed on and they’re they’re someone else buys them and we that’s that’s great uh good luck to them on that and maybe they’ll do well but we’re more picky because of of that Dill flow and uh we know what we want and we feel like um there is going to be a window here in the next one to two years as interest rates stay higher for a
(17:02) little bit longer yeah uh there’s going to be some distress it’s not going to be widespread um I would classify it more as stress versus d-stress there’s going to be a few folks and a few deals that come up uh that are going to be these really unique opportunities so you have to have the capital available and these are the times that you want to go by as much as you can uh these good ass that’s in these good locations Okay cool so um I want to talk about the Reit though that you have too um so you have Envy
(17:38) Reit neighborhood Ventures Reit that’s not Nevada Reit you know there’s we have Dakota Reit that’s another play we have I was like okay neighborhood Ventures read just want make sure every gets that that’s the envy and um uh tell me what you’re doing with that right now we love the reach structure for Ira investors in particular because they don’t have to worry about udfi and all that they’re automatically exempt from that it’s just kind of clean and easy I don’t think udfi is a bad thing in other funds in general I just haven’t seen clients have
(18:07) to pay a lot of tax and if they do they’ve usually got an excellent return so that’s a little unique issue if you don’t know what udfi is there’s a chapter in my book on we got other podcasts specifically about that that’s a unique Ira angle on the NV re but just from an investment perspective why did you come up with NV re and how are you using that right now yeah kind of the simple version is we had several properties that we really liked that we had put low fixed rate interest debt on it and we didn’t want to sell those
(18:39) properties but you had investors that were like hey you told us we were going to be in this for five years or something like exactly we’re waiting for our money to come back that that that’s just it so typically we would go sell those and that was the expectation from our investors so we decided to launch EnV read so that we could hold these assets for a longer period of time and give our investors liquidity through the the re structure they can let us know if they want to redeem shares and then we’re continually raising
(19:09) additional Capital uh so that they can uh cash out on those shares as much as they want yeah and so we launched the reat last year our uh net asset value price is $100 per share right now we it’s a 5% uh dividend yield on that on that 1% or on that $100 the annual you pay that quarterly or monthly we actually pay it every month 10 of every month and we have some really exciting things happening this year uh uh for kind of Reit nerds there are many uh advantages to having a Reit one of them is called an U re yeah where you can
(19:46) take assets that you currently own and um bring those assets into the re tax deferred yeah uh we’re going to be doing some of that this year uh for those properties that have low fixed rate loans those properties are performing really well we love them and rather than sell them to somebody who’s going to have to get a debt at 7% we have three 3% that that stays on the property that’s going to be a big advantage to our Reit and um and then the other big aspect to the Reit is when we do sell these these buildings we can do a 1031
(20:21) exchange and go purchase the next building so there’s there’s many aspects to the the Reit that give it investors an advantage and um the way that we split that out is 80% of the upside to the the value of the reat goes to our investors 20% we keep for managing the fund so it’s a 820 split which is very aggressive for the investors and um over time and especially as we look out over the next few years I think that rents are poised to uh perform very well mhm M we know that uh there’s a shortage of Housing and there’s right now there’s a
(21:04) big disparity between what you’re paying to buy a home versus what you pay to rent a home the biggest in 40 years over 50% more expensive to own an equivalent property than to rent it yeah but over time that Gap is going to shrink yeah and um and rents are likely to move up over the next five years um as uh the uh this new supply of apartment buildings that have come on the market over the past few years that Supply is starting to go down as we as we look at uh the supply and uh we think rents are going to move up over the next five years
(21:43) pretty dramatically but I think right that’s just an interesting point right there on the the shortage of Housing and the spread between price of home ownership versus the cost to rent I think if you’re a landlord in general whether your own single family homes yourself or in your IRA or you’re investing multif family where it’s a little more on steroids I guess here is if rates come down that’s good for you because you can refinance your debt and you can save money there um it makes homes more affordable which Narrows that
(22:15) Gap yeah between rent to homeownership which makes your rent increase a little less powerful but if rates stay high no big deal that means the rents can go up more it’s more likely they’ll go up because the cost of home ownership tip is up so it’s you kind of win either way I guess either way it goes if if the rates stay high the rents are going to continue to grow definitely not fall and if they go down that helps you to refy your debt if you need to if there’s a better rate no you’re you’re hitting it right on the head there’s so
(22:45) many advantages to being in multif family as an owner because of the optionality and to your point if rates do stay high and the cost of housing does does stay high rents will come up to U meet to hit that equilibrium of what it cost to buy a home um and uh and at the same time if rents do if rates do come down then we you can refinance your debt and the value of your building uh uh goes up so and one of the things that we learned during Co was when um people have tough financial times they pay their rent first yeah and
(23:30) so as I look at all the different asset classes I love multifam because uh and we see this on the first of the month people get their statement to pay their rent they don’t pay their rent on the seventh and the eth the first of the month we see you know hundreds of thousand dollars come in because people are paying their rent they know that that needs to be paid first um and uh the optionality to your point uh in in a good Market if the economy stays strong people can continue to pay their rent if the market gets a little tough and there’s a
(24:07) recession rates come down and as a an apartment owner you benefit from that scen as well yeah okay awesome this is fascinating so um I could geek out on this real estate stuff forever but you know we do have to end these podcasts they’re not they don’t go forever and I got to respect Jameson’s time so thanks so much how can people learn more about neighborhood Ventures what you guys are up to where should people go yeah our website is a great spot because all of our offerings are displayed on our website so crowdfunding is fun because
(24:37) it’s very transparent you can see all of our past offerings you can see how many investors are in those past offerings and then you can see our current offerings that are open we don’t have any individual projects open right now yeah we just sold out of our last one but we do have our Reit and we do have our opportunistic fund which are open okay um you uh you can see those you can see which ones you qualify for you have to answer a few questions and then also our our YouTube channel uh if you just put in neighborhood Ventures and YouTube
(25:08) we have a lot of great education there uh uh for folks uh as they’re looking at should I invest in multif family why should I do it as as you start that process uh so we try to do a good job to to help people as you’re making that decision uh to be informed to understand what you’re investing in and and uh and then you know our events are a great thing if you’re in Arizona you can come out to one of our open houses that we’ll be having uh we have a couple of those a year okay cool and the website is did you say it I don’t remember yeah it’s
(25:39) neighborhood. Ventures okay neighborhood. Ventures that’s right and I’ve messed that one up before all right so neighborhood. Ventures yeah if you just put it in Google neighborhood Ventures it’ll pop up okay because it’s a unique name which is which is good but yeah and you can find Jameson he’s an influencer now I’ve seen your followings grown you got a pretty good following now with you guys uh yeah I’m trying it too I’m trying to be an influencer trying to be a YouTuber so um but anyways thanks for being on um this
(26:08) course was not like an endorsement of any Investments we don’t do that at direct at Ira but I just think Jameson is just a smart guy to tap into his knowledge about real estate they’ve got a lot of great content and stuff you can learn from them and we’ll be back next week with another episode of the self-directed IRA the directed Ira podcast about self-directed Diaries until then stay calm self-direct on