EP 12 – Due Diligence Top Ten List When Investing
Mark and Mat go over the top ten items you should consider when making an investment. Whether using a self-directed IRA or other funds, these ten items or more (we may go over ten) are critical to consider when investing in real estate, a private company, a private fund, or when loaning money to someone else.
Mat Sorensen: Welcome, everyone, to this week’s special episode, which is a co-production of the Main Street Business podcast and the Directed IRA podcast, we have the co-host of that show, Yours truly Mat Sorensen, along with the guy who started it all. Really, Mark J. Kohler.
Mark Kohler: Well, thank you, Mr. Sorensen. And this topic is important. We have to do a production. We had to make sure that this topic was like it really should be on both podcasts.
Mat Sorensen: And this wasn’t Mat and Marc being lazy about doing two different podcasts and trying to get a two for one. That just happens to be a benefit.
Mark Kohler: Yeah, there’s that that was not even thought of it. That was the end part of it, I can assure you. So, thanks, everybody. Yeah, you might be never even heard of Main Street Business podcast. That is our separate podcast. It’s all about small business, Main Street America, side hustle, big business, small business. But entrepreneurs, we love that. Saving money, making money, protecting it. If you haven’t heard of the Directed IRA podcast, that is our podcast, separately dedicated to investing your retirement account SEP, simple Coverdell IRAs, 401k, Roth, all the above and taking control of your retirement accounts and anything related to that. But today’s theme Mat someone who’s written on this. You’re passionate about this.
Mat Sorensen: I’m passionate about is a chapter in my book baby, Due Diligence. How exciting can that be? I know before you turn off and you’re like, wait, what did I just start listening to a podcast on due diligence, you know, hang in there. OK, OK, bear with me. OK, we’ve got a top ten list. Now, Mark and I did this about ten years ago. I want to say I don’t if it’s a webinar or really old podcast or back on market, his radio show, I don’t know. But we came up with this top ten list and we really sat down and we’re like, okay, what are like the ten things we wish we could tell clients before they go into an investment when they’re taking some money, whether it’s their personal funds or their IRA or whatever, and they’re investing into some deal. What do we want them to think about and we made this top 10 list and in homage to David Letterman, if you will.
Mark Kohler: Yes. Now, what happened over those 10 years? Sorry that we play off that number a little bit here for a moment in really the list is expanded and or we’ve really gosh, after 10 years of helping clients around the country, we’ve learned so much, seen so much carnage and success, both extremes and a lot of in between, we felt like we really needed to have another podcast that updates this topic. Now, since then, Mat’s written a chapter in a book and I talked I did a webinar for a group the other day and covered what I thought was the top 10 or 12 or 15 or whatever. So at the end of the show, I can guarantee you there’s going to be more than 10, Mat said he’s going to update his most current blog article on this. I’m taking notes and I’m looking down at the list of 10, and I’ve already got a few thoughts. I just want to give a shout out to Brian, a family relative that I talked with yesterday about this. And I said, dude, you’ve got to listen to this podcast when we’re done, because he was debating an investment in a PPM, which we’re going to talk about here. And so this is good stuff. It’s a good reminder for all of us.
Mat Sorensen: Yeah. And of course, we’re processing them every day here at Directed IRA. Some I mean, 10 times a day we’re processing some investment into a PPM or other type of investment like this. And it’s your job, you know, it’s not your IRA custodian. And you can engage a lawyer or other professionals to help you do due diligence. But at the end of the day, it’s the investor’s responsibility. As we always say, you’ve got to be captain of your own ship, so to speak. You’ve got to be the one at the end that knows what’s going on, even though you may be engaging professionals along the way. All right. Now, what we want to do is hit that. We’re going to just run through the top 10 first, give you the roadmap so you kind of know where we’re going. Then we’re going to go back and go through on and probably elaborate and add in some more. But let me start. You want to want me to hit a few Mark? You hit a few.
Mark Kohler: Yeah, I’d like that. When I listen to my podcasts, I kind of like to see an overview of where we’re headed because many of you are like, I’m really going to keep this podcast on. I don’t I don’t want to be held captive till I get the final 10 or 12 or 15, whatever it’s going to be. And so I’m.
Mat Sorensen: The tenth is the best one. That’s my favorite, actually. So which one of the tenth one. But one.
Mark Kohler: OK, all right. Ok, I’m going to start writing them down and then I’ll you do your ten and then I’m going to add a few to it.
Mat Sorensen: You know what I’m gonna do? I’m going to go backwards. OK. OK, OK, start from the end. All right. Keep that in that.
Mat Sorensen: Number 10, be comfortable saying no.
Mat Sorensen: Number nine, I’m just paraphrasing these.
Mat Sorensen: Number nine, seek the opinion of another investor, a business owner. Now we’re going to elaborate on these and give some examples as we go.
Mat Sorensen: Number eight, make sure the lawyer representing you is representing your interests. Not the other person’s elaborate on that.
Mat Sorensen: Seven, if you’re pressured that this opportunity will pass, if you don’t invest, don’t invest.
Mat Sorensen: Six, investigate the background of the person or persons you’re entrusting your money or investment with.
Mat Sorensen: Five, if you’re investing in a PPN, you should get a lot of documents and paperwork. It’s a little lengthy explanation, but that’s suffice for now.
Mat Sorensen: Four, if you’re loaning money on real estate demand some type of protection on title on the real estate, there’s different ways you can do that will go through the different options you might have.
Mat Sorensen: Three, if you’re told that you can get a commission for bringing your other friends or family members into this investment, don’t invest your money in the first place.
Mat Sorensen: Two, if you aren’t given adequate documents outlining what’s been explained verbally to you with the commitments that were verbally told to you in a sales pitch, don’t invest.
Mat Sorensen: And number one, if you don’t understand how the business or investment makes the returns being promised, don’t invest.
Mat Sorensen: All right, that’s the top 10 list now we’ll circle back and go a few more,
Mark Kohler: What was the last one in the last one was.
Mat Sorensen: Number one. If you don’t understand how the business or investment makes the returns being promised, don’t invest. Basically, if you don’t understand it, don’t invest in it. Yeah.
Mark Kohler: And you know what’s crazy is Mat and I taught a class on this. We co-taught a class for a group in Phoenix years ago on this, and it took three hours to go through this stuff. This is a lot to cover. So we’re going to do our best to maybe just kind of highlight a few thoughts on each item. Now I want to say one, two. I’m going to throw out a few. Don’t put all your eggs in one basket if you’re going to invest. That’s OK, but don’t. And we’re going to talk more about it, so I won’t elaborate. So don’t put all your eggs in one good.
Mat Sorensen: So don’t go out and I don’t go out and buy GameStop stock with your entire portfolio.
Mark Kohler: Ok, I’m going to put this one. Know the difference between being a lender, a partner, or an investor. You’ve got to know that difference. Watch out, I’m going to put watch out for Affinity Fraud. Watch out for Infiniti. Fraud.
Mat Sorensen: Is that is that like the car infiniti or is that like the affinity, like an a, it think it’s technically affinity affinity, meaning that’s not like I bought a I bought a bad Infiniti car. That’s different?
Mark Kohler: Yeah and Mat’s got a story about that. Yeah, you’re talking about affinity, meaning you have a familial relationship or some sort of a relationship with someone other than the actual deal. Yeah, I’m going to put another one. No, in this goes along with Mats, if you don’t understand the deal walkway, but I think know the terms, know your terms and I’m going to give an example with this one. Know your terms. And what an accredited investor is. Now, there’s more terms than just accredited investor, but that opens the terms because I when I was with Brian there, he said, you know what a PPM is he goes no. And I go, OK, tell me about this deal. It was a PPM. And so you want to be able to know terms that promoters might throw around so that, first of all, you’re going to look far more savvy. They’re going to be held to a higher standard. And I think you’re going to be able to ask better questions. So we’re going to talk about that. But know what an accredited investor is. Is that OK, Mat?
Mat Sorensen: Yeah, love it.
Mark Kohler: OK, so I added I added 1, 2, 3, 4, so we might get to 15. I kind of like around number 15, but there’s 14. Right. OK, so we got to go back to the and say say number one.
Mat Sorensen: Ok, let’s go to number one. We’ll start there. If you don’t understand how the business or investment makes money, don’t invest. It seems pretty basic, right? I can’t tell you how many times I get documents from a client that wants to invest in something. I’m like like how does this make money? Like when do you get money? Like, they have no idea what the plan is of the business. They’re just given a document that says pretty much here’s how much you need to invest and here’s where to wire it to. It’s like, OK, I mean, that I wouldn’t spend that much money on those types of conditions. So make sure you have a good understanding of what the business is and how to invest. Now, one of the big crazes has been crypto. Crypto has been hot. How many of you understand crypto? There’s a lot of people that bought it that don’t understand it. And there’s two different theories on crypto of why people buy it. I want people to buy it as a store of value like Bitcoin and see it more like gold. And it’s a store value. And there’s people who buy it because it’s a technologically more savvy way in the future of transacting, which could be other cryptocurrency is not necessarily bitcoin. So but just if you’re going to get into crypto or whatever it is and put lots and lots of money in it, like if you want to throw five hundred bucks at it or a thousand bucks whatever, you know, that fits your budget. But if you’re going to go all in on an investment, which a lot of private investments take a 50 grand minimum, understand what the heck it is. Dig deep in it. Do some research. That’s number one for me.
Mark Kohler: And I want to tell a quick story about this one. Maybe I’ll be color commentary sometimes. Maybe Mat will tell a story. You tried it. Here’s the story that goes along with that one with me, and I’ll never forget it. This guy was from Texas and he was kind of I don’t know. A lot of people I know from Texas are colorful. Guys or women. They’re they’re fun. They’re boisterous. They’ve got a lot of personality. I don’t know what it is in Texas, what’s in the water down there. But I remember talking with him and he was like, Mark, you know, I’m looking at this deal and he’s telling me about it and goes, Yeah, I didn’t do it. I looked around the room and realized I was the dumb money. And I was like, what do you live in? Let me repeat that, because I looked around the room and he goes, I realized I was the dumb money. And I said, What are you talking about? And he goes, Mark? He said, It’s just like a poker game. There’s someone at the table that’s getting fleeced. They don’t know what they’re doing. They shouldn’t even be at the poker table. And as soon as you can figure out who it is, the better, because if you can’t figure out who it is, it’s probably you. So if I if I can’t figure out who the dumb person is in here throwing their money around, it’s probably me because there’s always someone that’s just kind of the dumb money in the table, at the table or in the room. I said, all right, I like it. And that was a fun standard to live by.
Mat Sorensen: So, yeah, I like it. OK, let me hit number two. All right. If you are not given adequate documents outlining what has been explained to you verbally, what’s in the sales pitch, why they got your attention in the first place, don’t invest. Now, this is a common one. We’ll see of clients that even well intended clients, I think, to make some mistakes. They’ll send the documents for the investment and this is sent to is a lawyer, you know, there’s some talking about me as a lawyer, not at directed IRA, I’ll just be clear that we’re self-directing to give you some documents over and say, send money for this. We’re sending money like I’m not we’re not overlooking you and saying, don’t do that, or you should at this. Like, that’s not their role. But I’m saying as a lawyer here, you know, I get documents from a client and they say, yeah, I’m investing in this. Here’s what I’m getting. Here’s why I’m all excited about it. And then I go read the document has nothing to do with what they told me they were getting. It doesn’t even say the terms. And it’s very generic. It’s confusing. What the person thought they were getting is not actually in the documents. And but then clients would say, yeah, but they emailed me and said I would get that OK, then put it in the documents because I guarantee you, you ain’t getting that at the end of the day from a legal standard. There’s something called the parole evidence rule, OK? And this is not the evidence that you’re going to put on at your parole hearing when you’re trying to get out of prison. This is something different. But there’s this rule that’s like, hey, and then a contractual deal. What’s in the contract is what’s in the contract. And that’s it. Once you put a final agreement to writing, you’re like, I’m investing. Here’s the money I’m giving you. Here’s the terms I’m agreeing to get back everything else outside of that contract. The emails, the prior conversations is inadmissible. You cannot even use it in your trial to say, well, I was promised I would also get this. I was also supposed to get that. Even if it’s an email, it’s in writing and it’s unmistakable. OK, so make sure that at the end of the day, the final documents that you’re signing off on when you’re investing represents what you understand the investment is.
Mark Kohler: Here’s my example. Let’s talk to someone we know this is good, maybe you are going to say the next.
Mark Kohler: Yeah. And you get to do the example on the next one. But here’s the example. I was talking to someone recently and he was talking about his friend. Now, this is going to go down our affinity fraud concerned later. But he was talking to this friend in his neighborhood that’s obviously successful. Big cars, big house, flashy this, flashy that. And he said he was telling me about the deal and he says, you know, normally we go after the big folks, you know, and the big money. But I can find a spot for you, you know, like will make it. And he goes, yeah, but then he goes and he says, Now, this is what our normal returns are. I mean, we’re we’re doing this. We’re getting three times that and two times this and all this now. But I just want to give you the base. Bare minimum, though, we’re going to at least do this. And that’s what you’ll see in the documents. But let me tell you otherwise, I mean, it’s really got a little. You can’t if they’re going to give you fluff and all these amazing promises that better darn well be in the frickin document. And don’t you dare rely on it unless it’s in the document, and when I was talking to him, I said, well, that’s what he said, well, but I’m going to I’m going to. But at least I can guarantee this. And so I’m going to put that down. That’s because he has to put that down. The SEC is making them put that down. That’s because they can’t put in writing what he’s promising you. It was phrased in such a way that it was like kind of a wink wink. Yeah. I got to put this in writing a good deal. You know, this is really the good stuff over here. And you’re like. Be wary of that whenever they promise better be in writing or it ain’t worth. This is a family show. It ain’t worth it to put a word in there, but, you know, yeah,
Mat Sorensen: Insert your word here. OK, love that one.
Mark Kohler: Now can I. Yes, can I do one? I’ll explain. And then you give a for me or any sort of example. OK deal number three. If they come to you and say, hey, by the way, if you can bring someone else in, I’ll get you a commission, a kickback, I can get your percentage. I can if there’s any sort of perk. Offered to you. For bringing someone else to the table that is illegal, that and when I say illegal, I think the SEC would probably call it criminal if it got bad enough that enough people were brought in and made promises. You’re going to get indicted along with everybody else because the person that loses their money is going to say, well, so-and-so introduced it to me. And if they go to that person under oath and go, did you get any money for bringing that person in? No, but I got two more percent. That’s money. But I got a car that he let me have that money that. So if someone’s offering you a commission, you want to walk away right there because, you know, these people were playing in the gray area.
Mat Sorensen: I’ve seen that one so many times. And when Mark says the SEC I just want to be clear. We’re talking about the Securities and Exchange Commission. This is not the Southeastern Conference, also a very formidable opponent that you don’t want to have to deal with. But we’re talking about the SEC. OK, so here’s one that I had. This is an interesting twist on it. This was someone who called up and wanted advice because he was told that if he brought investors and a friend of his deals, someone he met, that he would get 10% of what he brought in and he wanted to bring in his parents. Ok, now here’s my conversation with that client. I first said, it’s like, are you licensed, are you a financial adviser you licensed to get paid for bringing in investors? Anything. No, but it’s my parents. What’s what’s the risk like? They’re not going to sue me if this goes. I said, let’s take a step back. Let’s see what’s going on here. Somebody who’s you’re going to entrust your parents money with is going to illegally pay you a commission for bringing it in. Is that the type of business and person you want to entrust your parent’s money with? I was like, this is do you still want to deal with people, companies that pay those illegal commissions for bringing in money? You have to be very, very wary of. Now, there are some things called finder fees and things that are some exceptions, but that does not the finder’s fee. I just want to be clear on that. Exception does not apply on a commission. So a finder’s fee would be someone who’s like a public figure, you know, that’s like, hey, I’m just a public figure. And they basically pay you for marketing, but they don’t pay you based on money coming in or anything like that. So most of the time, what we’re getting called on is, hey, if I bring in investors, I get a I get a cut, I get a commission, basically a 10 percent, five percent, 20 percent, whatever.
Mark Kohler: So fee is legal. Yeah. And a flat fee is the same problem. They can’t say commission is not a percentage. It’s a thousand dollars. Same problem. Yeah. Yeah. But they but if someone comes to me and says, hey Mark, will you talk about it on your podcast and we’ll pay you $3,000 flat fee to talk about it. I’m still nervous, but that would be more that I talked about.
Mat Sorensen: The fee, not three thousand. I just want to say that’s a couple of zeros onto that. But, so commissions. So ok, OK.
Mark Kohler: Now I’ve got a good story for number five, which would be lots of documents you explain and then I’ll share a story on that.
Mat Sorensen: All right. We got Four still, we got the loaning money on real estate. You want me that one? I’ll explain that.
Mark Kohler: You were kind of going backwards. We did loans. Oh no no no loans get security. That’s where we’re at, right?
Mat Sorensen: Yeah, we’re on number four. OK. Yep. OK,
Mark Kohler: We’re going to do two. We’re going to keep splitting it up. Right. Ok, if you’re going to loan someone money. I think the best way to look at it is you’re a bank and when you deal with a bank. Do they just shake your hand and say, you’re off, go have fun, bring us back money. It is no being a bank means they want security, they want teeth in some sort of agreement, and they’re going to want collateral. And sometimes it’s a security agreement where you get a collateral could be a stock in a company, it could be think of a lien on a car and it could be a first trust deed or a mortgage on a house. And so you want security if you’re going to loan someone money. The main reason you’re doing a loan is so that you do have security, because if you’re just going to give them money, no, I want to be part of the upside. So a loan means terms. I’m going to get a fixed rate, a percentage return, maybe some points, and I’m going to get paid a certain time every month or year or whatever. And there’s a there’s a ending date of when this note should be paid in full. Well, that doesn’t mean you’re going to get rich. That’s a fixed rate of return in it because you’re willing to take a lower level of return. You’re going to get in exchange for that security. And what does that security you’re going to be and I would highly recommend our podcast on notes last week, on directed IRA, where we talked about the process and everything that’s included with that. But when you’re a lender, you should be looking for security. Mat, thoughts or a story?
Mat Sorensen: There’s a couple on this one, so I mean, one that I had, this is client came in loan someone money and that person had defaulted and they basically said, all right, I want to sue them and get a judgment against the property. I loaned them money and they did an unsecured loan, OK? And and to them, they thought, well, I know there’s this person still owns the property. I didn’t want to their thinking was I didn’t want to go through the hassle of using a title company and having to get it recorded. I don’t even know how to do that. But I can get on legal zoom or the web and find a promissory note that I can use to loan this person money. And so they basically were lazy. Let’s be honest. They were lazy and they were cheap. They didn’t want to use a title company.
Mark Kohler: And you say lender was under the lending cheap.
Mat Sorensen: And let me say this. When you’re the lender, when you’re playing the bank and you’re loaning money, you make the part the borrower pay for this. OK, you’re going to go to title and close this loan. And this was over $100,000, this this loan this person made. Go through a title company, the borrower pays for all those costs. Just that’s what the bank makes you do. They make you pay for all that stuff that protects them, but they make the borrower pay for it, do the same. So but he was just basically lazy and then and cheap. The lender now, he was defaulted and he came with this expectation of, well, I can sue the person because they still own the property and I’ll go collect against the property because I know he’s got some equity in it. So we thought, well, what do you expect happened? We go check title. How many people have sued this guy? How many construction liens does he have? It was a rehab project. How many other people loaned him money on this that actually recorded their stuff? I mean, it was it was a wreck. And so so the client had no security at an unsecured loan to someone’s company, actually, to which is another point here, not even to the individual that was basically doing a rehab deal. So you want to be careful? What I like to tell clients on this is think about kind of like WWJD what would Jesus do, WWBD? What would the bank do? I think, like the bank, the banks kind of like do all this stuff they’re going to run the borrower through. It’s up there. And he’s a title company. They’re damn well going to get a lien on the title and make sure there’s equity to make sure that they get paid back. And so if you want to be a banker and play banker, you don’t just, you know, where the cheesy suit or whatever the bankers do and work banker hours. You do the documents. All right.
Mark Kohler: I like how Mat used WW, JD and Swore with Damit all in the same sentence. Very, very. I mean, that tapestry was a tapestry woven like a Christmas story. My father could weave a tapestry of swear words as long as it’s hung over the lake for years. So that I get point quoting the first movie. Thank you. That is point quoting the first movie.
Mat Sorensen: Point Kohler.
Mark Kohler: Ok, should there should be lots of documents. OK, Mat. What do you mean by that?
Mat Sorensen: Ok, in a PPM is that what you’re talking about? We’re on number five now, yeah, yeah, yeah. Ok, so when you have a PPM, there’s going to be something called the offering memorandum or the private placement memorandum. That is PPM. OK, this thing is 30 pages or plus usually. And it basically summarizes the background of who’s raising the money, what’s their business plan, what are they giving investors? You know, it kind of lays out what the deal is. Now, another important piece that goes with that is what’s called a Form D registration. You can go to SEC.gov. If anyone gives you a private placement and tells you to invest, go to SEC.gov and go to the Edgar search. That’s what it’s called. And you can type in the PPM and find it. OK, that’s a quick way to verify that this person like actually file the form with the SEC to do a PPM and so you can do that yourself. That’s pretty easy to do. I’ll have the link in my article when I post that so you can find out where to go to that. But it is easy to find a sec.gov and that’s just an indication. If this person is following the rules, some people will just pull documents offline, try to do it themselves. They don’t know what the heck they’re doing. They’re being cheap. They’re not getting good advice. And let me tell you, those are the last funds you want your money invested into. The person that’s trying to raise money, that’s not talking to lawyers, is not talking to professionals, that’s not filing things in compliance with the law. That is the last person you want to invest your money with. That’s how they run all of their business activities. And you’re just giving them money to go cause more chaos and how they do handle their business. So that’s what I mean by documents. And one document check you can do is, again, SEC.gov. Edgar search is what it’s called, E D G A R. And you can type in the name of the offering and it should pop up. Now, I’ll say this, if it doesn’t, the only exception to that would be, is they haven’t received an investment because you actually get 15 days from the day your first investor invests in the private placement to file that. So if it’s brand new and no one’s invested yet, it might not be up. But also, that’s an indication you may not be want to be the first person investing because no one else has yet either.
Mark Kohler: Ok, now what I’ve been looking for is I actually wanted to read the if you’ve watched this on YouTube, folks, and by the way, you can watch this on YouTube, catch this on your iTunes, Spotify. But on YouTube, if you’ve seen me, I’ve been kind of looking down at my phone scrolling, looking for a letter that came from a client. And I swear I took a picture of it because I wanted to always have it in my phone. And let me start with explain the letter and if I find it great. But here’s the background anyway. I was at a conference and I’d been speaking all day and talking about things like this and tax planning and being safe and asset protection. It’s kind of more of an asset protection type presentation. So this woman came up after and said it was kind of in tears and she just handed me a piece of paper and walked away. This is about 10 years ago and I’ve kept a piece of paper and I took a picture of it so I could always share it if I was on the go. So I’ve just put it in my pocket and I got back to my hotel room and pulled it out and it was just a page and a half handwritten. And essentially the letter said, and I’m going to paraphrase it, and unless I get lucky along the way here, she says, Mark. This information you shared today was bittersweet. About three years ago, a guy that we knew well and she says approached my husband and said, hey, I’ve got this investment and he said, Would you like to invest your retirement in this project? And my I asked my husband, wasn’t there a bunch of documents we should sign? And the guy that was pitching, my husband said, what, you don’t trust me? And then said under his breath, this is really odd. We normally don’t have the wife in these sorts of deals. And this thing was just like all I said. Yeah, this guy, you know, class a jerk. And she said, so I we got home and I asked my husband, did he give you a bunch of documents to review, like when we bought a house or something? And the husband. Oh, I trust him. He’s a good guy. And then I turn the page over for the last half of the story and she goes, so as I listen to you talk today about asset protection. I am glad that I learned this for the future. But after a few months, we quit receiving payments. This man disappeared and claimed bankruptcy, and he basically says when she goes and it’s sad to know now that he’s swindells out of our two million dollar retirement. You know, she goes, we went to talk to security specialists and attorneys and the feds and the state to try to get our money back, but it’s all gone. Please share this story with others. Every time even paraphrase and I get emotional. And so when Mat said on one of his number five, you should expect to see a lot of documents, this woman immediately felt that she’s like, why isn’t there a bunch of documents to sign? And there wasn’t. And then she was pushed to the side, don’t you trust me? And the woman shouldn’t be in this deal. Oh, my gosh. And so it broke my heart. I’ve kept that letter and I’ve tried to share it whenever there’s an appropriate time, so I think that sums it up.
Mat Sorensen: You know, another great lesson there is trust your instincts too when you you know, we have these instincts. And I think, you know, I hit 40 this year. And I like to think of myself as old and wise now. But I thought I thought that all the might be, you know, my kids think I’m old, you know, so I like to think I’m old and wise. But anyways, you know, I just know. As I’ve gotten older, let me just say it that way, there are instances where you do need to trust your instincts and where I’ve regretted it, I’ve been like I knew I should have trust my instincts. I just didn’t feel right on that one. And so, like this lady in your example, I mean, her instincts were like, this isn’t right, doesn’t feel right. And particularly with that sum of money. And so trust your instincts too in this role in the number six, investigate the background of the person you’re investing with. OK, again, go back to what would the bank do if the bank’s going to loan someone money? They’re going to do a credit check. They’re going to look into the background. Are you employed? Let me see a paycheck stub. You know, like they’re going to go into this. Have you filed bankruptcy before? They’re going to ask these questions and look into it. So and also, when you’re looking into someone to invest with, trust your instincts to, don’t let them sell you on a pitch. One thing I think that’s really important is when you’re investing the cost of the deal, whether it’s a real estate deal or a new business or whatever it may be, the concept is important. But equally important, I think, is the person behind it OK? And because that person’s controlling in the end, whether you get paid back or not. So investigate the background of the person you’re investing with.
Mark Kohler: Ok, I got number 15 and I’m going to save it as a teaser, yeah, a little teaser for the end here, OK, I like OK at a round 15. That’ll be good. Yep. And I put trust your instincts in investigate persons. OK, now I got a good story now for some of you that are watching on YouTube. I’m not in the sexy studio today with the panel screen behind me and the little Dave Ramsey desk and all those goodies have an on location in Cedar City, Utah. And that’s where our home offices we started here 20 years ago. It’s about two hours north of Vegas, Red Rock Mountains. Kind of what you’d see in that in the energy Indiana Jones last crusade. Thank you. Point number two, job killing it for me, Smalls. That’s a point for me. All right. But I remember as I’m looking out the window right here, we had an office down down the hill here and I can see the rooftop of it. And I remember literally where I was sitting when this happened. So this is about fifteen years ago when we were in our other building. And these clients, I think they were from Vegas, they had emailed over and faxed up, remember, fax machines, kind of exciting to tape back over. I said they had loans. It was a daughter and her mom had loaned someone close to one hundred fifty grand somewhere in there. I knew it was I remember being over one hundred, but it wasn’t over two hundred grand. And I said, OK, tell me, give me the terms. What did you do. And she goes, I go. So they’re not paying, you know. And I said, well, send me the documents that you signed and there was silence and I go, you have some signed documents. Right. And it was she goes, Yeah, but it’s just one page. I’m like, OK. And I and they already knew they were in hot water and I didn’t and they were already wounded. So I was trying to console them through it too. And I said, well, send over what you got. And they sent it over and it was one of those fax machines to get it off the fax machine. Clear and present danger. Harrison Ford rips it off the fax machine. And I get an extra point for quoting a movie with Harrison Ford in both movies. OK, so then I wrote and I go, OK, and who are these people? And they go, well, we met him at an investment club. I was like, OK, well, who are they? And they go, well, they’re just in our club. And so I said, OK, well, I said, let me look into it. So it’s got off the phone. And the first thing I remember and Deborah Stanton, one of my employees, is still with me today. I love her. I said, let’s run this Google. Google existed back then people I said,
Mat Sorensen: This is not ask jeaves or you know.
Mark Kohler: I went to ask Jeaves who is so and so I went over to the Commodore 64. Pulled out the joystick. Yeah. Put their names in and I go put their names in. Not a good thing, one of the first things that came up was like this charge investigation by the within an hour we had printed out several reports that they had been operating under close to 15 aliases. And I was sick to my stomach and I knew their money was long gone and these people were now getting chased down a lot of times by the time you’ve lost your money, there’s already an investigation going on. Yeah, like, it just all unravels at once usually. And so we had to have that hard phone call and send it over, back via fax of it and send them this, you know, report of all these aliases. And it was just so sad. But it took us an hour. It took us an hour just Googling their names. And you can go now online and pay twenty five bucks for a background check on people. And if someone’s asking you for money and they’re not willing to share their Social Security number or a tax ID number or their full name, their birthdate. If they’re not willing to share that, you got the wrong person anyway, so when Mat says investigate persons, you might be thinking, why can’t hire Magnum P.I.? No, just get on the web, you know, get a report on a on some sort of background check. And it can be very affordable. You can’t call Jim Rockford.
Mat Sorensen: Dang Magnum PI
Mark Kohler: That’s a little Rockford Files maybe.
Mat Sorensen: Yeah, I don’t know. Rockford Files. You’ve dropped that one before. And I’ve always been I don’t know that I know Magnum P.I. because I’m a I’m a I’m a fan of short shorts. I’ve always rocked the short shorts. There’s kind of getting popular now, but I’ve always brought the short shorts, you know, nice seven inch, you know, up. It’s got to be like above the knee, anything sort of below the knee. Those are not shorts. Those are those are short pants. Those are not shorts.
Mark Kohler: Yeah, Mat’s the John Stocktons’s called John Star.
Mat Sorensen: Yeah.
Mark Kohler: That back in the 90s. Everybody is going long time. Yeah. And John Stockton still out there with his eight inch cut and feadin the Malone, the patterns.
Mat Sorensen: And I know you noticed the NBA. A lot of players are wearing short shorts now. It’s coming back. But younger players, I’m telling you, trendsetter. Ok,
Mark Kohler: You got a story. I can tell this one? OK, I got here’s what I’m going to do. Here’s the principal. Now it’s your turn. OK, OK, here’s the principal. If someone says you got to move now, you’ve got to hurry. We’re going to lose the deal. Send the money over. We’ll do the documents later if there’s any pressure at all. It doesn’t mean you don’t do the deal. Yeah, the hair should go up on the back of your neck and you go, all right, maybe there are some pressure. I get it. But let me investigate a little more carefully. And then the second point I’d make is I will make you promise on this podcast right now, Mat hates it when I make promises, but I’m going to make this promise and I will stand by it. All right, there will be another deal. Next month. There’ll be another deal, people, and the one deal that you’re going to miss, trust me. Now, this doesn’t mean you can go into analysis paralysis and never pull the trigger, but if you’re feeling pressure from someone, you’ve got to be able to say, you know what? There’ll be another deal. It’s not you know, this guy didn’t come up with sliced bread. You know, I’ll be OK. My story example.
Mat Sorensen: This is actually a positive one. I’ll keep working on where I was given the negative here, but I’ll give a positive one. So we had a client that was willing to loan money, kind of like a hard money loan on a real estate deal that was basically in crisis. There was a first position note that was wanting to basically foreclose. There was plenty of equity in the property. And the investor owner thought they had a buyer. They weren’t stressed about getting more money in time. The sale fell through for whatever reason. I don’t know. But my client comes in to basically save the day. Now, they were under significant pressure. They had like 48 hours to get this thing funded. And so you had a time crunch. Now, what did that client do? They devoted the next two days entirely to doing all the due diligence, making sure everything was done right, keep the documents done, getting title involved, getting everything recorded and really jumping through all the hoops. OK, and in many ways, that’s sometimes how you can find some opportunity, particularly in the private lending space and stuff like this, where there’s people are willing to pay higher rates and points for short term loans, but. You only do that when you can adequately jump through all the hoops and if you’re smart now, this client was well known in their space as a private moneylender and someone that could do a deal fast because they knew to analyze it fast. They had the team, they had the docs, they had the closing system. They knew how to check title fast, you know what I mean? And so so that was one that is like, you know, we saw turned around within 48 hours and I probably seen some faster than that. So it can be done. But I don’t think. Well, I better if I if you can’t if you don’t have the time to review it and understand it yourself, get professionals involved for the pieces you don’t know, engage title if that’s applicable. You know, if they’re supposed to be a lein, you’re loaning on real estate, for example, you know, to check the background of the person. If if you don’t have time to do that type of stuff that we’re talking about here, then don’t invest. But sometimes you actually can if you focus. Bear down, as they say in Arizona, that’s an Arizona thing, bear down and, you know, get your crap done.
Mark Kohler: Yeah, and I and you know, what they’re going to do in that 48 hours is the list we’re talking about. Yeah. You know, and I’d like I’m going to I’m going to add a rider to Mat little example if I make a short one, is that I like what he said. If you don’t have the time to get this due diligence done in that area, don’t do it. And then Mat alluded to this. I’m going to say, if you don’t have the skills, you may have the time, but you don’t have the skills or resources that short time. And this draws me back to the year. In high school, when I was a junior and played on the high school varsity team, I played on the basketball.
Mat Sorensen: Basketball, ok you left that out. OK basketball.
Mark Kohler: Ok, that’s our high school basketball varsity as a junior. Now, some of you may go, wow, Mark, you know, I’m Tom Sixto. So we were like, wow, you must have been really good. No, I was from a small high school and the rest of the team was finishing up the football season. They’ve gone to state and football and my graduating class was sixty two people in this farm town in Washington State. So the same guys that were the starters in the football team were the same starters and the basketball team and they were the stars of the baseball team. And that’s how it kind of works when you only have 30 guys to play with. Half of them are nerds and the other half they’re the star players. Yeah, I’ll let you figure out which group I was in.
Mat Sorensen: This makes more sense. Keep going.
Mark Kohler: It’s coming together for you. OK, so so the whole school is traveling to go watch the football players play in state. And the basketball coach was like, damn, we got our first game tonight. There’s no fans. They’re all gone and I’ve only got my Scrubs, and I got to start see I can always say I started OK as a junior and but you’ve got down to the game, down to the wire at this game. And it was like, you know, it was Buzzer Beater moment. It’s like the movie Hoosiers point for me. And my coach was like, you get in this huddle and if you’ve ever been there, the coach is really in a perplexed moment because they has to choose who’s going to take the shot. And we’ve got three seconds to get down the court and take the shot. You know, so there’s pressure down.
Mat Sorensen: You guys are down. You’ve got to make this attempt to win or tie or whatever.
Mark Kohler: Yeah, that’s right. We’ve got to get down to three to four seconds, take a shot. And this is kind of like the deal. You know, it’s you know, pressure’s OK. We’ve got to have time to do the due diligence where you got to go have the skills in that time period. OK, so the coach I remember this fateful moment in my life. I’ve gone through a lot of therapy so I can talk about it, now. The coach looks around at the five of us. You know, he looks at me. It wasn’t that look you want well, I’ve got faith in you look, that was the look, it was kind of like if you want to win this one, don’t give it to Kohler, you know. And so.
Mat Sorensen: I thought it’s going to be like I’m going to play a wild card here. Let’s give it to Kohler. Well, not that.
Mark Kohler: That would have been more than a wild card. This guy is like my my career is riding on this. I got have a winning season and.
Mat Sorensen: He’s like, I’m going to be like I’m going to be coaching like the badminton team. If I don’t win this game, I got to get I got to win here. That’s right.
Mark Kohler: If if we were down to the wire, the badminton team, I got the call. I said, this is you know, this is varsity basketball, which in a small town is a big deal to just happen to everybody tailgating across the state, you know, so he looked at me and I didn’t have the skills, so we gave it to someone else. I really don’t remember if we won or lost. I just remember that look, you know.
Mat Sorensen: You just remember like being like passed over and being like, you don’t got it kid. You don’t got it. Well you know what? At least you made the team. You Michael Jordan didn’t even make the team his first time. Right. So, you know, and she made the team. It’s all right.
Mark Kohler: There you go. So, I mean, therapist said, you talk about this, it means you’re healed, know, so. We had a breakthrough in today’s session.
Mat Sorensen: I have not heard that story yet that, you know, this is a new level of intimacy.
Mark Kohler: Well, I share it with you and the thousands of listeners.
Mat Sorensen: Yeah, yeah. OK, well, now some people got the skills, so and I’ll say this, if you’re a new investor, this list is more important if you’re a seasoned investor, some of these tips like oh? I should be thinking about that and had been on that. And I’ll say this to. You’re going to lose on some deals, you’re going to get burnt on some stuff, OK? Not every non-traditional method is going to work. And I got a little summation here, like summer at the end I want to give, but keep that in mine right now. It’s number nine. OK, I got eight on eight. Got to move. OK, so it’s eight.
Mark Kohler: I’m going to summarize it and then you story. OK, make sure your lawyer is representing you. So I think that’s pretty self-explanatory, but it’s common on smaller deals, I think it’s common and we do this at our firm, you know, partner come to us and say we don’t want to hire four different lawyers. We’ve got four partners here. Can you represent the entity? And our legal team knows to pass around what’s called a conflict waiver. And everybody says, yeah, I like Kevin and Jeremy, Christy, Darren, you know, the team down there, they’re like, yeah, I’ll use one of your lawyers to represent the whole of us. Yeah. And that would be acceptable. But we want to make sure our clients at least understand that that’s what’s happening, because you want to make sure your lawyer is you’ve got to make sure whose side of the table they’re on. So I don’t know any story or Mat to.
Mat Sorensen: Yeah, yeah. I mean, I’ve had that one many times. I get a client will send me documents and they’ll say, well, their lawyer reviewed it for us. For us? Are you sure that lawyer wrote that for you? Because that’s that’s kind of like your spouse. You know, you’re in divorce court. You’re like, well, like I got a lawyer for us. Don’t worry. Our lawyers here are OK. So you’ll want to engage your attorney. And, you know, like Mark said, if it’s the partnership situation, you might have a lawyer representing the group and kind of trying to draft the kind of normal terms between the partners. But you should still look at do I need my own counsel and should I get my own advice for my specific situation? If you’re doing six figures or want an investment in particular, get your own lawyer, have your own lawyer look at it. Even if our firm drafted it, you know, get your own lawyer to look into it for your interest and advocate for you and what you need in the deal.
Mark Kohler: Yeah. Oh, my gosh. That brings me back. That’s number eight and Mat, you’re going to explain number nine, seek opinions of others, but I’m going to go back to the one on just one quick side note and their stories of this with Arnold Schwarzenegger. It’s a longer story. I’m just going to truncate it. When he was a brand new actor, he got taken advantage of in one of his first deals. And there was a language barrier coming from Austria to the U.S. and this and that. And he tells the story of I was never going to sign anything again unless I understood the document. Now, Mat said earlier on number one understand the deal. And so I want to kind of that one to say understand the deal and what you are signing. Those are two different things. Oh, yeah. Brings Mat famous, quote, a good deal better go ahead. Yeah.
Mat Sorensen: Yeah. If you have a bad contract, you have a bad deal, just like Arnold signed. You know, if what was in the document at the end of the day isn’t what he thought he was getting, the deal sucks. And so and we’ve seen this. We see people like, you know, Arnold may have been able to make money in his deal or whatever it was, but and it was a good deal. But the contract sucked, you know,
Mark Kohler: About what did you say before?A bad.
Mat Sorensen: If you have a bad contract, you have a bad deal.
Mark Kohler: Yeah, a good deal. Can’t be a good deal. Can turn bad with a bad contract. I’ve heard you say that, too. Yeah. And a lot of people put on their blinders. They say this is such a good deal and I believe you. It’s a good deal. I get it. But your contract sucks.
Mat Sorensen: Yeah. It sucks for you. It’s a good deal in general. Just your piece that that actually sucks as Arnold found out.
Mark Kohler: Understanding the deal. And I think a lot of times when you say the lawyer represents you, this is last point I’m going to make on that the lawyer is not there to protect. You. Entirely, a lot of times people say, well, I have my lawyer look at it and then they want to sue the lawyer because the deal went bad, really what we’ve been trying to teach our associates for years is the lawyer’s job is to help interpret the document, to help explain what you’re getting into. We’re not going to rubber-stamp a deal. We’re going to say that this document says this. Is that what you wanted? So we’re there as an interpreter. And so when you meet with your lawyer, it’s not for that. In fact, I had this last week Mat this is I had a really volatile phone call with some people. And because the client got on and said, Mark, I want you to tell me if this the document is going to protect me and I go, well, what do you want? I want this success in this deal. Well I can’t guarantee success in the deal. But I can tell you what the document tells you. And he didn’t like that. And so people were selling and were jerks and it didn’t go well. OK, you’re nine. Seek opinions of others.
Mat Sorensen: Yeah, seek opinion of others. I think this could be other investors, business owners, people whose judgment you respect a lot of times, particularly if you get hyped up on something, some investment, talking it through with someone can expose the some things you might otherwise not notice. And and so and I think we’ve all been down that road, whether it’s something we’ve gotten into, whether it’s I don’t care what it is, it could be a. Anything you get excited about, but then you explain it to someone else, someone whose judgment you trust or a close friend, partner, whatever it may be, and they’re like, what about this? What about that? And you can start to reflect back. So before you invest, I always like seek out some opinions from other investors. It’s not like it’s just the lawyer that will help you or maybe you engage your CPA tax issues. It’s also just from a global just like business. Is this a good idea? Maybe it’s real estate. You want a real estate professional’s opinion on it, like seek out those people’s opinions, talk through it. I think it helps expose the weaknesses in the deal and you’re the things you might be missing.
Mark Kohler: I love it. OK, I’m going instead of maybe a specific story I want to give to expand on that with two points. One is it’s not so much that I may want the opinion of Mat. Like I may say, I’ve got this deal and I want Mat’s opinion. It’s that the one of the major benefits is that I have to explain it to Mat. Yeah. And as you’re saying it, we buy and you alluded to this time between us, I mean,
Mat Sorensen: You and I will argue something and it’s like you’ll explain and then we’re kind of like. Yeah. Hmm. I feel confident on that point now that you say that.
Mark Kohler: Have you ever had that with your friend, like Mat Sit there and I’ll explain the deal and I’ll go. Yeah, you’re right. It sucks. And you go, I didn’t think. Yeah, I know it sucks because you verbalized it, you know, I. OK, Ocean’s Eleven, you know, when he’s at the bar, it’s like, you know, Brad Pitt would be like, yeah, we really need eleventh guy and or know maybe Daniel Ocean, played by George Clooney, is explaining it. And he looks at Brad Pitt. And Brad Pitt doesn’t say anything. He’s like, yeah, you’re right, we need another guy. And so is verbalising. You already know the answer to the second thing I was going to say, seeking the opinion of others and I hate to play marriage counselor here, but I’m going to and maybe you’re not married, but you have a significant other. If you’re going to do a deal, talk about it with your significant other. I don’t care if you’re the male or the female, the spender, the saver, whatever role you play in your relationship. I’ve seen so many marriages go down the toilet because they went and did the deal without talking about it with the most important other. And that’s your spouse. Make sure you’re talking about it. And sometimes, you know, they’re going to say no, maybe there’s a reason why they’re going to say no. And if your spouse says no to everything, maybe you’ve got a bigger issue you need to deal with before you go to an investment, but you’ve got to be on the same page.
Mat Sorensen: So wise. All right. OK, my number 10, I want to save for last, you got your last one, but let’s hit yours, if you don’t mind, because it ties in on my final one.
Mark Kohler: We’ll put you’re the comfortable one at 15. OK, yeah. OK, let’s go over to number 10. Don’t put all your eggs in one basket. I’ve got a story to go with that, so I don’t know, Mat do you want to explain it or should I just go with it or don’t put all your eggs in one basket?
Mat Sorensen: I’ll give an example on 12.
Mark Kohler: Ok, so number 10, don’t put all your eggs in one basket. I was meeting with I’ll just use Bryan. One other example. This friend, family member. I knows he’s listening to the show because I think he’s got to. And he was telling me about this investment and I said, OK, that’s cool. It could work, but let’s not put your entire retirement in that, you know, he was self-directing he had about you know, I’m not going to say a dollar figure. And he and but he was thinking really putting the bulk of his retirement in the self-directed format into an investment. And I said even if it’s a good deal, you don’t want to put all your eggs in that one basket. And right when I said it, we both looked at each other and we said, yep, rung true. And like Mat said, it’s got to feel good inside. And he was like, and maybe he’ll throw X dollars at it. And whether you have one hundred grand and you’re going to put twenty five into something where you have a million dollars and you’re going to get two hundred and fifty grand into something, you can allocate five percent to something to try it out, but don’t put all your eggs in one of them.
Mat Sorensen: So yeah that’s such good advice. I think right now with all the, the things we’ve seen this last month with Crypto and GameStop stock and AMC and all these things that have just been like crazy up and down, that’s such wise advice. And, you know, their advisors would call it diversification. Right. That’s what they’re going to call it and make it sound all fancy. But I always like a lot of Google, you know, the company Google and how they manage their money, like they’re reinvesting in their own technology and what they know. But they have these things that I think a lot of the tech companies do this too. They have companies like Moonshot Ideas where they’re like, we’re going to put a little side of our budget over here for this, like, moonshot idea that, like, if it hits, it’s big, it’s is going to be a breakthrough technology. But we might know it’s never going to hit and it’s just going to be a zero. And so but they budget for that and they think about that and they’re careful managing those expectations. I think the same as for your investments. If it is a more risky thing like, let’s say, GameStop stock right now or cryptocurrency, for example, these are things that are kind of like moonshot type things, you know, and and so don’t go all in on it, but just take a measured approach, because if it does hit like you think it is, let’s say crypto in ten years, what if you follow the pundits who are big crypto fans like, you know, 10 percent of your portfolio or five percent or even one percent, and that could be a pretty huge return. You don’t need to go all in. I think some clients, like if I put all my money in, I can I can make one hundred million dollars. Why don’t you put ten percent in and make ten or one percent and make one? Because that way you don’t lose everything if you’re wrong. I don’t know,
Mark Kohler: I love it, I thought you were going to talk about the moonshine idea and a little goes a long way. Usually you’re looking at one hundred proof. Yeah it’s like Everclear you know, we all in high school I think most people that ever dabbled in alcohol or something, they had that one experience with Everclear, which is kind of the branded label of moonshine. Yeah. Yeah.
Mat Sorensen: Luckily I stayed clear of that. I do like shoutout Everclear and the 90s band Everclear. Pretty great. Yeah, they’re OK.
Mark Kohler: You got a good example. Was it the difference between lender, partner, investor or watch out for affinity fraud?
Mat Sorensen: Oh, I could do one on either, but yeah. Just explain lender partner investor.
Mark Kohler: Ok, I’ll explain that and then maybe you’ve got a good example. And I know this show is longer than usual everybody, but it’s not important. You know, we’re we’re probably over our limit. But you know what, that’s OK. We’re here to get if we want to work there, we’re almost there. You’re almost there. You’re almost like these are so good. You probably listen to the podcast over two or three drives.
Mat Sorensen: I got one to get on to something else.
Mark Kohler: What happened in the Superbowl if Mat tell dumb stories and jokes that we’d be through it. I know it bothers you. OK, so no. Eleven guilty as charged. No difference between lenders, partners and investors. Now I have a whole video of this in my little tax and legal library. markjkohler.com. I’ve got to this is in one of the chapters of my books too. I know Mat talks about it. But let me just in summary, you can’t be all three of them. In fact, I argue many times you can’t be two of them. You’re either a lender or a partner or you’re an investor. And in summary, quickly, a lender loans money, gets a fixed rate of return interest points. There’s a term there, security it a partner. Is a voter, it’s a democracy, you get to play with a two or three people, maybe five or six at the most, you’re having regular meetings, there’s complete disclosure, you’re making decisions. And even if you have a small vote, you have a vote. And if many of several of you partners get together and vote as a bloc, you can take out the main dude saying, you know what, you’re not doing your job. So in the main dude, has got to know that. So this is a partnership, typically an LLC. You’re all involved from the beginning. You get a big piece of the upside and you get a big piece of downside. It’s a partnership. An investor way I like to describe this is a silent partner, if you’re a silent partner, you’re an investor. And when I have people come to me and go, I’m going to raise money with a bunch of people and I get to call the shots. Oh, so you want silent partners? Oh, yeah, I want silent partners. That’s an investor. And so that means you’re going to have a new friend called the S.E.C. and you’re going to have to file documents and make sure the school with this because they don’t want you to have silent partners unless you disclose all the plans you have and you can’t make big promises. Well, I want to make big promises where people won’t invest with me. Now we’re to the heart of the issue. So investors are silent partners, they get they put in money, they may make more than their interest rate, but. You’re not going to get a big piece of the upside or a big piece of the downside, because you’re an investor, you can lose your money. But anyway, so know the difference between those. So when someone pitches you, the thing in your head should be gone. OK, where do they want me? They want me as you want to be figuring out where they’re going to categorize you. They’re going to use lots of flowery language. They’re going to wine and dine you on the golf course or out for a steak dinner. But in the end, you’re one of those three.
Mat Sorensen: Yeah, that one I see a common problem here is people who are raising money, and so let’s say you’re on the investor side looking to invest and there’s like 20 or 30 people going in on this and they just have a regular LLC operating agreement. They tell you you’ve got voting rights. They don’t do any of the SEC stuff for a PPM. There’s no offering document or offering memorandum. They did not file anything a form D with the SEC. And they’re basically it’s like a partnership that’s gone overboard. They’ve gone too far. They’ve taken it too far.
Mark Kohler: And that went too far with the steroids.
Mat Sorensen: That’s right. That’s right. They went too far. Right. And so so those are the ones where I think that’s probably the biggest mistake. And I have to say, those seem to be the deals that fail the most. They are. The deal is not sophisticated, they’re they’re cheap, they’re being lazy, and but they’re willing to take money from lots of people and aggregate you all into a group. So so that’s probably the one I would really watch out for the most. The lender. Straightforward, right? You’re playing the banker like we talked about. You’re getting a loan. You’re securing it on title in some way. The partnership. You got voting rights. It’s a small group, like Mark said, the investor. And kind of this is the one where you got to be a little more wary. Make sure you’re getting the right DOCs as we’ve talked about.
Mark Kohler: Yeah, gosh, I set you up for such a sweet little stand up rant real quick one. Oh, yeah. You like you’re saying too many partners in a partnership. It’s just too many steroids from that guy at the gym. You know, you want to go too far or the the woman that’s like a little Botox. OK, OK. I Mat roles around in Scottsdale, Arizona. This seems a little too much Botox once in awhile, right? Come on.
Mat Sorensen: Yeah, there’s a little box now. I will say I’m going to get some Botox because look at this forehead, even on the video. Look at the lines on my forehead.
Mark Kohler: Yeah, yeah, not good. Which brings up a story that goes down in Kohler lore, that’s not enough time for the show. I got a little a little Botox before my L-A fox this terrible, terrible. Yeah, look up angry eyes, just Botox.
Mat Sorensen: Marks eyes were like this, I was like.
Mark Kohler: The lady at fox was scared. She’s like, get this guy off the stage, you know, get them off the set, you know,
Mat Sorensen: Botox see that’s the difference in Scotsdale, the botox you get here, they know what they’re doing. All right. In Idaho the Botox to get out there. They’re still figuring it out.
Mark Kohler: Touche, Touche. Number twelve. Oh, my gosh. But this is so good. Number twelve. Watch out for affinity fraud. We had an SEC investigator. They had retired out of DC and had written a book on fraud. So smart, so well-spoken. We got to have the guy back. It was like three or four years ago. And when we interviewed him, I was really excited to ask him, what’s the number one type of fraud out there? Yeah, see, one hundred years ago it was you got held up behind the building with a knife or a gun. You know, that robbery now is the type of paper, white collar crime type fraud where your your identity stolen or people take your money and make you promises. And so he said the number one fraud is affinity fraud. And I was like, what’s that? And he educated us on it’s the person in your church. It’s the person in your family. It’s the person in your neighborhood. The person at the office around the water cooler. There’s a lot of wolves in sheep’s clothing.
Mat Sorensen: I’ll tell you who it is. It’s Uncle Roman from the great outdoors. The great outdoors. Uncle Dan Aykroyd, you know. Yep, yep. With that noncandidate Akroyd and Uncle Roman has been trying to swindle his brother in law Chet Folie. I think is his name on camera. He’s pumped him up on this fraud that he’s got some great new stock to invest in. And Uncle Roman, a successful stockbroker and all this. And the classic line at that though is so anyway, that’s just that that’s a good example of affinity fraud. Is Chet Folie Uncle Roman OK, don’t invest with an Uncle Roman, avoid Uncle Romanes. Yeah.
Mark Kohler: Ok, number thirteen. Good example Mat. I lost track of who’s got more points with some good movie quotes I’ve been trying to get.
Mat Sorensen: I was a three pointer I think. Yeah I thought it was fraud too affinity fraud.
Mark Kohler: See ESPN has it down with the In the zone or whatever they call it. And there are the four windows and they yeah. They’re in the booth going ding ding ding. We need that person. We’re too cheap. We don’t have that. OK, now the next number thirteen was know your terms and and I you Mat. You may have not like this added it to the list, but I think it’s an important one because this goes back to being educated and being the dumb money at the table. If you if someone throws out the word accredited investor, PPM, note, security agreement, REGD, SEC. I mean, we can make a little test here of about twenty terms and you better know darn well eighteen out of twenty because if you don’t know the terms you’re already should stop, drop and roll you know. Just stop drop. Hit the ground. You’re in a fire, you’re in a fire zone. You’re going to, you’re going to get smoke inhalation. Stop, get out of there. Spend some time reading some good books, listen to some good podcasts. There’s always going to be another deal. Yeah. Don’t rush. I am not going to attempt to define that accredited investors term. That basically means, you know, what you’re doing and you should know what that definition is and yeah, yeah,
Mat Sorensen: It’s basically if you have a million dollar net worth and you don’t get include the equity in your home. Two hundred thousand or single, three hundred thousand income if you’re married, you know that either one you make a lot of money or you have enough assets the SEC is like you’re accredited, you’re obviously smart enough to accumulate that money or to have that type of income. We’ll let you invest in some of these types of non-traditional, quote unquote, alternative investments.
Mark Kohler: And I didn’t this is a good point, because I had a client this week that said, yeah, I’ve got to sign off, that I’m an accredited investor. I make at least two hundred fifty grand a year or have a million dollars in equity, not including your home. And he was relying on his W-2. That was close to two fifty. I mean, sometimes if you have to shoehorn yourself into that definition. There’s a there’s a reason why they have that line drawn in the sand. They’re trying to protect you. So if you’re trying to figure out how to qualify as an accredited investor, maybe you shouldn’t be doing deals that require you to be an accredited investor, do some other things.
Mat Sorensen: Yeah, ok. OK.
Mark Kohler: Fourteen and then wrap up 15, so here’s 14, which kind of goes along with 13, my 14, which was my grand finale, was turnkey investments. Aren’t always cracked up to be. Now, what I mean by that is kind of like this accredited investor thing, this client really wanted to do, this investor investment, he wanted to be defined as an accredited investor. It was kind of shoehorn himself into it, which I. And and I think. Sometimes controlling your own investment and not jumping into the security deal, not jumping into the PPM is OK, go knock yourself out on a little fixer-upper or a little fix and flip and you may say, I don’t know how to do a fixer-upper. Well, you sure as hell don’t know how to pick a PPM or, you know. So at least you control the deal sometimes being number thirty-eight out of one hundred and twenty-two investors. Isn’t the best deal for you and so. Sometimes we think the grass is always greener, and so just because you want to do a security deal and these guys are making millions, you might be better off buying a little rental and putting your grandkids in it or buying a little rental and put your college kid in it and and getting a 10, 20 percent rate of return there that you control your own destiny and your exit. Buying into a PPM doesn’t mean you can always get out when you want too. So that’s my take. Any advice Mat you’d agree or.
Mat Sorensen: I think one of the biggest lessons I’ve seen just is in working with the successful clients, clients of big self-directed accounts is great investments aren’t sold. They’re found. And when and so when when I see clients make a really good deal, they find that deal. They go out and source it. They negotiate it. They make the deal. Now, those clients also will make deals, they find a deal like that to bring other people in, but they’re not going to get the same deal. The person that found it is, you know what I mean? They’re going to come in at a different rate of return or different variety and I just did one last week of a client that’s going to make about on a two million dollar real estate deal. It’s going to make about four hundred thousand dollars on it within a month or two and brought in some other people that are going to make tens of thousands of dollars for putting some money in to help pull the deal off in a short period of time. But but that deal was found. And so now deals can be sold. You know, I have some clients with really big accounts that are in PPM’s that have got great returns and that it’s you know, you just you just don’t know. But I’ve just that one principle I think’s important.
Mark Kohler: And I’ve got a quote. So I say one more time, because I cut you off that.
Mat Sorensen: Great deals are and great investments are found, not sold.
Mark Kohler: Ok, and these are, of course, general rules that there’s always an exception. And I’ve got a good quote that I’m going to throw out when you talk about number 15. No. 15.
Mat Sorensen: All right, number 15 is my final one, and I’ll give my little speech on it and then I’ll let you close this out, Mark. OK, all right. This is my last one.
Mat Sorensen: Be comfortable saying no, I think a lot of people get into something, they meet somebody, maybe it’s the investment club Mark mentioned or it’s the the family friend or the neighbor. And they get enough down the conversation. They feel like they can’t say no. They’ve talked about it too much. They promise this person, this person has some expectation on their side. And they just for whatever reason, people just get a little too committed. They get a little bought in themselves, too much emotionally. You’ve got to be comfortable saying no and taking the emotion out of it and. But what I want to say at the end here is don’t be scared about nontraditional investments. I don’t want people to hear about due diligence and think, well, this just means I should just invest in a mutual fund and just do nothing, OK? No, I’m not saying that. But know what you’re doing. There’s a lot of nontraditional investments, a rental property that you own or your self-directed retirement account owns. That’s very low risk, you know, compared to buying cryptocurrency, which could be very high risk, you know, or maybe something in the middle of a private placement that could have big returns, but also is a little unregistered. And you don’t know. You know, so so just be measured in that. But I’ll say this. You’ve got to get out of your comfort zone, ask a lot of questions, demand additional documents and be cool saying no. And and just remember that the best person to protect yourself is you. So do it.
Mark Kohler: Ok. All right. And dude, your summary plays right into my quote that I was going to give shake and bake. All right. Shake and bake, baby. Tell my son to sling shot. All right.
Mark Kohler: Some it’s easy to say, be comfortable, say no, but. How do you do it? You need something, sometimes an excuse, so one that is easy that I would love many of you to use to say I promised Mark or Mat I’d have them look at it before I go forward and I’ve entrusted them. And if they make make us the bad guys, if they say no, it just doesn’t fit my overall plan right now. I need to rely on those guys so you can always make the law firm here or accounting firm the bad guy. So that might give you a way out. But here’s the one I love. Stay in your lane. And what I mean by that is you have some expertise, you might be great in the engineering space and you might be good in the pharmaceutical space, you might be great in the real estate space. You’ve spent your whole career, your whole life being good at some type of industry. Those are the type of PPMs you want to look for because you’re going to be better at it and you can look for nontraditional investments. I’d love it if you’re good in pharmaceuticals. You’re going to look for a startup or PPM or a small project where you know the industry a little bit, you know the insiders, you know the play. Now, if you want to go buy a mutual fund and pharmaceuticals, fine. But look for a non-traditional investment in your lane. Stay in your lane. If you’re good as an engineer, maybe go in and doing a real estate PPM is not the best move. Go do it, do you kind of know about your industry and take action, don’t get in analysis paralysis and it’s OK to tell someone, you know, it’s just not in my lane. You know, it’s a great deal. I appreciate it, bro, but. It’s not for me.
Mat Sorensen: Yeah, you can even one of the one I, I like to use, I, I found it. I had another deal that I went in on. You know, something else is more clear cut and straightforward and a better deal. And sometimes that brings that person back that wanted to deal with you, like, well let me see how I can sweeten it, because if you really did like that deal and you wanted more time, sometimes that’s another one is just like I ended up going in on another deal. But hit me back up later if you got something else. You know, I like using that one. And I’ve seen clients use that. One of my biggest clients use that on a deal for like a hotel. OK, this is this is last story. But he basically turned them down. I was involved in the conversation some the negotiations and this is millions of dollars. He was the big funder basically to blow their deal. And he basically turned down. And what happened a few months later, they came back with a way better deal for him. They said, all right, I’ll do it under these terms and somebody got in control. That’s the thing you don’t realize is an investor holding the money, the control you have, you have a lot of power with it. So you should use that to your advantage.
Mark Kohler: Oh, gosh, this is such a great podcast. I’m going to go out on a limb and say that if I want to, you know, a good show to watch, to give you the good companies and ammo for this stuff, watch Shark Tank. Watch out just over and over again. I and it’s funny sometimes, you know, Cuban will give an offer and then there are so many different players that are going to screw it up. But another Branson is on there now on occasion and Branson just to piss off Cuban. I’ll give you a better deal, you know, and then he just holds out. Sometimes they hold out long enough that someone else throws out a better deal. And if you’re not good at playing poker, involves someone in the negotiations, that is I’ll tell you right now, Mat Sorensen is my partner for a reason. He is so good at this. I’m a little more dramatic. Some you may have noticed Mr. Sorensen smart and so have a partner like that. And this is why it’s always good to once they give you the offer. Step back. Go share it with those other people, go have your lawyer review it. You’re no one’s going to expect you to say yes the minute they laid out on the kitchen table. Take your time and insight and there’s nothing wrong with that. But, you know, on that final note of diversity, just because someone says be diverse, it doesn’t mean you’re going to invest in. Real estate. You know, some sort of nutrition supplement. An auto dealership you can diversify in your lane, you know, in your freeway, you can you can find revenue, it’s still in an industry, at least you’re familiar with in nontraditional investments, even more so. So don’t take when we say diversify, it doesn’t mean you’ve got to be an expert in four different industries. I don’t want you to start doing import export from Asia because you need to diversify. If you don’t have any doubt about that, don’t do it.
Mat Sorensen: No. Yeah. So he I believe he’s an importer exporter. He’s an importer exporter, basically a Bentley. And let’s see what kind of business is he in. OK, well now baby, take us out. Mat. I got to thanks everyone for listening to this special co-production of the Main Street Business podcast and directed IRA podcast. You can go to mainstreambusiness.com for Main Street Business Podcast DirectedIRA.com/podcast For directed IRA podcast and then check out for my newsletter article, which will be in our newsletter, which you can get a mainstream business.com and at DirectedIRA.com that will outline these top this top 15 list. I’m going to add all these items Mark and I added in here at the end to and thanks for hanging in there with us on this. Hopefully it was helpful. Maybe it’ll save you a buck or two in the future.
Mark Kohler: Thanks everybody.