WS1059: Why It’s Good to Invest in a Multi-Asset Income Fund with Denis Shapiro | #TechandTacticsTuesday

EPISODE 1059

[INTRODUCTION]

[0:00:01.6] ANNOUNCER: Welcome to The Real Estate Syndication Show. Whether you are a seasoned investor or building a new real estate business, this is the show for you. Whitney Sewell talks to top experts in the business. Our goal is to help you master real estate syndication.

And now your host, Whitney Sewell. 

[INTERVIEW]

[0:00:01.6] WS: This is your Daily Real Estate Syndication Show, I’m your host to Whitney Sewell. Today our guest is Dennis Shapiro. Dennis began investing in real estate 2012. He’s progressed into active and passive deals across various asset classes and types, he co-founded an investment club for accredited investors in 2021, and he also wrote alternative investment on expert insights on building personal wealth in non-traditional ways, where he interviewed some of the best alternative investors in their respective industry. So he compiled details on different types of investing, different asset classes with different experts, but are in a book for passive investors, so you can understand how to be better diversified. We discuss operating a fund, specifically an income fund that he has created and why he likes that model, how he’s better diversified, we go into detail about those dynamics that maybe you should think about, mortgage notes, ATMS, including that in a fund that also has multi-family and may be self-storage and everything, so I hope you enjoy the show.

[0:01:28.3] WS: Dennis, welcome to the show. I know you are operating a fund and the fund model has received a lot of interest lately in our industry, no doubt about it, are looking forward to the conversation because I think you do some specific things about the structure, this fund, that’s probably beneficial for many of us to know about whether you’re passive or active, that’s gonna be helpful, but give us a little more about your background, how you got to this point in your real estate business.

[0:01:54.8] DS: Whitney thank you so much for having me. It’s a pleasure to be here. A big fan of the show. Yeah, so I started investing in traditional assets about 20 years ago, when my brother gave me a copy of Rich Dad, Poor Dad I found… I was in high school at the time, I absolutely hated the book at the time because I was 14, what did I know? But a little bit after that, I purchased my first mutual fund at the time, and I waited a year, and of course, I didn’t really get rich, I think it went up at 7, I started looking at different options in the traditional world, then I got my first full-time job, I actually got a job from the government, and I realized really quickly from my first pay check that the government was not only my employer, they were my partner, but the amount of taxes they were taken, and that kind of got me into the rabbit hole of investing in alternative assets. So I’ve been investing in traditional assets for 20 years, I’ve been investing in alternative assets for the last nine years or so, and what I’ve really noticed, and the big reason for my fund is that traditional assets are kind of great where you could kind of set it forget it, let’s say you put it in the index fund the long-term appreciation, it can do fairly well with minimal brain power.

[0:03:01.6] DS: Now, what I found really difficult to get out of my traditional assets was income, I’ve literally tried every strategy known to the stock world, utilities and high yield bonds and Reeds and MOPs, and every single strategy failed because the volatility of the stock market destroys the yield, it took me years to realize that, and while I was looking at was while I was ramping up my alternative investment, I was like, Wow, the alternative is, there’s almost a little And to no volatility here, and they provide great income, but they require… What I like to say, being actively passive, where you have to learn the basics, you have to win the language of real estate, you have to learn how to underwrite the basics, at least how to underwrite… You have to meet with people that you trust. You need to network. And that takes time. So what I realized is if I could put my traditional portfolio on standby, on standby, but on autopilot, I could really focus my attention on the alternative assets and really hone in on what each asset class is actually really good at. Versus saying one is better than the other.

[0:04:10.2] WS: No, that’s awesome. Sounds like just a track record of diving into different types of investments, you’ve learned a lot, and it’s helped you to get to where you’re at now, so you have a better understanding can help lots of other people build that wall and build the income they’re looking for and that doesn’t always happen overnight, that’s for sure. Does it mean just figuring out how to do it, how we should be investing and things we should know about investing in much less actually building that income and so, you know… Let’s dive in a little bit too. You’ve started to find, why would you have a fund… What does that look like? Why is it different than other funds and… Let’s open.

[0:04:41.3] DS: Yeah, so what I wanted to do was, I come from a background where I was like, If I was 10 years ago, before I got into alternative space, I wanted a portfolio where it can appreciate and provide me and come at the same time. I couldn’t find that in the traditional world. So when I designed a fund, I was like, What would I have liked to have seen 10 years ago? What I was really looking for it was a Reed that’s not publicly traded, that wasn’t trade on the stock market where you could kind of sign up, know what you’re getting into, and hopefully constant and steady, but at the same time, you’re not dealing with the market fluctuations, so when I design my fund, that was the number one thing I had in mind, I wanted to create an income fund first, and that’s the big difference because there’s a lot of real estate funds out there, but their number one goal isn’t always income, it’s appreciation. Sometimes it has tax benefits inside, I wanted to create a strictly an Income Fund, and in order to do that, I knew that the number one tool that I have is real estate in syndication stuff that you do.

[0:05:43.2] DS: But I also knew that I had 10 years of investing in other stuff like notes and life insurance bonds and ATM funds, and what I wanted to do is I wanted to create a portfolio that actually blends a few of these assets together, which will allow my investors to actually have higher income from day one and not have to depend on the back-end returns, where if the business model doesn’t do very well, they might never see… Or if the market tanks, they might never see, okay.

[0:06:09.9] WS: That is an interesting approach and just need to think about… ’cause it’s often… Yeah, if an operator is doing a large value-add project or deep value add, like some of us talk about where they’re having to vacate half a property or not even that sometimes, but even just turning a lot of properties around, it’s hard to have much cash flow. And preferred return is the first portion of any cash flow, if there’s no cash flow, I guess what nothing is being distributed out to investors often on the first few months, but what you’ve done, you’re pulling in other assets, are there types of investments inside of your fund so they’re cash flowing quickly right off the bat, what is that… Could you kinda go through that a little bit, what are some things that you are incorporating in your fund so investors are receiving the income that they’re looking for… Sure.

[0:06:49.6] DS: You definitely made a good point with that lag, I like to call it the lag, and a lot of syndicators will say, Hey, they pay the same month and day one, but the problem is then you have to use in common sense, how are they paying that from day one, because this closing cost, it’s expensive to buy an apartment building, so what I wanted to do is when I structured my fund, the majority of my assets are all real estate, so my bread and butter is apartment building syndication, that’s kind of how I got introduced into alternative investments, and that’s kind of my core focus, so what happened… What I realized is when I was investing in apartment buildings, I was networking with other apartment building investors, was I was starting to get introduced to other spaces where the language and everything else that you need before investing, I already kinda had… Because I was doing department buildings, so for example, if you know how to invest in apartment building, you probably can figure out how to invest in the self-storage or a mobile home park. So when I started doing a fund, I didn’t wanna be a jack of all trades, so even though it’s a multi-asset Fund where I do have apartment buildings, majority of it’s still real estate, so department buildings, it’s self-storage mobile home parks and the two different assets that I put it in there to give me that higher yield from day one is gonna be mortgage notes, and the other one is an ATM fund because their business model is much more heavier cash flow, so I wanted to blend the longer term appreciation from the syndication of apartment buildings, mobile parts and self-storage with the instant cash flow of the ATM Fund and the mortgage notes.

[0:08:21.7] WS: Interesting, so that’s something we don’t talk about very often on the show, is something like mortgage notes or ATMS, what’s something an investor need to know about when somebody’s saying, Hey, we’re investing in… Were bringing mortgage notes inside the fund or ATMS, why should that be beneficial to them or maybe some red flags even that they should be considering…

[0:08:37.9] DS: It’s great that you brought that up because I just recently published my book, The Return of Investment Almanac… I do talk about ATM funds, and ATM funds is one of the top 10 SEC Ponzi scheme, watch out for because it’s such a high cash flow influx of buildings, it’s such a high cash flow business that it tends to lead to… If the operator has unscrupulous intentions, they could kind of hide it for a fairly long time, so that would definitely be a red flag, you have to… Like I go through a really intensive due diligence checklist where I kinda got the checklist from a really well, regard to ATM, maybe un the writer on the exact term you would call him, but I will regard in this space because the due diligence, he performs an ATM operators has been called painful by the operator that I ended up investing with, so it’s that type of… You have to be really, really careful mortgage, now it’s a little less so because everything is kind of documented really well, you’re gonna have lawyers look over the documents, but ATM funds, you need to be a little bit more careful, really do your homework because there are…

[0:09:44.3] DS: Unfortunately, unscrupulous people out there.

[0:09:46.3] WS: Yeah, no doubt about it. Whether it’s a multi-family or at my… Whatever, and you gotta do some homework, no doubt, so you understand who this person is you’re investing with or working with someone who has done that work that legwork for you one way or the other, it ensuring that you know who you’re partnering with… I hear too many stories often where people have been burned by not doing due diligence, but speak to the fund structure a little bit, like this was the income fund, you mentioned like some funds may focus on appreciation and some on taxes, how does that change the structure as far as the type of fund that you have…

[0:10:18.4] DS: Sure, so the way that I did it is sensing of fund, it is only towards their credit investors, I wanna make sure I put that out there, my SEC attorney would probably be very upset and I didn’t… So I only towards their credit investors, and the way that I structure is because I seated a lot of the fund myself initially, a lot of the investments are already cash flow, so when my investors, I sign up into the fund, they are more or less already signing up towards investments that are already producing, and that’s a big difference that you get from other funds that to blind fund or the assets haven’t been identified yet, the lag is gonna be a lot longer from the time that the investor actually start seeing on a few of the deals that my fund has invested in, I have to wait six months for the investments to actually start distributing, so a lot of times if you invest in the fund that structured the right way, you can kind of take advantage of that and you can actually invest in the fund, and I start get distributions almost right away. Nice.

[0:11:20.6] WS: Well, it’s interesting, like you can invest in a fund that’s diversified or you can invest yourself and try to be diversified, what are some thoughts you have around diversification, and it sounds like you’ve done that in this fund, but maybe you can explain that a little bit inside the fine versus someone trying to diversify their own portfolio, so

[0:11:37.0] DS: The one thing I have to say is, at first when I started with funds, it’s more like how I also started with traditional assets, I kinda wanted to do everything myself, one thing in the alternative space, you quickly realize is that it’s very capital intensive, most of the investments in the alternative investment, especially syndication space, I would say the average is about 50000, the minimum investment, so by being able to go into a fund, your 50000 will go into a group of assets, one of my funds that I invested, I actually… My found actually invest in other funds as well, just because of the diversification plays, one of the funds that we invested in has 40 assets already producing, so there’s a huge advantage, especially when starting out, I would say it pays to look at a fund… The other thing that you kinda get is if you get a transparent operator fund the operator, you kind of really get a great sneak peek of what’s going on, for example, the operator that I invested in mobile home parks and self-storage, I see the whole portfolio, I see the markets that are performing well, I see the track record of those deals, so I don’t have to do 25 different deals to get a good sense of geographically where I should focus my own portfolio.

[0:12:49.5] DS: And so when you sign up with the right fund operator that takes his time to educate you and really clarify how their portfolio is actually performing, then you can’t really be that if you’re gonna do just do one deal, because then if that one deal stops performing, you don’t know if it’s the operator, the property manager, which you hear nine out of 10 is the number one reason why I deal is not performing right. So you don’t know if it’s a property manager, it’s the location, if it’s the sub-location, if it’s geographic, if it’s a natural disaster, but when you invest in a whole fund that matters less, you might not get that home run, but starting out… Take the base hits because you’ll go further that way…

[0:13:29.6] WS: Yeah, the more I learn about funds and more like this, the multiple property strategy… multiple strategy, multiple asset strategy versus a single asset strategy, and even as a passive investor, often investors will say, Well, they can’t see the deals, they can’t… So when you’re doing a fund like this, but you’re trusting the operator so much anyway, even on a single asset syndication, it almost is… It’s not irrelevant, but to a big degree, you’re trusting that operator and is all about that relationship that you’ve built and understanding who that is, How do you… Kinda go about answering that question. Right? Investor says, Well, Dennis, I don’t like that. I don’t know the projects that are in the deal before you’re investing in them or things like that, how do you combat in that figure with that passive investor?

[0:14:10.5] DS: Yeah, so I meet all types of investments, I need a investors who they wanna just write the check and they want nothing to do with anything else after that, they just wanna make sure they’re getting the paycheck every month, but then I also meet investors that really wanna learn, and those are the ones that you do wanna take that extra step for, sometimes unfortunately, the investor says they really wanna learn, but then you’ll give them a link and you’ll give them an educational resource, you follow up, and they never did anything, and then you just kind of realize, Okay, I’m gonna focus my attention on the investors who really, really wanna learn, but in terms of my own fund, the way I did it is every operator that I invest with A… Before I make the check out, I actually talk to them. I say, Hey, I’m on and the funds, I wanna make sure that I have permission to disclose all this information, so what I do is when I get my newsletters, I put them in a shared folder and my investors have that, but I only do that with the permission with the operators I work with, because I consider them as my partners, have they performed really well? I’m gonna perform well, my investors are gonna get exactly what they’re expecting, so I have a shared folder, they get access to it, sometimes the operator will say, I’m not really feeling comfortable with sharing this, but you could share this or…

[0:15:26.1] DS: I might have to edit here and there, but in general, you get a really good view of the portfolio and all portfolios are different, some portfolios that have invested in have two assets and basically that’s just a syndication square, but then some funds are 30 deals, and that’s where, unless you have a degree in auditing and stuff like that, it is gonna be hard to tell what is what, and you’re just investing in the operator at that point.

[0:15:50.4] WS: Yeah, no doubt about it. I just think you’re always investing in the operator for the most part, but thinking about a fund, I know there’s many investors who even learning about syndication was kind of an eye-opening thing, I had never heard about syndication for… What does that even mean? It’s so out of their wheelhouse and they weren’t told about this growing up, I was not… That’s for sure, but then you start to mound and then it’s kinda get that shell shock again… Right, and so you’re like, Wait a minute, now there’s this thing where we can own part of lots of properties. Well, when thinking about that, when you’re vetting operators or maybe you’re answering questions of investors, how are you preparing for that down turn when operating a fund? So

[0:16:30.0] DS: This is where I think diversification really plays a role by having a mobile home parks and the same fund, some class A assets that have Infinity pools in it and beautiful gazebos and dog parks and everything that you get fairly well insulated because, hey, the same market downturn or might not affect the nurses and doctors that are saying at the class a asset that it might affect your mobile home park community, and there’s all different types of mobile home park communities. So the way that I prepare is besides keeping ample amount of reserves is the best thing to do is just to diversify within your asset classes, for example, apartment buildings, this class, this class B, and then everything else, I guess the joke is, everything else, this class C her to class D. But the point is, when you hear a classy, to really double-check class, but the point is, you want a fund to not only serve just Class C, you want a great class C operator, you want a great class B operator, you want a great class A operator, and then you go through mobile home poor communities and you do the same thing, and then you do it, the self-storage and you do the same thing, and what you end up happening is if the whole economy collapses, you’re gonna have pockets in your portfolio that are gonna do better, and then if certain pockets collapse, then you’ll still be okay, so reserves and diversification, I think is the only way you can really prepare for a downturn.

[0:17:57.6] WS: I like that. Yeah, diversification is definitely something that means different things to different people, but definitely something you should be thinking about as a passive or active investor, and what does that look like across your personal portfolio, but also what are you offering to your investors in helping them to be diversified as well, what about… What’s your expectation of your thoughts or any predictions just for the real estate market over the next, say, six to 12 months. So

[0:18:19.8] DS: This is something that I feel like ever since I got into real estate. It’s always been an interest rates have been historically low and everything like that, and it’s just so hard to gauge because I feel like there’s so many headwinds and tailwinds going on at the same time, and you could listen to 10 really, really smart people that will completely predict the crash, and then you can listen to 10 really, really smart people who will predict that the bull market will ask for the next 10 years, so I’m gonna agree with the smart people in my network, and it will either be a crash or be good or stay the same, but I’m not smart enough to know which is which, but I know that I am a fan of investing today, and I’m a fan of investing tomorrow. I’m a fan of investing because I would rather invest and potentially lose than to sit on the sidelines and just be a commentator, because if I invest and I lose I’ll still learn something from the deal, but if I’m in the sidelines to gain something, right, you’re still gaining something, and I don’t wanna go to a friend’s barbecue and the only investing advice I’m hearing is how creates a…

[0:19:31.2] DS: There’s not the conversation that I wanna have. I wanna be involved in my own financial future, and the only way to do that is invest today, tomorrow on the day after, what

[0:19:39.9] WS: Your best source for meeting new investors right now.

[0:19:42.7] DS: Right now, it’s currently just with the book that I published. So I just published the alternative investment Almanac. You can find that on Amazon. I’m getting great responses, it’s a really easy way to actually learn about different types of alternative investments that are in related to each other, so you’ll find chapters on mobile home parks and self and life insurance policies. But what I did is I didn’t do 300 pages on one topic, so what you end up doing is you end up reading 20 pages on a specific topic and it goes into two Q and As with two expert investors in that topic. So it’s a great way to, Hey, I really like syndication, I really like how the apartment building model is, Hey, I’m gonna go check out Whitney’s podcasts because I’m kinda keyed in and I know I don’t wanna do a fund, I wanna do a bartending syndication. So I wanted this book to introduce a lot of people who are only doing traditional investments, that there’s a whole world out there of alternative investments that are not just all Ponzi schemes and they can serve a valuable role in your portfolio.

[0:20:40.0] WS: Yeah, a book is like the new business card I’ve heard are people say that, and how difficult is it to publish a book.

[0:20:47.0] DS: So I self-published, but I have to say, I’m in Masterminds and a couple of people around me did it and I was like, Oh, let me do this. It’s not that bad. I wrote it in two months, and then the work started that might have took over, and I can’t believe the final product compared to what I did, I feel like I wrote gibberish on a piece of paper and my editor made it a book, so I’m very thankful honestly, it took twice as long to edit it and formatted it than to actually write it.

[0:21:16.3] WS: That’s why we have a team of experts. Right. Now, good for you. Congratulations, by the way, I just don’t making that happen, I know it’s no small fee is what are a couple of daily habits that you are disciplined about that have helped you achieve success?

[0:21:29.8] DS: So I’ve been trying Miracle Morning more and more. I also invested money in a really good chin up bar that’s like steel, not one of those that go on your door frame and then you’re scared that your door frame is gonna break at any second, so I’ve been doing that. That’s been great. And the other thing I just wanna say is, just being present, it is so hard as someone who’s been invested for 20 years to not look at the future… It’s always been like, Hey, next year will be different in three years, I’m gonna harvest. I think as an investor, the hardest part for me personally has been to learn to say, Okay, I think I have enough at this point. What I need to do now is I need to focus on today. I need to focus on my kids, I have three kids, I need to focus on my wife, I know that you’re extremely charitable, and that’s all stuff that I think I need to build, and for the last couple of months in probably a year or so, it’s all about being present, and it sounds so cliche, but if you’re not constantly reminding yourself to be in this moment, you’re just gonna think about tomorrow…

[0:22:32.1] WS: Yeah, I appreciate you bringing that up. Being disciplined or having the habit of being present, it’s so difficult, especially his entrepreneurs, my mind is just constantly going, Right, thinking about the next thing we’re working on or whatever, and many life and I’ve been working on like leave to find in the office. When we’re having a meal together or whatever, that notification can wait right. Until you’re able to work again, but you also mentioned an investment in a China by… I thought That’s interesting. You invested in a June bar and there’s a return on investment, right? There is a return, but as long as you use it, so yeah, get some exercise. Go for you as well. And just the focus on the family. What about the number one thing that’s contributed to your success?

[0:23:09.7] DS: I would say networking by far, when I got into syndication, and there was a few deals that I looked at as a general partner, and it doesn’t take much to develop your network. I actually wrote a whole chapter about this, so what I always recommend is you used LinkedIn to learn the language of real estate, you wanna be careful but not spending too much time with the 50-minute calls, offers that you get, but once you learn the language, then what you need to do is when you go to a conference or a meet-up and you get the business cards, Follow up with them right away, and never ever leave an email saying we should stay in touch, just say like, Hey, how about in two months? Can we put something on a calendar today, usually people are completely okay with that, and if they can’t make it a couple of times, then yeah, take them off your network, but I’ve been doing that for two, three years, and my network has given me so many opportunities I got invited to masterminds and different partnerships, and a lot of these investments that I’ve made from my fund were direct recommendations and referrals from people in my network, and it cuts the due diligence, not that you should never, ever take someone else’s word, but being able to get a referral from someone that you’ve been speaking to for two years, and you know how diligent they are, it means a lot, and it’s a great starting point.

[0:24:28.4] DS: And vice versa, if you hear, Hey, this operator is a very marketing and itchy and his deals have been performing bad, that means the world… You don’t have to wait your time looking at that opera, you gotta honest feedback and you move on to the operators that are crushing it in their network, so it’s a small world out there. I think the small world of Operator, A Small World of investors, and it’s important to network so that you could get unbiased information.

[0:24:54.2] WS: No doubt. Networking, relationships, networking is how you’re gonna… Me, those people, like you said, follow-up, even like a… You said not saying, Hey, let’s stay in touch, like actually putting some action on that and making it so… Hey, I’m serious about this. Right, we’re gonna follow back up. I think it’s a great mindset to have… I love that. How do you like to give back… Right

[0:25:14.8] DS: Now, currently, one of my main priorities is when I do invest in the community, what I wanna do is I wanna establish a scholarship for the community. So one of the projects we worked on was a mobile home park, and we wanted to open up a small scholarship just for the mobile park residents, so that’s something as my fund expands and we get into more projects, especially in the Class C and the mobile part, segments, I would love to have a continuous ongoing scholarship opportunity where you have some kind of partnership with these operators and there’s really no reason, no negative on there and to cost answer this or something, and it doesn’t take a huge you financial commitment to get something like this going… So hopefully, as my fund, this is our first year, hopefully we can get the scholarship going the… By the end of this year or next year. And that’s something I’m super passionate about.

[0:26:05.0] WS: Some old… It’s been a pleasure to get to meet you and have you on the show and really just dive into a fund structure that’s different, I think, than probably any fund specifically that we’ve talked about on the show, thinking through building an income fund, so provides different benefits to investors that are looking to that income now, so definitely something to keep in mind, I just appreciate your willingness to be open about how you structure the fund and wine mortgage notes and ATMS and being more diversified, Telenor or how they can get in touch with you. Learn more about you.

[0:26:33.5] DS: Yeah, the best place is www.sihcapitalgroup.com, if you go there, I have a free e-book. It’s a smaller version of the book that I actually published on Amazon, so feel free to sign up on an email list or there’s a contact section, so feel free to just send me a pop-up, I also have close to 30 to 40 articles of educational content that goes over funds and preferred returns and all the basics and some more advanced off, so the best place to learn more is www.sihcapitalgroup.com. 

[0:27:23.5] ANNOUNCER: Thank you for listening to The Real Estate Syndication Show, brought to you by Life Bridge Capital. Life Bridge Capital works with investors nationwide to invest in real estate while also donating 50% of its profits to assist parents who are committing to adoption, Life Bridge Capital, making a difference one investor and one child at a time. Connect online at www.lifebridgecapital.com for free material and videos to further your success.

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