76 Carolina Capital Roundtable
The Carolina Capital Roundtable is where we discuss the latest news from the world of Real Estate investing and Alternative Investing. We also tackle several questions from our viewers.
In this episode, Bill Fairman and Wendy Sweet are joined by Jonathan Davis to discuss different investments along with how they should approach certain properties.
They also answer what happens to people’s investment in their particular fund so you can further understand how things work.
Tune in to listen to this great discussion.
Wendy Sweet (00:01):
You are live!
Bill Fairman (00:03):
Wendy Sweet (00:03):
Bill Fairman (00:03):
Bill Fairman, Wendy Sweet. Jonathan Davis is just getting ready to join us.
Wendy Sweet (00:10):
Oh yeah, he’s here!
Jonathan Davis (00:10):
I’m not sure the audio’s working.
Wendy Sweet (00:14):
Yeah, it’s hard to hear.
Bill Fairman (00:16):
So he’s going to sign language for us while he’s over there since his audio is not working very well.
Wendy Sweet (00:22):
It was working, we tried to make it better and made it worse.
Bill Fairman (00:26):
Do this, write something down and hold it up to your camera. Bill Fairman, Wendy Sweet, Jonathan Davis. Carolina Capital Management. Our website is CarolinaHardMoney.com. If you’re a borrower interested in borrowing money, then click on the borrower tab. If you’re an investor looking for passive returns, click on the investor tab. By the way, don’t forget to like share subscribe and like the screens says. And then we have a little chat there on the side. You can leave a comment or ask a question. Wendy, Jonathan and I are focusing in on this show isthe tough question. Ugly question.
Wendy Sweet (01:13):
Well actually, let’s talk about how we got to this point. So we love sharing the incredible network of people that we know we are so blessed to be and groups other masterminds across the country and, and the people in there are just, you know, mind blowing intelligent, and we love being able to pick their brains and share the knowledge with, everybody else that we get to hear. So we love being able to share that with others. So we’ve got great people that we can interview but Scott Patton, who is the man behind the video here, helping us do all of this.
Bill Fairman (01:57):
You can’t see him but he’s waving at us.
Wendy Sweet (01:58):
Hey stop using that finger!
Wendy Sweet (02:04):
Anyway, he turned us on to a book called they ask you answer and it’s an excellent book by Marcus Sheridan. I highly recommend you get that book and listen to it if you’re a business owner.
Bill Fairman (02:19):
It’s available in Ottawa too.
Wendy Sweet (02:21):
Yeah and I’m through my second, I’m starting my second round listening to it again because it was just so good. But what it really talks about is the, not only the art of using video on your websites, you know, when you explain, you know, who you are and what you do to people, but also what did you do?
Bill Fairman (02:43):
Also what you do for people.
Wendy Sweet (02:47):
A couple two sentences together there. But anyway, so obviously I need to practice on my video speaking but what was really important is answering the, that hurt. And that’s, you know, we’ve always felt like we were pretty transparent in what we do. We, you know, we’re an open book, we spill it. We want to communicate as much as we can and we’re always trying to improve on that. You know, and no matter how much you think you communicate, you can always do better. And that’s what, that’s how we feel about it. We want to continue to, to, you know, just spill it, let people know what’s going on behind the scenes and, and how this business works. The more educated we all are, the better. And the more that our clients know, the easier it is for us to work with them, right?
Bill Fairman (03:38):
Yeah. It all boils down to educating the consumer so they can make an informed decision.
Wendy Sweet (03:45):
Right. Whether you’re a borrower or a fund investor or a lender or whatever it is you do.
Bill Fairman (03:51):
Yeah. No one likes to be told who to buy it from and what to buy that type of thing. You want to make that decision on your own.
Wendy Sweet (03:58):
Bill Fairman (03:58):
And the problem is most companies do not post unbiased.
Wendy Sweet (04:04):
That’s right. They’re pounding their chest on how great we are. They’re always selling, right? Always trying to show the really pretty face.
Bill Fairman (04:13):
The big thing that gets me, if I’m looking at a house to purchase and they don’t put the price, I will not even go any further with it. They think that if the price is not there, then they’ll get somebody to call them.
Wendy Sweet (04:24):
Yeah, hat makes me think, Oh, it’s too much. I don’t want it. Yeah.
Bill Fairman (04:28):
Even if I do as a business owner, why do you want to waste your time with some money that is not in their price range anyway? That’s just a wasted call.
Wendy Sweet (04:37):
Well, that’s right. But what this book is doing to like, you know, there’s how many funds are out there in the world? How many options for a different fund is out there in the world?
Bill Fairman (04:48):
Well there’s tons in the stock market and there’s actually quite a few in the private markets.
Wendy Sweet (04:55):
That’s right. And they all have their own little personality. So if I’m a fund investor and, I want to put my money into a fund, but you know, how do you choose which one? So who are you going to ask to compare that, you know, if I get into your fund, what makes your fund better than this fund? I, you know, that’s, it’s difficult to get an honest answer from anybody, you know, everybody’s going to promote their own thing. So what I really love about this book is that, excuse me, they’re talking about how important it is to just go ahead and talk about everything right up front. Like, and he uses an example of pools. He was a pool guy and they did fiberglass pools and one of the main questions they got was what’s better a fiberglass or concrete pole? You know, what’s better? Well, it doesn’t really mean one’s better than the other. It’s what is it that you’re looking for? What’s most important to, let me tell you all the things.
Bill Fairman (06:00):
Which one is the best fit?
Wendy Sweet (06:00):
And that’s right, What’s the best fit? So here’s all the things about fiberglass, here’s all the things about concrete. You make that decision as to what works for you, and that’s what we want to do about funds. There’s, you know,
Bill Fairman (06:13):
Well, not just funds but borrowing.
Wendy Sweet (06:15):
Borrowing money, we want to be able to give you the information and let you make the best decision. And I think that’s
Bill Fairman (06:22):
So that said going forward, we’re going to provide each week.
Wendy Sweet (06:28):
Bill Fairman (06:28):
We’re going to go over questions that people want to know.
Wendy Sweet (06:32):
That’s right, we actually went in our office and we had everybody in the office come up with 10 to 20 questions that they get asked on a regular basis. No matter how stupid they seem or no matter how crazy it seems, no matter how much it hurts to answer the question, we don’t want to hide anything. We want everybody,
Bill Fairman (07:00):
We want you to feel the pain.
Wendy Sweet (07:02):
Yeah, well, no, wait, we don’t want you to feel the pain. We definitely don’t want that! But we want you to know what we know, we want you to, we want you to be able to make an absolute informed decision. And we think the only way to make that happen is to give you the viewer an opportunity to ask ugly questions. So anybody who’s on our email list got a, what’s it called a survey monkey saying, ‘Hey, we’re looking for ugly questions! One of the questions this guy was asked in the book, and I thought it was that one, like was a stab right in the stomach. But it was a great question at the customer said to him, as he’s sitting at the table, trying to sell them a pool, he said, Okay, so if I decide not to use your company, who would you recommend? I use, I went, Oh, that’s, you know, that’s tough. Yeah. You know, another question he got was who are the five top best pool builders in Richmond, Virginia?
Bill Fairman (08:05):
Actually, that wasn’t a question that was, he answered it in an article based on that first question,
Wendy Sweet (08:12):
That’s what he did. He did a top five on there and he, he didn’t include his own company.
Bill Fairman (08:16):
Wendy Sweet (08:17):
Which I thought was interesting cause he didn’t want to toot his own horn.
Bill Fairman (08:20):
Yea and it makes it look like you’re given a biased answer to adding yourself in there but what he did for him was every time somebody Googled best pool contractors, they article on his website comes up.
Wendy Sweet (08:35):
Which always helps. But the bottom line is he was open and honest and he promoted five other pool companies, which I thought was really, really cool. And we do that, we’ve got so many fund manager, friends that have great funds that are well worth investing in, they’re honest, as the day is long, they’re solid people and their investments are good and we love promoting them. We’ve had many of them on our show.
Bill Fairman (09:09):
And at the same time we want, and we’re always promoting diversity anyway, and everybody’s in a different place in their investing life cycle. And so we may not be a good fit for you and somebody else, may Jonathan say hi!
Jonathan Davis (09:25):
Wendy Sweet (09:27):
Hey, we can hear you! Did you run to the store and get some earbuds?
Jonathan Davis (09:32):
No. I had to actually switch it over to my phone and we got through that, yeah, I don’t know what’s going on.
Wendy Sweet (09:36):
Oh, wow. Yeah, you sound great!
Jonathan Davis (09:39):
Thank you, you can actually hear me now. Right?
Wendy Sweet (09:42):
We can hear you and see you!
Jonathan Davis (09:43):
Bill Fairman (09:45):
You sound like you’re talking from a 50 gallon drum.
Jonathan Davis (09:48):
I do now?
Wendy Sweet (09:50):
No, you don’t, you don’t.
Bill Fairman (09:52):
So let’s get to our question. So the question for today is what happens to my investment if the economy goes South?
Wendy Sweet (10:04):
Bill Fairman (10:06):
All right, who wants to tackle that first?
Jonathan Davis (10:07):
Wendy Sweet (10:09):
Go Jonathan. You hadn’t talked enough.
Bill Fairman (10:15):
Did you hear the question?
Jonathan Davis (10:17):
So what happens to your investment when the oncology goes bad in the South? You know, whatever, whatever. I think Wendy and I were talking about this earlier, you know, one of the things that I think we like to hit on is there’s no such thing as a bad economy, there’s just an expensive one and then a less expensive one. And that’s certainly what it is, you know, it’s always expensive. It’s just whether it’s more or less, so you know, what happens to your investment? Like what are you invested in? We’ll determine that. And what I think we try to tell people is know what you’re investing in and know your remedies and know your exits. So if you’re going into something and you, go ahead.
Bill Fairman (11:00):
When you say not just your remedies and exits, but the funds, remedies and exits as well, go ahead.
Jonathan Davis (11:07):
Yeah. Whatever you’re investing into their remedies, their exits. If it’s a single asset, if you’re lending, you know, if it’s equity, if you’re doing JVs, what, whatever the investment is, like, you need to know all of your exits, all of your borrowers partners, whoever you’re working with their exits and you need to know all the remedies that cause the biggest issue that we, that I see. And maybe you all have seen different things but what happens when the economy changes, people don’t know their remedies, they don’t know their exits and that’s what causes panic and that’s what causes bad decisions, and that’s what causes loss of money. Like that’s generally the flow of what happens. I don’t know what I’m supposed to do when this happened. Now I still don’t know what to do. So now I’m just going to make uninformed decisions or scarcity, mentality decisions whatever decisions they are, they’re not coming from a typically an informed or abundant place and that’s where money gets lost and I think that’s across like spreads across the whole board of whatever investment you’re doing. So whether you’re investing into a fund what’s, what’s that fund investing into? What are their exits for that? You know, like us. I know we’ve, we’ve talked about this a few times. If we do affordable housing, fix and flips, bridges, you know, bridge loan, stuff like that. If something happens, we can pivot into property management, into collecting income via property management. Like that’s a way that we can do that. So that’s, you know, when you’re investing in these things, you need to ask those tough questions. Like one of the things, when, when we’re, when we’re signing contracts and putting together JV agreements, that paperwork, that document is for when everything goes wrong, while everything’s going good. And you never look at that paper, you never read that document so you need to ask those tough questions that would be answered in those documents ahead of time to know your remedies and know your exits.
Wendy Sweet (13:19):
I love what you’re saying, Jonathan, and I think it’s important, very important when you said it depends on what it is you’re investing in. Is it a single purpose fund? You know, is it, you know, a new apartment being developed, is it a hotel fund? Boy, that’d be scary to be in a hotel fund right now, wouldn’t that? Yeah.
Jonathan Davis (13:48):
Yeah. It would be, I mean office condo fund, you know, any of those stuff, like, it’s tough, but you know, now they may not be like giving disbursements out but you need, what are their exits?, What are their remedies? What are they doing right now? I mean, it’s, you know, I think we all joked earlier, ‘Oh, we’re just putting our head in the sand at hope it just get better. Is that what they’re doing? I mean, you know, if they can’t answer those questions, then I think that’s a good indication for you that maybe that’s not a place that you want to keep your money.
Wendy Sweet (14:24):
Or it might not be a place you want to get your money back and run either. I mean, we’ve got a really good friend that has a fund that invests in commercial property and, you know, I have been admiring watching how he’s been handling this whole COVID scenario because, you know, commercial properties really hurt and you know, what I thought was really interesting and this is what should make his investors and the fund feel very safe is, you know, he immediately hoarded his cash, you know, made sure that, you know, they weren’t going to lose any money by anything else. They were very controlled on the cash. They didn’t pay dividends out, but they didn’t pay it out because they didn’t earn them. They’re not taking that away from them. They’ll get those dividends at some point but they didn’t get them on the release time that they thought they would because they were smart. They’re holding onto that cash to make sure that they have the money that they’re going to need in case things were to get any worse, which is smart. Cause a lot of people would have just gone ahead and paid out those dividends because they would want everything to look good for right then and that quarter and make everybody happy. But what they’re doing is they’re thinking longterm, they’re you know, he’s truly protecting their money.
Jonathan Davis (15:53):
Well, that’s, you’ve hit the nail on the head for those guys who are doing that. I mean, yes, we can give you your return and you know, money today always sounds good, but they’re not protecting, if they do that, then there’s a potential that they’re not protecting the asset or assets that’s backing your money. Not just your quarterly distribution, but your actual principal that’s in there and they’re not protecting that if they’re giving distributions out without thinking, okay, well what could happen down the road? So you’re a hundred percent, right.
Wendy Sweet (16:25):
You know, go ahead, I’m sorry.
Bill Fairman (16:26):
I was gonna say, one of the dilemmas and commercial property right now is really the unknown. If it’s office and retail hospitality, those things, those properties are not going to be worth as much because those are the ones that are hardest hit. And then if you’re in a fund that owns a bunch of these assets, more than likely the values of those properties are going to be written down a bit because you have to have a fair market value of the asset. So if at some point the fund has to disperse all the assets. It’s gotta be the fair market value. That said, if you’re diversified and you have money in a lot of different buckets, this bucket is going to provide you with a loss to go against your taxes.
Jonathan Davis (17:17):
There you go, yeah! We have to look at it that way too.
Bill Fairman (17:19):
And then if you’re, if you’re holding on to that for awhile, still more than likely going to produce some sort of an income. And at the same time that value will eventually start coming back up. But assuming we know none of us have a crystal ball, but you’re invested in the fund for a long term and everybody is in a different cycle in their investing life.
Wendy Sweet (17:48):
Yeah, some people have kids in college, some people are just going into retirement.
Bill Fairman (17:53):
So if it’s a longer term investment, it’s not that big a deal. You know, you’re going to get a write off now, which is nice because you’re going to pay less taxes, which will also be, you’re going to add depreciation to it too. So you’re going to have a big, big right off, of course, don’t try and get a refinance on your home mortgage, cause you’re not going to show any income.
Wendy Sweet (18:11):
Well, and that’s the other thing too, you know, some people that are fund investors are living off the dividends that they get and some people are leaving it in there to compound. So it really depends on, you know, what you’re doing.
Bill Fairman (18:30):
If you’re living off the distributions or the dividends, you don’t need to be in a higher risk fund anyway. So, and let me just point this out. If you have really high returns, you’re at a higher risk, right?
Wendy Sweet (18:50):
Right. Typically it goes hand in hand, right?
Bill Fairman (18:53):
Then you, the reason you accept the lower returns is because of safety or sometimes it’s because of safety and because of convenience. But typically the way it works is the higher, the return, the higher, the risk that’s involved. So as you’re moving, towards your collecting dividends now for income, you need to be in less volatile spaces.
Wendy Sweet (19:25):
Right. And you know, we were talking about commercial, the commercial industry a little bit in the beginning and we actually, Jonathan and bill and I are in a building that we’ve purchased together. And we purchased it right before COVID hit.
Jonathan Davis (19:46):
Great timing, love the timing.
Wendy Sweet (19:46):
So the timing was great, We got a great deal on it. Seller financing and had hoped that we could rent some of the office space out while we were using the portion that we needed. Cause it’s a little bit bigger than what we needed, but you know, it’s just in a great area and it had all the, the great things that would go along with it to be a good deal. But you know, we’re sitting in a position where.
Bill Fairman (20:13):
By the way,
Wendy Sweet (20:14):
Bill Fairman (20:14):
It’s just started demolition on the building that they’re putting a brand new hotel that no one’s going to stay in, right next to us!
Wendy Sweet (20:23):
No, we’re betting that the economy is going to come back, for sure! But, I mean, so, so everybody is going to be faced with making decisions on investments like that, you know, just like us, we, you know, we know what we’re doing in it and, and black swans can affect everything that you do. But you know, the good thing is that building is not going to make or break us, you know, which is another thing that you need to think about when you’re making.
Jonathan Davis (20:54):
We wouldn’t have done it if it could have.
Wendy Sweet (20:56):
That’s right, that’s right!
Jonathan Davis (20:57):
Wendy Sweet (20:57):
And that’s what people need to be thinking about. You know, if the worst case scenario happens, how would this affect you? What would it do to your lifestyle? How would it affect your lifestyle? You know, are you going to have to go back to work? Is it gonna change the fact that you can’t afford that big mortgage payment anymore? You know, if that’s the case, then maybe you shouldn’t be investing in something that always has a possibility of losing, right?
Bill Fairman (21:23):
Yeah. Well, back to the original question,
Wendy Sweet (21:28):
Boy, we’re making it sound fun to invest!
Bill Fairman (21:32):
So what happens to your investment in our particular fund? We were, fortunate that we.. We’re not fortunate. We’re fortunate that we’re smart enough to be in these mastermind groups and we had last year made the decision to go into even less volatile loans because we stayed in the single family and multifamily, but they’re all affordable housing.
Wendy Sweet (22:00):
Right. And we knew, I’m not going to interrupt.
Bill Fairman (22:02):
You are interrupting.
Wendy Sweet (22:02):
I’m going to insert just as quickly.
Bill Fairman (22:07):
Stop touching me, it’s COVID time!
Wendy Sweet (22:07):
We knew, that it would make our, we knew it would reduce our return rights. We knew that would happen but we knew that that was the smarter way to go because we’re looking farther out in the future, not what’s going to happen next quarter or the quarter after that.
Bill Fairman (22:30):
Right, and a couple of things to this, the more affordable housing is easier to sell quickly, whereas your luxury real estate, it takes a little longer on the market. Secondly, if for whatever reason, we couldn’t sell that property. If we had to take it back, at least we could rent it out for expected returns. That said, you go through a down cycle and we’re doing the same thing, we’re trying to hoard some cash and make sure that we have plenty in case any issues happen. They can all go, always go back and, you know back to the investors eventually, but you’re doing it because you’re playing defensive so what you’re looking at is you’re probably going to get returns at the bottom part of your trading range. You know, our expectations were, you know, seven to 9% and you’re probably going to see it on our closer to seven, then to nine. When things pick up, they’ll be closer to that nine then to the seven, the same thing with any other funds that are in there, they all have trading ranges or expectation ranges, where they’re going to be a higher or lower. And I wouldn’t fear too much of this. As long as you have a good operator in place and they communicate with you properly, you’re still going to, in my opinion out, perform the stock market because you’re still, your money is still backed by solid real estate assets. Where, you know, in the market, your money is backed by someone else’s business model, period. They don’t really have any assets other than Walmart. They buy their own buildings. For the most part, you’re just invested in somebody’s business model and we saw how many business models went belly up recently, right?
Wendy Sweet (24:34):
That’s exactly right. You know the other thing too, I think we’re, and you mentioned this in the very beginning about how people that are in the, in the stock market and in some funds too as soon as things look a little scary, the first thing they do is they leave, they take their money and they leave, they try to get their money out \ and put it in the bank or wherever they think it might be safer, maybe a safe or underneath the mattress. I don’t know what they’re doing with it. Yeah, so it’s kinda like a run on the bank and that’s another thing that I think is very important to understand the strength of your fund manager and how they are allowing people to get their money back out of the fund. They’re, what’s it called? What’s the word?
Bill Fairman (25:24):
Redeem or redemptions?
Wendy Sweet (25:24):
Yeah, it wouldn’t come out of my head, my mouth. So understanding redemptions and how they work and I mean, like, you know, we’ve got people that want money out of the fund, but we can’t just shovel it all back to them. We’d love to, but we can’t because,
Bill Fairman (25:43):
Because funds are not liquid, number one, no matter what fund you get into, they’re not going to be liquid by nature. That said, if you if everyone tries to pull their money out at the same time, you have assets in place that have to be sold. And typically they’re going to be sold at a discount because you’ve got to liquidate and if you’re selling them at a discount, that’s bringing down everybody else’s,
Wendy Sweet (26:10):
It hurts the whole, the, everybody in the fund.
Bill Fairman (26:13):
So that being said again, funds are long term investments and funds backed by real estate. In my opinion, are the safest out of all of them. It’s just very important that you do your due diligence on the operators or the fund managers, right?
Wendy Sweet (26:35):
Yep. I agree.
Speaker 1 (26:39):
I’m sorry, what were you going to say, Jonathan?
Jonathan Davis (26:41):
I was going to say you do your due diligence on the operators and also, you know, if any of them ever say, you know, this is the place where you should park all your money, you should run from them. Cause you know, I think, you know, Bill and Wendy and even myself, people have asked that, well, you know, could I just put all my money there? And I would say, yeah, you could, but I wouldn’t let you, like, you need to put it in multiple places. I had a conversation with a guy earlier today, we’re talking about the fund and, and he’s, you know, he was just saying, you know, man, 6, 7, 8% Isn’t enough for me. I have these other funds that I’m inthat are, you know, yielding, you know, 14 to 20%. And I said, that’s great. What are those funds? And you know, they’re mostly commercial, like a purchase syndication, stuff like that. And I said, well, in the last two quarters, what have you made off of it? Zero. I was like, Hmm, well, 6, 7, 8%. It’s not better than zero. Okay, got it.
Wendy Sweet (27:43):
That’s so true!
Jonathan Davis (27:44):
So it’s like, it’s great to make that and, but the thing is you need to not just have all your money tied up in that, because look what, look where we are. And it’s like Bill said, it’s a cyclical thing. Like it happens periodically throughout the cycle and you need to have your money in multiple places so when one’s not paying the other is.
Bill Fairman (28:06):
Yeah, you need to have a diversified portfolio. And the risk of each bucket of money is going to be determined by how long it’s going to be before you need it to live off of, right? So that’s going to be different for everyone depending on their age and depending on their needs and what we call the burn rate.
Jonathan Davis (28:32):
Yeah. Like for me, like I’m in growth mode you know, I’m a little younger.
Wendy Sweet (28:35):
Rub it in.
Jonathan Davis (28:38):
You all might still be in growth mode, but you might be in a little more evolved mode.
Bill Fairman (28:50):
Yeah, unfortunately it’s my waistline.
Wendy Sweet (28:50):
But that’s right, being in growth mode, your, your, your attitude about your money is completely different. You’re in a position where you can be more risky because you got time to earn
Jonathan Davis (29:03):
To make it burn.
Wendy Sweet (29:03):
To make it up in case something really goes off the rails.
Bill Fairman (29:08):
And I know we talk about this all the time, but every investment has a bit of risk attached to it.
Wendy Sweet (29:15):
Bill Fairman (29:15):
And the key and what I like about us in particular, and any other lending funds that are dealing in the single family space is that the single family space, and it could be performing and nonperforming notes that are on single family as well. Those are the the properties that are the most valued. They’re going to be smaller chunks, but those are the properties that are the most liquid because most people want them. And they’re going to be the least risky because you’re going to have that many diversified over many notes and many properties versus a syndication where it’s going to be, you know, one single asset. That’s not much different than being a private lender and you’re loaning money on one asset. And you’ve got a chunk of change in the one asset so that your chance of a deal going South is higher because you’re only dealing with one asset. Now, it doesn’t mean you’re going to lose money when it goes South. It’s just going to be a heck of a lot more hassle.
Wendy Sweet (30:28):
Well, it takes your energy away from growth from doing, you know, that’s the one thing that you’re going to spend 90% of your time on rather than 10% of your time on and it’s going to hurt you from being able to do other things. I mean, if I had $500,000 to lend, I’d rather make five, $100,000 loans than one, $500,000 loan. Even if I was making more money off of that one $500,000 loan, if my interest rate were higher, if I were charging more points, I’d rather split it up and do the smaller $100,000 loans. You know, same thing when you’re buying notes. I just want to be diversified and, and everybody should be, Jonathan, you brought up the guy you were talking to this morning that says he’s making 14 to 20% on his funds that he’s investing in. And, you know, that’s great and wonderful at my age, 59 years old. I’d love to be in one of those funds but I just want a small portion of my money in a fund. That’s going to be earning that kind of interest. I’d rather keep the rest of my money in funds that I feel are a little safer bet for me.
Jonathan Davis (31:48):
Yeah, I love, one of our investors we were talking about a deal and I said, Oh yeah, you know, this is a different setup, you know, totally different thing. It’s, I don’t know. I think it was like 14 or 15% and his exact words were, “Ooh, sounds dangerous, tell me more!”, You know, but like when you hear those numbers, it should be an indication to you that, okay, let me ask some more questions. Let me dig a little deeper, because like you just said, like, yeah, you like, everyone wants to make 14%, but how are you making it? And what’s the risk associated with it?
Wendy Sweet (32:23):
Right. You know, the other kind of funds that, you know, we’re investing in some like this as well, the interest rate is low. You know, the return is going to be low. We know, you know, I might, we might be getting 4 or 5 , 6% on the regular returns, but we’re going to get a piece of the action. We’re going to get a piece of ownership or a piece of equity. On top of that, and it may be 5 years before we see that it may be 10 years before we see that. But as a whole, when you put that together, it’s a better return. There are things that go along with that. You now, if it’s property that that’s invested in, you’re going to be able to count depreciation and things like that on your taxes that add other benefits to the fact that you’re getting, you know, a lower interest rate on something like that.
Bill Fairman (33:21):
You’ll be able to pay the recapture when it sells for a profit.
Wendy Sweet (33:24):
No, we ignore that part. That’s when you stick your head in the sand, hopefully the rules of the game will change and they’ll let you keep moving.
Bill Fairman (33:36):
No, what you do is you put it into a 10 31 exchange and then you let your kids pay for it after you die.
Bill Fairman (33:45):
Here’s your legacy, pay some taxes.
Wendy Sweet (33:49):
That’s right, you little rotten kid, that’s funny!
Bill Fairman (33:52):
What time is it?
Wendy Sweet (33:54):
It’s 1:49, do you have somewhere to go Bill?
Bill Fairman (33:57):
Yeah, I’m hungry.
Wendy Sweet (34:01):
This will be a great time. If anybody has any questions, you can type a question into the chat. We’d love to elaborate on anything, like that for you. We thrive off of being able to help other people make really really smart decisions on what they’re investing in, right.
Jonathan Davis (34:26):
And we love answering the most dirty questions. Those hard questions.
Wendy Sweet (34:31):
Jonathan Davis (34:31):
It’s fun, I mean, you know, we, you know, we get to, Oh, actually we just have a question right here. Yeah. Do you tax your taxes into your investment strategy?
Bill Fairman (34:44):
Well, you should factor taxes into all your investment strategies. If you’re going to use any type of a vehicle that doesn’t have a tax deduction as part of it, then you want to try to use tax exempt or tax deferred vehicles. In other words, a lending fund, for example, you’re going to pay income tax on any kind of lending funders, no tax deductions in lending. So it makes more sense to use an IRA to invest in that and if you’re going to invest in a fund that owns property, use cash for that, that way you can take advantage of the appreciation that can be passed through.
Wendy Sweet (35:31):
Right. We have another question here, too.
Bill Fairman (35:33):
Sushma, how are ya? I can’t read that
Wendy Sweet (35:38):
“What would be five other funds according to you to diversify?” That’s a great question.
Bill Fairman (35:44):
Well, there’s, I can’t give you any particular names you want to look,
Wendy Sweet (35:49):
Why, why can’t we?
Bill Fairman (35:50):
Because I don’t want to hurt anybody’s feelings.
Wendy Sweet (35:55):
Well, there’s, we have a lot.
Wendy Sweet (35:57):
Yeah, I know. But I would rather you take those funds sectors so funds that invest in notes, not necessarily lending,
Wendy Sweet (36:06):
That’s a good one.
Bill Fairman (36:08):
But buying a distress notes,
Wendy Sweet (36:11):
That’s a good one.
Bill Fairman (36:11):
And working them out.
Jonathan Davis (36:13):
Mobile homes would be another one.
Wendy Sweet (36:15):
Yeah, that’s great, Jonathan!
Wendy Sweet (36:16):
A fund that has a mobile home parks in them and perhaps a fund that sort of like our friend Glen that does individual mobile homes that are key rentals. You also look at the self storage sector that is very recession resistance.
Wendy Sweet (36:41):
And then the senior living senior living fund.
Bill Fairman (36:44):
And then there’s nothing wrong with multifamily either. There’s, the difference is to me right now, I wouldn’t get into a fund that is syndicating class A multifamily. And what I mean by that is it’s the higher, more expensive apartment complexes and things of that nature. The mixed use stuff, the high dollar stuff, because what happens in a recession, people want to spend less money because they’re either going to hoard cash or they can’t afford it anymore. So they’re moving down a rung. So those value add multi-families where you’re, you’re taking a D plus and a B plus and moving it up a little bit. Those are the ones you want to get into in the multifamily side of things.
Wendy Sweet (37:36):
And Sushna if you’ll email us, we will give you, we’ll introduce you to people that we know.
Jonathan Davis (37:42):
Wendy Sweet (37:43):
You may already know most of them anyway.
Bill Fairman (37:48):
Then the senior living, by the way, we’re all getting older. That’s not going to stop.
Wendy Sweet (37:51):
Yeah, that’s for sure.
Bill Fairman (37:53):
So that’s a great sector to be.
Jonathan Davis (37:55):
Another one would be funds in nonperforming notes which is a good opportunity. I thought you said performance notes.
Bill Fairman (38:05):
Jonathan Davis (38:05):
Bill Fairman (38:08):
Well, yeah, they’re somewhat performing, but there’s nothing wrong with getting them with performing notes either. Now you’re going to get your return is going to be,
Wendy Sweet (38:20):
Bill Fairman (38:20):
On the really low end of the scale. But if they’re performing, that means they’re going to be much safer, right?
Wendy Sweet (38:28):
Bill Fairman (38:29):
But they’re still gonna be diversified over owner occupant. Typically they’re performing notes and they’re longer term notes. They’re going to be people that occupy those homes and have a reason to stay.
Wendy Sweet (38:45):
And you’ll notice that we didn’t name oil and gas. We didn’t talk about precious metals where we haven’t talked about, you know, any new solar energy or anything like that. We didn’t talk about that and guess why we haven’t brought that up? Cause we don’t know anything about it and we would never recommend something that we don’t know anything about. We would never invest in something that we haven’t done a thorough due diligence homework on and not only would we want to do the due diligence on the product or whatever it is that they’re investing in, you want to do that same due diligence on the fund administrator and the fund operator to begin with, right?
Bill Fairman (39:42):
Yeah, your fund is only as good as the operator.
Wendy Sweet (39:46):
That’s exactly right.
Bill Fairman (39:47):
And there are some funds that invest in other funds so,
Wendy Sweet (39:53):
And that’s not bad if you know what funds they’re investing in.
Bill Fairman (39:58):
It’ll be part of that PPM that you have to read.
Wendy Sweet (40:02):
Right, Private Placement Memorandum.
Bill Fairman (40:02):
The sectors that they’re investing in and they invest in other funds as well. So they’re essentially taking that risk and distributing it among other funds. I can give you an example, like the credit unions thanks to home mortgages being sold on the secondary market really don’t have a place in there so they’ve gone more commercial. But they don’t want to do with the savings and loans did by just taking all the risk themselves. So a lot of the credit unions out there now, 3, 4 or 5 of them will get together and they’ll make a loan on one apartment so they’re diversifying the risk. So that’s the same thing with a fund where a fund to fund investment. They’ll take some money here and some money there and they’ll diversify it among other funds so that makes you a really nice diversified portfolio. But yeah, shoot us an email and we’ll give you some actual names.
Wendy Sweet (41:09):
Bill Fairman (41:09):
All right. It’s time to wrap this up because Bill’s hungry.
Wendy Sweet (41:14):
He’s getting hangry.
Bill Fairman (41:15):
Anyway, thank you so much for joining us again. Our website is CarolinaHardMoney.com. If you’re a borrower interested in borrowing, clicking on the borrower tab, a lot of borrowing going in there.
Wendy Sweet (41:31):
Yeah, hopefully there is.
Bill Fairman (41:33):
Investors looking to get passive returns, click on the investor tab. Don’t forget to like, share and subscribe to our show and we’ll have more burning questions next week.
Wendy Sweet (41:47):
That’s right. Thank you so much. See you later, Jonathan!
Jonathan Davis (41:49):
Bill Fairman (41:51):