Big Mike and Growth Funds #29

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Big Mike and Growth Funds #29

Bill Fairman (00:04):

Hi everyone. Thank you for joining us on our show. We may or may not call this the Bill and Wendy’s show now, so we’re, we’re still in our naming phase, but thanks for joining us. We try to bring education and real estate investing, passive income types or real estate investing type of education. I have to constantly remind myself to do this, but we have archived episodes that are going to be somewhere, depending on what device or platform you’re watching this from. It’s either going to be below or one of the sides and click on any of those and watch any of the archive videos that we’ve already done and please don’t forget to like and share and recommend our show to the others. So I am pleased today to have Mike Zlotnik, a really good friend of ours. The guy is amazing. He is really a trained mathematician and he loves real estate investing. We get a lot of our advice from Mike. We use most of it. We also like to be a little independent as well. Wonderful guy. He just launched his second fund, is that correct, Mike?

Mike Zlotnik (01:25):

New fund? Yes, it’s called tempo growth fund.

Bill Fairman (01:28):

It’s a tempo growth fund. And we’re going to talk about his fund and, the type of investments that are going into this fund. And Mike always likes to talk about the adjusted risk and funds and we’re going to get a little deeper dive into this. But before we start, Mike, why don’t you, give us a little bit of a background on who you are, how you got started, what you love to do. I know one of the things you love to do is hang out in arenas and watch your daughter ice skate.

Mike Zlotnik (01:59):

Thank you Billy. It’s a privilege to be on your podcast, love working with you and Wendy and certainly appreciate the, you originally come from Russia with love like in the movie. But I came from what used to be the former Soviet union, ran away from communists and socialists, happy to be a U.S. Citizen and big supporter of this country and love this country. This is my country. This was 89 when I came over. I had a career and have an education as a mathematician. I had a career in software development when pretty high up. Then I was just sick and tired of it. I was very successful and my passion has always been real estate. I’ve been investing in real estate since 2000 and I went to real estate full time, 2009 running the first fund. So we’ve, we’ve had fund management since 2009 until now we launched our newest tempo, grow fund, our flagship fund today, stamp opportunity fund, sort of love the space. This is my passion. As they say, find three things you like, things, things you’re good at, the things that make you money. That’s, that’s sort of the golden middle. So that’s what I do. Family-wise, I have married over 20 years, four kids and a cat and my kids, I skate a lot. And that’s why you hear that. I am often at the ice skating rinks and if people ask me if I ski personally, my answer is, have you ever been to circus? Well, ever seen bears on ice. That’s me.

Mike Zlotnik (03:29):

But my kids do a little bit better than that. Let me put it this way.

Bill Fairman (03:32):

Well, we know you’re much more coordinated than a bear on ice, but you are as big as a bear sometimes.

Mike Zlotnik (03:39):

Yeah. That’s the whole brand. Big Mike bigmikefund.com that’s my brand because I’m a big guy and some of the best friends recommended. That’s the brand that should have. So,

Bill Fairman (03:50):

and you’re in the, Brooklyn area, right?

Mike Zlotnik (03:52):

That’s right. I live in Brooklyn, New York and we invest all over the country. Billy, your fund is an income fund, so we certainly love the space. We love the income space, but we also operate in the growth space and growth and income space. So we take advantage over the best opportunities in whatever base they are. There are. But our whole model, and I think your model is a very similar, is relationship-driven. We do business only with people who we know like, and trust, right? So you have a great income fund. We believe we have great growth and growth and income funds, sort of. You could do mixed strategies, you could do a focus strategy. All these things make sense. And I think they make sense even more today when the stock market is doing so well. It’s at the peak. We just never know when the music is going to stop. And when it stops, it can stop pretty hard. So I’m not advocating the collapse of a stock market, but it’s been so over performing overpriced, it needs to revert to the mean. So one of the basic concepts is as folks continue to do well in the stock market, they should consider the fact that the music may stop one of these days and those who enter now can not enjoy the, the, the rifle the next 10 years. So, that’s..

Bill Fairman (05:07):

Well, I mean, you know, the old saying, you know, you’re supposed to buy low and sell high, but most of the time people are, you know, buying high and selling low because they’re afraid of missing out on something and they always buy at the peak of the market.

Mike Zlotnik (05:22):

Not that that’s the usual,

Bill Fairman (05:23):

the professionals do it the right way, but the general public tends to be the, the whipping boy as it were. They get in cause they, they finally hear that it’s going so great. I think I mentioned this in a previous episode that stocks are the only thing that when the, the only product that when it goes on sale, people run screaming out of the stores instead of buying them up.

Mike Zlotnik (05:48):

That’s right. Because people don’t think genuine value investing. Most people are momentum investors. If things are going up, that’s when they come in and buy and when they’ve really up then they feel, Hey this thing will continue running. They don’t realize that they’re over paying so much more for the assets that they are acquiring and stocks are assets in essence. So the primary issue with stock market is, well the part of my benefit is very liquid. It’s one of the things that let people love stock market. You could click a button and it’s easy. The primary concern is lack of predictability. It’s been running really well, but the assets are overpriced. People are paying way too much and I don’t want, when I sort of asked to focus on this discussion, but it’s certainly a consideration for people who think it’s been great going great that this is the time to be very, very mindful. This is the time to be cautious and a black Swan event, could trigger quick and sudden correction as we see some volatility related to the Corona virus coronavirus can in fact trigger could be a black Swan event. So everything is good until it’s not. And that’s the key point here. So

Bill Fairman (06:57):

yeah, and it tends to be, even though there’s people who are looking at the fundamentals, it tends to be emotion driven. Whereas, uh, the reason we love the real estate space, one of them is it’s really a hedge against itself. You have the opportunity to buy low and sell high and in assets related to real estate. At the same time, if the underlying value now declines, you still have an income component to it. So it’s, it’s kinda, to me, it’s kinda like a stock that pays dividends. Sometimes the dividends are higher and the growth is lower. Sometimes the growth is higher and the dividends are a little bit lower.

Mike Zlotnik (07:35):

Predictable. That’s one word that describes real estate. You have a lot more predictability, especially when you control the price you get in what you’re paying for an asset and the income you project to get. If you do your underwriting conservatively, you have a lot more predictable outcome versus a very speculative outcome. In a stock market. If you catch the right wave, you do very well. If you catch the wrong wave, people don’t remember the pain points they well. People that remember the pain points, they just want to, don’t want to talk about it.

Bill Fairman (08:05):

Yeah. Wipe it from their memory cause it’s so tragic. So tell me a little bit about the new fund, tempo growth fund. What kind of assets are you looking at the, I know you just launched it and you’re, you’re looking for investors now.

Mike Zlotnik (08:24):

Tell a little bit about the fund itself. So we already have a few initial investments in the fund and we continue to find great opportunities. So this is a growth fund contrast to our growth and income fund. It does not have initial distributions. It’s a long term fund. It’s got five to seven year horizon. We’re raising capital between 12 to 24 months. At that point we’ll close the fund and we’re investing in, I don’t know if you follow my methodology with all the investment quadrants, but we look, we have folk skim could go on a website and just sort of take a look. So if you mentioned the four quadrants as a well known, you know Robert Kiyosaki talks about quadrant my quadrants a little different of quadrant one, two, three, four quadrants, one two investment grade kind of defensive. They have good downside protection. Quadrant three and four are speculative in quadrant one and three cashflow in quadrants, quadrant one and three a cashflow in two and four growth.

Mike Zlotnik (09:21):

So we are as much as we can investing in quadrant two deal. So I’ll give you some examples. So we like distress commercial paper here in New York city. So we would buy or participate in a deal where the underlying asset is a mortgage is a first lien mortgage secured by a property at a low LTV or investment to value ratio. So here’s an example and we already invested 1 million bucks in this particular sector as the first one of the first investments. So figure this way. I’ll give you an example of a project that we invested in the past and give you a quick life cycle of how it works. So there was an acquisition of an $8 million commercial first lien mortgage, a secured by 27 newly built contiguous family houses in Queens college point Queens, New York. That portfolio was easily worth 20 / 22 million. If you close your eyes and you discount it heavily cause these, these houses traded $1 million a piece of Glenmore.

Mike Zlotnik (10:19):

So the collateral was very strong, say 20 million, but it’s more than that. And I know it was all 8 million. When you buy that you are at 40% loan to value ratio. It’s extremely low risk, very strong downside protection. And what’s the upside on that? Well, the upside is default interest in late fees. So as a lender, you do a lot of lending. You don’t want the paper to default, you’re happy to collect interest rate. But what do you normally collect? The performing paper 10, 11, 12% I mean that’s, that’s the market today, right? But on defaulted paper, it’s 24% very, very typical here in New York, generally between 18 and 24% more typical, 24% that particular deal at 24% default interest rate and they had 6% late charge. So the late charge is an instant kick on the KickUp. So you collected immediately the moment it goes default and then you collect 24% it’s our activity, your repeat.

Mike Zlotnik (11:13):

So deal like this can almost no room to go down that low LTV and all the upside to accrue at 24% so you are making very strong risk adjusted return. You heard me speak about that because of a very low LTV that loss reserves and that kind of deal needs to be low. Generally when you’re in a first lien paper, our conservative LTV loss reserve less than 1%. Well 1% say so. If you’re accumulating 24 and you put 1% in loss reserves, you’re now at 23 maybe even 22 if you want to be conservative. So this is a very strong investment but it doesn’t have the cashflow until it rigidly pays for closure in New York is lengthy and it’s both his beauty and a curse beauty cause you can, you can accumulate a lot of default interest. The curse cause it takes a long time.

Mike Zlotnik (12:02):

Sure. So this asset class is just one of the investments we like. We do that with the initial investments. We’ll continue to take more positions than this because it’s pretty defensive and as long as you know how to take our property through the distress lifecycle with foreclosure and work out it as necessary, you could do really well. That’s just one example. The next example, which I also like quite a bit of value add multifamily if you can. If you know the right, it’ll get where, I’m a fund manager. So my job is to find sponsors who are specialists in the right field and they have the right type of deals. So will we invest with the right sponsor and the right value add? You could get some cashflow or not depending on what the project is doing. If it’s doing a lot of renovations from start first and second year could be pretty, you know, pretty low on a cashflow, but you’re building a lot of improvements to the property, increasing rents and increasing value.

Mike Zlotnik (12:55):

So we like those type of assets in general. If these two who fall into quadrant two in my methodology we do some quadrant four deals, which are development or redevelopment deals. For example, an old Macy’s could get redeveloped into a self storage facility. So that’s a classic quadrant four deal because it’s development or development, it’s more speculative in nature. But the highest and best use of that asset is no longer a shopping, you know, a big box retailer like Macy’s, but a self storage facility. So those are cups, little bit of examples of what we invested.

Bill Fairman (13:30):

Yeah. And there’s a lot of redevelopment going on along the, around the country, given some of the big box stores really never, you know, they weren’t able to turn on a dime. It’s like trying to turn a cruise ship quickly and some of them were over leveraged. Some of them just never changed their models to keep up with the different demographics on how people are shopping and those properties are still valuable properties. They just have to be redeveloped into something that people are wanting and yeah, you can make some really good money figuring out what the public is after because you’re able to buy those properties for really pennies on the dollar.

Mike Zlotnik (14:15):

That’s right. That’s exactly right. At times some of these old malls are being bought for the price over the land because they are located well in the city. This land per acre, that’s the whole price that you’re getting the buildings for free per per se. That’s why redevelopment projects look attractive, that you, you don’t have to build a building, you just have to build internal partitions and change the layout. But the structure itself is pretty solid structure. So we absolutely like those projects and the right location with the right sponsors. We’re right financial dynamics, very financials. They make a ton of sense and that’s another part of what the fund invests in, so we’re pretty opportunistic into anything industrial office, commercial, longer list the right sponsor, the right project, and we see strong value that we certainly, you know, always look at downside protection. Does a project have downside protection? What is it and what was computed risk adjusted return. That’s the bottom line. I mean that methodology is critical. The folks invest in these projects. They have to think about realistic return and that that is the risk adjusted returns, the realistic return.

Bill Fairman (15:27):

I failed to mention this at the beginning. This is for educational purposes only by the way. You need to read your PPM or prospectus before you get into any investment. There are risks involved in any investment. We all know that and your mileage may vary, but we’re trying to do here on this show is just show you all the different opportunities that are around there and we’re not trying to sell any securities or any funds in general. We’re just educating you on, on what’s out there. Okay, so that said, how geographically diversified are you thinking you’re going to be in this fund? Are you looking most areas of the country or just where the are they going to be in, you know the mid markets or the large markets or just wherever you can find the opportunity.

Mike Zlotnik (16:17):

So it’s a great question. Generally mid market we are a small fund and the opportunities we’re participating in generally speaking, raise capital anywhere from a few million dollars to 20, 30 I’ve seen a few larger ones, but it gets a mid market. It’s considered to be actually lower part of the mid market. Mid market goes to up to up to a hundred million approximately. So it’s certainly mid-market low part of the mid market. The reason this market is a land of opportunities is the big boys don’t play here. The big boys that generally play in the high end of the mid market than an institutional assets. So you’re not competing with large amounts of money. Although there are plenty of players in the space. Sure. But a lot of the businesses done relationally. And that’s the key answer to your question. We invest only with people who we know like and trust. We don’t take any cold leads from the street.

Mike Zlotnik (17:07):

We’re not interested in whole business. We have a strong network of existing movers and shakers, sponsors. We obviously you and I go to the CG mastermind, but why wouldn’t that work expense well beyond the CG? So we’re looking for the deals with our experience sponsors and operators who know what they’re doing. They’re specialists in this space. So we have connections. Again, people who do multifamily Midwest, it’s all they do. That’s, that’s the value at Midwest, that’s their specialty. People who do, as I mentioned, distress commercial. Yeah. In New York city, we have folks who do stuff in the South. We have strong connections to the, again, shopping and the shopping doctor is an interesting, you know, discussion. We’ll, we’ll, we’ll, we’ll, we’ll go in depth but we certainly have connections with a specialist who buy retail properties in the Southeast and the whole Amazon effect or e-commerce effect continues to take a bigger, bigger hold on our own retail.

Mike Zlotnik (18:05):

But there are plenty of significant opportunities in the local strip malls. Shopping centers, not a big box, typically not the enclosed big malls that people still go to, service oriented retailers, service oriented businesses, certain retailers, gyms, doctor offices, all those things need to be somewhere and they need to be located conveniently to the housing. So these type of assets, we have specialists in that area too. Some of these projects pretty interesting projects too. So it’s really no specific geographic focus. We’ll go pretty much anywhere around the country. It’s all the U S if we have a strong sponsor and they have a good project and a good area where it was one of the CG guys who invested with in the past, they do Georgia heavy value and multi-family, they have the crews, the capabilities they’re looking for deals in, in those areas because they want to be able to move the crews around and be able to, take on these projects. Sure. So those are the considerations where the footprint is and how good they are. And if they know what they’re doing, if they’re able to solve all these value, add problems or challenges and execute on a plan, that’s the key to the success. It’s not where in the country it’s who’s doing it. Can they get through the project and they get through the plan in reasonable time and within the, the cost and the budget.

Bill Fairman (19:30):

Excellent. So I’m talking with Mike Zlotnik and I want to make sure I give you his information too. It’s a bigmikefund.com and then Mike also does a podcast, big Mike

Mike Zlotnik (19:43):

fun podcast. Yes.

Bill Fairman (19:44):

And uh, he, he has a, a lot of great guests on there as well. More questions about us. You can reach us at Carolinahardmoney.com so the income fund, is it a closed end fund or is it going to be an open ended fund?

Mike Zlotnik (20:00):

So it’s another great question. So let me finish up on tempo grow fund. Tempo grow fund is a closed ended fund, so we’re going to raise money as I said, for 24 months on it for five to seven years, run on assets to have a life cycle and then repaid folks with a backhand return. Most of return will come in the form of capital gains some income on the way and that fun again in agreement with you when I’m promoting anything I’m just giving a little bit of information and folks are very interested in, they should request the PPM. It’s the only way they could. They can consider the funds. The fund does have significant tax efficiency. We are planning to use no leverage on the fund, good for IRAs, no UBIT and it’s leverage works both ways in a grow fund leverage is extremely dangerous.

Mike Zlotnik (20:46):

So we’re not doing that. It will, we’re switching to the temp opportunity fund. That is a growth and income fund and that’s an open ended fund. So we do effectively what is an open ended thought with subscribed capital or quarterly basis. You do the same thing with Carolina or your fund currently hard money. So quarterly basis was subscribed. We redeem investors and we focus roughly two thirds of our investments are focused on income, about one third and growth. So we mix it up and the total return is generated roughly from two thirds of income and one third approximately growth through appreciation, capital gains. That’s the tempo opportunity fund.

Bill Fairman (21:25):

Well with the growth fund are your investors able to get some of the depreciation passed through along the way.

Mike Zlotnik (21:36):

Yeah, absolutely. That’s a great question. Again, we will pass through depreciation to whatever extent we’ll get them on individual projects. So it works the same way you bought a building where you’re developing or redeveloping a building during the value of a phase of the project. Generally speaking, renovations are capitalized as some expenses that pass through as losses that actually go to they. They pass through the fund and the fund passes it all the way to the investors to the fund. So on the K one it looks like you’re losing money on paper and the first few years, in addition to the operating losses, you also going to get depreciation benefits as value add part of it for rehab or innovations, complete depreciation starts clicking in based on normal depreciation schedule, possibly some accelerated depreciation. So all of this stuff will pass. It’ll to whatever extent folks can use it for their tax benefit. Great. If they can, they just carry forward and in the backend that is targeted to generate the best type of income is a longterm capital gain income and what’s it’ll get offset by the whatever operating losses that took place to get there.

Bill Fairman (22:39):

Yeah, so that’s the benefit there. You’re not getting any income during the period that the fund is locked down. However, you’re going to be able to get uh, operating losses on a K one, you’re going to get depreciation, which is also gonna lower that tax burden. And then you’ve got the long term capital gain versus the short term capital gain at the end when you do get your profit. Now if you’re investing in an IRA, you’re not really concerned about the capital gain, but you’re not going to be able to take advantage of the losses.

Mike Zlotnik (23:13):

That’s right. One quick comment on the losses. So generally these losses will pass through as passive relocation losses. They’re called PALS and there’s an expression if you have a whole bunch of PALS, what do you need? You need a lot of PIGS. Passive investment gains, so that’s the general methodology, right? You’re going to get this passive losses that if you are an active real estate investor, you can deduct them against your active income. But if you are passive, you cannot, you need the the PIGS, you need the passive investment gains to offset otherwise just carry forward passively.

Bill Fairman (23:47):

Yeah, see that’s why Mike is the mathematician and I’m just the host of the show, but it’s still tax advantage. You just have to be in the right position. And again, this is something that can be covered in the, in the PPM and then as well as your tax advisor would be able to help you with these different options as well. One of the great benefits of investing with an IRA is that it’s not being leveraged and it’s not a business. You’re not operating a business. So there is no UBIT tax that you have to worry about. And like I said at the end when you do get your gains, it’s, you know, you’re either, depending on your, your tool is it’s easily going to be taxed, exempt or tax deferred.

Mike Zlotnik (24:35):

Yeah, it’s a great point. We have no leverage in both funds. Neither tempo opportunity fund, Nor Tempo growth fund and we intend to keep it that way. We are allowed for technical leverage but it’s a case of emergency only if we have liquidity crisis and stuff like that. But we’re not using it for any practical not to magnify the return. Right.

Bill Fairman (24:53):

The issues are with the IRS. They don’t want it to magnify the returns or or make it look like your $100,000 IRA is now a $200,000 IRA cause you use leverage to increase that back.

Mike Zlotnik (25:06):

That’s right. This, that’s the primary reason of the UBIT. The leverage is what they can they consider unrelated business. And the income related to the leverage is subject to UBIT, but we don’t use it. And the side benefit of this IRA focus is the fact that it creates, it makes the fund more conservative. The leverage works both ways. When things are running great, that’s great. When the things are running bad, the leverage is going to cost the grief. So we have no plans for a leverage and especially in this market, I would caution folks to be very prudent with leverage. So

Bill Fairman (25:39):

well, you know, Mike and I have had this discussion before. Leverage is not just a problem with the unrelated business tax that you may have with with IRAs, but

Bill Fairman (25:51):

in real life

Bill Fairman (25:54):

we raise capital from individuals and if the economy takes a turn or the the banks or the institutional investors that provide leverage decide they don’t want to be in that space any longer, you’re kind of left holding the bag. And if you have a portion of your fund leverage, they want their money back and you can’t give it to them because let’s face it, these funds are not liquid. They are, the money’s invested. And if they want their money back, now what ends up happening is you have to pay them a, you know, a monthly fee or interest and any income the fund makes goes to them until they’re paid off.

Mike Zlotnik (26:41):

Yeah. It’s like a quote. Liquidity for a fund. So that’s exactly, yeah. So,

Bill Fairman (26:46):

so it can be very dangerous for fund operators to get leverage on their funds. Now you know, there, there’s a good payoff, but it’s, it’s only as good as the creditors want to stay in that space. And, and as we all know, another shiny object will come up and I want to get into another space and there’s nothing we can do about that. So you’re better off just staying with individual investors. Awesome.

Mike Zlotnik (27:11):

Yeah, I agree then, and this is back to, you mentioned the investment quadrant methodology. And I know this is something I can’t claim that I developed a quadrants. Concept is not new. Quadrants have existed for thousands of years, but methodology that I’ve developed with investment quarters in real estate is a way to look at these deals, look through the, the prison of these quadrants. And it helps folks understand what are they investing into. I mean investing in vehicles into projects with good downside protection, but more conservative structure or the investing into more speculative, higher risk investments and generally speaking, leverage is not a bad thing. When you have conservative leverage at the low LTV and some of the value of projects and multifamily, they do have leverage. We invested in an equity in the projects might have 70% loan, sometimes 75% generally speaking or with quality projects in significant value add.

Mike Zlotnik (28:07):

This is completely fine. The initial every 75% but all the renovations will actually take the project through the cycle where the leverage, the finishing leverage maybe only 60% after the value of strategy and it can be refinance, it could can be sold so good that long term bank loans at low interest rate is a good leverage. So we are all for it. We just don’t like overleverage projects where the leverage gets really high. 85 90% basically hard money and some people do use hard money, but those projects are called the speculative projects because of the high leverage puts them in a very speculative arena. And if they execute well, that’s great. And if the execution plan fails is where the problem is, the leverage can sink them. So that’s the basic methodology.

Bill Fairman (28:58):

Well, I’m glad you brought that up because I’m not discouraging leverage in most cases. And you’re, you’re right. As long as your loan to value or you’re doing a a low leverage point. And I go back to the 2008 issue that we had, the people that lost money and lost their homes, we’re over leveraged. Most retail buyers that bought a home, they’re getting 5% down, 3% down. Some of them had no money down. And if the values dropped, they were underwater and their mortgage and they couldn’t sell the house unless they brought a check with them to closing to make up the difference. The people that bought homes as speculative investments, not based on cashflow, they just assumed the values would go up again, they overleveraged. But in most markets now, there’s exceptions to that. The sand States, they had quite a bit of a drop in values, but mostly throughout the country.

Bill Fairman (30:01):

As long as you are at 75 to 70% and I’m talking single family homes at this point, as long as you were at at that rate or lower your, you were never underwater and you have a much better land be exit strategy. And right now I encourage people to get a conventional bank financing on individual rental properties as long as they keep it at 75% of the value or less. Because you know, we have a window right now where you’re in low fives or fours on 30 year terms for, you know, a rental property and let’s face it, 10 years down the road that you still got the same payment and you’re paying it with dollars that are worth a heck of a lot less than it was currently. So you’re paying back this, this money with the dollars that are worth less. So it really is a great hedge.

Bill Fairman (30:57):

You just gotta be careful not to over leverage these properties. But there’s great debt out there. I like to always go to the Dave, Dave Ramsey stuff and he’s talking about never having any debt and, and that’s good for the masses cause most of them really don’t understand finance. But if I can make it a little bit more simpler, you don’t finance stuff, you want you finance stuff that turns into an asset, not a debt. Right. So you’re creating an asset with leverage. You’re not financing stuff that you just want and you think you need, but you don’t really need it. You just want it.

Mike Zlotnik (31:40):

Yeah. I agree with you. This is the couple of comments on this just to add some thoughts on the subject. So for sure today the interest rates are um, currently low and I am a proponent of the theory. They’re going to stay low for a long time. I’m not saying we’re going to go completely through Japan model, but it’s unlikely that we’re going to hit the days of high interest rates. Yes, kind of. You just can’t afford it. So the government will do everything they can to keep the rates low. It comes down to fiscal irresponsibility. And the politicians wanted to kick the camp so they borrow the money, growing national debt, unfunded liabilities. The bigger that thing gets a, the more pressure there is to keep the rates lower. So the quantitative easing or whatever else they’re going to do, they’re going to keep doing it to keep the rates low.

Mike Zlotnik (32:27):

So why am I saying this? Well if you get a 30 year fixed mortgage today, it is possible the rates will drop some and you may be able to refinance number of years from now even at a lower rate. So that scenario is not a best scenario at all. If you’ve got good fixed rate today and you got something better tomorrow, great. Obviously if somehow the rates move up, you have that protection mechanism. But then one key point about investing, and I just wanted to give this to the audience because it’s a very simple and very powerful tool to think about it. So if you’re getting a mortgage at whatever interest rate, let’s just say the rate is four and a half percent, the big question is, is this, does the rates of appreciation in that area exceed the rate on the mortgage? So if the prices historically have appreciate in a given area, but more than four and a half percent historically low over the last 40 years, then you are ahead.

Mike Zlotnik (33:25):

No matter what you do, even if you have a mortgage, you’re paying four and a half percent of the bank, but the house is increasing in value say at 5% a year, right? That alone is already creating positive effect. On top of that, you’re getting free cashflow. So the cash is the King. And if you can do well with the cashflow, even the value temporarily drops. If market fluctuates, you can survive the, the down storm. But this basic technique, uh, let me state it again, interest rate on the mortgage versus the average rate of appreciation for every trade or appreciation is higher than the interest rate, than a mortgage in good shape for long term.

Bill Fairman (34:04):

And if you’re in those areas of the country where they don’t appreciate very high, you have to make sure that you have a much higher cashflow to make up the difference. Right,

Mike Zlotnik (34:12):

exactly. That is a great point. If appreciation is very low 2, 3% and you’re paying 400% of the mortgage, you’re pretty much cash your whole place for the cashflow. Right. Excellent. So Mike, your four quadrants,

Bill Fairman (34:27):

do you have that listed on your website at bigmikefund.com

Mike Zlotnik (34:31):

people can see it and look, there’s number of educational presentation. So they go bigmikefund.com and they click corporate site. Then there’s number of educational, well recording educational webinars and zoom calls where they could see these quadrants. One of these days I’ll spit it out and a separate site, but for now it’s just literally under the education. If you go, the corporate website is tempofunding.com but if you go a bigmikefund.com click corporate will take you to the uh, tempofunding.com in, bigmikefund.com click corporate. It’ll take you the tempofunding.com click education, you’re going to see a bunch of presentations that helps folks understand the quadrants

Bill Fairman (35:11):

and um, you know, you guys have been listening to this show, you know, the, the knowledge that Mike has and one of the great things about him is he’s always willing to share that with folks. And that’s one of the great things about him and the group in general that we hang out with.

Bill Fairman (35:30):

We’re all about

Bill Fairman (35:32):

giving as much knowledge as possible because you know, the old saying that a high tide lifts all the boats and we want, we want everyone to be successful, that it comes in contact with us and we’re happy to give this information now.

Mike Zlotnik (35:49):

sharing is caring. We’re trying to um, Donald all life, uh, trying to, to give and end to help folk obviously, you know, be respectful of our time and happy to help folks if you need detailed help, if you need more than just basic sort of education. I did launch bigmikecoaching.com so it is part of, it’s actually listed on the site is focused on looking at a deals, helping folks, if you will, into do a multifamily deal and trying to put together indication or if you’re looking to invest one into one and you don’t know how to evaluate it. It seems to be a pretty serious issue nowadays. But folks look into funds syndications, 99% of what’s circulating out there heavily promoted is not good, right? I mean, I mean this, with all due respect, a lot of crappy deals are circulating. People don’t understand this is a highly speculative deal and the investors taking all the risk and the sponsors are getting paid enormous fees to just take the deal down and then if the deal succeeds, they make a giant, giant share of the return.

Mike Zlotnik (36:55):

So these types of deals are, are are terrible and this, there’s a few decent deals. Funds like ours. I’m not trying to say we’re the best thing up the sliced bread. Well, we certainly have very professional institutional waterfalls and we care for our investors. So investors come first and again, we’re not heavily promoted. That’s the whole thing. The the, the well established funds with good track records and good managers. I’m just, they’re sort of hidden gems, hidden secrets per se, and the stuff that’s heavily promoted through social media and what not are generally not high quality because they need to make their fees and they need to promote. Then they’re spending money on the promotion, so it was just the general concept.

Bill Fairman (37:39):

Yeah. If you’re hearing about them on a satellite radio commercial, it’s probably not a good deal.

Mike Zlotnik (37:45):

Just think about this. They’re paying fortunes to promote themselves, right? They got to charge all these fees. To recover the money. That’s the bottom line

Bill Fairman (37:52):

and folks, keep in mind, we’re not angelic by giving out all this information. We do have a ulterior motive as well is that an educated investor as a much easier investor for us to work with, so we would much rather have an educated investor knowing what they’re getting into because it makes life so much easier for the fund manager, doesn’t it?

Mike Zlotnik (38:15):

I agree. The best investor is the one that goes into investment with eyes wide open with significant experience and understanding. We have some very high net worth individuals who are very sophisticated and the reason they invest with us is for the reason that we provide almost institutional level product of generally available only to high net worth individuals and for sure educated investor is much easier to communicate with much easier to work with and they ask smarter questions that we can get through the process of Q and a and help them out much faster than folks are just, yeah, starting, let me put it this way.

Bill Fairman (38:50):

Absolutely. Listen, I appreciate you’ve given us your time today. I know you probably have another skating gig. You have to go to.

Mike Zlotnik (38:59):

None of the middle of the day when we were recording this, but in the evening. Yes, I have to take one of my kids to the ice skating ring this evening or usual practice. I appreciate the kindness and the invitation to be on the, uh, on your podcast. We’d love to be of service to you and, and folks who are listening to the podcast.

Bill Fairman (39:14):

Excellent. So again, it’s bigmikefund.com and then there’s tabs in there for some of the other areas, the education and, and Mike does a podcast as well. And that’s called big Mike fund podcast. And I,

Mike Zlotnik (39:30):

well let me crack a final joke. Let me crack a final joke and then we’ll wrap up. So in this, this came as a suggestion, one of the other podcasts and then I, and they asked me, what is the website, how do you find you? And I told him bigmikefund.com and what do they hear? Big Mike fun that count.

Bill Fairman (39:46):

Yeah.

Mike Zlotnik (39:47):

And the moment I heard about this, I thought, boy, there’s gotta be an interesting site and under that web name and if I happen to be lucky and grab that, uh, that websites. So if you go there, I promise you’re not going to find the kinky content.

Bill Fairman (40:00):

Okay. You were smart enough to get what people think they hear too. That’s, that’s pretty funny. Next time we’re going to get a picture of the cat while we’re,

Mike Zlotnik (40:12):

yeah, next, next time. She’s somewhere roaming around the house.

Bill Fairman (40:16):

All right, Mike. It was a pleasure. Thanks again for being on the show. Once again, bigmikefund.com and then big Mike fund podcast. Our information is on Carolinahardmoney.com please like and share. And again, as I said before, we have other content somewhere on the screen around it, you’ll see it. It’ll pop up all around. So, uh, until the next show, we’ll see you later.

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