How to Prepare for Multi-Family Investing in Times of Rising Interest Rates and Economic Stress with Jake & Gino

In this podcast, host Kim Lisa Taylor interviewed Jake Stenziano and Gino Barbaro of the famed Jake and Gino Mutlifamily Real Estate Investing Program. Jake and Gino shared their wisdom about what multifamily syndicators should be doing right now to deal with rising interest rates and predicted times of economic stress. Is it time to do seller financing or lease-options? Should you be creating a fund to take advantage of distressed properties? Here is your chance to learn from the experts!

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Kim Lisa Taylor:

Welcome to Syndication Attorneys free monthly podcast where we talk about topics of interest to real estate syndicators, with the opportunity for live questions and answers at the end of the call. I am attorney Kim Lisa Taylor. Before we get started, please note that all of our podcasts will be recorded, and may be used for future promotion, posted on our website, or broadcast in a podcast available to the public. If you don’t wish to have your voice recorded, then please schedule a one-on-one consultation instead of asking questions during the live podcast. You can also put your questions into the Q&A, and we’ll read them with just your first name, so there’s a little anonymity there. Information discussed during this free podcast is of a general, educational nature and should not be construed as legal advice.

Today, our topic is “How to Prepare for Multi-family Investing in Times of Rising Interest Rates” with our esteemed guests, Jake Stenziano and Gino Barbaro of Jake & Gino fame. So these guys have become kind of famous in the last several years. Didn’t you tell me one time that your podcast has over a million downloads?

Gino Barbaro:

We have over four and a half million downloads right now, but we get about 150,000 downloads a month. And Kim, “esteemed” — that’s a big word for Jake & Gino.

Jake Stenziano:

I’m getting confused, Gino.  I’m getting confused because for a minute there she was saying, “This is free to all the people out there.” And I was like, “Okay, maybe she’s the un-attorney then, because there’s never free time with an attorney.” But then she gave that disclosure at the beginning, so we came back into the legal realm, so we’re finding our way today.

Gino Barbaro:

I’m Gino, he’s Jake, and we’re not attorneys here, we’re not giving legal advice. Kim’s the legal expert, we’re going to shed some light on the multi-family space today, hopefully.

Kim Lisa Taylor:

Yeah, well, you guys are experts in the field, and you’ve certainly made a name for yourself doing this. We’ve got a lot of attendees already, and I know there’ll be a lot more people that are going to listen to this later on. But I’m flabbergasted that you have that many podcast downloads, because you guys have to be in the top 1% of podcasts out there.

Gino Barbaro:

Kim, it’s been a grind, like everything else, we started back in 2015, and I promise, I didn’t know what a podcast was back then, I really didn’t, and Jake said to me, “Let’s write a book.” So I listened to Jake. “Let’s start a podcast.” So I listened to Jake, and we started. The first couple of shows are pretty horrific if you go back and listen to them, if you want a good laugh, go back and listen to them. And probably 900 shows later, we’re getting there, we’re getting pretty good, it’s just about persistence, and patience, and willing to work at it.

And I think what we try to do is, we try to be the guides on our podcast. We’re not the heroes, everyone listening to the podcast are the ones who have the questions and we’re trying to gear all the content to them. And it’s been really a lot of fun, it has been, because the amazing guests we have on, we’ve had you on countless times, all the experts, and it’s like a free little mastermind for us. We’re able to speak to T. Harv Eker, who I admire. I mean, we had JeVon McCormick on a couple weeks ago, we’ve had Steven Pressfield on, how would we ever be able to speak to these people without having the podcast and just… It’s sort of selfish…

Jake Stenziano:

We had the CEO of WD-40 on yesterday.

Gino Barbaro:

Yes, Garry Ridge.

Kim Lisa Taylor:

Wow.

Jake Stenziano:

It’s a multi-family podcast, but it was so cool because he’s been there for so many years, and he’s grown the company into a multi-national organization now. And the learning lessons, and the takeaway on culture, and business growth and development are just fantastic. So selfishly, the podcast has become a free networking opportunity for the two of us. And to Gino’s point a minute ago, we started our partnership, getting to know each other in 2009, really started looking for deals hard in 2011, didn’t close on anything until 2013, and really didn’t get a lot of momentum until, I’d say halfway through 2014, we were up to about 200 units at that point. So it’s like anything, it takes time, it takes reps, and then you get that 10,000 hours, that’s that magical number that people talk about so much.

But so many people, whether it’s beginning out in multi-family or starting a podcast, those first few years are tough, and then eventually they feel like, “Oh, I’m not getting traction.” And they quit. And so the biggest thing I could say to anybody is, if you’re going to do this, you’re going to do any kind of media, multi-family, whatever, stick with it, create a solid plan and stick with it for the long-term. That’s really where the fruits and the rewards come to fruition, is that long-termism and hanging in there, not the get-rich-quick, shiny object, “Oh, the sky’s falling now, getting out of crypto. Oh, going to get back into crypto. Oh, I’m going to flip houses. Oh, I’m going to do multi-family.” Pick a lane that you really believe in for values-based reasons and stick (with) it.

Kim Lisa Taylor:

Well, I agree with that, and I’ve got several clients that are illustrations of that. I’ve got one client that I saw him go from just ordinary guy leaving a previous job, previous profession, starting in multi-family, and eight years later buying the house of his dreams in one of the most expensive markets in the country. Taking international trips with his wife, and sending his kids to the best colleges that you could possibly imagine. And another set of clients started out buying $3 million to $5 million deals, and now they’re buying $30 million to $50 million deals, two or three a year. So then they’ve slowed down a little bit right now, but that was in a six-year period of time. So you’ve got to stick with it, but it’s not as long as you think. And if you look into the future, what are you going to be doing six years from now? Either the same thing you’re doing now, which is nothing, or something different because of all your efforts in between. So you’ve just got to stick with it and realize it’s a climb, you’re climbing a mountain.

Gino Barbaro:

When you speak about that, Kim, it’s important — Dr. Ben Hardy wrote the book “Be Your Future Self Now,” he’s written “The Gap and The Gain,” and “Who Not How,” they’re all really good personal development books — and what we’re all saying here is, give yourself permission to suck, because you’re going to suck for a little while. And no matter what you start, I mean becoming an attorney, you’ve got to go three years to get your degree, and then you’ve got to pass the bar, so there’s a lot of hours put into it. So the term “investment of loss,” starting something, taking a step forward, then taking two steps back, then one step forward. And I think any avenue in life you need to do that, and you can highlight successful students, your successful students, it’s really the persistence. The other thing that Jake probably forgot to mention is the accountability. We have a great accountability amongst ourselves where we don’t let each other down.

Jake Stenziano:

Yeah.

Gino Barbaro:

So when I have to be on a call, I’m on a call. When Jake’s on a property tour, I’m doing something else. So that accountability I think has helped us in our partnership, whether it’s the education, whether it’s investing in these properties, whether it’s the property management, now we’re getting in the build to rent, we’re doing development. There’s a lot of things that we’re doing, but we’re holding each other accountable, and it’d be really hard for me to do this by myself at such a high level without having someone to push me, and he’s pushing me at the same time.

Kim Lisa Taylor:

I agree with that 100%. My husband has been a big force behind me, because he was self-employed for 30 years, and I don’t think I would’ve had the courage to do it if I hadn’t been in the company of somebody who just kept saying, “Don’t worry about it, whatever you’re going through right now, it’s going to pass, and you’re going to get more clients, and it’s going to work out.” And it certainly has. So if it’s not a spouse, get a partner, somebody that can keep you moving forward, keep you interested, and keep you accountable.

Jake Stenziano:

Kim, I want to stick with this for a second, because what you described right there was the same thing that so many folks go through when trying to enter the multi-family space. And it’s what I experienced, I didn’t know many entrepreneurs, actually zero, I didn’t know any business owners except for Gino, and so the idea of owning larger properties, of being a multi-family entrepreneur seemed like this pie in the sky, that it was this thing up there that other people did, and it wasn’t for me. And similarly to your experience with your husband there, maybe not having that business ownership experience, and just not knowing what it is, so it becomes scary.

Kim Lisa Taylor:

Yes.

Jake Stenziano:

And when things become scary, that’s when the resistance creeps in, and we back away from it. So having that accountability partner and groups of people around you with that exposure and experience can help nudge you in the right direction. Because I don’t believe multi-family investing is rocket science, we break it down into buy right, manage right, and finance right, and create frameworks amongst those pillars, and that has helped guide our way, and making sure that we’re buying deals that make sense and fit our parameters. And I think a lot of that has been done through our doing, and managing these properties, but also, my exposure to Gino, and then his experience of being a business owner, operator, but also him getting educated prior to my knowing him in the multi-family space was tremendous.

Kim Lisa Taylor:

Yeah, well, and you said another cornerstone there, education.

Jake Stenziano:

Yeah.

Kim Lisa Taylor:

First you’ve got to get the education, and then you really need a coach. And all of our successful clients have started out with a coach, and have stuck with their coach for the first two or three deals until they didn’t need them anymore. But then they still hung around the community, because they get the feedback, they get the motivation, they get the excitement of going to the events, and just hanging around with you guys.

Jake Stenziano:

But shared resources too, like who are they using for cost segregation? What vendors are they using? Multi-family is a team sport, it’s really hard to do this business by yourself.

Kim Lisa Taylor:

That’s right, that’s right. And that’s one of the reasons to go to events like what you guys put on, because you’re going to meet all these providers, service providers, that provide all these different services to syndicators, and as your business grows, you will need them all, and you get to meet them face-to-face, it’s a better connection, and you have a better understanding of where they fit into your organization. So that’s great. All right, well, let’s see, so I think we talked a little bit about how you guys got started. Gino, you had a restaurant, right?

Gino Barbaro:

Mm-hmm.

Kim Lisa Taylor:

Well, what made you make the switch into investing?

Gino Barbaro:

At the time, I had four kids, I’ve got six kids now, and everyone was always telling me, “How are you going to pay for college? How are you going to pay for all these weddings?” And I’m thinking, “I don’t really know.” I mean the restaurant’s doing okay, and the recession hits in ’08, I mean, it seems like it was 100 years ago. And it’s very eerily similar about what’s going on when I decided to get into multi-family, what’s going on right now, interest rates were going up, interest rates are going up right now, is there a recession? I think anyone who’s logical and semi-intelligent can understand that, look back at history, 1970, ’71, ’80, 1990, 2000. Look at all the recessions, rates went up before, they’re slowing down the economy, there’s inflation, there’s an opportunity right now. Jake and I had the opportunity back in ’08 and ’09, it was called the buyer’s market.

And that’s why I got into it, I got into it because I wanted to “create some passive income” and I thought that multi-family was the vehicle. I’ve got into a couple other investments that were terrible, the investments weren’t terrible, I was terrible, I didn’t know how to invest in mobile home parks, I didn’t know how to do strip malls. I decided multi-family, I can buy a three-unit or a four-unit and figure it out. And then when I did, I’m like, “I need coaching. I need to figure this out.” And then I saw the basic human needs, food, clothing, and what we call apartments, those are the three basic human needs. And for the last 20 years for me, it hasn’t changed. And for us when we started out it was just the right time, but that was the right time for us, back then 1% GDP growth, $300 for a one-bedroom apartment, consumer sentiment was terrible, so was that the right time? I just think there was an urgency for me to say, “I’ve got to figure something else out.”

Jake Stenziano:

Demand was much different too, Gino, there wasn’t the population growth that we saw in the markets that we’re in now. And so when you said $300 apartment, look, it was a different time. And the interesting thing is, from when we started, looking at deals in 2011, pretty much anything we would’ve purchased from say 2011 to 2018, we’d be making money on right now, and then it started to tighten up a little bit. And here’s the thing, we’re talking about syndications a little bit today, ultimately, there was a lot of money flushed into the economy, so investors were giving syndicators their money to go there and place them, so there was a higher demand on assets.

Gino Barbaro:

Yes.

Jake Stenziano:

So what happened? Asset prices really skyrocketed. I’m literally on a property yesterday, meeting with a broker, and he was basically trying to gauge where I was, and I wasn’t really sure what was happening, and he was saying, “So where are you right now?” “I’m on the property, I’m in Tennessee.”

Gino Barbaro:

Yeah.

Jake Stenziano:

Yeah. What’s going on right now? But basically he was defining the types of investors and buyers that he’s seeing right now, where some people are very pleased and they’re happy, and I think other folks are struggling to engage their investor base right now on deals, because a lot of Northeastern investors right now are saying, “Okay, I went through 9/11, and ’08, and now COVID, and now this.” So people are tightening up, and they’re fearful. And it’s one of those classic things where if you look to guys like Warren Buffett, it’s, “Be fearful when others are greedy, be greedy when others are fearful.” Much easier said than done.

And right now, folks are getting clenched and tight right now, and maybe not wanting to just say, “Okay, I’m good for $250,000, I’m good for $100,000 on the next deal.” They’re getting a little bit scared, so now what’s happening is, the supply of cash flowing to the syndicators is drying up a little bit right now, therefore deals are sitting. We looked at a deal month ago, should have had a call for offers in and be halfway through due diligence right now, and it’s still sitting in call for offers. That’s telling me demand is slowing down. The deal that we looked at, I said, “When’s the call for offers date?” “We’re not really sure yet.” These are all things…

Kim Lisa Taylor:

When you get the right offer, that’s when it’s over, right?

Jake Stenziano:

Right, right. But this is six months ago, that is not there. So the really interesting opportunity right now is that if you can communicate this opportunity with your investors and the people that are supplying the capital for your deals, truly, you’re going to have a nice selection, I think, in the next three to six months of really good cash flowing deals. And I think setting your parameters up on the front-end, so… We’ve only done $8 million in transactions this year, it’s kind of a slow year for us, but typically, we’ll do syndications every once in a while, if it’s a bigger deal or whatever, but we like buying deals in-house quite a bit as well.

And so for us, maybe we’re a little bit more selective, and I think there’s a lot of opportunities coming in the horizon that are going to be strong cash flow positive deals. And that’s ultimately what’s the distinction for us when we’re looking at these, because we want really strong cash-on-cash, because that’s ultimately the biggest benefit for us buying these, because we hold them for the long-term and we want to build our cash flow month-over-month. Get the cost segregation, and keep it relatively simple.

Kim Lisa Taylor:

I know this is a question a lot of people are thinking right now, so how are we going to find cash flowing deals when prices are high, and interest rates are high? What are you…

Jake Stenziano:

No, that’s a great point, and I’m already seeing it. There’s a deal that we’re really close on right now, and it’s already come down about $500,000. So from where it was, and the numbers are lining up, and it’s a cash flow positive deal out of the gates, and that’s what we’re looking for. There’s another deal, I’m not going to get too specific with it, but there’s a 200-unit I was looking at yesterday, purchase price really strong, but they’re struggling from a delinquency standpoint, and a loss to lease. The loss to lease is a little bit further down the road, we can kind of talk about that if you’re looking at actual cash income, but there’s a management play there. So will that cash flow from day one? Probably not. But can the right operator turn that around? I think so.

A group out of state having a very slim management profile, meaning that they’re probably understaffed, and having a hard time staffing, and being out of state, they’re not probably putting the attention and focus on it that they should be, so there’s an opportunity there for the correct group to come in and beef up the management, get the non-payers out, and run it like a well-oiled machine. So these are the things that we’re seeing, so even though that one may be a little step away, the path to me is extremely clear, that deal I just looked at. So I think the overwhelming sentiment for us right now is that, yes, things are tightening, but there’s also a lot of opportunity on the horizon. I think we’re on the cusp, and I think it’s three to six months out before you really start to see the floodgates open in terms of true opportunity, and also there are deals that we looked at…

Kim Lisa Taylor:

Let me ask you about that, is that because you think the sellers are starting to come down on their prices because they’re sitting on …

Jake Stenziano:

Yes, yes.

But also, it’s going to be interesting to see some of these bridge deals that may have traded in the last couple years, where there’s short-term financing in place, what happens with those. That may or may not be an opportunity, and I’m speculating right now, but I’m interested to see also where those go, because there are deals that we’re passing on. And here’s the difference too, and one thing that we like to do is, actually, on the front-end, if we’re going to do something that requires bridge, we actually like to do community bank debt on the front-end, because we’re going to have a five-year term placed into it. And I get it, everyone’s going, “Well, recourse, recourse.” Fair, I get it. We’re comfortable taking that recourse component on the front-end, because we’ll get an 80% loan-to-cost on the front-end. And if you can swallow that recourse component, and then we’re not tied up for that short-term placement of the debt, we have five years, and then a better relationship with the bank, and the prepayment structure is very negotiable, one year we can get it, sometimes two years, and then roll it out to agency. And that’s been really our playbook, and our comfort level.

Kim Lisa Taylor:

Well, and that’s consistent with what I’ve been telling our clients as well, is, don’t do any bridge loan that’s less than a five-year term, because the people that really got caught last time in 2010 were the people that had three-year balloons, and the loans came due at a time when the prices were still depressed, they couldn’t refinance for the value of the property, so they ended up giving it back to the bank, and the ones that signed the recourse loans were the ones that ended up declaring bankruptcy.

Jake Stenziano:

And manage your exposure to that too, maybe one or two of these at a time, don’t have the bulk of your portfolio into these turnaround jobs.

Gino Barbaro:

Can I make a couple of points here? I think it’s important to look back at 2018 and 2019, that’s when we started our bootcamps at Jake & Gino, and everyone’s saying the market’s at a high, the market’s at a high…

Jake Stenziano:

I was saying that.

Gino Barbaro:

And 2020, the market’s at a high, and now 2021. And now you can look back, the only time when the market hit a high is when you look back and go, “Oh, that’s where it was.” But there’s a couple of things that you can feel about what’s going on with this market. We were buying stabilized assets with bridge debt. You do that when the market is at a high, that’s the first component that I saw.

Kim Lisa Taylor:

Okay.

Gino Barbaro:

The second component, there was tons of 1031s going on, I think 1031s have slowed down. I think the third component is, when people are buying assets, and they’re flipping out in 18 months, they’re not operating these assets, they’re just, you know, “hot potato.”

Jake Stenziano:

It’s like the crypto game.

Gino Barbaro:

That is slowing down as well. So you’re seeing all those components. So I’m here to tell you there is an opportunity, and there’s going to be the opportunity. And I think the other thing is, when you talk about syndicators, and just regular investors in general, they’ve been underwriting where these rents to be going up 8%, to 10%, to 12%, and they’ve got interest only. Interest only is burning off, so principal’s going to reset, that’s a big component. I’ve been calling this for years, it’s just that they’ve been saved by rents going up 10% to 12% a year.

I don’t think rents are going to drop, they’re just going to decelerate. They may go flat for the next couple of years, but if you’re underwriting for 8% to 10% rent growth, that’s very dangerous, and I think a lot of people have done that over the last couple years, and that’s going to catch…

Jake Stenziano:

Well, and Gino, can you capture your loss to lease? If you’ve been getting a higher market right now, and say … In the last year, your rents have gone up 300 bucks, and maybe you’ve got 50% new residents at that higher rate, how hard is it going to be to close the gap on those remaining 50% to get that extra… That’s going to be the interesting component that I’m very, very interested to see where that goes.

Kim Lisa Taylor:

Well, one of the things I suggest also, and you guys can tell me if you think I’m wrong about this, is I suggest to my clients that maybe now is a time, don’t get the 85% LTVs, because if we anticipate there’s going to be a price drop, then raise a little bit more from investors, explain to them you’re doing this to manage their risk, they’re going to get slightly lower returns for the first few years until there’s an opportunity to refi, but it’s going to manage their risk, and there’s a lot less likelihood that the project is going to end up getting foreclosed, or have to give it back to the bank.

Gino Barbaro:

I would agree with that. I mean, we’re at 65 LTV in a lot of our deals, we just refinanced a deal of 50% LTV, 10-year interest only, with a 10-year term. So I mean we’re comfortable with going with less leverage on our deals right now. And the banks have done that, this is not an ’08 scenario where you’re doing 75 or 80, a lot of them have really pulled back as cap rates have really compressed.

Jake Stenziano:

Agencies have been stingy.

Gino Barbaro:

Yeah, and I’ve actually seen, some people have been talking about cap rates decompressing in the Midwest, because they’re saying to themselves, “Hold on a second, rents aren’t going up like they used to, these valuations are crazy. Interest rates have gone up.” So I even hear people talking about cap rates decompressing, I mean, when’s the last time you heard that word come out?

So even the discussion of that happening is like, “Wow, okay, people are feeling it, something different.” And we haven’t had this feeling in, what is it? It’s been eight or nine years? It’s been a long time since we’ve had this feeling of uneasiness of rates shooting up this quickly. They shocked the system, I think, by raising rates to 7%, it’s not that 7% is high, it’s traditionally around 7%, that’s where interest rates have been traditionally, it’s just that you’ve done it so quickly, and people weren’t used to it, and all of a sudden, the residential market had a lot of listings, a lot of houses. That freezes up, and then it’s just going to start bubbling into the commercial sector, I think.

Kim Lisa Taylor:

Well, those are all great points. So do you see any movement in seller financing, or sellers becoming more receptive to lease-options? Are those some tools that investors should be learning right now?

Gino Barbaro:

Our coach, Bill Ham, wrote the book “Creative Cash,” we launched it with him. You know Bill, first 400 units, didn’t walk into a bank. Jake and I have done about $420 million in seller-finance deals. It’s really incumbent upon the market, so if you’re in a buyer’s market, we started out in 2013, our first deal, our very first deal was owner-financed. Our fourth deal in 2015, we closed in August of 2015, was a 281-unit deal, $11 million, that was all seller finance, the whole down payment. It’s because that part of the cycle was really great, I mean banks were tightening up, it was harder to actually go out and get leverage on these assets. That’s coming back in the next 12 to 18 months, it’s not that you weren’t able to do it over the last three to four years, but why would sellers want to seller-finance a deal? You just it put on the market, you’ve got 50 people bidding for it.

But now as there’s more motivation, and as these “mom-and-pops” — as we like to call them, they’re a lot harder to finance — go out there, what I would say about seller financing and lease options, go out and underwrite it as if you’re going to buy it traditionally, and then when there’s no other way to buy the deal, say to them, “Hey…” Educate them first of all, let them understand what it is, and say, “You’re going to get paid. You’re going to get paid in installments.” You may even save some capital gains on it, let them know that it’s a great tool, but don’t go in headfirst just with seller financing. See if it works traditionally, and if it doesn’t… That’s going to be, I think, the rage in the next 12 to 18 months. I’m looking forward to it, because I love seller financing.

Jake Stenziano:

Yeah, let’s talk about what environment creates this though. And you just nailed it, Gino, without really honing in on it, and it’s-

Gino Barbaro:

Standing upon it, huh?

Jake Stenziano:

Sorry, brother.

Gino Barbaro:

Yeah.

Jake Stenziano:

No, but I want to be clear, so if folks haven’t experienced it before, they haven’t done a seller finance, donor finance deal, whatever you want to call it, this is when there are expectations from the sales side, the seller, and the market’s not connecting. So when these deals sit for a minute, and they’re not getting what they want, they have to look to creative options to move the property. We’ve done a 25-unit, we’ve done a 300-unit owner financed, funniest statement I’ll never forget, title company has given us the keys when we’re closing on this 300-unit deal, and we actually got the prorated rents handed to us at closing, and they’re saying, “You just bought this deal and got paid at closing.” And they’re like, “How does this happen?”

And it happens when demand starts to go down, and a seller wants to get out of a property. And so this is the time, the cycle where you’re going to start to see opportunities like this arise. And Gino made the point, if you’re getting 10, 15 offers at a time, why the hell are you going to consider doing… it just doesn’t make sense. But if you need to get creative to move your property, these are the times where these types of strategies really work.

Kim Lisa Taylor:

Well, I agree. This is the time to dust off your toolbox and start getting…

Jake Stenziano:

Absolutely right.

Kim Lisa Taylor:

Read Bill’s book, Bill’s a great guy. I have not had a chance to read his book yet, but that’s something I should do as well.

Gino Barbaro:

I’m sending it in the mail, I’ll send it to you in the mail.

Kim Lisa Taylor:

Oh, that’s great. I’d love that, would love that. So how can somebody get his book if they want to read about that?

Gino Barbaro:

Just go on Amazon, “Creative Cash,” and you’ll see, it’ll pop up, it’s a nice red book. And there’s one other thing that Bill talks about, we coined the term, the spy technique, and it really talks about a negotiation technique, it’s S-P-Y, and this is for anyone who wants to be creative. And I think, to me, any facet, in any life, you’re trying to create value, and that’s what seller financing is, you’re creating value. So the S stands for the seller, so if you’re going into a property, and there’s a seller there, is that seller going to benefit from seller financing? I mean, is that an option for them? It doesn’t matter if it’s great for you, who cares about you in the situation? You’re worrying about the seller and creating value.

We often forget about that, we think the seller wants the highest price, maybe the seller just wants to create some mailbox money, maybe he wants to defer taxes, maybe they don’t know what to do with the money coming back to them. You have to find that out. So the first part is learning what the seller’s problems are, and seeing if it fits. Then the next one is “P,” the property. Jake did touch upon earlier about your buy-right criteria, does it fit your criteria? Is it a deal that you’d want to hold for the long-term, or for whatever you’re trying to do? And then the last one obviously is the “Y,” is you, you’re the last component in this. I mean, you don’t worry about yourself until you’ve solved the first two issues, then, hey, it’s all about you at the end.

Kim Lisa Taylor:

Right. Well, and we can help structure in situations where there’s partial seller financing, so you still can’t have mezzanine debt, you still can’t have second position loans, the lenders won’t allow it. So the way to work around that is through your actual deal structure, which corporate securities attorney, hopefully us, can help you structure. So we can do a fixed return class that’s just for the seller, that can be bought out in whatever time period they want to be bought out, assuming that you’re going to be able to get a refi, or you’re going to bring in more investors at that time in order to do that. And so you’ve got a special fixed return class for them, it has the exact same terms you would’ve given them in a promissory note, but the lender will accept that. And they don’t have any voting rights either, so they’re happy just to get … they get paid next, right after the first position lender, and then you go into your equity investors, and I’ve seen that structure work very well for a lot of our clients.

Gino Barbaro:

What Kim should be saying is, right now, do not structure a promissory note or do any of this without the help of an attorney. You’d be a moron…

Jake Stenziano:

You don’t write it on the back of a napkin, and…

Gino Barbaro:

Yeah, you’d be moron if you didn’t get the help of an attorney, I’m just saying. It’s 1,000 bucks, whatever it costs, it’s not expensive, and you actually need to record it, you need to do a lot of work for it, you need to create the note. So please, don’t skimp on that, get the help of an attorney to help you with seller financing.

Kim Lisa Taylor:

Yeah.

Jake Stenziano:

Gino, you can’t be throwing her price structures out there, inflation’s real, you might be undercutting her right now, just take it easy, all right?

Gino Barbaro:

I’m just throwing out a number.

Kim Lisa Taylor:

You can’t use a promissory note, unless it’s 100% seller finance.

Gino Barbaro:

Yes.

Kim Lisa Taylor:

Your first position lender is going to say, “Where’d this money come from?” And you’re going to go, “Oh, the seller.” And they’re going to say, “Well, we don’t allow subordinate debt.” So you’ve got to figure out a way to get them into your LLC, and you have to explain to them, “We can give you the exact same terms that you want, it’s just not a promissory note.”

Gino Barbaro:

That’s awesome.

Jake Stenziano:

There are different ways to do this, but you’re not asking necessarily the seller to carry the note for the whole property, and you may not even have to bring any money to the table. I think the structure that’s worked best for us is, there’s a bank involved, the seller brings the down payment, and that’s your note to the seller, ultimately, and you may be able to get into the deal with nothing. And I’m not saying this is common, we’ve done it a handful of times, so I just don’t want you to be like, “Oh, every deal I’m going to do is…” It has to line up, there has to be an opportunity, a property has been sitting, they want a certain price, this is typically the structure. But I like that a lot, when they’re bringing the down payment, and then that note, you give it to them, and that works pretty well.

Kim Lisa Taylor:

Okay, great. So what should people be doing? I get a lot of people saying, “We can’t find deals, we can’t find deals.” What should they be doing?

Jake Stenziano:

Even recently, and I’m starting to see the turn. Again, it was a slower year for us up to this point, but I think closing the year out, we’re starting to see it. And the interesting thing is too, networking with the brokers right now, Gino was joking yesterday that he’s actually getting brokers to proactively…

Gino Barbaro:

They’re calling me.

Jake Stenziano:

…reach out to him, because for a minute there, they were kind of sitting the feet up on the desk, listening to some Kenny Chesney, a little Jimmy Buffett, sipping the margaritas, and life was good. Now they’re like, “I’ve got to get onsite, and do a property tour? I’ve got to pick up the phone and call the … now?” So I think that the best thing you could do right now is remain humble, because the market is shifting, but build that rapport, start to get onsite, talk about what parameters you’re looking for.

And this is one of the things we stress most, have clear buying parameters, know what you’re looking for, what kind of return, what kind of vintage, and share that to a certain level with the broker, so they know when something comes across their desk, maybe it’s off-market, they can say, “Oh, I was talking to Gino the other day, I know they love two-bedroom townhomes in this market, and I’ve got something like that that may be coming down the line.” May think of you first. So I think getting very clear and sharing that criteria, but going on the offensive right now, doubling down with the brokers, because opportunities are starting to pop up right now.

Kim Lisa Taylor:

What about direct marketing to sellers?

Jake Stenziano:

I’m howling, because that that’s our “deal dogs.” We’ve been doing that for a while, and actually, the deals that we’ve closed this year, that’s how those deals have come to us. So we run a little component department out of our company or whatever, we have a handful of guys, that’s all they do, and they call the owners up, it’s a very typical thing, and you can scour a specific market really well, so that you’re getting in front of these things. The thing I will say about this though, is it’s typically for the small to mid-size deals, when you start to get into these bigger groups, there’s kind of a wall up, and it’s hard to break through. So our guys don’t really like to go after the 150-plus, but the sub-150, sub-100 deals, a lot easier. And I think the mobile home parks are much easier for this as well. So their business that they run is, they go after mobile parks, and then they do mid to small size apartments for Jake & Gino.

Kim Lisa Taylor:

Well, a lot of people think that it’s not possible to syndicate small deals, but it really is, especially if you’ve got multiple deals. So, let’s say you go out and you find three or four multiple deals, but you can actually do one group of investors for all those deals, and offer them the diversity of having a portfolio, versus a single property and relying on that to generate their profit.

Jake Stenziano:

And this happened to us, Kim, just recently is, so our deal dogs got a deal for us, and that turned into three deals with one seller-

Kim Lisa Taylor:

Yep.

Jake Stenziano:

And then we performed at a high level, that person referred us to three other folks. So that one deal started this domino effect, where we… and look, they were all about the same size, they were 30- to 50-unit deals, each one of them, but they were all in the same area, and it started this domino effect, worked out fantastic for us, a lot of the same product that we’re looking for, vintage, yada, yada. So we found this little vein there that we’re able to tap, so don’t sleep on it.

Kim Lisa Taylor:

Yep. All right. All great advice. So what about people who are new to syndication? What should they be doing right now?

Jake Stenziano:

I think they should just call Kim, because you remember back when I was a little baby in diapers, and we got you on the phone, I don’t know, five or six years ago, and it was six, seven hours, and you’re like, “Dude, I’m telling you this same thing over and over again.” I’m like, “Kim, Kim, am I hearing you correct? Can you tell me this one more time?” And the problem is that Kim is this skilled legal ninja, and she’s talking to me, where there’s this barrier to understanding legal jargon, so she had to say, “All right, Jake, this is what I’m trying to say to you.” And she was very sweet about it, and she held my hand and walked me through the process.

So I think it’s finding someone that knows the process, and don’t just try to wing it, don’t just try to get your own forms, and docs, and this and that. This is a team sport, get with professionals, make sure you build a team of professionals around you that are going to guide you and be your guided mentor through the process, otherwise you’re going to end up in rough shape. So, look, this is not a shameless plug for Kim, we’ve used her multiple times, and I think the key is to build your team, and the folks that are needed to get this work done. Because I didn’t know much about syndication, we were… JV, we’re buying for cash flow guys, and without Kim, I think it would’ve been a disaster for us.

Gino Barbaro:

To get back to your previous question though, there’s a couple things that you should be doing as well. You should be sourcing deals, but also sourcing capital. If there are no deals in the market right now, you should always be looking for capital, because as Kim will tell you, I’m not the legal expert, you need a substantive relationship. So when you find the deal, if you don’t have the investors, well, that deal is pretty useless to you, you can’t fund the deal. So you should always be looking for that.

I think the other thing you should be doing is, you should be really networking with… You talk about brokers, but you should also be out there, going to these events, and networking, and building your systems. We could talk hours upon systems, but how are you talking and corresponding with your investors? Do you have a CRM platform? All these things, that when you’re slow, you should be working on the business in those areas. How does your website look? How does your response look? How are your lead magnets?

This is all stuff that you should be doing in conjunction with looking at deals, and that’s why Jake said multi-family is a team sport, because we couldn’t do all this. We had our business going on, we had to create what we call Rand Partners, it was a subsidiary, because all of a sudden, that’s a syndication business. We have investors, we have asset management fees, we have acquisition fees, and that’s where education comes into it. I mean, if you can’t invest in your education and learn the process, because syndication moves really fast, and if you don’t know the steps, if you don’t know that you need an operating agreement, and you can’t start raising capital and putting money into a bank account unless you have all your docs, and you’re 40 days into it, you’re like, “Holy crap, I don’t know.” You lose all the momentum, and you lose the deal.

So understand the process, it’s just another layer of what multi-family is, but if you don’t know that process, and if you’ve never done it before, hook up with people who have done it, and possibly maybe you try to join somebody else’s group, and see if you can add value to their group. I think that’s something else that people should be doing, going out there and seeing who else is doing it, maybe partner up with somebody else who’s got success, and who has the credibility in the space.

Kim Lisa Taylor:

Well, and I know how people can meet other people who are doing this that they can team with, any ideas?

Gino Barbaro:

Jake’s the pitch man, give it to me brother. Hit me.

Jake Stenziano:

Look, obviously we have the multi-family event, Multi-family Mastery 5, November 5th and 6th in Orlando. We’re going to have over 1,000 people, this is going to be a really phenomenal event, and all the vendors are going to be there, this is a place where you can meet experienced people, you’re going to have people that have done 10,000 units there, you’re going to have people that have done zero units, and everything in between. But I want to touch on what you’re saying there a minute ago, Gino, because at every part of the cycle, you need to work. And I think people are looking for everything to line up, and be easy, and be perfect. Six months ago, “whaa, whaa, there are no deals. ” But there’s money coming to you. Now, in my opinion, I think there are going to be deals, but guess what? It’s going to be harder to raise money, “whaa, whaa, there’s no money out there.”

Look, you need to work. You’ve got to go out there, you’ve got to create these relationships, you’ve got to build the team, and there’s going to be points every few months where the market’s shifting a little bit, one way or another. And if you’re not tending to your business, and if you’re not building relationships with brokers, you’re not building relationships with investors, all the time, you’re going to get left behind. So I think the big ring-the-bell moment, guys, we’ve got to work. We’ve got to get out there, we’ve got to hustle, it’s not going to… And I was picking on the brokers a little bit where six months ago it was really easy, they’ve got to get back into it right now. Maybe they had a little relief, a little break, because money was pouring in, but look, you’ve got to work, there’s going to be points with market shifts, and there’s going to be deficiencies, and the people that win in this game are the ones that can solve those problems. You solve the problems, you win in real estate, I think the basic outline.

Gino Barbaro:

You win in life.

Jake Stenziano:

That’s right.

Gino Barbaro:

Any entrepreneurial venture, you win in life when you can solve problems and create opportunities.

Jake Stenziano:

Gino’s going to be singing at the event by the way, Kim.

Kim Lisa Taylor:

One of the things you’ve been talking about is that your business is very dual-faceted. You have to learn how to find deals, how to run deals, and all of that, but you’ve also got to be creating a ready, willing, and able database of prospective investors.

Jake Stenziano:

Yeah.

Kim Lisa Taylor:

I run a mastermind every week just for clients of our firm, any client of our firm that wants to can show up, and we go through, “Hey, what do you say when you meet somebody who asks what do you do?” And we make them practice, practice, practice, practice, your elevator pitch until it doesn’t sound you’re stumbling over words, and they’ve got it down. And then we talk about, “What did you do last week? And what are you doing this week to further your syndication business?” And it needs to be two things, you need to be working on finding deals, and you need to be working on finding investors, and you need to be doing that every single week consistently, and perseverantly, like you said, and if you’re not doing that, you’re not finding deals. I get people that are like, “Well, I’ve been analyzing this deal for the last six weeks, and I’m thinking about putting in an LOI.”

Jake Stenziano:

That deal’s gone.

Kim Lisa Taylor:

How many LOIs do you guys put out a month?

Gino Barbaro:

That deal is gone five and a half weeks ago. And we made this mistake back in January, there was a deal that we were looking at, we knew the market, we felt it was right, but we had to be cute and go inspect all the units. Well, guess what? Jake & Gino didn’t get that deal. We should said, “Here’s the LOI. Put it in. If we find something egregious…” And we didn’t do that, and that is such a learning lesson. Get the deal, do as you say, analyze the deal as quickly as possible. If you can get onsite, great. If you can’t, and you feel okay about it, and there’s no material defects, you don’t know how the roofs are, you know how the interiors are, you need to put in those LOIs, and you need to do it quickly. Now, the market’s shifting where you may not need that extreme speed, but still, it shows the broker that you’re serious, that you really take the business seriously, you respect their time, and it is just one of those things where you feel it, you need to slam it, you need to get that LOI in as quickly as possible.

Jake Stenziano:

Kim, I can cut a deal up in 10 to 15 minutes, honestly. I can cut a deal up in 10 … And that doesn’t mean I know I’m going to buy it, but I know it can be removed off my desk because it’s not even close, how do you do that? You have clear buying parameters, and we stress this all the time, we ask people, “Do you have clear buying parameters?” And a lot of people are like…

Gino Barbaro:

“Huh? What’s that? Huh? Huh?”

Jake Stenziano:

So fortunately, we own 1,500 multi-family units, and every month we’re looking at profit per unit. And we go through, we have a draw report, and we analyze it. Here’s the draw for the property, here’s how many units, you divide it, profit per unit was $250. And we look at this over time to find out what’s performing well in our market and why. When you have this type of data, and look, if you have 100 units and they’re varied, you can still do this, it makes it much easier to go in and look at vintage, look at construction, know what you’re looking for, because you’re going to create your budget for expenses, or have a guideline of what you think it’s going to be, then your accounting team, or whoever’s on your team is going to construct that, so you know exactly.

But look at the deal, what’s the actual income? Roughly where are you going to be at on your expenses per unit? What’s the debt? We know all this stuff. There’s a few components, is it even close? If it’s not even close, you don’t like the vintage, you don’t like the unit mix? What are you doing? On to the next one, “Gosh, Mr. Broker, this deal looks so good, we’re just not there on it for a few reasons, but thank you so much. Let me know when you have another one. Remember, we love two-bedroom townhomes in the west side of town. Can’t wait to catch you on the next one.” What are you looking at? Six weeks? That’s crazy.

Gino Barbaro:

Six minutes.

Jake Stenziano:

That’s too much.

Kim Lisa Taylor:

All right, well, we’ve got some people who wanted to ask some questions, so I don’t want to disappoint them. Hey, Todd, you asked if I could unmute you, and I tried, it says your…

Jake Stenziano:

Is this Gino’s accountant?

Gino Barbaro:

No, I hope it’s not my accountant. It’s not…

Kim Lisa Taylor:

Yeah, so Todd, you were asking if I could unmute you, and I tried, but it says your Zoom is outdated, your Zoom app, and…

Jake Stenziano:

You’ve got to update the Zoom terms, Todd.

Kim Lisa Taylor:

Yeah, yep.

Jake Stenziano:

You’ve got to update them.

Kim Lisa Taylor:

So if you want to type it into the Q&A, we’ll ask it. Okay, so let’s see. “How do you get deal flow starting out in this type of market?”

Jake Stenziano:

Yeah, I think that’s a really interesting question, because going six months ago, if you were saying, “I’m starting out on the market, I want to go after 150 unit deal.” And the broker says, “Well, tell me about your background and experience.” That’s going to be tough, because ultimately, they want people that are closed, you’re competing against very high level people. Depending on what your goals are, we recommend everyone starting with a credibility book, a little bit about your background, and also leverage a group or a community. And this is not a plug for Jake & Gino, but a lot of our students come into the community, they network with other folks, and they talk about the group or the community in their documentation, in their brag book, if you will, and their credibility kit.

And so I think one of the great things about Multi-family Mastery 5, these different things, you meet people with aligned values, and you can put the group up, that’s done X amount of units if you’re open to that, and that helps present yourself better to a broker. If not, you may have to start with something smaller, talk about your current business experience, what you’re doing, your business plan, how you’ve been educated, that goes a long way.

So I think if you have zero experience to your credibility, it’s either getting in a like-minded group, finding people you can partner with, or starting out smaller and being okay getting into a 10 -or 15-unit, and then climbing the ranks. Look, we started with a 25-unit, we didn’t have experience, we didn’t have credibility. We had a credibility book, it actually helped big time, we went for our financing, I remember taking it, sliding across the desk of the banker, he went through it and he said, “I typically don’t see this.” And then it gave me an opportunity to detail our business plan and our experience, and I think that helped us get that 6% rate back in the day, right, Gino?

Kim Lisa Taylor:

Well, a lot of people don’t know, but we have an entire marketing department that has professional  editors and graphic designers that can help build those credibility kits for you. We can help with your pitch docs, with your one-pagers, with your websites, with your lead magnets, all that stuff that you ultimately need in order to be successful in this business, and to show that you’re in business.

Jake Stenziano:

Yeah.

Kim Lisa Taylor:

You have to have a professional appearance so people know you’re in business.

Jake Stenziano:

Yeah, I think it’s either aligning yourself with folks that have been there and done it, or starting a little bit smaller, and working your way up through the ranks. And I don’t see there’s anything wrong with either route.

Kim Lisa Taylor:

This is a leverage business, right?

Jake Stenziano:

Yeah.

Kim Lisa Taylor:

You leverage off other experience, you leverage off other people’s money, you leverage off bank loans, you’re looking to leverage what you’re learning now, and bringing in all these other aspects of it to help the whole deal come to fruition.

Gino Barbaro:

Do you mind if I add a couple of points to what Jake was saying?

Kim Lisa Taylor:

Go right ahead.

Gino Barbaro:

I think the first thing we all need to do is select the market, become an expert in that market. And I think the next thing is, you need to get on property tours. Jake was on a couple of property tours yesterday, building the rapport with the brokers, all of a sudden you’re talking to the broker, and… Well, Jake was telling the broker, “What happened about that deal last month? Breezeways were terrible.” And the broker’s like, “Yeah, three other groups told us that.” So all of a sudden, you lend yourself credibility because you’re speaking to them in their lingo, and all of a sudden, they may have an off-market deal, and maybe say, “Hey, I’ve got this deal, it hasn’t hit the market yet, let’s go take a look at it.” Or, you get to the top of their list if you go out to these property tours, and you show that you’re really serious, you’re not a tire kicker, you’re not an investor from California that wants to invest in Florida and can’t get to these properties.

Brokers are going to talk to people who show up on their deals. They don’t want to go out to coffee, they don’t want to go out to lunch, they want to show you deals. So get on tour, and get on property. You’d be amazed at the things you can learn. Because then when you’re on there, you can leverage their experience, understanding what income is supposed to be, understanding what’s going to happen with tax rates, understanding what the expenses are in the market, and then all of a sudden, you can build a rapport with that broker, the next deal that comes up, guess what? They’re going to send it over to you as well.

Kim Lisa Taylor:

Okay. All right. So Deepak asks, “What do you think about assisted living and senior active living facilities?”

Gino Barbaro:

Jake?

Jake Stenziano:

I like it. We tend to really stay in our lane though, as Gino was just alluding to. So I’m not opposed to it. We typically don’t do college, we don’t do senior living, we don’t do HUD. There are small components of this sprinkled in throughout our portfolio, but really, we like market-based multi-family type acquisitions. And it’s to give us understanding, and scale, and we like to just duplicate the process. So I don’t have a problem with it, I’ve spoken to some guys about what they’re doing with it, and the different data that’s out there showing that it’s going to be positive for a long time, because of all these aging populations and things like that.

It’s just another type niche to get into that we kind of want to stay in our lane, and just get really good at what we’re doing. So I would say that if you’re going to go into that, lean into it hard, and kind of make that your baby, and become the expert on the senior living stuff. The components I probably wouldn’t like about it is just the operational, there’s more operational things, you’re dealing with the elderly. Yeah, I’m sure there’s some extra work and issues that come along with that. I’m sure it’s a very profitable business, just not for us.

Gino Barbaro:

Demographics is the number one thing. If you’re into it and you like demographics, and you’re in a state that has an aging population, that’s why Florida’s great, the elderly are moving down here, and there’s just opportunity with that. But like Jake said, we just want to stick with multi-family. So for us it’s a great niche. I mean just like mobile home parks, great niche, we just never found the desire to do it, because when we talk about the blue ocean strategy, we want to become the Chick-fil-A of apartments, and when we got out there learning how to manage apartments, we all of a sudden pivot to mobile home parks, or even RV parks, RV parks have been all…

Jake Stenziano:

It’s a big deal, guys. Just making those pivots is a big deal. We had a great RV deal in front of us, and my question to the team was, how are we going to manage inventory? What are we going to do when the potato chips and the firewood comes in? And what are the protocols for this? These are the systems that come into place though that people don’t really think about. And if you want a well-oiled machine, you want high performance, high performing teams, and you start to consistently add these different layers, it’s not that it’s not doable, but it’s going to create problems. And the better and the more (focused) you can get, I think the better off your customer service is going to be, the more profitable you’re going to be, the clear understanding of the goal to the team is going to be there. So consider all this, and my only statement, again, would be if you’re going to go into it, go into it heavy and hard, and make that your baby.

Kim Lisa Taylor:

That’s right. Yeah, and that’s my advice too is stick with your niche. I mean, we’re a very niche practice, and it’s been very successful for us. We do syndications, we help people structure deals for their real estate investors. We did bring out an attorney that can help with non-real estate deals, but for the most part, our primary focus is helping people who are buying real estate, figure out how to structure their deals with investors, set up their corporations, and then comply with securities laws. So if you can be that laser-focused in your business, all of our most successful clients are in a niche. We have some that just do self-storage, some that just do mobile homes, some that just do multi-family, so pick your niche, become an expert in that before you start chasing the next thing.

Jake Stenziano:

I appreciate it though, Kim, because when we started out, I thought we could do everything. I was like, “We can be everything to everybody, for every market segment, we can buy all the real estate.” And it makes it much harder when, ultimately, as your company grows, when you want to become a market leader and perform at a higher level, to be everything to everyone, and that’s where it starts to get difficult.

Kim Lisa Taylor:

Well, and even the biggest funds that I see, private equity funds that I encounter, are all really laser-focused on one thing. I get clients that come to me and want to do what I call “kitchen sink offerings,” they want to do a fund, they think that it’s going to be so easy to raise all the money in advance, and then they can get all the deals that they want, and they can buy any kind of deal that they want, and I can tell you that they are rarely, rarely successful, unless they have very specific experience in those specific areas, maybe they can narrow it down to three.

I’ve got a developer who’s developed multi-family, and shopping centers, and self-storage, and he does well with all those three things, and he has for a long time, so he’s okay to do that. But if you’re not that person, you can’t do it, and you’re just going to waste your money on a fund, you’re going to waste 60 days setting it up, you’re going to talk to a bunch of people about it, you’re have a five million or a $50 million fund, and you’re going to raise about $100,000.

Jake Stenziano:

I get fearful from unique differences just in multi-family. If I’m looking at a deal, and there’s a little component that we don’t have much experience with, I tend to tense up a little bit, and I’m a little less aggressive with it. So even to that extent, not saying I wouldn’t buy it or something like that, but that’s just how I think our business has evolved.

Kim Lisa Taylor:

All right, let’s go to another question. Katherine asks, “How does one seller finance a down payment with agency debt?” That’s that structure I was talking about, where we bring them in as a special class, the seller becomes a separate class in your LLC, they get a fixed return. Now you can do this with other investors, maybe you have some investors that don’t want equity, but they just want to regular fixed return. So maybe you offer them 9%, and you let them get paid right after you pay your bank debt, they’re the first class in your LLC that gets paid, and then you go split between your management team and your equity investors. We write a lot of offerings like that, and we usually write it so that the fixed return class can be bought out on a refi, so you can get rid of them.

Jake Stenziano:

Beautiful. Wow, man, Kim’s just like, “Get out of my deal. Get out of here.”

Kim Lisa Taylor:

Well, some of them only want that, they don’t want to be into a five to seven-year deal.

All right, so Ryan asks, “Mentioning deals on Facebook or social media for 506(b)s, what can we say? What can’t we say? What’s the law?”

The law is that you can’t advertise these deals, 506(b) offerings, on any kind of social media. You can only offer them, which means you can only talk about them, to people that you already have established a pre-existing relationship with. So you have to go out and develop contacts, go to the Multi-family Mastery event, get a bunch of contacts, go to your local philanthropic events, local chamber of commerce meetings, go places in your own community that you can meet investors, follow up with them, establish a pre-existing substantive relationship.

There’s an article on our website, if you go to syndicationattorneys.com, go into the library, there are over 60 different articles there. There’s also frequently asked questions, and all of our previously recorded podcasts, over 60 of them. So you can go there, and get an article that’s called “How to Create a Substantive Relationship,” I highly recommend everybody get that article and read it, because it actually tells you what the SEC believes is necessary to have that relationship. And that means you have to understand that person’s finances. What does that mean? You’ve got to have a conversation with them about their finances, you have to ask them questions, because you don’t know, even though your neighbor drives a nice car, maybe he doesn’t have any money in the bank, and he doesn’t…

Gino Barbaro:

Is that financed, or you paid cash for that? You’ve got the money or what?

Kim Lisa Taylor:

That’s right, that’s right. So you’ve got to ask, you’ve got to have those conversations, and only after you’ve had that conversation, and you’ve taken note of that conversation in your database, then can you start offering them 506(b) offerings, so until then, you cannot.

Gino Barbaro:

Kim, have you seen regular, just syndicators who have 506(b), do you see them go online and say, “Hey, Jake & Gino here, sign up to our website”? And have you seen investors do that, without specifically mentioning a deal? But then let’s say they get the deal in the contract before they speak to the person, they still can’t share that person, even though they’ve signed up, because they haven’t had that substantive relationships or that concept with them, correct?

Kim Lisa Taylor:

This is where your lead magnet comes in, you have to have something to offer, you’ve got to offer something of value, of educational content, or something that people want before they’re going to give you their contact information.

Gino Barbaro:

Yep.

Kim Lisa Taylor:

So if you have that kind of a lead magnet, you can create a free report, you can create a checklist, whatever you can think of that investors might want. You can then offer that to people in exchange for contact information, then you can do the follow-up.

Gino Barbaro:

Then.

Kim Lisa Taylor:

Kind of a dating process, right?

Gino Barbaro:

Yes.

Kim Lisa Taylor:

You meet someone, then you follow up with them, you have a conversation, established rapport, you determine whether they’re suitable to be in your offerings. That’s what the SEC says you need for that substantive relationship. You have determined their suitability to be in your offerings, that means you’re not taking their last $50,000, they’re not relying on income from your deal to pay their monthly bills, they can recover if there was a loss, if they didn’t get their money back, they could financially recover from that. And they meet one of the criteria, either an accredited investor, or a sophisticated investor by virtue of their previous experience or investing experience.

Gino Barbaro:

And that’s why we go to Kim, because Jake & Gino would not have been able to say that so eloquently. We’re not lawyers.

Kim Lisa Taylor:

All right, so somebody asks, an anonymous attendee, “When you started, did you syndicate the first deal, or was that just both your capital?”

Gino Barbaro:

The first deal…

Jake Stenziano:

I didn’t know what syndication was when we got our first deal.

Gino Barbaro:

Well, remember, let’s talk about the first deal. There wasn’t much money back in 2013, the JOBS Act had just come out, then 2017, I think syndication started ramping up when Trump did the cost segregation and all. So the first few years, there wasn’t a lot of capital in the market, it wasn’t like it is over the last three or four years. So we just started buying deals ourselves, we were able to refi the money out of that first deal, get the second deal, the second deal, the third deal. We refinanced over $20 million out of our portfolio and continued to buy. Our first syndication came in November of 2018, we decided we want to learn this, we going to teach it to our students, so we syndicated our first deal, then we syndicated our second deal in October of ’19, and then our third deal in January of 2020, around that time. And we’ve had three syndications, we’ve gone full cycle on two, we still own one right now. So it’s been a mixture. Like you said, syndication is a tool in a toolbox.

Jake Stenziano:

Tools in a belt.

Gino Barbaro:

We’ve done creative financing, we’ve done syndications, and we’ve done joint ventures as well.

Kim Lisa Taylor:

Excellent. All right, so Roger asks, “Kim, do you send out a recording of these events?” Well, it’s being simulcast right now on YouTube, so as soon as it’s over…

Jake Stenziano:

You’ve got to pay for the recording though, right?

Kim Lisa Taylor:

No, you’re going to be able to go to YouTube, and…

Jake Stenziano:

She’s just giving away the farm.

Kim Lisa Taylor:

Yeah, yeah. Yeah, we give away a lot of educational content, that’s our thing. So you can get it off YouTube, you can subscribe to our YouTube channel, which is Syndication Attorneys PLLC. Also, we’re going to be putting this up on our podcast, which is “Raise Private Money Legally.” And by the way, I just want to let you guys know that we are coming out with a new book, so we’re doing a second edition of my book, which was originally published in 2019. It’s going to have a lot of new content. We’re going to do a relaunch of that. So if anybody’s interested in that…

Jake Stenziano:

When?

Kim Lisa Taylor:

It’s going to be coming out before the end of the year. So I’m working on it right now.

Jake Stenziano:

All right.

Kim Lisa Taylor:

But if you want to reserve a soft copy of it, you can text the word Syndicate to (844) 796-3428.

Jake Stenziano:

No, text it, Gino, she’s saying text it. He’s writing it down. Sorry, what was that number again, Kim?

Gino Barbaro:

I was actually going to repeat it, Stenziano. I was going to give her a plug …

Kim Lisa Taylor:

(844) 796-3428, now let me just send this out to everybody, and you can get on the list to get that book. Let’s see, Jake, Gino put the link to the Multi-family Mastery 5 event, but you only did it to the panelists, so I’m going to resend that to everybody. If you want to sign up for their event, it’s a great event, it’s just action-packed.

Jake Stenziano:

Right around the corner.

Kim Lisa Taylor:

There’s a ton of educational material there. You’re going to meet a lot of people. You’re just going to get energized about your business, and you’re just going to be so glad that you came. So don’t miss that event.

Jake Stenziano:

At the Lazy River, it’s an A++ property, it’s all first-class. I think Gino’s providing some Starbucks maybe, no, it’s going to be more than that, but it’s going to be really, really phenomenal. We’ve got Ryan Serhant, Julius Thomas, Pace Morby. Gino’s going to be there, he’s doing a little opera stint.

Gino Barbaro:

Yes.

Jake Stenziano:

We’ve got our boy Luke Wren up there bringing the pain. So a lot of really high level speakers, a lot of high level investors. We’ve got an operator panel. A lot of good stuff, and we’re very excited about the event.

Kim Lisa Taylor:

Well, and if anybody wants to know about our services, you can schedule a free call with one of our staff at syndicationattorneys.com. There’s a button there that says “Schedule a Consultation,” you’ll get some options, you can pick who you want to talk to. We would love to speak to you.

Just a couple of quick questions and then we’ll wrap up. “Kim, do you also help with structuring JV deals?” Absolutely.

And then Roy asks, right after that, “Well, what’s the difference between a JV and a syndication?” The difference is, in a joint venture, all investors are actively involved in generating their own profits, and that means they have to have more than a voting right, they actually have to have participation, and their belief that they are generating their own profits, they’re not relying on somebody else to do it for them. So when you fall into the realm of having passive investors that are relying on you to generate the profit, then you’re selling something called an investment contract. That investment contract is a security, and that’s what triggers having to comply with securities laws, which means you have to have the right disclosure documents, you have to do filings with the SEC, and with the state securities agencies. And so it just becomes a bit more expensive, and a bit more cumbersome.

But you stay in control of the deal, you don’t have a bunch of other people telling you how to run the deal, which is the problem with some joint ventures. So anyway, some people have said “great content, thank you all, have to drop off.” But anybody that wants to schedule an appointment with me, you can do so at our website. So if you do that, drop down on “Schedule a Consultation,” you’ll see a place that you can schedule call with me. But we would love to see you all at the Multi-family Mastery 5 event; we will be there as sponsors.

Gino Barbaro:

Thank you.

Kim Lisa Taylor:

And we are super excited to be there. We’ve sponsored from the beginning, and we have no intent to stop. All right, you guys are awesome. Any parting words?

Jake Stenziano:

No, Looking forward to seeing everybody. Looking forward to seeing you, Kim. Maybe we’ll catch you in the Lazy River. Maybe Gino will do a little surfing there. It’s the financial vacation for smart people. Thank you so much for your time.