The Benefits of Passive Investing in Real Estate with Chris Pomerleau - REIA 475

Welcome to Real Estate Investing Abundance, the show for busy, fulfilled professionals like you to learn how to develop financial independence built on solid passive real estate investments. Now, here is your host, Dr. Allen Lomax.

Hello, enlightened investors. Welcome back to Real Estate Investing Abundance. I'm your host, Dr. Allen Lomax. Thank you so much for being with us again today. We have a returning guest with us, Chris Pomerleau, and we are delighted that he is returning with us to share what has happened with him in the last 2 years. Currently, he has 2,400 units under management, uh, $240 million in assets, And he has investments in 7 states. His company is Levwell Capital, and we are delighted to have you back with us again today, Chris, to share with us your journey. So just take us into the show today and just tell us some of the highlights of the last 2 years.

I appreciate you having me on, Allen. Um, yeah, that growth That hockey stick growth mentality is kind of what we've been on, which is fantastic. It's a lot to learn if we're all being candid. Growing a company is a learning curve. You start in real estate and you're learning how to do singles and duplexes, and that's a learning curve. And then, you figure out how to do a 50-unit, and then all of a sudden, you have 3 or 4 employees. And so, over the last 2 years, we've consistently fine-tuned our asset management approach. We've built relationships that helped us with the acquisitions, so we're getting a lot of off-market deals. And really, my goal and and my partner's goal is to just surround ourselves with really like-minded individuals on our team. And we have just phenomenal partners here at at Love and Wealth, and that's what allows us to grow so quickly. Is everyone knows they have their lane, their subject matter experts, and It's been really exciting.

Yeah, sounds like a great, a great 2 years. Congratulations.

Thanks.

2 years ago when you were on, you had about $100 million under management. Today, $240 million. So in 2 years' time, you have doubled your holdings and your company. That is phenomenal growth by really anybody's standards. And as you said, it's a learning curve. I'm sure it has— I'm sure there's been a lot of challenges that you have had to deal with and to overcome. What was, uh, what was the biggest, uh, lesson you have learned over the last 2 years?

You know, on a personal partial business perspective, it's the who, not how approach, or, or my ability or Or at times in the past, my inability to delegate. On a personal level, that's been tough. I've just always kind of really been motivated and I like to accomplish things myself and I like to learn things certainly before I delegate them. And so, the ability for me to hand that off to other individuals and let them run with it on a personal level has been a learning curve for me. We're certainly way better now. And it certainly helps that we have Such great team members. I'd say what's what's been difficult. We've actually luckily been successful at, and that's finding deals over the last year or two. Not a lot of people. It's funny that you mentioned that we doubled. I sincerely couldn't tell you where we were three years ago, four years ago. I could find the answer. I just I don't keep that running in my head. It's not a lot of people are buying over the last couple years, and I think that we've been nimble and allowed. you know, our personal wealth to grow, but as well as all of our investors, is unique and creative ways to find deals. So, obviously, direct-to-seller, but we're assuming a lot of great loans. I mean, just 5 months ago, we locked down a 2.6% note for the next 33 years.

Wow.

Yeah.

And we assume that— we've assumed a lot of good Fannie Freddie debt, but then also some other creative ways like some seller financing. So I think that I wouldn't say that's the difficult portion, but that's the portion that took a little bit different trajectory than we expected at first, because just past 2 years ago, you could just look around and everything was kind of making sense and everyone's making purchases. And throughout COVID, certainly in the fallout of that, has been tough on many people on acquisitions. And for us, luckily, we were nimble, a little agile, and made the right decisions, and we're happy for it.

Yeah, yeah, well, good. Yeah, yeah, it has definitely not been a buyer's market for really, well, the last 2 years really. So the fact that you have been able to do that—

Well, I think it's also important—

It's impressive.

I'm sorry, Allen.

Go ahead.

Yeah, I think, I think it's also important, uh, our relationships that we've built with our investors because Finding finding the deals or being creative with financing or whatever—that's important. But managing and being honest about the expectations for the investors—you know, four years ago I could tell an investor, "Hey, we're looking at a 48 unit. We can get in and out of that in two years. Like it's just going to be simple." I would never phrase it that way, but we felt comfortable that we could refi in two years and it'd be no big deal. And and that's part of the massaging and the discussion we've had to have with investors that look. The things we used to do in 2 years' time, it may take 5 or 6 years. But if we're raising the value and at the end your IRR, or at least your overall return, is where you want it to be, it's just about patience. And so I think that's been a learning curve or something that's changed also over the last 2 years is the expectations from investors because they want the stuff they were getting 4 years ago. And so those have been rewarding conversations at the end.

Of course, you have a lot of passive investors working with you, so talk to us about the importance of passive investing and really how does a passive investment look like, how is that structured, what's good about it for a passive investor?

Yeah, I got into this 10 years ago A little over 10 years ago, and I wanted that mailbox money. I wanted that passive income. I didn't realize at the time, but I was just signing up for a second job. When I got started, I was doing everything myself, and I was a full-time attorney. So I just had 2 jobs. Luckily, and I sincerely do mean this, for the first time in my life, I found something that I was truly passionate about, and I made it my active job. We built a real estate investment company and it's what I want to do. I think for our investors, what I would say to them and what I have said many times is the passive income allows you to go do whatever you want. And it takes time to build that up, but if you want to continue being an electrician, if you want to continue being a doctor, at least you're not forced to continue doing that. Or if you want to cut it back to part-time. And so, the importance really for our investors in these conversations is, as far as passivity and how that affects, is really just if people are interested in long-term wealth, if people are interested in the passive income, you know, I walk on some SEC eggshells in what I'm about to say, but we're not a financial advisor. But I would view that relationship as the same. And all I mean by that is— When you give your money to the financial advisor, you want them to help make that money worth more. And that's very passive. If you're day trading stocks all day for your financial advisor, that's not really making a lot of sense as far as being passive. We're the same for people that want to either start transitioning into majority real estate or really, I would always just say diversification. I have money in the stock market. If people want to diversify into real estate, It is a lot easier than teaching yourself how to do everything. And I'm not even talking about how to lay flooring. I'm saying, who's your insurance guy? Who's your lender? What is this asset really worth? If you want to get into it, but you don't want to have to worry about the phone calls and the meetings and the stress, and to be honest, the risk as far as a guarantor on debt, you don't have to worry about that even. That is what is nice about investing with a company like ours, and there are other companies, but that's what's nice for the passive investor is that they don't have to worry about those things. The key is just finding the right horse, if you will, the trusted individual to help you in real estate.

Yeah. A lot of people say the horse doesn't matter as much as the jockey. I'm not sure I agree, being a horseman. I think the horse is pretty, pretty important to that.

Pretty important.

And a lackluster jockey— a good horse can take a lackluster jockey a long way.

That's true.

So, so yes, I think the horse is important. Yeah, I agree. Well, how does a passive investment work? I mean, I think I didn't do it this way, but I'm not as smart as a lot of people. I didn't start the passive investing way, but as I look back on it, I wished I had. Because, well, what are the advantages of it? I mean, outside of the fact that you're getting the returns without putting your whole capital out there, you can diversify much more easily in a passive way. You don't have to spend your time, effort, energy locating all these properties. You don't have the management headaches and so on and so forth. But I think the biggest thing is Education. What are your perspectives? What's a good thing to an investor about investing passively, particularly if you don't know what you're doing? Yeah, I—

well, I think you, you've highlighted a few in addition to mine that are great to talk about. I think that one of the things, and I would say maybe the difference between the stock market and real estate, is that for people who want to get into real estate, there aren't a lot of— unless you do it passively, there aren't a lot of built-for-you systems like a Vanguard mutual fund that literally just says, if you want to retire in 25 years and you want medium risk, here's where you place your money. And there are people on the back end making very educated decisions. I just think it's the same when it comes to real estate companies like ours, is that we are doing that day-to-day work to build relationships, to find the right assets, to manage the assets, to manage the manager in many cases. That allows someone to look at us and say we trust the horse, but now investor doesn't have to learn everything that we've learned over the last ten years. I mean, underwriting a fifty-unit apartment complex is a little different than underwriting a single-family home. And by the way, if you've never underwritten a single-family home, you'll probably make some mistakes on that too. And so what we're lucky about is a lot of our investors—you know—doctors and attorneys and But we have real estate investors too. We have people from our meetups or people we've met online and they say, I'm super interested, but I can't afford a 100-unit by myself. I have no team, so I can't build out this large team and go find something. I'm really interested in getting into real estate passively. And sometimes they get a chance to even learn how it works throughout the process.

Mm-hmm.

It really just allows an individual to take advantage of everything real estate offers, which, you know, we haven't talked about. There's a number of ways real estate provides a return for you outside of just that cash flow that people talk about. Being passive allows you to simply trust the individual to make money in those 4 different ways that you can. And so back to what you had asked earlier, about passive, and I had mentioned people doing what they want. That's sincerely the intent. You know, I'm sure you've heard this from other guests, but like, my mind shift is I don't think about how can I afford that thing. I think about what can I buy that pays me money that helps me go afford that thing. And everybody should think that way. And it's very difficult to get started in real estate by yourself. And so, Levinwell Capital, and there are other groups that offer this, it just, you're latching onto someone with experience so you can get into real estate, diversify your portfolio, and really get that generational wealth and that long-term passive income.

Well, talk about the different ways. You mentioned 4 ways that real estate benefits investors. What are those 4 different ways?

Everyone talks about cash flow, and by the way, I just talked about it for 20 minutes straight. Cash flow is easy to understand, you know, you put $100,000 in and you paid $2,000 every 3 months for the entire year, you made 8%, that's really easy to understand and again, that's now going to help you afford that car you wanted or whatever, that's how I would— but that's just one way. Another way would be appreciation. Naturally and over time, just like stocks, there are ups and downs, but real estate appreciates. I mean, you ask people in your family what they bought their home for 40 years ago or what they bought an apartment for 40 years ago, and it's appreciated. And there's an organic appreciation, which is just kind of what the market does over time. And there's a forced appreciation, which we pride ourselves in doing, and it's commonly known as value-add. And we, we just try to find something that is currently worth $6 million, but it should be worth $8 million right now. Not that if we buy it in this location and we hope that the market changes and we hope that it's worth $8 million in 7 years. I'm saying we're buying a business that's performing below standards that we have the chance to force appreciate, meaning we can raise that value faster than the market could simply because it's not making enough income. So that appreciation is really important, and why that's important is when it comes time to refinance or sell, you've been making that cash flow, but now you have a bunch of equity in it because it's appreciated. The third way is depreciation, or holistically write-offs. People don't really think about that, but it's a great way that it is, in my opinion, better than a lot of other investment routes. If I put $100,000 in the stock market, And I make $8,000, when I go to get that $8,000 out, I'm only going to get $5,000. I just got taxed on that. Well, with write-offs in real estate, it's not fair to say there are no— you never pay taxes on real estate, but there are so many incentives through the tax code. These aren't loopholes, by the way. Common misconception. Loopholes are like what I used to do as an attorney, try to find ways around making this fact pattern fit this set of details. This is like, I think Tom Wheelwright said, if you're familiar with Tom Wheelwright, he said 97% of the tax code is what you can do to save money. So it's not a loophole, it's a playbook. Do these things, you get write-offs. And that's a great thing about real estate is that you make $8,000 in a year, but your K-1 says you lost $40,000. That's phenomenal. Now you get all $8,000. So tax affected, that's $11,500. I mean, Those are really important things to think about. And the 4th thing, or the 4th way to make money, is the equity paydown. So sure, you're building equity as we appreciate and force appreciate, but don't forget you, you have a mortgage. Now, as a passive investor, you're lucky enough to not have to sign on any debt, but which is a service that should be offered to you. But the tenants living there are providing income. To the property that in turn pays off the mortgage. And what happens when you're paying down the mortgage? You're also building equity. So appreciation's taking it here, but if you're paying down mortgage, that equity gap is getting larger and larger and larger, and you're not paying it. The tenants are paying the mortgage. So I have financial advisors in my family, in my close circles. I have many people in my family who've made money in the stock market over 45 years. And they, they sometimes will say, well, I don't know, the stock market made 7% or 8% over the last 100 years, and I'm only making 7% or 8% cash flow right now. And I said, well, have you thought about the other 3 ways you're making money and the fact that you're actually keeping your money instead of paying taxes on it? And so, I think that's important for people to understand.

Enlightened Investors, if you haven't done so already, be sure and click that Like button and also click that share so others can take advantage of the content. And finally, be sure to subscribe so you don't miss a single one of our upcoming episodes. Yeah, I appreciate that, Chris. And to me, that's, that's one of the biggest differences between the stock market and really just about any other investment out there that I know of. are those other 3 ways of making money that they're just not available in the stock market. And they're not insignificant. They are hugely significant. They're a big deal. In wealth development processes. Well, when you talk about infinite returns, what does that mean?

Yeah, so I always love this conversation because I am not a natural-born salesman. I've never had a sales job. And so I just kind of speak candidly. I feel as though that's helped our company because when I speak to our investors, I don't— I'm not making them invest. And I think they see my sincerity. Where I'm going with this is I'll be clear about this. I mean, the SEC is— and this is the attorney in mine speaking here— but the SEC is clear about the ways you're supposed to or Ways you should not explain investments. We certainly use the phrase infinite returns. Now, that's not a part of our PPM, of course. The private placement memorandum doesn't say, hey, who wants to invest with us? We're guaranteeing you infinite returns. But what that means when we use that phrase is that you're recycling your money. And so, otherwise known as refinance and roll. So, that's been our approach. There are many ways to approach this. I know many people 2 to 4 years ago that made a lot of money flipping apartments. It's a lot harder over the last 2 years. Luckily for us, it didn't affect a lot of our approaches. It may have extended our hold time, but we always knew we were going to hold anyway. So, infinite returns means you buy a property for $6 million, you put $2 million into it because you want to fix it up and force appreciate it, you raise the rent, And not in a terrible way or a predatory way, you're just making the actual complex nicer and now people are paying rent that they— anybody else is paying anywhere else. It's just a market rent but they're living in a nicer place. So now you put a total of $8 million into it. You bought it for $6 million, you put in $2 million, you're up to $8 million. You go to the bank and you say, look bank, I think this is worth $10 million. And the bank says, yeah, it is, and we'll give you an 80% loan. So you refinance it, you pull out all $8 million, which is— a lot of that is the original debt, but all of the original equity. So the investor now has all of their money back, but they still own the property. They're still getting write-offs, they're still getting cash flow, and now they can use that money they originally invested and do it again. And so, the infinite returns is you can use that same $100,000 chunk on 3 different properties in 10 years, and now you're making 21%, but you own all of those assets, and the 21% is just the cash flow. That's what we mean by infinite returns. And if you only get 90% or 80% back, that's still extremely good, and you're recycling that 70 or 80, 90%, and that's what we mean by infinite returns. It could be so powerful. One of our original investors started at $400,000 $450,000 total they invested. And through their most recent investment, that had built up to $2.6 million. Now that was spread out over 9 or so deals, but they only used $450,000 to do that. They just kept recycling at each refinance. And that's the power of, of what we are calling infinite returns, the ability to refinance and roll money into the next one.

Yeah. What was the time period of that $450,000 to the $2 million?

5 years.

5 years? There's just no other way than real estate that you can do that. I just, I mean, I'm sure there are other ways, but I don't know of them.

Maybe buying Amazon stock in 2007 or, you know, something like that. I think it's easy, you know, I don't want to go on a conspiracy rant here about how little control we have over the stock market and who's actually pulling the strings. But it's really nice to know that if you trust your horse or if you just want to do real estate yourself, it's objectively something we all understand. People need a place to live. If it's making more money, if the property's pulling in more money from higher rents, it would make sense in our heads, whether you know real estate or not, that it's somehow worth more. And you're right, I don't know any other way to do it, especially making money the other 3 ways. Again, I'm still diversified and I don't want to upset any family members. But I just— it's been very rewarding to, to everyone I know who's decided to commit to it.

We are talking today with the very successful real estate investor Chris Promelo, and he is with Leven Wealth. Chris, take just a moment to tell us about Leven Wealth, what you do, and how we can get hold of you.

Appreciate it. So Leven Wealth Capital has been around for 6 years, a little bit longer than that actually. We had to change our name. It was originally Park Avenue. And we started getting successful enough to where our attorney said, you might want to change your name because there's already a Park Ave Capital from 40 years ago. So, we changed our name, same owners, same concept. We invest in multifamily apartments. And it's a passive investment for the investor. They get a chance to own the real estate right next to us. And I think that's important. A lot of times, people just getting in, they're not going to own the property. Miscon— They confuse us with a REIT. There are similarities, meaning you're putting your money towards something related to real estate, but LevenWealth, you are an owner of the property. So your name's on the operating agreement, you own the property, and because of that, you also get the write-offs that the property gets, and you also get to partake in the upside. Unlike a REIT where you don't get any write-offs and you don't get any upside, and they're usually a very low amount. So, Leavenwell Capital just simply allows people to invest into multifamily apartments passively and just allow us to take care of everything. You own the apartments, you make the cash flow, you make the appreciation gain, you get the write-offs, and you really just trust us to do it and our team. So, we're really excited. We're up to 700 investors now. Gosh, we're blessed enough to be having large gatherings, dinners, events where we can have our investors in and show them our thanks. And I think it's really just about— there are a million financial advisors, and some of them will get you good results, some of them may, you know, average, some of them not so. There are other people other than LevenWealth. I think what makes us unique is we concentrate on the Midwest, we're very candid, we're not salesy, and we're in it for the long haul. So, even if you yourself underwrite a little less conservatively. You know that we're holding this long term anyway, so you have some safety built in there. You can get a hold of us. My email is chris@levenwealth.com. That's Leven spelled like heaven with an L. chris@levenwealth.com. Our website's levenwealth.com and I'm talking to investors daily, so always happy to answer questions, hop on a phone call, anything that helps you understand real estate or get to know us better.

Chris, you mentioned REITs. There are also other ways to invest these days. They are funds. And you are a direct syndicator like we are. So explain to us the difference between fund investment and a direct investment in a syndication.

So when you're asking that question, are you just— are you asking for the difference between if an investor wants to invest money with Levinwell For that one apartment, or if an investor wants to invest in a fund that goes out and buys future apartments? Is that the question?

Yes, that's the question.

Okay. So, we have an open-ended versus a closed-ended fund. We have 23 closed-ended funds now. So, we went out, and the first 4 or 5, we said, we want to buy that apartment, and who's in it with us? And everyone jumped in. We bought that apartment. As we built our company, we became— we had such a good deal flow, we started opening portfolios, which were still direct because we say we're going to go buy those 4 assets, but that's it, just those 4. And then it's the funds closed. We are going to open something soon as a second option. And to answer your question, an open-ended fund. And there are pros and cons and it's just a comfort level of the investor. But the open-ended fund would be investor, we're going to go out and buy this asset right here. And we're also going to go out and buy assets that are similar to this, and they have the same similar business plan, but we don't have those exactly earmarked at this moment. Over the next 10 years, we're going to go out and buy X number of assets, and they're going to follow the same business plan. We would ask that you trust us to do so with your open-ended investment, meaning it's not earmarked just for 1 or 2 or a specific number of assets. And it's just really a comfort level. In my opinion, I'd love to know your opinion, Allen, but in my opinion, to come out early and open an open-ended fund is extremely difficult because you have no track record. And without a track record, it's hard to have somebody trust you with their money when you don't even have assets earmarked yet. We felt that after we got over 20— and we have 61 properties right now— but after we got over 20 specific direct syndications, that we could open this up as an opportunity. There are a little bit better returns for our investors on this, but it allows us the flexibility to be locked and loaded so we can go to a seller and we can say, we'll close in 45 days, we'll go $200,000 hard day one, you know, whatever, you know, depending upon the size. I'm just saying, with assets already to go in an open-ended fund, you have a lot of flexibility. So it really comes down to— it's a very long-winded answer, Allen. It really comes down to the comfort level of the investor. The difference is a direct is just directly to a few assets. The open-ended fund is, is really just trust us with your money and we're going to go find those assets. And it's really just a comfort level for the investor.

Yeah. Well, what about the return difference between an open fund and a closed fund?

There doesn't have to be a difference. I was highlighting that what we're offering over the first 6 months of our open fund is we're actually offering to add on an additional So, 10% of ownership based upon what somebody invests. So, a $100,000 investor would have 110 shares. And we're only doing that the first 6 months, but we're really just doing it to get— candidly speaking, we're doing that to get a nice little jumpstart to the fund and stand behind the fact that ultimately, that comes out of the general partner's pocket. But we're really ready to stand behind that and allow people to kind of— Dive in and trust us on this open-ended approach. Every deal we have moving forward will also be a direct fund, meaning that our open-ended fund will simply just be one of the investors into the direct apartment. So, if an investor who we know very well has already invested in 6 deals and they say, Chris, I just don't want to do the fund, but I still like that deal, they just, they just can invest right in the deal. But our fund allows us to not only do what I just said, be more powerful on acquisitions, but it also allows us to recycle quicker. Now, when we refinance a property, we're obligated to return that money immediately. The way the fund's written up is over the next— over the first 10 years, we can recycle that money into new assets. So by the end of year 10, that investor who knew of that first deal may own 11 assets, or at our pace, Hopefully 21 assets at the end of 10 years, and all from their original investment, which is an exciting thing to have.

But even though they're investing through a fund, unlike the REIT, they are still getting all of the real estate investment advantages. Is that correct?

Yes, sir. They will own the real estate just as anybody else. So as an example, let's say we have 100 people on our fund. That 100-person entity will now just be a member of that specific apartment and then that apartment and then that apartment. But all of those write-offs, returns, and upside flow through right down to the individual investor.

Okay. Well, educational. And it's nice to, of course, hear that from someone who has a legal background. I'm also intrigued by some of the things you have mentioned today, particularly in conjunction with SEC regulations, and attorneys are, from my perspective, oftentimes overly cautious in their verbiage, so it's interesting that you can put forth some of the things like infinite returns and different concepts you've talked about today.

Yeah.

I appreciate that. Of course. Well, Chris, it's been wonderful being back with you again today, and thank you for sharing your experiences and your knowledge. It's always a pleasure to have returning guests. Thanks for being with us today.

I appreciate you for having me back on, Allen.

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