Passive Investor Spotlight #7: Active to Passive Real Estate Investing feat. Eric Barnett

Hello, future billionaires, and welcome back to another exciting episode of our podcast. I'm your co-host Ben Fraser, and today we've got a special guest co-host, Ben Brundage, and we have a fun passive investor spotlight conversation today. So we love to do these podcasts, one of our favorite segments, talking with a lot of times our own investors and just hearing about their journeys investing in real estate and alternatives. You know, how they got to that point. What was that story and how do they do it now versus they did 5 years ago? And so lots of great, lots of great things in this conversation. Eric, you know, was an active real estate investor for many years before he kind of transitioned into becoming a limited partner. And so talks about his story in that transition, which can be difficult for some people.

Right.

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Welcome back to another episode of Invest Like a Billionaire. Today we've got another fun episode in our Passive Investor Spotlight series. So I love doing these. This is fun because we get to talk to our friends and a lot of times current investors and talking about what are they doing in their kind of personal investment journey and in their own portfolio, and just hearing the stories from other investors just like you. You know, we're all investors here and want to learn from each other. So Eric Barnett, we are super excited to have you on the podcast with us. How are you doing?

I'm doing great. Thanks for having me. Excited to be here.

Just kind of kick us off a little bit. Tell us a little bit of your, your story, um, kind of what you're doing right now and how you started investing in the whole world of alternatives back when you did.

Sure. So right after college, I traveled a lot for work. I was working in oil and gas, living in hotels, able to live off my per diem and not spend any of my wages. So I was able to stock away a good bit of savings for someone at that age. At the time, coming out, my idea was the 401, the SEP IRAs, all the basic stuff that you would do as an LLC as an S corp and thought that was a good path. And then around 2014, so after a few years, started getting into BiggerPockets and exploring other options like a lot of people do. Bought a townhouse just south of Austin in the first little neighborhood south, started renting that out, then bought a fourplex in kind of a C-class area. And that was a good learning experience trying to get more cash flow and Showing up day one and two of the tenants are gone and the place is trashed. And I'm like, "Well, I guess I'm cleaning up a place today." And kind of went down that route of rentals, got married during that time. My wife and I would move in about houses in Austin every year and keep them as rentals. So that worked out pretty well. And she was nice enough to paint the houses and do a little bit of work and move every year, which was not always the most fun, but So went down that route, got up to about 40 units, all in Central Texas, kind of around Austin, Waco, Temple areas. But at some point started talking to more people as your network grows and started realizing that a lot of the higher net worth people didn't really own little single families and duplexes and all that and have to deal with the headache of managing those. And instead they would invest in larger deals, kind of get out of the day-to-day, more of lifestyle investing. So I was able to connect with some of those people, get introduced to the people they were investing with, got invited into one deal with a group out of DFW for the first one. And from then, just started really networking, reaching out to people that I had heard on podcasts. So similar to this group and several others, and realized they are real people on the other end of that podcast. And I could send them an email, They were kind enough to reply, set up calls. Yeah. And we just kind of started rolling that route, put pause, hit pause on the rentals. During COVID we sold off some of those Austin houses that we were fortunate with a lot of appreciation that didn't cash flow very well that we had lived in. Still have about 35 units there that we just still manage because they spit off a lot of cash flow. They're pretty easy. They're all stable now. But starting in 2019 until now, we're in about 40 syndications right now with probably 3/4 of that being apartments, the rest being some oil and gas funds, mobile home park. Most recently, a riskier one, but fun was a distillery here around Austin and Fredericksburg that we know the owner of. He's a lobbyist for my company and he started a distillery. So he's an attorney here in Austin. And just kind of a passion project for him on the side. And we've been going there quite a bit and really liked it. So kind of throwing some money at there and we'll see where it goes. He seems to have a good plan going forward. But yeah, no, that's kind of how we got to where we are. I came out of oil and gas in about 2014 when we started buying rentals and started working in renewable energy. So I developed utility-scale wind, solar, and battery projects for a large utility based out of Dallas. And I still do that, so I kind of am doing real estate in a way, just developing something a little different than an apartment complex at the end of the day.

Yeah, very cool. Wow, that's awesome. Thanks for sharing. And a lot to unpack there, you know, going back to the very beginning, what was really the motivation for you to kind of get into the real estate journey kind of as an active, you know, landlord at that point?

Yeah, the thought of the time freedom. At the end of the day and trying to, just like anyone, get to hit that number where I could replace my income. And the thought of it, just being a little bit more in control. Obviously, that's why I manage my properties because I like to have control and I feel that I can do it better than a third property manager might be able to do. I've tried that and it never worked out very well for me based on how I like to keep them up. So it was really just more of the appeal of the time freedom and having more control versus a 401 or stock market or trying to time something.

Got it. Yeah. And has your kind of approach to, you know, your initial goal at the outset, you know, replace your income— and it sounds like you've done pretty well if you bought a lot of your, your properties in Central Texas and it's done very well the past, you know, 7, 8 years. Have you kind of shifted your approach or what your end goal is? Now you're obviously still working, but you have, you know, pretty substantial real estate portfolio. Um, just having that flexibility and you're enjoying what you're doing, or talk a little bit about how maybe your goals have shifted over time.

Yeah, really focusing more on lifestyle. So being able to travel— I have two young kids, I have a 4 and a 2-year-old. We're going to homeschool them, so that challenge is the next one that we really need to focus on. My wife is a former teacher, but she started a business kind of in the wine and brewery industry here where we live, where we have a lot of them. So the shift is focused more on lifestyle design, and that's why buying more of the rentals and the self-management has been a slow go for me. And thinking about how it makes me have to be on call or be available quite a bit if AC's out in the summer or whatever it may be. So getting into the larger deals, just being an LP, the returns are actually, they're pretty good whenever you weigh it out. Versus managing a few duplexes that you have $50,000 tied up, versus $50,000 in a 200-unit apartment complex once it's stabilized and you're kind of just getting that cash flow and waiting on either the refi or the divestiture. So just more of a lifestyle, more of a freedom. My W-2 job is not all that bad. I work from home. It's pretty flexible. It's kind of fun. I get to build cool stuff, or at least things that I think are cool at the end of the day. So kind of realizing that maybe my highest and best use is in my W-2 and growing that route for the next 5 to 7 years while focusing on heavily investing in passive deals, keeping our portfolio rentals because like I said, they're stabilized and putting off a good amount of cash flow for the number of them. And just kind of focusing on my family and traveling and more experiences while their kids are little. Whenever they're teenagers and playing sports and don't want to hang out with me, then you know, maybe we can jump into more active roles of businesses or other things.

Yeah, I love that. I mean, so much of this, you know, when people get attracted to real estate, it's, you know, a lot of the lifestyle freedom element of it, and, you know, to be able to have that control over your time and, you know, buy your time back, so to speak. But the cool thing too is it's— you might have an initial goal at the outset, but that can change over time, right? And, and as you continue to build up those passive income streams, it just creates more flexibility. And it sounds like, you know, you've done pretty well, but you're still enjoying what you're doing and you still have an element of flexibility. And maybe your goals have changed a little bit, but that is, you know, continues to support what you're doing on the investing side. You know, one of the questions I have, and a lot of our listeners are maybe in a similar boat where they've been, you know, active real estate investors where basically they're buying their own properties or managing them. And you said it earlier, there's an element of control that is nice to have, right? And maybe it's at least perceived control. But, you know, was there— is there a challenge initially going from that kind of active investor to passive investor role, right? Going from owning a duplex to becoming a limited partner in a much larger deal you're now handing the reins over to another operator?

No, definitely. The first deal we did, it was through one of my friend's dads that had been investing with this group for 15, 20 years, a long, long time. And he was one of the people that I really asked a lot of questions about passive investing. How has it worked out? You win some, lose some. But yes, the first time we wired money to someone, even though it was through a referral and I trusted his opinion and what he thought of them. I was definitely nervous, one, that the wire was going to go to the right person and not some bank in the Bahamas or whatever. And second, that they're being a good steward of that money and that it's going to be returned because at the time when you're starting out, you send $50,000, $100,000 to somebody, that's a lot of money. And so you're really banking on it coming back and hopefully they hit some level of the projected returns they're looking at. And then also I would say more nerve-wracking or stressful was whenever it was someone that I hadn't worked with before and no one else I knew had worked with before, but I had met them either in person or had some calls and I got to know them a little bit over their podcast, which you tend to do. And they had an apartment deal in Houston or Dallas and I knew where it was. I could actually go drive by it and see it, but then sending them the money and hoping that they are an honest and good Operator, like they appear to be. Really, we would just look at track records and try to get opinions from others, but it was definitely a little nervous. I was a little nervous in the beginning, but now I have those 5 to 10 people that send deals when they have them, and I trust those people. And you kind of build your relationships with them, and they build rapport with you by doing what they say they'll do.

Yeah.

Wow.

So So obviously referrals matter a ton and track record matters a lot. But as far as operators go, what else are some of the things that you're looking for when you're talking to operators? Uh, you know, maybe in the beginning, what were those things? And then how has that kind of morphed over time? What are you really asking now and what are you looking for from those operators that you're talking to?

Yeah, you know, aside from referrals and track record, yeah, I just really try to get to know them a little bit. And then we dive in a little bit on how complicated they make the structure. You know, they get into waterfalls and all this kind of stuff, or It's not just a straight 70/30, you know, we're in this together kind of thing, which I usually kind of prefer the structure of that. But for the most part, it's just getting to know the person a little bit more about them on the personal side, how they got to where they were, where they started. Same questions that you're asking me now, like what was their reasoning for doing this? 'Cause this is a lot of work, right? So I feel like as you get to know them personally, you know, you get to trust them a little bit more I just kind of look more for the person as opposed to the deal always. Not all deals are going to go great, but it says a lot to me when you have one going a little sideways with COVID and some of the stuff going on that they could man up or just say, "Hey, this one's not going very well. It's kind of slow. This justice of the peace is backed up on evictions and we can't get all these people out. We might need to do a cash call or something." And that's hard for them to do, especially if they've never done one. So I appreciate the transparency of somebody on their reporting and just how they go about keeping the investors updated on what's actually happening and not trying to dance around the truth of things.

Yeah. I love what you said because inherently how you've allocated it, it is challenging to make that first leap into the passive investment world. And a lot of it's trust, and trust can take time to build. You know, one of the things I always tell people is just start smaller, right? The way to reduce your risk in any one deal is to reduce the amount you're investing, right? And sometimes the minimums are higher, you know, especially as people are starting out, than you're maybe used to. So it feels like a bigger number. But as much as you can, you know, start, start smaller and, and let them prove it to you over time, right? There's a certain amount of due diligence that you've got to do on the front end of a deal, but then a lot of that is, you know, confirmed as you go along in the deal and you see how they operate. And to your point, especially if there's challenging circumstances going on, you want to see how they're going to perform. How are they going to communicate if something's not going well? Because unfortunately, not every real estate deal goes, you know, perfectly. And that's just a part of this business, right? And that's part of being an investor. You have to diversify. It's important. But, you know, finding those partners that you feel you can trust in that, that takes some time. And so from what it sounded like, you've told me you've, you only work with about 5 or 6 operators, but you've made, I think you said about 40 different passive investments, right? So you've made follow-on investments with those kind of smaller group of operators that you feel good with, and that has given you confidence as you've built that track record with them, right? Is that kind of been your approach, or how do you think about the number of sponsors you work with and how much you'll invest with one, or how does that kind of work? Yeah.

So we look at it geographically, where people are really focused. Some are in the Southeast. We look a lot in Texas. Texas just has seen a lot of growth and still does. But now we're starting to look in other markets where we're meeting those people. But the 5 to 7 or so people we work with are going to those markets and they're actively pursuing deals in those markets. And we've just built a good relationship with them to where whenever they have a deal, Assuming that it kind of fits our little box, like, do we want B-class apartments, or do we want more oil and gas right now, or do we want to do more self-storage, or whatever it may be, you know, they're actively bringing those deals up. And we look more to that small little group as opposed to trying to expand and just cast such a wide net that you don't really know what's going on, and you're going to catch some bad ones here and there. I think if you try to go too broad. And to your point, in the beginning we started small. We would talk to people that had $50,000 or $100,000 minimums and say, "By any chance, since this is our first, we're just getting to know each other, can we lower that to maybe $25,000?" And more times than not, that operator understood and they said, "Sure, let's do that to build the relationship." And then to your point, it built on and we're in with 5 or 6 deals with a lot of these people.

Yeah, no, that's great, great point. You know, I think it's a good thing, you know, uh, to ask, you know, an operator if they're willing to— if you're not comfortable with that number, that there's their minimum, you know, to see if you can come a little smaller. Because the reality is you're going to be in a deal generally for 5+ years, right? And so it's, it's a long-term commitment in a lot of senses, and you don't know all the information that would, you know, you generally would like to know before you can make that decision on a deal. So, you know, again, minimizing risk is— the easiest way to do that is limit the amount that you're putting in initially. Going back to kind of the, the active to passive journey, you know, what was kind of the calculus in your mind of, you know, one, getting comfortable with that, but then two, you know, as an active investor, you can make a little bit more, uh, potentially, especially if you're managing your own properties like you said you're doing, but you are trading your time, right, for doing that. And I think, you know, part of the misnomer of real estate sometimes is that it is, you know, passive income and there's a certain element of passivity as a landlord, but you're also kind of creating a second job for yourself, right? It's not 100% passive, right? It's, it's more passive than W-2, but there is still work involved. You maybe you can make some more. But what was that kind of calculus as you're shifting more of your portfolio to passive, how do you view that? Is it, if I can hit X return, it's a little bit lower than the active, but I'm getting my time back, I don't have to worry about this, get bigger deals, potentially better deals. Talk a little bit about how you thought about that.

Yeah. To me, it was all about time. In the early stages when I was adding more properties quickly, during a few years buying 3 and 4 every few months and doing rehabs on all of them, which is very time-consuming. It was just a lot of time. I was driving an hour and a half north to go check on them, make sure things were getting done. So it was really just more on the time. And the returns, once I started looking at the projected returns of deals, because this was before we really started jumping more into LPs, it seemed that at the end of a 3 or 5-year period, I would come out about the same. Granted, I wouldn't be holding the asset anymore, so there's a downfall in that, not being able to refi down the road. But getting my time back was number one because my wife and I have a couple other businesses that are already side jobs. So the real estate, I needed a very easy side job, which is where we're now where it's like, "Okay, I'm just texting contractors and HVAC people and relaying requests and just trying to cut out that 8% because just trying to make them pencil a little better." But the returns ended up looking the same, if not better, for less time. I mean, no time really, just reading some reports and building the relationships with the operators on the front end, and then keeping up with what they're doing. And then just in general, the market and trying to make decisions the best I can on when to invest or when to sit back and watch and wait. And then also my time is limited and I want to focus a lot of that on I have my W-2 still. And to be active in real estate, especially if you start doing bigger stuff, which really is where you start making more money in the GP, it's hard to do a W-2. I mean, people do it, I know, but really if you want to do it, everyone I've talked to, they're like, "Dude, you got to quit your job. You got to really just go for it." And with 2 little kids and a job I actually don't just hate or anything, it's hard for me to do that, to walk away, because it would take a good bit to replace my income by going and trying to be active. And there's no guarantee on that. It could be 2 years of eating lunches with brokers, trying to find deals. And I'm competing with other people that have been doing this for years and are going to get that first call before I ever even am able to look at the financials. So my thought was, let the professionals do it. I can do my W-2. We can work on a couple side businesses that we have that we have an advantage on to run and do better on the return on our time. And then if I want to do other side things, why not focus more on the things that I do for work and do more jobs that my skills would fall into where it's a better ROI on my time? As opposed— because I've tried to go the active route. I thought I was going to figure it out and start buying 10 to 20 unit, 30 units. I couldn't make them pencil. I was like, "This is a pain in the butt. I don't really have the time to do all this." And I don't, I kind of learned I don't really want to, you know. Um, whenever I, I can let the people that do want to and want to get out there and hustle and knock on doors all day and cold call and this and that, let them do it. Give them my money, get my 15-20% return, and everyone's happy, you know. That, that's kind of my philosophy because I, I can make more, um, starting a different business, running the ones we have, or, or doing more like consulting kind of work on the side for oil and gas or renewables.

Yeah, that makes a lot of sense. And especially if the returns you can get are pretty comparable to, you know, the, the active, and it's, it's kind of a no-brainer if you get that, that time back and spend it on things. To your point, maybe you have more skills that will, you know, give you a more competitive advantage in building other businesses, um, and, or just spending it if you have enough passive income and just spend more time with the family, more travel, whatever, you know, lifestyle you want to live.

That's pretty invaluable, right? The time with the family and the traveling. We have a lot of fun trips planned for this year that I'm hoping just to unplug on for the most part. But I found myself doing a lot of $15, $20 an hour kind of jobs, moving out furniture, painting an apartment, stuff that because I couldn't get a contractor, they're hard to find or they flaked and I needed to get something done, I ended up doing it myself. And that's not a very good use of my time.

Let's talk a little bit about kind of your portfolio allocation strategy. So you said you're about 75% into apartments, and a lot of that's in Texas. You know, when you're looking at your overall portfolio, do you try to create, you know, diversification across, you know, asset classes, riskiness, you know, other things going on in these deals? Are you looking at that as a whole, or are you kind of just building the portfolio one deal at a time and then shifted as it grows?

In the beginning, it was just building it one at a time. We had only 2 or 3 people that we really trusted to invest with, and they were heavy in multifamily or only multifamily. So we built up that side of it pretty quick, mostly looking at more workforce, E-class kind of apartments, nothing fancy, nothing too big of value add with some light value add. So there's some opportunity. Typically, we steered clear of A-class just simply because there wasn't a ton of meat on the bone for what we were looking for. Um, it just didn't really fit too much. Recently, we've kind of done one or two of those just as more of a cash flow yield play and getting into those nice safe assets where we think for the next couple years would be a good place to, to park some money. And then while we were apartment heavy for the first couple of years, recently we kind of started opening that up to self-storage Kind of in mobile home parks, we've done a couple of those just to try them out. They seem like a good idea, mostly on the land play because you're entitled and it's not going anywhere and it's pretty valuable to have it where it is. And then recently over the last 6 to 9 months, some oil and gas because I kind of see our company is basically, we're a power company, we're a generator, we're independent power producer, but we're also like a commodities company because we have to have future contracts. On gas to understand how to operate our plants. And so I get to kind of peek behind the curtain a little bit on that and see how things are going. So, you know, I always kind of— and coming from an oil and gas background and being in Texas, I think there's a lot of good amount of value to diversify into some kind of commodities like that. So we've kind of jumped into that a little bit. Haven't done much industrial, you know, kind of been gun-shy over it. But with everything that went during— went on during COVID with supply chain seeing some of that shift back to the US makes sense that there would be potentially some good opportunity or runway there for facilities and good areas of access, highways, rail, things like that. So yes, we're thinking about it, but also if a good deal comes along that's an apartment class, C-class apartment in you know, San Antonio or Houston or whatever, like, we're going to jump all over it. Um, so just depends.

Yeah, I like that. It's kind of the, you know, brick-by-brick approach. And, um, if it's, if it's a good deal, then it's a good deal. So it makes sense too, as you're building, right, you don't necessarily have a big enough portfolio to create, you know, a more diversified, you know, portfolio across asset classes or, or whatever. But As you get, you know, bigger, that kind of makes more sense to maybe you do have a little too much concentration just in Texas, or migration patterns start to change over the next decade or whatever it is, you know, you might want to think, think differently. How is your approach going into this year, 2023, you know, in, you know, potential risk of recession, slowdown of the economy? What are, what are things that you're thinking about, you know, from from your investing standpoint? Are you wanting to sit in a lot more cash? Are you wanting to keep deployed but into more conservative opportunities? How are you thinking about investing going into this year?

Yeah, no crystal ball like everyone, but we are sitting on our hands a little bit and just watching and seeing what's going on. We're still investing in some things that come around just to keep things moving. And that's our plan. But thinking about where more so than anything, in what asset class, we probably won't do a lot of B-, C- kind of apartments or older assets, '50s, '60s kind of things that need a lot of work. Probably stick more to a yield type thing. But definitely going to keep some dry powder and wait for those opportunities. We've been able to meet some smaller operators, people that we've met and like that are doing more like the 30 to 60 unit kind of plays where typically I know you're supposed to stay above 100 because you get economies and get labor and everything paid for. But some of the deals that they're finding seem kind of attractive just because they're off the radar for a lot of the people that need the bigger deals to justify the expenses and setting up and managing those. So yeah, we're just kind of sitting tight and doing a lot of reading and seeing how things go. With anything like 401 and all the stock market stuff, we were fortunate to be sitting in cash for what felt like forever while the market was going up, but I'm glad that we're just sitting in the money market accounts right now. So maybe we'll start dollar-cost averaging some of that back in over '23, probably more the second half, but Yeah, I definitely don't know as much as the operators who are reading this and watching it every day. So I'm, I'm looking at the emails they send and the podcasts they do and the information they put out of the ones that we like. And it seems like there could be a good opportunity in late '23, '24. So we're kind of sitting and waiting and making sure we have cash available for those.

Yeah, makes sense.

Yeah, I'm curious, and you kind of mentioned it here, kind of doing your homework and listening to those podcasts. What are some of the other ways that you educate yourself? I mean, you're in so many different asset classes and so many different deals, and where we're at in the market is really unique. Um, so, so what are some of those ways that you educate yourself to, to feel comfortable getting into a deal, to kind of decide where you're going moving forward?

Yeah, there's a, there's a couple masterminds that I'm in. They're specifically for, uh, LPs and people that want to be passive investors, and it's full of mostly doctors, engineers, lawyers, stuff like that. But there's good papers that we kind of share that we find in there, paid subscriptions to different white papers, things like that. And so reading those is good. I spend a lot of time traveling, so honestly, podcasts are great because they're not boring. I can't listen to— I can't imagine listening to a white paper on audio or something like that. That'll put me to sleep. So honestly, just still a lot of podcasts and the people on your side of the desk that are well-informed and watching this because it's your business. And when you present that, you know, that, that helps me out a lot because I can kind of stay in tune with what's going on without having to dive into a, you know, an 80-page report and find the 5 bullet points that I really want out of it. So, uh, really rely on that. And then again, just at work, we're kind of keeping a view on everything as we go forward because, um, you know, commodities drive a lot of things and power markets kind of show where things are going. And then geographically, we look at different reports. So we do invest, we started moving out of Texas because initially I was so conservative. I just want to know Houston, I want to know Dallas, I want to know these little neighborhoods before going to Arizona or going to Phoenix where I didn't know what these little towns were and what was good and what was bad. So studying the geographic reports and the migration, the U-Haul kind of stuff that we see, the little glimpses of where people are traveling, And then keeping in touch with new players like Samsung and the big tech companies and where they're moving, which is obviously a lot in Texas, but other states too. And then government contracts like Huntsville, Alabama, and seeing how that market is shaping up. Yeah.

Love that.

Yeah. Just a lot of podcasts and Discord channels, talking with other investors and people that pick up things from other people. that they want to share. And, you know, you have to learn to take everything with a, with a grain of salt because some people are biased a little bit. But also, I feel like a lot of the people that we listen to on the podcast, you know, they're not making predictions, they're just kind of reading and then giving their thought on it. And then I like to kind of make my own assumptions from it.

Yeah, well, one of the questions we always like to ask is, you know, who's in your inner circle that, you know, is helping giving you confidence to be able, you know, to allocate, you know. And you mentioned masterminds for limited partners, which is awesome. And we've started, you know, we have a lot of investors that are, you know, participate in these types of masterminds. How did you find these? For someone that's maybe not in a mastermind, don't really know what it is and what's the benefit, you know, how did you find them and what have you found that to be, you know, some value-add potentially from those?

Yeah. So originally the first one I joined a few years ago was from a podcast and just reached out and started talking to him and got an idea. It was a relatively small group, less than 100 people. Kind of got an idea of what their occupations were, how we would fit in. And the idea was, this is no GP stuff. If you want to be active, this is not the group for you. So you wouldn't get people trying to get you on their email list to pitch you deals and all that. It was just strictly strictly talking about ways to do alternative investing, tax strategies. I set up my IBC through that group, all that kind of stuff. So these groups, at first they were a little daunting because, yeah, you got to pony up a check and pay to be a part of a social group, which for the longest time I always thought was a little silly, but I think I've gotten the value back. And then also the network in there, if there was another syndicator, a lot of times they've either talked to them before, someone out of that 80 or so people have reached out to them, And they can give you their feedback on maybe something that you may not catch if you meet with them or experience they have investing with them in the past. So a lot of value in that to have those referrals. But yeah, just started by reaching out to the podcast creator and talking to them and it's turned out pretty good. I mean, I like the group. You can talk. My close friends, the ones I go hang out with and play golf and all that, Some of them will talk about stuff like this, most of them we won't. So this gives me another outlet to go talk about the boring stuff that some people find boring, I guess, but I find fun to talk about. So it's good to expand that network and meet. And that seemed to be a good way to do it because striking up a conversation about apartment investing at a bar with somebody sitting next to you doesn't always lead anywhere.

Yeah, I love that. And one of the things I always, you know, tell people that are starting out is, you know, self-education is the best investment you can make early on, um, because unfortunately there are Ponzi schemes out there, right? There are people that are, you know, trying to, you know, take your money and it's, it's not legit. And as you're starting out, a lot of the things that you do initially, you may not do the same way 5 years from now, right? Looking back as you've learned. And so as much as you can, you can shortcut that process. And whether that is mastermind groups, which I'm, you know, part of a few of them, and, um, you know, if it's the right one for you, you know, definitely can help shortcut some things. Podcasts, it's free education and, you know, learning all about what's it like to be a limited partner and what are the things to look, to look for and due diligence, you know, doing all of this on the front end as much as you can is really going to save a lot of headaches down the road. And, um, you know, sounds like you've done that. You've kind of had the advantage of being active in real estate for a while, so you knew, you know, a lot of the basics. But it is a different game when you're limited partner because you're not in the driver's seat. So there's other things you have to look at and, you know, take into your calculus than you would if you're the one that's doing it. Yeah.

And in that, that, in one of those masterminds, that's a good course on underwriting deals as an LP, what to look for and understanding all the terminology. So that was a good education component to it. Because I don't want to be the LP that invests with someone and then is asking a million questions every week, "What's going on with this? How are the rehab?" That's not my role. So just also understanding that you're entrusting this person to do what they're going to do and they know how to do it. So invest and sit back and ask questions if you need to, but for the most part, let them do their thing.

Yeah. What's one of the best investments you've done in the past decade or so that you've been investing?

Yeah, on the LP side, there was an apartment complex around Central Texas that we were only in it for 13 months and it hit year 4 pro formas real quick. So it was a nice quick exit to make 70 or 80% real quick. It was nice. I think we did like 60-something actually, but it was just a real quick boom. And we got very lucky to get in with that one. It was a smaller one, a friend of a friend who all this person does is they raise $3 to $6 million. They find the guy on the ground that's doing the— guy or girl on the ground that's doing all the work. And they know what they bring to the table. So that was just for a quick turnaround one, that was pretty nice. Most of our deals we've been in for, I guess, about 3 years, 2 to 3 years now. So we're starting to see them turn over. So I can't really say which one would be the best one or which one would be a home run. And with things going on where they are now, some of those got postponed a little bit, but luckily it seems like they're stabilized, cash flowing, the debt's good. That's one of the things that we look for initially is the debt structure and just Finding some certainty around that and hope somebody's not playing with the underwriting template a little too much to try to make it look better than it really is. So we like those boring deals, 70/30 splits, fixed debt, things like that. So hopefully over the next couple years, whenever we get another ride back up, we'll be able to divest some of these and roll them into the next deal.

Awesome. What are some asset classes that, you know, outside of multifamily that you're most interested in right now? You mentioned oil and gas. It sounds like that's one that's on your radar just from kind of the inside knowledge you have in your industry. But anything else that's kind of piquing your interest?

Yeah, on the renewable side, you know, I have to be careful because I got to watch out for conflicts of interest since, you know, competing in this space. But I think there's a lot of cheap capital chasing this sector. And I have a lot of friends that have gone to go work for these small private equity groups where they're working 80 hours a week, but they got 3% of the company, and if it sells, they're going to be done and taking time off. So looking at some of those sectors is definitely interesting and finding a way where I can get involved as a passive or maybe even a little bit more active since it's kind of how I how I make my living, and seeing where there's a way to get in on that with a little bit of equity upside on something that's not a direct competition. So distributed generation is an interesting one, which is just small batteries in pocket clusters of urban areas to balance out the grid. That's something my company doesn't do, so I could maybe jump into that space. So yeah, just something like that because I see it every day and I'm in it, just like an apartment investor sees it every day. That's the best use of their investment. And uptime. So that space, but, you know, self-storage we're kind of throttling back a little bit on right now and just kind of sitting. Like you said, oil and gas, you know, we went pretty heavy for us in, in 4 or 5 of these things over the last year. So now I kind of want to start seeing them pay off and stabilize and improve themselves, and then kind of see if we want to get back into it. But I'm somewhere in the green space just because that's direction that the tax code is telling us they want us to go. So we need to look at that and think about where we can best take advantage of those opportunities.

Robert Leonard Any investments maybe earlier on that aren't performing well or you wouldn't do again and maybe something you've learned from that?

Ian Formigle Yeah. I mean, maybe not on asset class. The first one we did was through a realtor friend. And he's like, "Yeah, I have this guy doing this," one of those things. I was like, "Sure. You've helped me on a few fourplexes up here. Let's do it." And the guy just completely— We still have it. It's been 3 or 3.5 years. No reports every quarter about how it's going. It's going horrible. We're trying to sell it. I'm like, "This is a horrible time to sell." It's just everything that could go wrong. I'm glad we didn't have hardly any money tied into that one, but That was a bad first example of how things would go. So I'm kind of glad that it happened first with not much capital tied into it, low risk, because it really kind of made me be a little more alert of what to look for next and not just go with a small person who doesn't have a great track record, one or two deals, but really look to the people that are the professionals. And the way I look at it is if they have a lot to lose by trying to to pull something, then that's a good common ground, or we both have aligned interest. So yeah, that one is, it's on the market right now and it's not getting any nibbles at all. But that's the only one that went bad. On the little rental properties and everything we have, there's always hiccups in those things that happen. But we had some good wins with the ones in Austin, and that was nice because it allowed us to go fund more LP deals that otherwise we probably wouldn't have had the cash to do. Yeah.

Love that. Love that.

There's a lot of wisdom in that for sure.

Yeah. And what would you say to yourself 5 years ago? Just some golden nuggets of advice for getting into the passive investor role.

Yes. Probably to spend more time networking and actually going to the events where those operators go and meet them in person more and stop thinking I can do everything on my own. I don't need to just buy little rental properties. And it's great and it's a path for some people, but for the lifestyle side, I would say go network more and meet the people that are doing it and get in with some of the syndicators or the operators that are not starting out, but they've done maybe 5 or 6 apartments. So their deals are still pretty favorable to the LP. And they're finding good deals and they're going to do whatever it takes to make sure it works because their reputation is on the line. So meeting some more of the up-and-comers, I guess, when you're starting out and maybe aligning yourself with them to be even potentially get some GP shares if you bring in enough of the equity at some point on a smaller deal to learn a little bit more of the ropes. But yeah, just more networking, more education. I wish I had joined a mastermind whenever I was doing just the small rentals myself, just so maybe I would've gotten out of that a little bit quicker and moved up, which everything worked out. We're thankful the way it did, but same time, reaching out for help and educating myself around what else is out there earlier on would've been better as opposed to just thinking with the masses, I guess, on more of the smaller scale stuff.

Yeah, awesome. Well, Eric, this was awesome. Super fun conversation, and you've shared a lot of wisdom here, so I really, really appreciate you doing that. And, and I'm sure our listeners got a lot of, a lot of good nuggets from this conversation.

Yeah, really appreciate it. Thanks so much, Eric.

Yeah, and I appreciate you guys.

Have a good week. Bye.