How To Generate Passive Income During This Crazy Bubble w/ Andrew Lanoie

There's a couple things that are going to happen. There's going to be a correction, and who knows how severe it could be, but that potentially resets some of these markets. But you're also seeing markets like Austin where it's like, can these prices get any more expensive? It's like the Bay Area. It's crazy. It could be an overall correction that happens, or it could be some of these bubbles around the United States that we're seeing.

You're listening to Freedom Fast lane, presented by capitalism.com this is the show about building businesses and investing the profits so that you can live life on your terms. And now, your host, the future owner of the Cleveland Indians, Ryan Daniel Moran.

Hey, fastlaners. Ryan dangerpants Moran here. Welcome to Freedom fastlane. Hey. Today I'm going to be talking with Andrew Lannoy, which is an individual who has really kind of reshaped a lot of how I view investing and cash flow. I've been very public on the podcast and on the blog about where I have invested some of the capital that I received from a major exit that I had in 2017. And I've also shared over the years the fact that I make my money in business and I invest it into places that give me predictable cash flow. Ultimately, that's where I want to be. I want to have that predictable cash flow which is going to allow me to expand my lifestyle. I think you might have experienced in the past as an entrepreneur that feeling of you kill it sometimes and you don't kill it other times, but what ultimately makes you feel free to live the lifestyle that you want is the predictable cash flow. And I have found that that comes from where you invest, where you make your money in business, and where you end up investing. That gives you that ultimate freedom. It's why I talk about investing so much here on the podcast and at freedom fastlane and capitalism.com because it's a.

Part of my model.

And having the cash flow piece short up makes me a better entrepreneur because I'm not stressed about what is going on in the bank account. So one of the big pivots that I had in the last few years was I used to try to figure out how to invest in everything myself. And I still do some of this today. So I still manage my own stock portfolio. I still choose where my money is going to be allocated, but I used to go out and find the single families all on my own. And for a while that made sense. In 2009 and 10, I was buying up single family homes in Ohio. And you know, there was, there's a big crash going on. So it kind of made sense to spend my time looking for those deals. But now that my career's at a different point, and now that the economy is at a different point, it does not make sense for me to be trying to scour the market looking for single family deals or even apartments instead. And Mike Dillard was actually really instrumental in helping me see this as well as one of my mentors here in Austin named JP have helped me see that in some cases, for some individuals, for people who are doing really well, it makes a lot more sense to be real investors rather than opportunity seekers. And the difference is an opportunity seeker says where is their money? And I got to go find it because I got to figure something out. And there's a lot of benefit and health to that. But when you have found an opportunity that you are growing like a business, it makes much more sense to think like an investor. And an investor finds the person who's growing the opportunity and invests with them. They go with the experts and they participate with the expert. Is why, you know, I have talked about cryptocurrency here on the podcast quite a bit and I've said, like, if I'm gonna go the crypto route, which I have only after looking at what the experts are doing, I'm not gonna try and pick which ones are gonna go up. That's ridiculous. Like, like I am wise enough as a physical products entrepreneur to tell you what's going to happen in cryptocurrency or what's going to happen in the stock market. You know, I have my strategies, but it makes way more sense to go.

To the people who live and breathe.

This stuff and work with them. So one of the things that I have heavily focused on is investing in cash flowing syndications. And what that means is going to.

The people who are all in on.

An asset class and investing with them and enjoying the returns from that. So I've had some of them on the podcast. I've talked a little bit about how I have pursued that or structured that. And one of the people who I think is doing it in a very unique way is Andrew Lanoy, because he is asset class agnostic. He just looks for where the opportunities are. He's settled on one that I think is niche enough to where a lot of people are just completely overlooking it. And he's not overlooking it and going all in. So I think you will benefit from hearing on how these deals are structured, how big they can get and the empire that he has built in what some would consider a super niche market and why even going after that type of an opportunity could be a billion dollar empire, which is what some have accused him of building. So this is meaty and it's a little bit technical. I geek out and nerd out quite a bit in hearing how he structures deals and how he thinks about investing. So you'll have to deal with me digging into the weeds a little bit. But on a macro level, I think you will really benefit from several of the braingasms that he drops throughout this chat on investing and cash flow with Andrew Lannoy.

What's up, fastlaners?

Ryan here. I've been looking forward to this one for a long time. I'm joined by Andrew Lannoy. Andrew, thanks for hanging out with us at Freedom Fast Lane.

Hey, thanks, Ryan. Appreciate you having me on.

Yeah, I think congratulations are in order to kick things off. You had a big day today.

We had a big day. We just closed on another 500 units or 500 lots is what they're called in our world. But we closed on about nine more communities in the Midwest today. So it was about just over 11 million doll. So good day for us.

So just out of curiosity, you close on an $11 million deal. Awesome. You just said nine communities. I assume that you mean mobile home park communities, because I know that's your current asset class. I'm curious, first of all, you can tell me if I'm right or wrong. And second, why does that excite you to do a nine community package like that? What is compelling about that?

Yeah, sure. So the first thing is they're referred to as mobile home parks or mobile home communities. The mob. Mobile is a bit of a misnomer because these things are not mobile, they're manufactured homes. But that's kind of what we refer to them as in terms of the this is a portfolio that we purchased. So essentially.

We purchased nine communities or nine parks, about 500 units in one transaction. So as we're growing and scaling this company, you can buy one park at a time, 50, 100, 200 units, or you can take down a bunch at once. And that's really you're getting the economies of scale there. So that's what's really exciting about it.

Are you willing to share at all the numbers behind what are the cash flow projections? Something like that. What made the deal attractive to you? Are you willing to share any of that?

Sure, absolutely.

For those out there who know a bit about real Estate. This was about a nine and a half cap on the acquisition, so pretty strong. We're finding deals in General somewhere between 8 and 12 cap. So this was about a 9 and a half cap. It was 63% occupied. The occupancy was 63%. And this is a really interesting number because in our world, somewhere between about 50 and 70% occupancy, you've actually got a pretty decent return the first year. Right. So if you've got a preferred return to an investor, meaning the first 8% or 10% out, the investors are going to see we can come close to that number in the first year. But you've got loads of upside filling units and improving the communities.

Your model is to go in and improve them and get those occupancy rates higher. But you're buying based on today's cash flows. That's what I'm hearing you say.

Exactly right. It's based on the current cap rate.

On the acquisition price. But we're looking at how far are rents below market, how many new units can we bring in, how many units that can be renovated? You know, there's, there's a handful of ways that you can turn around a community. It's not that unsimilar from an apartment building. There's just a few more moving pieces because we're renovating homes and we're selling homes, we're not renting homes.

Got it. Okay. So what I've spoken with you about in the past is that you as an investor, are cash flow agnostic and that mobile home parks right now are the greatest source or one of the higher yield sources of cash flow in today's economy. And that was probably a year or so since we had that discussion. So I'm curious to hear if you still think that's the case and what you see going on in terms of investor yield and where the puck might be headed next.

Yeah, it's a great. It's interesting. So I started. I was buying a lot of single family homes back in 2009, once the subprime crash happened, which, hindsight being everything, that was the best time to get into single family homes. By 2013, I felt they were overpriced. 2013, we also started looking at multifamily. We were looking at various other asset classes and everything was just cap rates were getting compressed. There was so much money jumping into some of these asset classes, like multifamily was driving the prices up. So really, almost by default, we started buying mobile home communities about three and a Half years ago and we're still finding really, really good deals. But we built a big organization and so we have a big team to go do this. It's a lot different than just buying one apartment building in one market. I think we're at 14 or 15 states right now. After this acquisition.

There'S a lot more moving pieces. But if you figure out how.

To solve that puzzle, then you'll find great deals with great cash flow.

I have publicly said that I used to operate with this mentality of I'm going to learn how to run my business, go all in on my business and then invest in. Learn how to invest in other places as well. What I've realized is that's kind of stupid. What I should do is go all in on my business and invest in other businesses that invest. Whereas I used to buy single family homes myself and I had a little nice portfolio that was annoying and drove me crazy of managing, you know, a half a dozen different gas bills and half a, you know, all these different things. Even though I would automate it to somebody, it was still annoying. It makes a lot more sense to go to the people who are on the forefront of doing that constantly. And so you do that in the mobile home space right now. When and how did you make that shift of you having a portfolio of single family houses in 2009 to running what I think is one of, if not the largest mobile home communities I think in the country. You can correct me if I'm saying anything FTC would crack down on me for, but.

How and when did you make that pivot to investor to business owner who invests?

Yes, I think the pivot was sometime around 2013 and 14 when we just couldn't find.

Any other asset classes that were cash flowing. And what happens, I'm not sure if this is what happened to you when you were buying single family is back in 2009, 2010. I'm working at William Morris, I'm making a bunch of money there. I'm starting to buy single families and people are like, what on earth are you doing? Why are you buying single families in Dallas? And So it's the 8020 rule. 20% were interested and started coming on board, partnering. At some point. We just didn't have enough deals for the people that were interested in investing. It's like most folks, it kind of goes right over their head. But that 20% is like, that's fascinating. Tell me more. And so it kind of grew from there. And it's exactly what you, what you said I mean, managing, I mean, I bought over 100, 100 homes in three markets. Like it's brain damage managing all of that stuff, even though I wasn't the property manager. It's mortgages, it's insurance, it's, it's everything you said. So I needed to go into the economies of scale route and that was either going to be multifamily, for example, or it ended up being mobile home parks because multifamily was, was overpriced and we couldn't get the income on multifamily.

Now you're buying on income, these multifamily properties with the intent on the economy changing at some point and the value of those going up. Is that correct?

Yeah, the value on these, it's interesting. So the valuations are very simple. It's just based on really income and expenses. So we're not buying in California where land is a huge part of a real estate transaction. We're buying in Missouri and Indiana and Kentucky and Tennessee where 10, 23, 30, 50 acres of land. It doesn't cost very much. So it's all about income. It's all about income and expenses. The interesting thing with mobile home communities, and we've got some interesting data on this, is historically they've ridden through recessions really well. And if you think about it, it's simply because, you know, our lot rents are 2 or $300 a month. 50% of wage earners in the US make $30,000 or less. So where else are they going to go? We don't compete with single family home buyers, we with people renting apartments.

I want to ask a little bit of a pivot on that question because when I hear that my natural inclination as an entrepreneur is, oh, I want to go do that as somebody who likes new ideas, as somebody who likes cash flow. Whenever I hear where there's upside or limited downside to cash flow play, I want to go figure out how to do that. In fact, fun story. I was a part of a business competition when I was in high school that I won that was presenting a business plan to like a board of advisors. And one of the kids that I competed against was he pitched a mobile home investment opportunity, but his model was that he was just going to go buy up these homes. He didn't factor in investors and economies of scale. So it's kind of a reflection of us as entrepreneurs being distracted by, I'm going to go do this. And the reason I give you this context is because I now know that it just makes much More sense to partner with people who are actively doing it. So I was hoping that you could talk about what it is like for investors who participate in funds and syndications, because had I known that there were even syndications and funds available, I probably would have never gone the single family route. And I would have just had a lot more cash flow and upside had I just invested into a fund that did single family houses, for example. So would you explain how funds and syndications work and how investors participate and how you, as a business owner, create that relationship? I just want people to know what that structure looks like.

Yeah, absolutely. So I guess the first thing is most of our investors and clients there, it's just like a lot of the folks that are in your tribe, they're really busy and they're building their own empires and they've got a ton on their plate between work and family and just life, and they're not looking for another job. So that's the biggest thing. We've got some folks that are out and they've flipped houses in the past and things like that, and it's all good. It's a different kind of investment. But most of our investors are really looking for passive. The biggest part of the process is really understanding the investment, doing your due diligence on the investment and the operator and just getting your head wrapped around it. We really strive to make that as simple as possible. Meaning that once we've had calls with folks and they understand the investment and they understand.

Really all parts of it, how many years is it and what the return profile is, it's simply wiring in money and signing some documents, and the rest of it's very, very passive. They're not out getting loans, they're not at the community doing the renovations. It's as passive as possible. That's been really important to our investors.

In your experience, what type of investors or what type of mindsets do you find work well with that type of a structure? Like if somebody. We all want passive cash flow, right? And then some people want to go out and do it themselves, and some people just want to handle it, have somebody else handle it. What type of people do you find that you like working with when you're raising capital? And who do you just not want to deal with ever again?

Well, I think the easiest answer to that is most of our investors, they're accredited. So.

They'Re either business owners that are making a lot of money.

They'Re.

Investing in real estate at the same time. A lot of our current investors understand investments. If you're an accredited investor. That means there's some level of sophistication there and certainly net worth. Generally we're not bringing on people who are non accredited and they're just getting going in their career and they're looking to invest $10,000. That's not really our client. It's someone who's a little bit further along and looking to invest more and generally understand some level of investments. Yeah.

The reason I ask is because I've raised money in the past. I haven't raised a ton, but I've raised money for acquisitions in the past. And in my experience there's just, there's some people who get it and like kind of are a part of what you're building. And then there's some people that I kind of had this thought that I had to sell somebody on the idea of investing with me. And I find that if I have to sell the opportunity at all, it's just not a fit from day one.

There's just almost a good point.

It's almost like there's either a natural fit or there's not. And to try and sell someone into an opportunity makes. It just makes everybody unhappy. And that was something that I learned by going through the process of raising money for the first time. You, Andrew, you now our mutual friend Mauricio said once, this guy is building a billion dollar empire. So you're playing a big game, you're thinking really big. So what is it like or is the process any different when you're working with a lot of investors and building something really big that is probably going to outlast both of us? Does the process change at all?

Well, there's a couple ways of looking at it. I mean it probably a lot of it goes just boils down to team, right. And you have to get the right team on board.

We've built, my partner, Mike and I, we've put together a pretty amazing team and it's growing like literally every month. We're hiring new people and, and we're based out of Phoenix now, which has been just a great move. And we've got some great resources and people here in town. So you're always looking. You've got a six month, you've got a 12 month plan, you've got a five year plan and you're trying to look at all of these things objectively and you're always keeping an eye on where the market is too. Because at some point, if just let's say for an example, it's a year from now and there hasn't been a correction in the market and there's a lot of money being thrown around in our space that makes finding good deals difficult. Well, we simply don't buy any more deals. Maybe it's a pivot to something else or there's a correction in C class. Multifamily is on sale. Well, that's a relatively logical pivot for us. We have a property management company, we have a construction company.

It's keeping your eye on all of these different balls in the air.

And it's always changing. Right. The market's going to change at some point, but we know where it is right now. We know the kinds of deals we're looking at right now and we know we're finding great deals. So it's kind of like make hay while the sun's shining. We're in a big acquisition phase right now, but 18 months from now, who knows, the market could be in a different spot or maybe there's just less inventory. It's hard to predict the future, but you've got to have a plan in place.

Can I ask you to speculate? I live in Austin, Texas, where cap rates are 3 and 4% and it just seems like things are so overbought and it seems like y' all are the only people in that are doing it the right way. You're chasing yield, where yield exists and where your sweet spot is. So just out of curiosity, can I ask you to speculate on what you think is going to happen in the market and the economy over the next 18 to 24 months?

Well, you look at Texas as a whole. When I started buying in Dallas, Dallas went through this just crazy, crazy resurgence in the last five, six, seven years where I'd buy a single family house for $125,000 and it doubled in value in five or six years. That's crazy for Dallas. Texas has historically been a sl slow, steady moving state where it wasn't impacted that much by the subprime crash. But it also never. You would never double something, double your property value in five years. That was almost like California. Then you've got Austin where you are, it's booming and you've got companies moving in from California.

I think across there's a couple things that are going to happen. There's going to be a correction and who knows how severe it could be. But that, that potentially resets some of these markets. But you're also seeing just like a Dallas and an Austin.

You'Re seeing markets like Austin where it's like, well, how much more room.

Can these prices get any more expensive? Like the Bay Area? It's crazy. Do they hit a plateau? Is there a market reset? And part of it is what's going on in that market. Obviously, Austin's an amazing place to live and, and the tech hub of Texas and maybe even outside of California. So that doesn't really. I don't think that really goes away. And that's certainly a huge driver in prices and people moving in and stuff like that. So it could be an overall correction that happens or it could be some of these bubbles around the United States that we're seeing.

Hey, guys, this is Ryan. We're going to take a quick break.

And we'll return to the show in a second.

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So when we talk about these, whether they're bubbles or just, you know, over prices, we're kind of in agreement that it seems like there is a lack of yield, there's a lack of cash flow in investing right now. Stock markets at all time highs, real estate's at all time highs, and you are still finding really attractive yields. So I want to know how the heck are you still finding attractive deals when everybody else is.

Dare I say, investing irresponsibly. How are you doing it differently?

Well, I think part of it is that this niche, and it's certainly a niche in real estate buying, mobile home communities has been an overlooked asset class for years. So that's the first thing. It's funny, I go to all the mobile home park conferences and I went to one maybe six months ago, and literally within the first day, I shook like six guys hands that were all former hedge fund guys, right. Who are now at these things. So there's a lot of money that's sniffing around this space right now. The problem is that being an operator in this space is not easy. It's not like buying a house and holding it, which we've both done. It's not like, I dare say, even like renovating an apartment building, depending on what it is. But we're in the affordable housing business. So in my mind, there will always be a need for affordable housing. If there's not a need for affordable housing, something's crazy has happened in the United States.

We're very bullish on affordable housing, but you got to figure out how to operate in this space. We've got a national construction company, we have a property management company. Those are not easy companies to manage, but they're absolutely crucial to operating in this space. After we close these deals. I think we're in 14 states now, and that's challenging. That presents a whole host of problems. But you solve all of that now, you get the yield. If it was easy, everyone would be doing it is the simple answer.

It sounds like you run kind of a real estate investing empire, and that sounds tiring. So how is it that you have structured your empire so that you own multiple parts of the supply chain? How did you build that?

Yeah, I think part of that goes back to just going back to the team. Mauricio, who's been a good friend, who's been part of this for years, and my partner, Mike Ayella, who really oversees a lot of the operational side of this business. You've got to divide and conquer. It's figuring out we're going to build out this part of the company, which we know won't make money for a certain amount of time. But it's absolutely integral to have this piece, this company in place. Because as we grow and get to 20,000, 30,000, whatever the number of units that we're going to land at, it needs to be there. So you're looking at it's a lot of moving pieces. It'd be great to go and say, hey, I want to hire a management company or a construction company and just hit the easy button and let them do everything. But that's not the world we're living in. It just doesn't exist, unfortunately. You have to build all that stuff out.

And what I'm more looking for is.

Every entrepreneur that I know has multiple ideas, builds multiple things, or tries to, and very few people do it successfully. So how do you have this, how have you built this empire that is in multiple spaces? Because obviously Andrew Lannoy is not going out and building all these companies himself. So how do you have that type of an empire structured?

Yeah. So maybe, maybe a question to you is how specifically you mean in terms how the companies are layered or responsibilities or how can I best answer that?

Yeah. So, for example, my friend and confidant, Jeff woods would go through his empire building model that he borrowed from Gary Keller, his mentor, and he would say, you craft the big vision. You find one person, one general to be in charge of each piece of that. And you sit in the owner's seat and you manage those CEOs to be building out them as independent companies. And I know how that looks in the business world, but I've never seen how that might work in the real estate investment world. And you're doing it and you have it. So do you have a partner on each kind of arm of the business or are you operating each of them? How do you have that built so that you're running an efficient empire?

Yep, that makes sense. So my partner, Mike Ayala, who.

It goes back to the kind of divide and conquer. So we have initiatives that we work on together, whether it's number of units that we're going to acquire this year or various parts of the company. His day to day is really overseeing the operations and the property management company and, and the construction company. So he has his kind of lieutenants underneath him. Right. That are running those companies that he oversees. And then I'm more on the marketing and the investor relations and that part of the business. And so I've got my team underneath. And then of course, we all come together for retreats and things like that. But it's honestly as simple as that is. Each company kind of has a person that's either a VP or that's, that's running that and reporting to someone. Generally it's myself or Mike at this time. And as we grow, you know, it's, it's bringing on another, you know, at some point, at some point I'm going to be replaced, right, as the CEO of this, of this organization.

And the same thing with Mike, he's going to be replaced as a coo. And that's just, you know, as we grow, things like that happen.

Andrew, have you ever had a deal Go really poorly, not meet expectations or enter into a nightmare scenario in which everything that could go wrong did. And yet, you know, you found yourself eating ice cream and watching chick flicks on the next Saturday. Have you ever had a deal go really poorly? We all like to talk about what could go well in real estate.

Yeah.

A good investment. When and how could things go completely wrong?

Yeah. I'll give you a couple quick examples. One is that our first partners who came in, they essentially came in with a 1031 exchange, meaning that they sold some real estate. They came in, they bought about seven communities with us.

The deal was very straightforward. They were going to pay for everything, and we were going to do all the work. It was a very simple, very simple partnership we put together. Well, somewhere along the line, maybe 14 months, 16 months, they basically ran out of money.

We believed in the communities, we believed in the partnership, and we stepped in and said, well, we'll take over paying this operational loss and all the other expenses that go around that, which that was very challenging to do because we didn't budget for that. That was unexpected and came out of left field. But that was the right thing to do. One park specifically, is we bought a park in Memphis, and basically everything that we could have thought went wrong. And we had to essentially evict everyone and put a fence around it. We're going to redevelop that park probably in about a year. We literally bought our investor out. It was one investor that came in. We bought her out. So she walked away whole. And now we're sitting on this. We're sitting on this piece of dirt in Memphis with a fence around it, and we'll turn it into a good situation. But it certainly was at the time, it was a little shaky, but I think we did the right thing.

Did you lose money on any of those deals? Did you end up profiting from them? What did it mean in real terms, and how did that affect your mindset or your stress levels during that time?

Yeah, we definitely lost money. I mean, in our model, we've never done a capital call with investors, so anything that we didn't budget, you know, if we've had, I mean, it's real estate, so things happen. Right. But anything that's happened that's fallen outside of the pro forma, I mean, we've just ended up paying for that. So that's right in our wallet. Right. So that's. That's one thing. That park in Memphis, we still pay money every month to carry a note on that and whatever the Expenses are, but we know once we turn around, it'll be great. But that's something that comes out of our pocket.

What does that do to your mindset or your stress level?

Well, I think as you grow and you scale, you just.

Everyone makes mistakes and so they're all lessons. So I think you just, you just get really better at being an operator and acquiring. And I mean, you know, the first thing that you bought versus the 24th, you know, we bought, you know, the first property we bought versus the 24th property. I mean, it's night and day, right? The team's better, we're more focused. It's, it just, it just keeps getting better. So they're all, they're all lessons. And if you don't look at them as lessons, I think that's where you can really get, you know, into trouble just with your psychology. I mean, you can probably just rip yourself up if you don't look at it as a lesson and learn and move on and, you know, try not to cling on too much, too much to the past.

So I think you can only operate with that mindset if you're building something with a really clear vision. Because if you're not, then you're kind of at the whim of what's going well that day or what's not going well that day. And what I'm hearing you say is that there's some commitment to some sort of a long term vision that allows you to pivot through setbacks. One out of 28 deals or whatever it is, is a pretty good track record. But.

You don't lose sleep over one temporary setback. So I'm curious, what is it in fact that you are building long term?

Well, I think the opportunity that we see right now is.

This whole mobile home park space is very fragmented. They don't know exactly how many communities there are in the United States. It's not like single family, it's not like multifamily. So there's an opportunity to go in and be one of the biggest players in the space. It takes time. It takes an enormous amount of execution and certainly just timing and luck and everything else that goes involved. But.

I think we're going to get to one of the biggest operators in this space and I think.

We'Ve set the foundation to do that and we certainly have the vision to do that. A lot of, it's just a lot of people talk a big game, but it's all about execution.

Andrew, do you consider yourself more of an investor or more of an entrepreneur?

I would say more of an entrepreneur with investor.

Well, it's a good question. I've been an investor for a long time, so I think that's, that's somewhat hardwired in my DNA. But I'm really an entrepreneur.

And why do you feel that way?

Well, I guess, I mean, when I wake up every day, for me it's about building things. I love just the process of whether it's a company or whether it's an initiative. And that's kind of how my brain works, is I like connecting people and I like building things. Those are kind of the two things that really drive me.

So here's where I'm going with this question. You are obviously bullish on the asset class you've chosen. You are obviously committed to building something longstanding within that asset class. But if you're an entrepreneur, do you still get distracted by shiny objects?

It's a good question. I don't think as much. I mean, there's a balance of what's up on your long term vision board of where you want to grow something.

And actually executing. I mean, we're in the weeds on a lot of stuff every day, whether it's closing this portfolio or whether it's bringing on a key member of the team or whatever it is. So I think if you're busy enough and you're focused enough, you don't get as distracted. Like, I go to family office events all the time and it's cannabis, it's cryptocurrency. There's a lot of things that are interesting, but I honestly couldn't be bothered with some of it because there's not enough time in the day for me to be bothered. And what I feel like I'm sitting on is a gold mine in terms of the opportunity. So if I want to take away from that opportunity, then okay. But ultimately it's not going to get us where we need to go.

Andrew, I would like to give you permission, and this is pure curiosity, I would like for you to give an overview of what kind of the term structure usually looks like for an investor who is parking money inside of a syndication or a fundamental. So if you're able, I don't know if you're legally allowed to, but if you're able to talk about like what expected returns are or what the terms of like the lifespan of a deal looks like, I would like for you to share that because I know a lot of people are interested in those types of structures and there's a lot of mystery over what they usually look like. Can you share as much as your comments?

Comfortable sharing? Sure, absolutely. So some of it's pretty straightforward. You've got typically in our investments, they're acquisition investments, so meaning that the investors that are coming in, they're limited partners who are owners of the real estate. So because they're owners, there's typically really good tax benefits that go along with this. The return profiles typically about 8 to 12% annualized each year. There's preferred returns, which simply means that the investor is going to see first money out of the deal. As far as net cash flow, let's say year one through five, an investor is going to see 8 to 12%, maybe it's 8% the first year, up to 12%, maybe 14% the fifth year. We've structured everything so we typically don't hold much longer than a five year term unless we're doing a cash out refinance somewhere along the way. Let's say years 3, 4, 5 where we can return 100% of the investor capital and then everyone stays in the deal and we hold long term.

Otherwise it's just simply a sale by the end of five years. That's one of the things that seem to be really important with investors is they didn't want to be in a deal for 10 years necessarily. That five year mark seemed to be pretty comfortable.

What I'm hearing you say is your traditional structure looks like a five year hold and the rates of returns are usually 8 to 12%. I'm curious if you could first of all tell me if I misheard anything. But also I would like to know if the cash out refinance strategy is part of the overall model. And I hope you could explain that a little bit more because once I got that concept I was like, oh my goodness, new level unlocked in my brain. So is that part of the model? And if so, would you explain how it works?

Absolutely.

Let's say we've got a five year hold and we're buying a community or it's a portfolio. And let's say we buy something at 60% occupancy and by about year three or so four, you're in the mid-80s or 90% occupancy and you can now go and get traditional financing and with all of this value and equity that you've created, you're literally pulling that back out. So let's say someone, an investor comes in and invests $500,000, they're going to see 8, 10, 12% annualized cash on cash every year paid out quarterly. And sometime around years three, four or five with a cash out refinance, that $500,000 is going to come back out to the investor. Now there's new debt on that property and so the cash flow might be less, but it's an infinite return, meaning that the capital is back out. It's now working in another deal.

You've got your money back.

You've got your money back. So here's what we can't predict is what are rates going to look like in three or four years. I can't imagine they're going to go to 9% or 10%, but let's say it's worst case scenario and they do go to 9%. And it doesn't make sense to do a cash out refinance. It would simply be a sale by the end of year five. It's absolutely part of our strategy. It's barring that rates are within reason down the line. Obviously, if rates go to 8 or 9 or 10%, there's been a lot of other things that have happened. As long as the rates are okay to refinance, that's the first. That's absolutely the best exit possible because then everyone stays in the deal and receives cash flow. I think that's really what investors are looking for.

What you're saying is you would consider that as part of the deal, but you're not going into it that expectation because you're not sure what's going to happen to rates over the next couple of years.

It's absolutely papered that way in the deal. That's exit one and exit two would simply be a sale by the end of year five.

Got it. So it's kind of, oh, I'm getting all excited now. It's kind of a private equity model in that sense where there's kind of a first bite at the apple, which is cash flow. And then the expectation would be that you would refinance with the expectation of a sale and you get kind of a second bite at that, assuming that you're an equity owner in that deal.

It's exactly right. So let's say that the rates are still.

Still in a place where cash out refinance makes sense. In three years, we're able to return the initial capital. The capital account is now zeroed out. They've received returns along the way, but now we hold for another whatever that time period is. Maybe it's five years, maybe it's four, maybe it's six. Cash flow continues. It might be less because there's this all new debt on the property, but there's still good cash flow there. And then there's a sale. And so the sale is then kind of the third bite of the apple, Right? And after there's an actual sale, then there's another capital event there.

Gosh, this is so much fun. Andrew, I could geek out with you forever on this, but I know there's some people with their glides glazed over, like, why is this fun for you? And then there's some people with me, like, hell yeah, this is great. I just love this stuff. So.

I would like for you to talk a little bit about where people can. Because I like your model of you just kind of have an investor hit list. When you've got a deal, you're like, hey, does anybody want it? And then the people who are interested raise their hand and say yes. So would you explain to where people could get on that either notification list or be able to raise their hand and say, yeah, I'll take a look at what you got?

Yeah, absolutely. So the first is the website is fourpeakspartners.com There's a place to go and sign up where you can get on basically our mailing list where we send out just information on what we're doing every week. We actually put something together specific.

For you and actually the deals that we're working on. And it's at www.cashflowsyndicate.com. so it's cashflowsyndicate.com. there's basically a place to put in your information. There's a video, and then you'll get information about actually the kinds of deals we're doing. So those are the two best places.

All right. Well, Andrew, I love what you are up to in the world. I am on that investor hit list and I am waiting for the next $11 million deal to come down the road because I'm really excited to be a part of what you guys are doing. So thanks for hanging out with us and sharing some insight on what you're doing. Keep on changing the world, buddy.

Hey, thanks, Ryan. Appreciate you and all you're doing.

Hey, guys.

I hinted at this at the end of the episode. I should have probably said it much earlier, but full disclosure, I do invest in these types of syndications and funds and I am on Andrew's hit list of investors. I missed his last raise and regretted doing so. So I am planning on participating in what they've got going on. So just full disclosure that I'm financially incentivized to see them do well. And Andrew is also a client here@capitalism.com so we do business both ways, if you will. So I am a little bit biased, you could, you could argue. But I really find it interesting what they have going on at Four Peaks. I find it really interesting how they think about the opportunity. And overall, just working with them and seeing how they do business has changed the way that I look at investing as a whole. Because something that Jay Massey said on the stage of the Capitalism conference was he said, behind every investment is a business. And if you don't believe in the business, then you probably shouldn't be investing in it. Everything ultimately is a business, and even if it's a single family house, it is a very small business. So if you're not confident in that piece, you're not confident in the systems and processes behind a business, then you probably shouldn't invest in it. And I know that as a Internet entrepreneur, I am never going to develop the systems and processes to build out a really profitable real estate empire. But I want to be involved in the tax benefits and the cash flow and the upside from real estate. So that's why I seek out opportunities like, like the one that we just discussed here on the podcast. Hope you enjoyed today's episode. If you know someone who is looking for yield in today's crazy economy, I would encourage you to send this episode to them. As always, I believe that entrepreneurs and investors are what drive change in this world. So I honor you and consider it a privilege to be a part of.

The empire that you you are building.

So keep on changing the world and we'll see on the next episode of Freedom Fast Lane.