Ep 246: The “Fixed Income GOAT” with Nic DeAngelo

We scoured the market. The best thing, the number one best thing we found to pay consistent returns that are competitive in the market today were mortgages based on single family homes.

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host, Chris Larsen. If you haven't yet, get a copy of our book for free at our website, nextlevelincome.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address. On today's show, we have Nick D. D', Angelo, who is known as the fixed income goat in real estate circles with over a $200 million portfolio. He fuses economic foresight and real estate prowess for an exciting and value driven discussion on today's podcast. And Nick invests by two fundamental beliefs. One, Wall street is broken and two, real estate is the cure and economics tells the future for those which we're going to talk about today. As a CEO and founder of Saint Investment Group, he leads a veteran team acquiring institutional grade assets nationwide. And he has a portfolio spanning over 30 states. And today, Nick and I are going to discuss some of the things that he's learned over the past decade and some of the differences between fixed income and equity investments today. Nick, welcome to the show.

Chris, great to be here. Great catching up beforehand and I'm excited to jump in.

Yeah, absolutely. So, you know, Nick, I got a few things I want to talk to you about here today. We've seen a lot of things shift in the real estate world and we're going to try to help the audience navigate some of the changes and talk about how that they can benefit from these. But before we do that, please go ahead and share with the audience a little bit about your background.

Sure. So I'm blessed to have some classical training in the investment side. I started applying for jobs with some small family offices and I was ceremoniously rejected from all of them. But it was because we were in the wake, well, of the reasons we were in the wake of the Great Recession.

Yeah.

And so I targeted small groups where I could work closely with the, you know, the real decision maker, the principal, multi generational wealth and learn as much as I could. I ended up bartering my way in for a free job to work side by side with the, you know, CEO of a small family office. Ended up working with several, worked with, revamped their acquisition strategies, ended up Taking on a more active role in asset management along the way. And then eventually we had a lot of wind in our sails, a lot of experience, and we started opening that up to investors around 2015 for, for retail investors. So since then we focused on industrial primarily, and then fixed income is what our most advanced, most seasons and seasoned investors were been asking for for the last few years. So we opened up the Saint Income fund and our focus today is on fixed income through real estate.

Yeah, love it. Well, our audience are big fans of real estate, Nick, so we'll get into that. And you know, I. You said something that I would. I'd like you to kind of dive into a little bit with the audience, and that is you. You bartered yourself basically into an internship where you work for free. I love that strategy. I think it was Robert Kiyosaki. He said, you know, don't take a job for what it pays. You take a job for what it teaches you. So talk about, like, how did you, how did you make that work? And would you give that same advice to younger individuals that may be listening today?

Such. Such a good question, especially that last piece. So I believe that there's a time to learn and there's a time to earn. Simply put, just there's phases to, you know, every person's life if they have a goal that they have in mind. For me, it was very clear I wanted to be near real estate investing. Very clear. So with that said, it was time to learn. And I knew that was the case. I knew that if I took a paying role that I would be more stuck in a fixed position. And sometimes that's fine for a different phase. It was not fine for my phase. And at that stage. So I knew I'd be broke. I knew I'd be basically drinking protein shakes for a lot of meals. I knew that I would be.

Wait, I drink a lot of protein shakes. Wait a minute.

I still do too, man. I can't get away from it. Right? But back then it wasn't a choice. Now it's a choice, thank God, right? And so I knew that I'd be missing, you know, a lot of the finer things of life and have a lot of money unmade for a period of time. But I knew that there was, there was no money that I could ever make that would offset being close to someone that had multi generational investment experience. So I was blessed that I could barter my way in. I basically, you know, again, the individual, he's. He's still a mentor and somebody I dearly care about today. And he just said, look, you want to work for free, but I can't afford you because it's the Great Recession. My team's holding on for dear life. So look, it's just not the right time. I. My entry point was to hit his top line revenue and once I got his attention by saying, I can make you more money, then the discussion shifted dramatically.

I love that. Yeah. So how did you pay the bills back then? Did you just have money saved up?

So, no, I did not have money saved up. That would have been a great route to go. But I grew up with a family of entrepreneurs. I grew up with a family from, you know, from a young age, seeing people make it and be able to do things on their own. So I'm not a fan of side hustles, I'll say that. I'll make that clear. But I started an ATM business as essentially a side hustle. And I had, you know, a few ways that I scaled that and kind of use some data and some strategies to do that. But that paid my bills day in and day out while I worked for free for several years.

There you go.

And with the end goal being in real estate. So I was very focused even while I had a little, you know, side hustle that was doing that.

Yeah, I love that. I get the question people ask me. They say, well, Chris, when did you shift from medical device to real estate? And I said, I never did. And people are like, well, wait, no, no, you used to work in medical device. We don't. That doesn't make any sense. I bought my first property at 21 and I just ran out of money from buying properties, so I had to find another path to bring income in to buy those properties and do that. So I think it's a very similar mindset, Nick, which is, hey, I want to be in real estate. This is what I want to do. I will do something else that allows me to get there. So if you're listening today, I think two lessons that Nick just shared that are very helpful, especially for those younger listeners you're starting off. One, have a clear path that you want to go towards. We like a three year vision with our coaching clients. And two, do what's necessary, but have something that might not be exactly what you want to do, but that enables you to continue to move toward that. And then I can imagine you weren't spending frivolously during that time either. You were pretty focused on what you were doing.

Yeah, I was. Frivolous spending wasn't in my ability set at that period of time. So I was. Every dollar was going into my side hustle or education, period. And both of those paid exponential returns. And still to this day, I have that mentality of pouring into education, pouring into the focus and the investing back into what we're doing.

So I love that. So you want to be in real estate. You're working for free. Tell us about your first deal, Nick.

Oh, man. First deal. That is such a good question. I actually don't get that often. So first deal was this. I don't.

I don't ask that question that often. But yeah, I really want to. You know, I think your path is very valuable to share.

Yeah, no, that's. I just. It was a quick, like, memory lane, like flashbacks of all these fun. So I started. My entry point was bringing in a list of interested investors. I started a newsletter. I said, here's a list of 500 doctors that want to buy apartment buildings. I didn't know anything about apartments at a high level. I didn't know a whole lot about the investment side. I just knew that I knew how to market on basic levels. And I connected the dots for the. For the CEO of this family office. So eventually, over time, he just said, hey, look, I'm interested in talking with you. You can. You can bunk in here and you can kind of learn the ropes, but really, at the end of the day, this market's crazy and I'm holding on for dear life on asset management. But there are deals staring at us in the face because it's the wake of the 2008 global financial crisis.

Yeah.

So. So, kid, why don't you figure out how to go buy something at a discount, right? And so essentially what I did was try to figure that out and crack that code. I saved up money. I spent like four or five grand on a foreclosure class with a coach and, you know, did all this stuff. Thank God I chose the right one. I did a lot of research because it was a lot of money for me. And long story short is I leaned into foreclosures and distressed assets very heavily. We were ahead of our time for the data and the processes and the strategies. And so our early deal, I'm trying to figure out our exact first deal here. There was a industrial building in San Diego, California. There. There was a shopping center in also Southern California. One of those would have been the first deal somewhere, you know, somewhere in that neck of the woods. But we were buying deals. As we scaled up, we got the first Deal under our belt. I remember being shocked. I had, you know, $5 million cash in my, not cash, excuse me, $5 million in cashier's checks, equivalent of cash in my jacket pocket because we were buying industrial foreclosure at the courthouse steps. I was terrified. I was in my early 20s. I had never done this, you know, like this. And so long story short, a lot of big risks, my comfort zone, I blew way outside of my comfort zone. I basically wasn't even a question of, of how comfortable I felt. And I just knew the numbers were there and I knew the game plan was there and I knew the leasing market was better than the sell, you know, and I, like, I, I understood the fundamentals to the absolute core. I'd rerun the a hundred times and it also took me probably 30, 40 different misses to get to that first deal. So. And then after that we started really ramping them up. So kind of a different model. But I'd say that the takeaways that I had early on were that underwriting is a volume game and understanding the fundamentals gets you there 10x as as fast. And if you know and you have confidence in the deal, you can take a different type of risk. Right. Your fundamentals are still there, you're still making the smart deal, but you can be more confident, more aggressive in other ways along the way.

Yeah, no, absolutely. And you mentioned that those early deals were in, were in Southern California, you know, California, like Florida and some, you know, there's a couple other areas in the country very dynamic, lots of big swings that go up and down. So they can be great when you're at the bottom of the market and you're trying to buy. But they can also bite you. What, what areas do you look in now, Nick, for your properties as you have scaled and grown?

So on the property purchase side, we are extremely focused. We're extremely focused. We're only working in basically eight year markets for industrial Southern California. For all the problems that California has, which I'll be the first, I know the goods and the bads very well. California accidentally has some amazing drivers for a very strong industrial market overall. We also like Texas for the same reasons. Right. And they, it's the same, it's really the same list. There's amazing drivers for ports. Right? You have ports. So international imports, exports, very well positioned for those. They're southern states, so they border Mexico, our largest trade partner in the United States. So if manufacturing south of the border and using Mexican labor costs, which is amazing, then you can invest in, you know, U.S. based distribution and warehousing, they have great, you know, networks, you know, of trucking etc and highways systems. And then so for, so for industrial Southern California and then the Texas triangle and then for mortgages it's less about the state and it's more so about what that market looks like. We want to support the middle class, we want to invest in the middle class and frankly that's the biggest opportunity that we found in the mortgage business. So we invest in mortgages and basically cookie cutter, three bedroom, two bath type homes in middle class markets. That's perfect for us.

All right, so let's transition a little bit. We're talking about the industrial deals, you guys are going out and buying those and investors have equity in that. You mentioned fixed income before. So Nick, before we kind of talk about the specifics of that share with the audience. What's the difference between an equity investment versus a fixed income investment for those that might not be clear?

Great, great, great question. So when an individual wakes up in the morning and they have a W2 paying job, that's income, that's just straight up income. It applies to, you know, it has normal taxes applied etc, but when they graduate beyond that and they are making enough or they have enough income or net worth, etc, they got to figure out where that money goes. Right. They got to figure out what they want to do, what their long term strategies are. So essentially there's two buckets, there's a growth opportunity. Right. Equity investing or there's more of a fixed income where they, they kind of know what they're going to get day in and day out.

So this would be like stocks versus bonds for those that are familiar with the, with the market. Right.

So if you want to use kind of the traditional market approach, you know, that's exactly it. That's exactly it. The here's the difference and here's where I delineate between the two is we've been living in a very interesting capital market environment. And you know this, I'm positive you know this. But just the capital market environment we've been living in for let's say two decades. Right. Has been historic low rates.

Yep.

So near rock bottom. Historic low rates.

Even. Even negative real rates. Yeah.

I mean literally, right? Very, very, very literally. And so with that being said, we live in an environment where we have actually come to assume that that's how the world and the financial markets work at their core and it's just not right. So if you zoom out from the percent rates, you see that the Glo, the, the national average of the US is in the sixes. It's right around 6% for the last hundred years. So this is what we're dealing with today. And it's a headache. And it's this huge record increase. It's also kind of a return to norm and rebalancing back to where we were. So in the last several decades, equity investing, betting on the growth and the appreciation of assets, things like stocks, things like real estates, has been gangbusters. You're seeing record returns. I mean, equity investors have killed it, and rightfully so. They timed the market right.

Yeah.

Bonds, not so sexy. Fixed income investing, much less sexy. But there's a change where the market's kind of returning to historical norms where our most sophisticated investors are, most forward thinking investors were saying, hey, Nick, we think that there's an equal opportunity in this market for fixed income investing. What do you have that's real estate backed, AKA out of the freaking stock market, out of the traditional markets? More of an alternative option. Nick, what do you have that meets that criteria? And we scoured the market. The best thing, the number one best thing we found to pay consistent returns that are competitive in the market today were mortgages based on single family homes. Why? Because single family, you know, I can drill down into numbers endlessly. I geek out on the economics of it, but the fundamentals are so ridiculously strong in the marketplace today. The problem with single family is it's hard to be the landlord for a thousand freaking houses.

Yeah, nobody, nobody wants that. I always joke, I said, you know, anybody that owns more than five rentals says, I, I wish I didn't have to do this. Like, it's not, it's not fun. And I come from that. So no, I can't, I can't disagree or I can't agree more. We were just doing a webinar yesterday and we're with our mutual friend Bryce here. 7 million unit shortage in terms of affordable housing. Right. So how do we fill that need? We have, we have multiple, multiple channels that we need to facilitate that. So you're saying, okay, so explain your business model then, Nick. You're, you're going out. How do you pick strong markets? We obviously have a great demographic wave. I talk about that in my book, about the demographics, the demographic trends. So my book was based upon the millennials renting. Now those millennials want to buy homes. And actually, you know, senior housing I think is going to be another huge boom here in the next decade. But those millennials are trying to buy homes, there aren't enough homes. How do you identify the markets that are good? And then what are you looking for in terms of the structure of the product that you are then offering to the homeowner and then to the investor?

Sure, great questions. And really it's the right strategic questions. Looking further ahead, we have the same approach, asking the same questions. What's that going to look like over the next decade? Two decades. Right. So these are demographic questions at their core. It's not just market questions. So what we look at to answer the question directly is we are looking at longer term trends of demographics like growth, jobs, consistency. We don't want the big swings. Right. So there are some even in our space. Yeah, yeah. There are some even in our space that are saying, oh, this is the best market for this year. It's like I, I actually don't want that. I want the best market for the next 10 years. Right. So if you look at the underlying traits there, you can find markets, you can find consistent markets that have long term trends, that have good stability, they have income stability, job growth stability, family formation stability, they have long term bolstered numbers. We are middle of the road on the mortgage space in essentially every way. We're looking for owner occupied. We are fine with first and seconds, but we primarily lean into senior mortgages. Right. We're, we literally. Exactly right. So first position mortgages. You know, I don't think that I'm not, I'm not afraid of second mortgages or junior liens, to be completely honest. I think they get a bad rap more than they should, but we're okay with both. And we lean into seniors more. We are big on making sure that it's a suburban market. That's a very big important point for us. On the other end you have urban or, or rural. Right. We're not looking at farmland that it's, it's too unique, it's too nich. There's too many variables. We're not looking at urban condos type situations. We are looking for middle of the road, cookie cutter supporting the middle class on that side. Not just because it's a, not just because it's a higher volume, which it is, but it's also a product type. And it's, and it's a, and it's a place in the market where there's a lot of alternatives for the borrowers, for the homeowners. So that's, that's kind of where we look at it. And we look, I mean we look nationwide we're in 30 states almost right now.

Nice. So. All right, a couple follow up questions. One, are you originating the loans? Two, are you buying these loans from somebody else and are these all performing loans?

Those are the big questions. We do not originate a single loan. Okay. And that's by design and that is our preference. So we kind of got back to our roots. Right. We buy distressed assets at their core. So performing versus non performing. For the listeners, the question is there's different degrees. Performing means Sterling, meaning they made all their payments, meaning they're perfect borrowers. They're great, great, great. We don't buy those. What we prefer is somewhere in the middle where maybe they have a rolling balance, maybe they are not performing at all. But we've been in touch with them and their owner occupying the building or the home. So there's boxes that we check, but the exact payments being 100 time is not a priority for us. We are looking for a discount. Right. But we find that if the loan to value is in line with what our expectations are, if the property checks the boxes physically that we're looking for and that the there's an owner occupied component and a couple other things that we look at behind the scenes, that our success rate's extremely high. And it's typically more about being in touch with the borrower, the homeowner and saying, how do we work together with a high success rate?

Terrific. So you're going in, you're saying, hey, we got a rolling balance. Who are you buying these loans from?

Big banks, Mid banks. Yeah. I mean, the smaller banks are fine, but you end up with, you know, less volume, less inventory. Usually we're part of really large transactions and we're kind of like a smaller fish in a bigger pond of really large transactions.

Yeah. So you buying a whole tape? Are you buying individual loans? Typically correct? Whole tape, yeah. Terrific. So you're getting a pool loans. You say, okay, we got a rolling balance with these. What's your average discount that you're getting on these loans? Nick?

We obviously it varies by transaction.

So let's use an example. So let's say you got a. I guess you pick because you know your portfolio better. So what's an average size loan? Loan to value? And you know about what kind of discount are you. Are you typically getting?

We see plus or minus off unpaid balance off UPB right around the mid 20s.

Okay.

So. So there's, you know, there's a wide range of what that would look like. Sometimes we're willing to pay a lot more Especially if there's. Because as you know, there's a lot of fees and other things on the back end, there's how much legal on the back end, etc. How streamlined is it, what stage of foreclosures it at? You know, are there BKS associated? We're buying pretty cleaned up things overall and as a portfolio, really shooting for kind of the mid-20s range of a discount off of unpaid balance.

Terrific. And what's your average LTV right now?

I think our last transaction we were right about, right around 59 LTV, maybe a little higher. So right around there. Right around, yeah.

So, yeah. So for, for, if you're listening in the audience, I think a terrific way I like to think about this is you can go buy a home. So let's say the home's worth a half a million dollars, but it needs to be fixed up, it needs some work. So my stepfather is selling a house, he's been absentee. The home needs work. He could do the work himself and get it up to, you know, what it's worth. But whoever the, the person that's buying the house is getting a discount on that. They're going to put the 100 grand in themselves and they're going to get a premium on that. So you're basically, if I'm hearing you right, Nick, you're buying like fixer upper notes, fixer upper mortgages that you're taking. You're helping get them cleaned up, helping to work out with the, the borrower. So you tell me if, if I'm borrowing and you buy my loan, if I have an unpaid balance, are you trying to take my house? Are you trying to work out the notes, I can keep my house.

I love that you're asking these questions because you clearly know the market and you know there's a lot of business models. So on our side, we are thinking long term, period. So our goal nearly 100% of the time is to keep the family in the home and paying. So as you know, Chris, a lot of the times it's as simple as, you know, it's not as simple, but it sounds as simple as you get in touch with the homeowner and you're just saying what's going on? You're not making your payments. And they're saying, well, look, my payment's 2600, but I can only afford, you know, 1900. And you're like, well, if we extend your mortgage by X amount of years, so your payments are going to increase for a longer period of time. But Your total payment per month goes down and you get to keep all your equity and you get to stay in your home. Is that something that's interesting? I mean, that's a pretty sweet deal, right? And so that's our goal, is to keep the families in their houses. We are looking for consistent returns, consistent cash flow. Really. I've done the foreclosure side. Like I said, I started there. We're trying to get away from that. We're trying to stay away from that if we can. So if we can help people, we want them in their homes.

Yeah, no, I love it. So our debt fund, we're loaning to investors. They're going and they're doing what? I was just saying, they're buying the fix and flips, they're doing the work themselves and they're paying off the loan within six to 12 months. We're turning that money fast. You're operating in the market where you're creating liquidity and you're taking this problem loan off a bank's books. And I think people were probably asking Nick, why would a bank want to sell this loan? Like, why, why would a bank want to sell a loan if they could do the same thing you're doing?

That's the, that is a great question. So let's say you're Chase bank or your PNC bank or your Wells Fargo. You're this huge, huge, top tier, top 10 banks in the United States. The reality is if you look at how much that they make per mortgage, very commonly, most consistently origination, origination fees, early interest payments for the first X amount of months, it's so much gravy that's front loaded for loan ownership. So by the time they've really kind of gotten that early, that early juice out of a deal or out of a mortgage, when people aren't paying several years later, it's not interesting to work it out because not only have they already gotten their return and they want to get back to their core business of originating mortgages, but also when you're Wells Fargo, you have reputational risk, right? So we all, you know, I don't know. I remember, I clearly remember when there was things in the wake of the global financial crisis where they're getting in trouble. The rubber stamping of mortgages, things that were not approved, the NINJA loans. And so it was just so much obvious mismanagement. They want to get away from the foreclosure side if they can. They've already gotten the majority of their juice out. And at the end of the day they want to clean up their books. Because there's things like the Comptroller of Currencies, the, you know, the Federal Reserve that audit and review their books. They want clean books for the top banks. It's cheaper to sell them, get back to originating, be able to take lines of credit with the Fed, etc. At a better rate and better terms. And if they're highly incentivized, just to sell to groups that are buying in bulk like us.

Yeah. And they're not set up to do it. I bought a. I bought a foreclosure from one of the banks here about 10 years ago downtown. And they were terrible. They were terrible managers because the bank's not set. The bank's not structured to do that. The leases weren't good, so we were able to come in and get a nice discount and very similar. And the great thing is you allow investors to come along with you for the ride and do this. And Nick, you guys got a great website, you got a great podcast, tons of great education that you got up here. I got it pulled up here right now. Share with the audience how they can learn more, one, from your website and two, learn more about the investment offerings that you guys have at saint.

Yeah, absolutely. We are heavy on the economics of why we do things. Our investment thesis is very focused on the economics. So we do a lot of research and frankly, we just give it away for free. We're not selling anything on it. So if people want all the investment research that we do, the economic trends that we're seeing, the strategies we're seeing that are effective in the market, they can check all that out for free@st.investment.com resources.

Awesome. And we'll put that right here in the show notes. So we got it right here already in your file. So we'll make sure that that's in the show notes. If you're listening here today, if you're on YouTube, just click the link here down below. And how can investors work with you, Nick?

You same website, saintinvestment.com they can check it out. We have really good fixed income opportunities right now, going all the way up to 12 to 14.28 returns, all fixed income. We've never missed a distribution or investor. So we're really proud of what we're working on now. And frankly, in the marketplace, I think it's a huge opportunity.

Yeah. And we've seen the spreads compress between fixed income and equity investments that are out there right now. And I think it's a great area of opportunity for investors that are looking for a great risk adjusted return with consistent monthly income that's out there. So if you're listening Today, check out saintinvestment.com Nick, you've been an awesome guest here today. Thanks for sharing your wisdom with our audience.

Chris, I had a blast man. I'm looking forward to seeing you again soon and yeah enjoyed the experience together.

Hey Chris here again. I hope you found this episode valuable. Now I have one more thing to give to you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also please like share and take just 90 seconds to give us a rating on Apple Podcasts.