What we do in syndication and private money lending | REIal Talk | EP. 35

Hey everyone, my name is CJ and I do investor relations here at Freedom Capital. And we also have Jeff here. Jeff, if you want to introduce yourself.

Hey everybody, I'm Jeff Gross. I am kind of Danny Lynn and FCI's assistant on operations to keep everything moving.

Yeah. And so today's episode here, we're hoping to talk to you a little bit more about the details of private money lending as well as the syndication and how we help investors put their capital to work in both of these scenarios.

Yeah, so I guess I'll ask you a few questions here, cj. First being what is the difference of PML or private money lending and syndication?

Yeah, so private money lending is what we've been doing here at Freedom for a number of years, right. So we are buying properties at scale. And because we are buying so many properties, we use other people's funds in order to do those purchases and rehabs. So the example I like to give is, Jeff, you know, Maybe you have $100,000 in the bank that you are just getting 0.001 interest, right? We are willing to pay anywhere from 6 to 12% on that money for a 12 month term for you to let us borrow that capital and go purchase a property, rehab it and then sell it as an investment turnkey property. And we're willing to pay that percentage to you because we need, we need, you know, funds at scale, millions of dollars in order to kind of keep, keep the wheel moving and buying 100 plus properties a year. So that's really all it is, is we give you, show you the opportunity, we tell you the percentage and we then go do all the work.

Right.

It's very passive for you as the investor. And then syndication is really doing that at scale. Right. So we are buying 100 plus apartment unit complexes and pooling funds together from many investors and in order to make that down payment. And then typically these projects that we take on via the syndication have a value add component where we're trying to increase the net operating income over the course of a couple years. And from an investor standpoint, that is a little bit more passive because it's typically held for three to five years. And there are also tax advantages on that.

Right.

Whereas the private money lending is typically a little shorter term, six to 12 months while we are putting that capital to work by buying and rehabbing the property.

So what's the typical hold you say on a syndication, for instance?

Yeah, so it depends on what the opportunity is and like what the business plan is. But typically we're holding the project for three to six years. Okay.

So when it comes to the syndication itself are your company is free, you know, Cap Freedom Capital Investments, is that the company that is purchasing the the property or.

Yeah, so we've been partnering with some other players in the field just to kind of piggyback off of their experience. Right. So we've been partnering with Lloyd Jones, who has 40 plus years of experience, $1 billion plus under management and just assisting in the capital raising. And you know, basically what we're trying to do here at Freedom, we're a family of companies, right. We're trying to just offer more opportunities, depending on the investor's situation, to invest capital.

Right.

Some want to buy investment properties. Right. And that's what we started with. We are doing private money lending, which is a little bit more passive and a little bit shorter term from like a capital hold scenario. Syndication is just maybe a little higher returns, but it is a longer hold period. Right. So depend in their tax advantages there. So wherever we're just trying to offer more opportunities to our investors.

So you mentioned something in that about the syndications. You mentioned something about tax benefits. How does that come into play?

Yeah, yeah. So it basically when we purchase a property, we do what's called a cost segregation study. So in that we bring out engineers to the building and they assess how that property is made up.

Right.

And a typical commercial property is depreciated across 39 years. But in this scenario, we are able to take different parts of that property and depreciate it at a faster schedule. A good example is carpet.

Right.

Carpet isn't going to last 39 years. Right. And in the tax code it's five years. And with a certain thing called bonus depreciation, we're able to actually take all of that depreciation in year one.

Right.

And so basically we're able to take a large portion of that property and depreciate it all in year one and then share that loss or tax write off with the investors or the limited partners.

Right.

So this can vary significantly property to property, like how much of the property you're able to depreciate in year one. But we're seeing what we're typically able to give investors is anywhere from 20 to 35% of their capital contributed as a write off in that first year, which can be really powerful for people in those higher tax brackets.

So going into a syndication I as an investor would be basically what you're saying, like an equity owner or part owner of it.

Yeah. So you own a certain number of shares of that of the deal. And what would happen is at the end of the year we would send a K1. So let's say you invested 100,000, our cost segregation came back and we're able to give you a $25,000 tax write off. So you receive a K1 at the end of the year it would have a negative 25,000 and that then can be attributed to any of your other like capital gains that you're incurring for that year which can be pretty powerful from a tax savings perspective. It's just an added benefit right on top of whatever interest or preferred return we're able to provide the investors.

So you, you talk to a lot of our different investors and potential investors for both private money lending and syndications. All these. And being a new person into the field, what types of questions, what would you say are the top? I don't know, three to five questions that you get asked all the time?

Yeah, of course, I think we, you know the first question most people want to know is like what is the return?

Right.

So for our private money lending we've been offering anywhere from 6 to 12% of a return. And what people take a lot of comfort in with that is that Danny has paid back every investor to the penny, right. She's always kind of personally guaranteed that even if free us freedom lost money on a flip we are going to make sure the investor is whole, right? We're going to make sure they receive all of their capital and a lot of our investors take comfort in knowing that and also knowing that they are, their money is backed by real estate, right. They're going to have a first lien position on that money. Second question is well, how long are you going to hold it?

Right.

And so our typical flip takes six to seven months from purchase to sale. If it's a single family vacant home it can be as short as four months. But we do a 12 month term for our private money lending and we also have just started a debt fund which is a three year commitment. So a lot of our private money lenders are hold wanting to just keep funneling that money back in and earning a percentage. And we, we are now letting them hold their money in an account and just it allows us to be more efficient with that capital for three years. And like I said from, from our syndication, the preferred returns we've been offering have been 12%. That certainly could change depending on, you know, future deals and then that tax 3 tax benefit as well. And those hold times have been around five years projected. Okay. Yeah, those are the two main. And I think the third, which I kind of hit on for private money lending is people are assessing the risk.

Right.

Like what is the risk of giving freedom there?

Right.

And so typically we try to lean on the experience. Right. How many of these deals we've done, you know, for private money lending, we've done 500 plus of the exact deals. And you know, we, we know what the numbers are that we need to hit. And so people take assurance in that as well.

So as an investor, why would I want to invest in real estate rather than the stock market?

Yeah. So I think right now, you know, people are fearful of all time highs as well as inflation and don't necessarily believe that the stock market is going to continue to go up.

Right.

Or it's just a diversification.

Right.

Not having all your eggs in one basket. So, you know, I think there are a lot of investors that like knowing what percentage they're going to get.

Right.

So they know if, hey, C.J. if I give you my hundred thousand in a year from now, that 100,000 is going to be 108,000 or whatever that interest percentage is. So they know how much their money is going to grow by. So that's, I think really advantageous to some people, depending where they're at in their life journey or financial independence journey, whatever that may be.

Yeah, no. So all right, now I'm in. I'm hooked.

Right.

So the big question is, what's the next step or how does it go? What's kind of the process? I guess you would say, how do I determine which thing I go into?

Like, yeah, you know, I typically say for what you want to go into, kind of depends on like how long you want the commitment.

Right.

How long do you want your money held?

Right.

Do you want it, your money back plus interest in less than a year, then you're going to be looking at a one off private money lending deal.

Right.

If you're wanting it maybe a little bit longer, we can do the debt fund.

Right.

Which is a three year commitment. If you're like, hey, I don't want to touch this money for a while and I want the highest return, then we're going to probably look at what syndication opportunities we have coming down the pipeline. But with regards to next steps, right. So Jeff, you're hooked. You're ready to go. You're wanting to do a private money lending deal. I'm basically, I'm probably going to send you a little More information so you can kind of learn a little bit more about it and then connect you with Tiffany, who's our transactions coordinator. And she is kind of matchmaker.

Right.

She sees all the deals that we are looking to close in the upcoming month, as well as, you know, what funds we have available to fund those deals. And she's going to look at how much capital you have. Let's say it's 100,000, and kind of say, hey, here's the opportunity. It closes on this date. Do you want to. Do you want to do this? And that's a yes, no from you.

Right.

We'll show you what the projected return is, the interest amount, how long we anticipate holding that deal, and then we'll move towards a closing date. And then that person, Jeff, you. You, in this example, would have a first lien on that property should anything ever go bad.

Right.

With us here at Freedom, you would be able to take possession of that. That home. But again, that's never had to be done. But people like knowing that that is there as collateral. Yeah. And syndication is somewhat similar in that, you know, we'll have a scheduled close date, we'll have an agreement that you need to read over sign and wire funds to us when we're getting close to the closing date. And then we'll be sending you, you know, monthly to quarterly updates about that property and what's going on, and sending you your, you know, quarterly cash flow.

Right.

Passive income.

So I just. I just listened to this podcast, podcast number 35.

Right.

And I just jumped in, and now I'm like, oh, I want to get in the syndication. Can I just jump in right away?

Yeah. So that's really going to be dependent if we have an opportunity that we're. That we're working towards.

Right.

I mean, we're pretty. We're conservative. We want to make sure we're going to be able to not only get the return for you as the investor, but it's going to provide us a return on top of that. So, you know, right now we are looking to raise capital for an opportunity down in Mississippi, but that may not always be the case. Right. So we'll take your information and we'll reach out once we do have that opportunity, whether it is right now or in a month or two from now. Yeah.

So everything I'm understanding is the basics of your role. My role in everything is really to not necessarily seal deals, but more to build relationships for a long term. Is that.

Yeah, exactly. I think that's. I mean, the mentality that Danny and everyone here at Freedom has, right. We want, you know, not to be a one time customer, but we want to work with you through a number of years and we're, we're going to not push you into one thing like buy our turnkey product.

Right.

We're going to try to find out what makes most sense for you and your situation. At least that's what I always try to do and try to just be helpful and provide, you know, insight into what, what may be more advantageous for them at this time.

Right.

There are a lot of people, for example, right now that are starting off with a one off private money lending deal just because they're new to us and they don't want to commit to three, you know, three, five years. But a lot of them have done that, enjoyed our communication approach and our results obviously, and then move into like a longer term. Okay, let's put this money now into the debt fund or syndication just because it's a longer term commitment and it's more passive.

Yeah, awesome. I can't think of anything else. I mean, that's a pretty good overview. Unless there's something you can think of or any questions you might have for me or.

No, I would just encourage anyone who's interested in these opportunities and learning more to schedule a call with me. There's probably going to be a link to Frank CJ, my calendly link. Otherwise you have my email@cjreedomrealestategroup.com and yeah, we'd love to help out however we can.

Awesome.

Okay, well, I think they always say here at Freedom, right? Invest smart and live happy.

Live happy.

Yep. All right, take care everyone. Thank you.

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