#21: Real Estate Investing 101 - How to use a self-directed IRA to invest in real estate (w/ Nate Dodson of Crowdfunding Lawyers)

Personal opinion is I firmly believe in the kiss method. Keep it simple, stupid. And if you're just getting off the starting line, yeah. I can tell you all the wonderful reasons of go form an entity. It can provide asset protection. In this case, you don't worry about asset protection because as an lp, you naturally have limited liability. That's kind of what LP in part means. My answer is get off the starting line and invest. Don't worry about all these LLCs and entities until you're. You're 10 deals deep. And then start to think about it.

On today's episode, heading west, we talk about how to protect yourself when investing in real estate with our guest, Nate Dodson. All right, after this episode, Steve. No one is allowed to sit idly out of fear of. Of somehow messing up their first real estate investment. I think Nate has sort of dispelled that. You just need to. To get going. You need to head west. They're not allowed to be idle anymore.

Yeah. And that's what I learned about this episode, Jake, was that Nate kind of led us through the process of how to be a limited partner in a real estate syndication and go through the legal ramifications and requirements, and he put it in terms everybody can understand.

Yeah, yeah. And he really, again, like you said, laid it out plainly. Just, this is how you get started. Here's what you need to do. Don't be afraid. I know that, you know, this is probably a new investment opportunity for you. Just, you know, get started. That's. That's the best thing you can do is start today. So I think people are going to be really encouraged by this. They're not going to sit and be, you know, have paralysis by analysis. Hopefully it encouraged somebody to get up off the couch and start investing. So let's just head west. Stay tuned as we discuss how to protect yourself when investing in real estate with our guest, Nate Dotson of crowdfunding lawyers. This episode is brought to you by Skyline Point Capital. If you're anything like me, you're always considering where to invest your money. Stocks, bonds, crypto, and rental home. The list is literally endless, as we've all seen over the past year, the stock market is unstable, the housing market is just weird, and inflation is on the rise. In times like these, the clear place to invest my money is in multifamily real estate, AKA apartment complexes. Here's why. Returns on real estate investments have little to no correlation with the stock market. There's lower volatility, stable income streams, and the tax benefits are insane. And let's not forget that the apartments will typically appreciate in value over time, which means you can walk away with a pretty nice return when the complex is sold in three to five years. Best of all, multifamily investing is passive, so you get all the benefits without the hassle and headache of your typical rental home investment. Getting started has never been easier. Head to skylinepointcapital.com to learn how you can start investing today. Well, first off, Nate, thanks for joining us on the show. We're really excited to have you on this week.

Thanks, Jake. Steve, happy to be here.

I love it. So the past few weeks we've worked to really set a foundation for our listeners on, on just how they can get started passively investing in real estate. We've tackled just about everything except the legal side of things. And so we're incredibly excited to dive in that with you. But I thought we'd begin just at the very beginning by discussing what a potential limited partner or LP needs to do from the legal side of things to get started investing. Let's just start there. Where should they start if they want to get dive into real estate as an lp, where do they begin on the legal aspects of things?

They begin by making sure they have money in their bank.

Step one. Love that. Great place. Yep.

Absolutely.

Never assume anything. That's a great place to start.

So, but with the LPs, we're talking about them passively investing with, with other groups such as yourself, I assume.

Yep.

Yep. Well, the most important thing is, of course, like I said, to have the money to invest. But secondarily, before you even think about investing, two things have to happen. You've got to be suitable, meaning you have at least that level of knowledge that you should be making these investments. And secondarily having the education to be able to make the right investments and shows like yours, which I absolutely love, it's doing God's work of educating the populace so they can have that base of information, education to invest.

I appreciate that. I love it. Well, let's. I have a very basic question because Steve and I have talked about this before in that as you get started investing in real estate, one of the first things you start to consider is all right, do I. So if this is my first deal as an lp, can I just put under my name, Jake prearranged Is that, is that good or does it make sense to set up a llc, a business? What's your thoughts on this? Is this, is it, Is it six and one half does, in the other, it doesn't really matter. Or is there a really tried and true path that you should take if you're getting started?

Well, my personal opinion is I firmly believe in the KISS method. Keep it simple, stupid. And if you're just getting off the starting line, yeah, I can tell you all the wonderful reasons of go form an entity. It can provide asset protection. In this case, you don't worry about asset protection because as an lp, you naturally have limited liability. That's kind of what LP in part means. Also, then you've got to deal with the costs of the annual reporting and paying the additional costs. What people don't realize is if you set up an LLC for yourself, from a tax perspective, it's actually a disregarded entity. In confusing words, what it means is the irs, frankly, doesn't care if you set up an llc, but it's only for you. You're the manager of it. You're the only owner of it. All of the tax information actually goes on your personal tax return, so you don't have to file anything separate. So for that reason, I mean, it's not a horrible thing to do. It's just what's really the benefit of setting up an entity for the purpose of investing. Well, here's where it gets, you know, asset protection. You already have it. However, if you have like an estate plan or an asset protection plan that it makes sense to put it all in, then it makes sense. But your question going to I'm just getting started in real estate investing. My answer is, get off the starting line and invest. Don't worry about all these LLCs and entities until you're 10 deals deep and then start to think about it.

Gotcha, Nate. You say that and one of the questions we get from our LLP's is they're on the Internet, they're listening to everybody on a podcast and they're saying, go get an LLC in Wyoming when you start investing. And all this information comes in and okay, lost in Nevada or Wyoming. It's my first deal, and they want to make it really complicated. I remember my first deal. I got into an llc. I put my name myself. This is way back. And then they said, no, do it joint with right of survivorship with your spouse. And then it turned into go to Wyoming. And from that set, what is that process? What's that mindset in lp? Because they're all talking about it and they're thinking about it, and they feel like, well, we need to do it right now, rather than wait, what are you seeing?

So let me kind of explain to you asset protection and liability limitation from a general standpoint because there's actually liability protections going all different ways. As an example, if you personally got sued but you have a Wyoming llc, then the the creditors the cannot take your ownership of an llc. It can only receive the benefits of the distributions from the llc. So it actually does protect asset protection from the you personally getting sued. However, at the same time that same they can't take the interest, they can only take the distributions. Also applies if they're a passive LP in your deal itself. So they're still getting basically the same protections. But if somebody is more in a high risk position, entrepreneurs, physicians, attorneys, professional skateboarders. I don't know if you're in a more liability prone profession where you're there's a higher likelihood of you getting sued, then it does make more sense from a general asset protection and liability standpoint. Not necessarily just hey, I've got a W2, I'm working at Dell and I've got a salary. I want to make sure that I'm protected. Generally you're in a low risk position, so that's you personally getting sued. Alternatively, if the company gets sued, meaning that you got a real estate deal and it gets sued, you want to make sure that you're protected from any claims at the property level as well. A Wyoming LLC absolutely provides that protection. Also meaning you personally are a limited partner, limited liability member of the llc. You're actually again the exact same with the syndication itself. So it's not like you get an extra level of asset protection by doing it through an llc. You're already protected, but now again if you are in one of those high risk professions or self employed, you could get sued at any time. And having a good solid asset protection plan that will absolutely include some LLCs because it's the most the easiest way to manage your assets and your estate from kind of a holding company perspective. There's still really good reasons to do it. Just it's not an everybody approach.

Nate, do you mainly see that with people with like high net worth where they've got assets in a business or some other investments they have going on and they want to shelter that risk and liability and so they would then use an LLC as compared to with somebody with just a W2. Is that where you see that?

Definitely, yes. And if they have a business, they have a high net worth individuals. There's additional asset protection strategies besides and beyond just set up an LLC and you're protected. But there are ways to completely insulate high net worth investors where, frankly, it doesn't matter if the claims are coming through the business or coming from you personally, you can be protected at all times. There's a little bit more to it than just simply setting up an LLC and assuming it all works out. But it's definitely an option for any high net worth or high risk individual to protect what they've already built.

One last question. You're talking about an entrepreneur and people that have businesses. Do you recommend people buying real estate through their day business? I'm a manufacturer. Should the manufacturer buy the real estate?

Absolutely not. Even if it's the manufacturer's facilities?

I feel like you knew that answer already, Steve. I know.

It was a softball question. Good job, Nate.

You might as well be an attorney. You never ask a question you don't know the answer to.

Yeah.

But no, it. When I'm working with clients, whether it's asset protection or even just, hey, how to properly structure your business, there's different types of risk factors. One risk is operational liability. You know, because of what your business is doing, the business gets sued. And then there are the passive holdings that really, there's no risk there. Or very limited risk, such as owning shares of stock in a company or owning an interest in an LLC that has the real estate. Now, real estate has its own unique liability issues. If somebody trips and falls and passes away, there's a massive lawsuit. So it is very traditional on a property by property basis for an LLC to be set up just to hold that one piece of real estate to allow all those liabilities to be encapsulated and held in that one llc. And ultimately that's the way to protect, well, your entire estate.

I want to go down the path. If you were talking about there's other ways of insulating high net worth people. I want to go down that path here for a minute, but I want to just circle back real quick before we do. I love your guidance on just get going. Just start. I mean, it's, it's the, the emphasis of our podcast. Start heading west. Get moving. More dreams, more plans. More businesses are killed by inactivity rather than bad activity. And so just get moving. And yeah, to your point, the more you get into it yet, really consider getting an llc. Go to Wyoming, Nevada, Delaware, wherever your legal counsel suggests you set up your llc. But just get moving because the last thing you want to do is put it off for a few years and then miss the good opportunities that are coming up these, you know, through this cycle. So I want to Say that.

Let me give you why Just start now actually is legally the smart thing to do besides all the economic reasons.

Sure. Please.

If you're delaying analysis paralysis because you're worried about liabilities, one of the biggest things to know is if you set up any sort of asset protection structure, there is a time period where things aren't actually protected. It's called the fraudulent conveyance doctrine. And there's a statute of limitations that if, if things are transacted with the LLC or with the asset protection plan and you get sued and there's a judgment within this designated time frame, a court can unwind your asset protection. The shortest time frame in the nation is Nevada in its two years. We will also set up like offshore asset protection structures. And those have, they're protected day one. But in the United States, two years is actually the shortest timeline. The longest is New York at like six years. Most states are around four years. So I'm saying this only because there's a time period that even when everything's set up, you're still not really protected.

Sure.

So the secret is just get it moving forward now. Make your investments because time is your friend in investing. The longer the better.

Yep.

And ultimately you can tweak and change approaches without losing that time that you've already had things established. So you're actually protected faster by moving along quicker as well.

That's great. That's. Hopefully that inspires somebody to say, okay, I've been putting off getting into real estate far too long. I'm tired of being stagnated by paralysis and I'm tired of being afraid that I'm going to screw something up. Let's just get going that. So hopefully it gets somebody off the couch to start investing. Let's talk about, let's talk about that the other ways you said we could insulate high net worth individuals. We've got a number of. If you look at the audience of heading west, you've got a lot of people who, who own businesses, who are in the C suite, who are doctors. You know, not everybody, but there are a good amount of people or people who are just wanting to learn and get into it and have a plan and aspiration to be a high net wor individual. Let's talk about how to insulate themselves through some of these legal aspects.

Sure. It depends on how deep down the rabbit hole you'd like me to go. But I'm happy to explain until you say, nate, please just stop.

Let's do one level down. Let's keep this like A three to four minute conversation.

All right, first level, an LLC is a great start, but where the risk factors end up being is yourself as an owner of the llc. There's plenty of asset protection laws surrounding it. So we solve that by having a irrevocable asset protection trust to own the llc. Usually when we set these up, we'll set them up in Nevada. There's a professional asset protection trustee that oversees it.

We.

But frankly, this trust is good for one thing and one thing only. It owns the LLC that you're the manager of and you control. You send all of your assets to the llc, which are no longer owned by you. Now they're owned by the llc, owned by the trust. You remain a beneficiary of the trust, so you still get all the benefits of the ownership. You still control it as the manager of that llc, but technically and legally, you don't own the assets. So if you ever get sued, you're truthful when you say I don't have anything. Good luck getting juice from the turnip.

Yeah, that makes sense.

And Nate, in what you just said, in the three to four minutes of trust LLCs, you're a beneficiary of that trust through the LLC. Where does somebody go? Do they go to their attorney that set up the llc, or do they go to someone that's really knowledgeable on trusts and how that works with the estate and et cetera? Can the same attorney do it both, or is there two different places?

This is a pretty specialized area. You call me or somebody that is a asset protection attorney that really understands how they interplay. Because trusts actually come in all kinds of different forms. We have REITs, a real estate investment trust. Guess what? It's not a trust at all. It's a tax election. We have living trusts. Living trust provides zero asset protection, but is completely there to keep you out of probate. We have the, you know, special needs trusts that are just to take care of people that can't take care of themselves. But a additional benefit of, let's reduce your estate so you qualify for Medicaid without losing everything. Or we also have the asset protection trust, which is kind of a unique vehicle unto themselves, which you're technically giving away all of your assets while still remaining a beneficiary of the trust for all the assets and kind of the risk factors and how to do it properly so it will becomes a bulletproof structure. But it's not. It's generally not your estate planning attorney. It's generally not your business attorney. It's somebody that took their time to actually learn how these things work and.

Protect and they make Legal Zoom sort of thing. No shade on Legal Zoom. No, not throwing shade at legal Zoom.

And Nate, as you know, that you may find it may be different law firms that you go to to get it done. In my case, I have different law firms and one law firm that is one of their. That's their focus and they, that's all they do, the estate and the idiots and the grantor trusts and everything.

So. So if you've got an LLC already set up that is specifically created for, for real estate holdings, can you retroactively or even in the future, Let me say that differently, Can I change it to be managed by my trust after the fact, or do I have to set up a whole new LLC to set it up?

That way the ownership gets assigned to the trust. Now the trust is funded. You don't change the actual management. All you're literally doing is assigning the ownership, transferring the ownership to the trust. You don't need to worry about anything else.

Gotcha. I love that. How this is one thing I've been asked before. You know, I've got friends and family who are looking to invest in real estate. We've talked about setting up an llc. They're not trying to get into real estate tomorrow, so they've got some time. So they're like, I'll just do it right the first time. I'll set up an llc. But the question I always get is, can I do it myself or do I have to pay an attorney, you know, $500 just to set up an LLC? Like let's say we use Wyoming. Is it smart to pay somebody? I know, I'm asking somebody, you know, you're an attorney. So the answer is yes, hire me. But can you actually set up yourself or is that a real risky situation?

As long as it is a single owner and that owner is the manager, we call it, you know, single member sole manager LLCs. There is no problem at all with somebody setting it up themselves. There's operating agreements online and that's where legal zoom. Quick, simple, nice and easy. But only if you alone own and manage the llc. The reason is, well, you're not going to have other partners, shareholders, investors, or interest holders trying to cause problems. It's just you and yourself. And you're only worried about if you ever get sued, will the, the LLC hold up. Now, if you have partners or talking to investors, anybody else involved, a thousand percent, do the smart thing to protect yourself. Work with attorney that understands entities and how to structure them and frankly how to do it where your interests are not protected, but also the controls, your authority and voting, it can come in a thousand different shades of gray. And that's where kind of our legal guidance can, can really make a difference.

I've seen this happen a couple times where people set something up legally like an LLC or something in the beginning. Beginning because they've said, oh, I'm not going to get that big. I'm not going to have partners. I'll just do it myself. And then they forgot about it. And then the business starts growing and then they start looking, oh my gosh, what I set up legally, I was gonna save a couple hundred bucks, but now they get themselves into trouble. And I heard the other day that I have never tried it, but I'm assuming they said that on ChatGPT, you can get an LLC, it'll write in ChatGPT will write you an LLC document and use and I'm gone.

Don't even.

Okay, I'm going to listeners right now. Go to an attorney. Don't try to save a couple hundred bucks. It'll come back to haunt you.

Good answer. I love that. So let's talk about the structure of an LLC and then we can move on to some other topics I know we've, we've got planned for. So I imagine you want to have like an overarching LLC for, for your, your real estate. Again, let's think about from the LP's perspective. Do they have one LLC or do they have an LLC per investment that they, you know, if they have that property in Nevada, they have this one in New York. Do they have separate ones? What's, what's your recommendation?

Only one. Keep it simple.

Yep. Kiss. Yep.

If you're buying actual assets, not just other LLC and entity assets, you may want to use a series llc, which what we used to do, and I practice in Nevada for almost a decade. And so a lot of what I did was asset protection. And what we used to do at that point is we'd have a holding company and a single separate LLC for every asset underneath it. Administratively and cost wise, it just kind of got to be a pain. But then they started rolling out with what's called a series llc. And a series LLC is a single LLC that allows you to create kind of like subsidiary they call themselves or series that provides that asset to asset protection without having to set up 20 different LLCs to accomplish the same thing. So generally I would recommend that, whether it is Cost benefit makes sense to maintain the different accountings and different bank accounts that it requires. It's more of a business decision. But almost every holding company we set up now is a series LLC only because of the added benefits of the additional kind of capsulation and protection of the assets.

So Nate, just so I understand this, if we were going to buy a storage property, normally the normal transaction mindset is that we're going to go buy Nate storage and buildings and we would create a Nate Storage and Building LLC that would buy the property and then it would be funded from the Nevada or the holding company. You're saying we don't have to do that anymore with a series llc.

You don't have to do that with the series llc. We actually do series offerings all the time now, where it may be a large fund, but it gets broken up into individual series for individual syndications. Got it all done. Under one llc, under separate series. However, usually the way that we approach it, if we're doing a fund, you'll still, each series will own a separate LLC that will own and finance a property. The reason for that is lenders, they'll still get very confused with these series LLCs, asking about, well, how about who owns all these other interests? And it's like, we don't care about those, we only care about this one. And lenders just don't get it. So we do add a separate entity in there. It's a disregarded entity. So there's not a separate tax return. The investors buy into the holding company, either individually into the separate series or as a fund, as a pooled investment, just whatever ends up making the most sense for, for the operator.

So you're saying you could, you could use a series, you could have a fund up there as a holding, it could invest in a property, a series LLC downstream, and also have other investors outside the fund come in and could own that secondary.

Okay, to give you one of our. I'll tell you a little story. One of our larger clients is Grant Cardone. And so like we do a $75 million REIT for him that he brings in and it's more of a pooled investment vehicle. He does this very specifically to solicit non accredited, the smaller investors and they just go into more of a pooled investment vehicle. But you know, investing into a fund takes a certain type of investor and others prefer to know what they're investing in.

Sure.

So we'll also do a specific property syndication as a partnership. Now the big difference being the people that are in the Fund that's a reit, they don't get the depreciation. That, as you know, is unbelievably important.

Right.

What, what you don't know is REITs actually allow you to deduct 20% of what you receive. So your tax liability does still go down some. It's just the alternative to the depreciation or where the accredited investors, the bigger investors that care, will invest into a single property syndication and get all the wonderful benefits of the pass through of the losses and depreciation.

Understand? Got it.

Yeah. Nate. So we've, we start off this topic, this discussion, talking about where should a potential LP start? They haven't invest, let's just assume they haven't invested anywhere. Before we talked about setting up LLC and whatnot. What other things should they be considering from the legal aspect if they want to join like a syndic, jump in on a syndication deal if they want to, you know, maybe buy a retail ship, whatever the case may be, legally speaking, what are the things should they be considering?

So step one, are you suitable? It's always important to figure out are you actually an accredited investor? Because that can make all the difference in the world of what's available to you. And an accredited investor means that either a, you as an individual have a net worth of more than a million dollars, not including your, your personal residence. Yeah, because everybody in California would be an accredited investor.

Right.

So that's a big category. The second category is if you're making $200,000 a year or if you're married to a doctor and don't really work, as long as they're making $300,000 a year, you're still accredited. So that ends up being a really important standard to figure out. If you're accredited, you can invest into almost every one of these syndications. But if you're non accredited, there's different types of investment regulations that these real estate investments are approached through and there's only some that you may even be compensated, qualified to even be able to participate in if you're not already a millionaire. I don't think that's the nicest thing for the American society. But the fact is, is if you have a million dollars or more, you get access to a lot more.

Sure, Nate, you mentioned accredited, but there's also a term called sophisticated investor. What is that?

Sophisticated was step two of what he needed to do in order to start investing.

Set him up, Steve.

Man, I didn't even know I was setting him up.

The layup was perfect. So sophisticated, what it means under the securities laws is that you have from experience or education or representation, the knowledge and background to understand the deal and the risks of the investment as well. And that's where the education and knowledge really comes into play. So if you're just starting from scratch, the biggest suggestion is get involved with some communities. Watch the podcasts on real estate. Learn everything that you can about how to invest before you actually invest, so that when that little questionnaire box pops up, do you understand the risks and can you survive if you lost everything in this investment? The question really goes to are you sophisticated?

Yep.

And if you can't answer truthfully, yeah, no, I understand all this. You definitely should not be investing, should.

Not be doing it. Watch a few more podcasts, read a few more books, and then get started.

Oh, you got it, Nate.

When you either I'm accredited or sophisticated and I'm learning all these, I'm watching videos and I'm in my local real estate group, mentor group, and I'm going, I'm ready, I'm ready for my first deal. So all of a sudden and something comes in my I hear about a deal, I have a relationship with somebody and I want to get in the deal. And I start filling out the questionnaire. Then I check, check and I check the appropriate box and then there's a 40 page document I've got to read.

It's the best bedtime reading you could ever go through.

Can vouch for that. I've fallen asleep many a times reading that thing.

You're welcome.

Yeah.

What is this? What is this 40 page document that people as a limited partner go through with securities?

Well, it's called a Private Placement Memorandum, a ppm. And with any investment process, there's generally some amount of disclosed information. We'll call it an offering circular, a PPM Private Placement Disclosure Document Prospectus. It can go by a bunch of different names. In real estate, it's best known as the Private Placement Memorandum. And this is the most boring way to explain everything about the investment in plain English terms. And it sounds weird for an attorney to say plain English terms, but literally the rule is everybody needs to be able to understand what they're reading with the purpose of being transparency, disclosing who you are as the operator, the issuer, the management of the company. Every LLC has some sort of company agreement or operating agreement. While you could read another 40 pages of legalese, there should be a very simple summary of the important terms that you really need to know, like voting or, you know, distributions. If there's a waterfall for dividends. How is that structured for a pot of profits get to the investors and the management. So all of this is is disclosed for transparency through the pm. And then one of the most important and scary parts of it is risk factors. And it goes through 10 to 15 pages of all the horrible things that can go wrong with a project. And it's not in there just to scare the bejesus out of the investors. It's there actually to. Well, to warn the investors and also to protect the management.

Yep.

If something doesn't go right, inevitably what happens is the investors 100% it's the management's fault. And the risk factors within the ppm are really there to express that there's things beyond just the management that affect these success of the business. And so we've got to consider the financing risks, the real estate risks and all these other risks that come together that could cause losses. So if something ever happens the the management can say you've been warned and, and that's. That's an important component. And then finally use of proceeds setting up if you're raising capital how you're going to be using those the capital and disclosing to the investors why you're actually raising the money. There's a capital stack with all real estate where you generally have a first lien lender is a large proportion of the capital. There's always some equity contributors generally through a syndication or it may be through like a larger institutional mezzanine finance or preferred investor. So you cannot end up with capital stacks that include all different kinds of parties all coming together in order to buy the real estate.

This goes back to. We had a previous episode. We talked about the importance of choosing the right syndication group or the right gps and to do your due diligence of making sure you're partnering yourself with the right individuals that they have the same. Your alignment in morals, the alignment and goals, your alignment and timelines. Because you talked about there are risks. I mean this is like any other investment. Real estate tends to be maybe a little less risky than maybe the stock market. But there are risks. It is an investment. And so you go back to take some time, choose the right partners, make sure you can trust them, make sure you like them, make sure there's good lines of communication. But I'll suggest. I know that 40 page document is boring. Probably no one wants to read that stuff. But if you're just getting started in investing, that's a great place to really understand how these things work and to really Get a quick edu. Well, maybe not quick 40 pages, but a good education on some of those finer details that, you know, as you get into other deals along the way, there's gonna be a lot of the similar language that you're already prepped for when you go into that deal. So highly recommend reading those documents.

Yes. Most exciting stuff ever. And by the time you get through your tenth, you're halfway there.

Yeah. As Steve always says, grab a drink, sit down, relax, grab a drink, head.

West and head west. We're talking about reading the. Reading the ppm and Jake, you're talking about the GPS and making sure that you're working with the right team. And one of the things I see in this marketplace is that when you, when you own a piece of real estate, you're. You're operating a business, you are running a business. And Nate, just because I read the PPM and I understand the PPM and everybody's supposed to abide by the ppm. Will that guarantee success?

Kind of an interesting thing. But a PPM is not a legal document. It's there to disclose what's actually happening and what you hope will happen, but it's not a requirement of what will happen. There are no guarantees in investing. There's best intentions and wonderful expectations. So there's never a guarantee that any business or. Or offering or syndication is going to be successful. But that's where it gets right back to what. What was Jake was just bringing up about Knowing your GPS and are their interests aligned and do they have a prior performance? Are they reporting to investors regularly based on their prior performance? And your due diligence is, hey, what other deals have these people done will give you kind of the indications of how well the GP team's going to do be. But really it's. It's not up to the PPM to say, well, these guys are going to crush it.

Yeah.

It's more to say Steve has done 15 deals in the past. They've been this size. He's bought here, he's exited there. That kind of prior performance.

It goes back to looking at the team, who's the team and what's happening from that perspective. Because everybody thinks they can. Everybody thinks they can be a real estate syndicator. And we know sometimes things happen.

Unfortunately, and I'm talking to some, that some of the issues that investors are bringing up are some of the syndicators that aren't reporting, not at all, not providing the financial statements at all. And it just, it leaves investors in a position of almost Terror of I don't know what's happening with my investment. I don't know what's happening with the property. You get that little feeling of it just doesn't seem like something's going right and it keeps building. And that's where it's, it's the most important thing. Even if it's a bad piece of real estate, if you have a good management team, they have a higher likelihood of success than a wonderful piece of real estate and a horrible team.

Yep. Funny, we just talked about that.

I've learned over the years you can't over communicate information, even if it's bad information, and they want to know if it's bad. Okay, great. I understand it. What are we going to do to fix it? What's the plan to fix it? And yeah, I've heard the exact same things of things out there where there's no information and you can't get it even if you request it.

One of the, just the most important reason you know more than the property. Do your due diligence on the GP and the management team and look beyond the ppm. Do a Google search. It's not that complicated.

Happens all the time.

All right, Nate, before we, before we wrap up, Steve and I talk to, you know, brokers all the time. We're always talking to other syndicators and the conversation is always about what's going on in the marketplace, what are we hearing about the financing world, all, everything around again, real estate. I'd love to hear your perspective. We don't talk to a ton of attorneys all the time. Especially you've got the real estate background and the legal background. I'd love to hear your thoughts on what's going on in financing, real estate in general. What's just going on today in market, in today's marketplace.

Well, sounds good. And I'll say that, you know, I have a little bit of a unique perspective on it being the doing my own syndications, being an attorney. Over the last year we did 200 and between 220 and 230 real estate syndications and closings.

Wow.

And very much have seen the change this year. And it was like the holidays started and then the closings stopped and it really the beginning of the year, it came to a screeching halt. Not because of management, not because of a lack of capital or even a lack of opportunity, but it was the lenders and the loan process was really causing a lot of problems. And we saw actual closings, not the number of deals showing up dropped by about 60 to 70%. Just people couldn't get it over the finish line. And it was actually the lenders coming back and renegotiating or balking at their loan commitment terms. And operationally, and if you think about the markets, the interest rates are going up, lenders are losing money and losing value as time goes by. And so if they say, well, if we reset our loan commitment and we renegotiate, they really have, you know, the borrower has no other option because if they go find another lender, the other lender is going to be asking for these same terms. And so it really caused a lot of problems at the beginning of the year. We're definitely seeing that balance out a lot more. Just recently, within the last month of lenders, not so much renegotiating, we're seeing less opportunities and it kind of seems like it's more of a supply side, less deals available to even try to get under contract. That's definitely happening. But what we were experiencing with lenders pushing back and closings, not happening, that's, well, getting back to normal nowadays. So it's moving along. But at the end of the day, interest rates are higher, the costs are more. It's tougher to wedge a good deal into the square hole.

Yeah, Nate, some of the things I see going on now is that even with the rates up, people are trying to get creative with the capital stack. And what. And I just heard the other day someone was talking about they were going out and trying to get a lot of pref equity to make something happen. And it made me cringe about the amount of debt and the requirements and the terms of the pref equity and what was going to be put on this property. And it seemed like people just wanted to do a deal. Some people just, I got to do a deal, so I'm going to try to figure out any way to do it rather than saying, hey, let's think about this. Does this really make sense from that side of it? What keeps you up at night thinking about syndicators and trying to do deals with crazy interest rates and terms and etc. When they, when in 19, 20 and 21, they were going like crazy.

The we all know that there's been a ton of inflation that have pushed rents enormously. And it's been a great few years. It seems like it's going to continue, but there's still going to be that negative pressure on the amount of financing costs that it takes to get a deal done. Now I think we're going to be kind of stuck in this. You know, there's just not a. Deals are thin and I think we're going to be there until the interest rates start to drop again. But as soon as the interest rates start to drop, what people don't realize is that it's going to open up new opportunities in getting things actually capitalized finance and closed easier as well. One of the most important components that you and I, we don't even see is the securitization of the loans after you actually close. And right now, as the interest rates are going up, the values of those loans go down. There's an inverse relationship. Interest rates up, values down. Well, now what banks or what private equity firms want to buy these loans knowing that they don't want to hold it for the next 10 years. They want to hold it. They want the interest rates to go down, the values to go up, and then they're going to sell it to somebody else. That's the name of their game. And the increasing interest rates has completely 100% shut down the securitization of the loans after closing. And that's kind of a big thing that's created all of these problems that as soon as that interest rate starts dipping at all, game on. It's going to open up a whole new world of opportunities.

And from our analogy at Skyline Point Capital is that, you know what, hang tight, keep your dry powder available. Unless you come across a deal that's really, I mean, you just cannot pass it up. But there will be things coming from that mindset.

Definitely will. You know, I was practicing in Las Vegas 2008, 2009, started buying multifamily in Texas with a sponsor group 2009 and just kind of continued on. And it was the problems that created the opportunities of a lifetime time.

Absolutely.

Well, Nate, if. If someone wants to get a hold of you or your team at crowdfunding lawyers, where would they go? Website, social media. Let us know where you can find.

You can always go to our website. It's crowdfunding lawyers.net I don't know why it's.net but it is easy. You can always call 469-444-9999.

I love it. Well, we'll link everything in the episode as well. But thanks so much for joining us. We're going to have to do this again and go a couple levels deeper. I know that listeners are going to love this and want and want some more. So appreciate you joining us.

I'm in. Enjoy it. Thank you everybody.

Nate, great job. Loved it.