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We're back with part two of our series with investor, author, and entrepreneur J Scott this week on Real Estate Invested Unscripted! This episode is perfect for anyone interested in what it takes to invest in real estate passively: J is going over syndication, diversification, and what to do with your cash in times of high inflation.
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Brendan: Welcome back to another episode of Real Estate Investing Unscripted. I am Brendan Bennett, VP of revenue for Fund That Flip. And with me is David Dugan, Director of Sales for us at Fund That Flip. What's up, David?
David: Back in the saddle. Ready for round two here with J. Scott. Covered some really good content on the first episode and now we get to get into the multifamily syndicate episode. So for those that are interested, got a good half hour maybe 40 minutes of material ahead of you.
Brendan: And for those of you that are super interested on the fix and flip developer, how to scale a business side, dropped some gems on that last episode. If you haven't listened already, please go do so now. But without further ado, we'll re-intro Jay and we'll get right into it.
David: Jay, Welcome back. How was how was the first round? You feel good about it?
J Scott: I felt great. This is fun. Love you guys. Yeah. Let's let's do the third, a fourth and a fifth.
David: We’re just a few guys riffing here. It's good stuff.
Brendan: Yeah. I think it'd be interesting for this episode to gear it a little bit more to the passive side of real estate investing. And I know that's kind of a loaded term because most people, if you ask them, would say there's nothing passive about real estate investing, no matter how close, or far away from the fire you are.
Brendan: But given that a good chunk of the Fund That Flip customer base are those accredited investors that are putting money to work on our platform to be able to invest in different deals, I think it'd be interesting just to get your perspective. I know you've participated in some of these crowdfunding sites and I bet you can get into some of the syndication topics as well.
J Scott: Yeah. So when we talk about that concept of passive investing and we say there's no such thing as passive, it's true. There's no such thing as truly passive. But here's the thing. If you do things well when it comes to passive investing, all the effort is on the upfront. And what are you doing upfront? You're vetting the deal, you're doing due diligence, you're making sure that it's a deal that will likely to succeed.
J Scott: Because at the end of the day, once you give them your money, once you turn over your money, you're out of the picture. There's really, in most cases, nothing you're going to do that's going to to affect that deal. So it is passive after you turn over your money. It's very not passive. Up until that day. You turn over your money and that's your obligation and your your opportunity to really ensure that the deal that you're getting ready to invest in makes sense.
Brendan: Yeah. J, we can draw some parallels to fund that flip really quickly. So let's say you go to the fund that flip invest page, you see 12 different deals that are open for investment. You as an accredited investor, what kind of things data points are you looking at before making that investing decision?
J Scott: So at the end of the day, I'm always looking at five things and not always necessarily in the same proportions. Some types of deals. I'm going to look at different things in different, different proportions and more important than others. But at the end of the day, I'm looking at five things. Number one, I'm looking at the team. So who is the person where the people that are actually operating the deal?
J Scott: And when I say that, I want to know what's their experience? What have they done in the past? What are they likely to do now? So I could find somebody that has done 100 flips in the past, all successfully. But if they're doing a ground up development now for the first time, I'm going to have some more questions.
J Scott: So just because they've been successful, are they successful at this particular business model or this particular type of property or this particular location, whatever? So, number one, I'm going to look at the team. Number two, I'm going to look at the location. Now, this is a little bit less important when it comes to investing in things like single family and and less important when it comes to things like flips and rental properties.
J Scott: Because when it comes to location, it very much involves longer term investments. So if you're going invest in a rental property, if you're going to invest in a commercial deal where you're going to hold it for five or ten years, you really care about things like what's the population growth in that area, What's the employment growth in that area?
J Scott: Because at the end of the day, you want to know that five years down the road there's going to be still plenty of demand for whatever that asset is for a single family. Flip This is less important from from a long term growth perspective. But still, I want to know, am I investing in something in downtown Baltimore and somebody that grew up in Baltimore I don't want to be investing in in something in downtown Baltimore, but maybe I do want to be investing in something in the suburbs of Houston, Texas, whatever.
J Scott: Know what location do you like, what locations you don't like, and make sure you evaluate the location. Number three, you want to evaluate the property itself. So what are the risks of the property? So when I am actually flipping a house, some of the things I might look at and if I'm investing in somebody else that's flipping a house, I want to look at the same things.
J Scott: Number one, what's the likelihood of being able to sell that house? If I, I moved to Florida a couple of years ago, and I remember when I moved here, everything I was looking at was a single storey house, like you couldn't find a two storey house in Florida. And the reason for that is because lots of old people in Florida and nobody wants to live in two storey houses and people know that, so they buy single storey houses, so when they resell them in five or ten years and they're most likely going to resell to an old person, they're going to be able to get the most money for it.
J Scott:I personally wanted a two story house. I ended up buying a two story house for like half price because you couldn't sell them. But would I have flipped this house? No, I bought it because I want to live in it. I don't really care how it performs financially over the next couple of years, I never would have flip this particular house because I would have been so hard to sell.
J Scott: So you have to look at the property itself and whether that type of property is likely to sell or whatever the business model is. Number four, you have to look at the overall deal. So you have to know what are the returns look like and more importantly, what are the risk adjusted returns, a fancy word for? What are the returns compared to the risk that you're taking?
J Scott: If I'm investing in in a house, flip in, again, let's say a suburb of Nashville, a house that was built in 2002 and just needs some cosmetic renovations, I'm going to expect a lower return than if I were going to invest in a deal that was going to knock down two blocks of Baltimore City and redevelop it with multi-use and governance and local grants and all the stuff that could go wrong might be a five or ten year project.
J Scott: I'm going to want much higher returns for that because the risks are just much higher. Doesn't mean that that one deal is better than the other. But I want to know that the risks I'm taking out commensurate with the return I'm receiving. So I really want to look at the returns and the risk and really understand it. And then fifth, and this is kind of inherent in all four that I already mentioned, but I want to understand the other risks.
J Scott: Specifically, I want to understand the catastrophic risks. So as a good example, I don't like to invest only on the coasts of Florida. I live on the coast of Florida, but you won't see me buying multifamily on the coast of Florida because for me, one of the big risks that I see here is that if we get hit by another really big storm, it's possible that some of the properties here may be uninsurable.
J Scott:And I'm not talking about insurance prices go up, I'm talking about insurers leave the state and say we will not insure those properties anymore. As soon as I have a property that's uninsurable, the value essentially goes to zero. Nobody's going to buy that property from me. So that's a catastrophic risk that I look at. So the fifth category is kind of what are those other risks or what are those catastrophic risks that you need to be thinking about?
J Scott: So team location, property deal and risks, those are the five things I look at before I go into a passive investment.
David: So, Jay, I want to I want to dive into the kind of risk return portion of that, right? And to me in my brain, I think about it as like the classic graph, right? You got the, the old graph with the line, right? And you kind of got your risk return ratio when you're calculating that. Is there a true science that goes into that that kind of varies depending on any economy or market?
David: Or is that more of just an intuition or a gut feeling based on your years of experience in seeing deals of like, Hey, for this level of risk, I want to see X percent rate of return or vice versa, right? Do you understand what I'm asking?
J Scott: I do, and it's a really hard question to answer, so let me kind of ramble on. It for a couple of minutes. So, number one, we need to recognize that risk and return are related, typically speaking, higher returns or higher potential returns correlate to higher risks. If you go into if you look at two deals and ones offering you a 20% return and one is offering you a 10% return, there's a reason for that, and it's because the 20% deal is most likely a much higher risk than the 10% return.
J Scott: Now, maybe there's something special that doesn't make that true, but most times that's going to be the case. Higher returns mean higher risk. So that's number one. Know what the number two is? What's your risk appetite? So where are you in your life? Maybe you're 22 years old. You've got $5,000 that you've saved up. You've got a good job.
J Scott: You don't have a family. You don't have kids. You can risk that $5,000. Maybe you want to take a big risk and try and turn that $5,020, because if you can turn it into 20, that's going to change your life and open up opportunities. On the other hand, maybe you're 63 years old, you're a couple of years from retirement, you've got a wife, you've got some kids, you've got a mortgage payment, you've got college coming up, and and you can't afford to take big risks.
J Scott: You're looking for something safe and stable. You want cash flow, you want wealth preservation, or maybe it has nothing to do with your age. Maybe you're just one of those people that sleep better at night knowing that you don't have debt. You're not taking a lot of risk. Nothing wrong with that. Sleeping wall at night is really important.
J Scott: So number two is knowing who you are and knowing like where you are in life and how you feel about things. Number three is this concept of I'll use another fancy term asymmetric risk and asymmetric risk. It has a couple of meanings, but let me give you the two that I like the best. Number one, something that is a asymmetric risk is is a deal that typically has higher upside than it has downside.
J Scott: Maybe it's higher downside than upside, then it's bad asymmetric risk, but good asymmetric risk is a deal that you might, in the best case, double, triple, quadruple your money. In a worst case, you might lose ten or 20%. Maybe there's a much higher percentage that you're going to lose that ten or 20%. But again, it's an asymmetric risk.
J Scott: You're not going to lose all of your money or double your money. You're going to four times your money or lose a little bit. So it's hard to find these types of deals, obviously, because when they come along, everybody's going to jump on them, but they're out there. So look for deals with asymmetric risk. Number two is make deals with asymmetric risk.
J Scott: And what I mean by that is we all have these these talents and expertise and oftentimes we can find deals that we're if we apply our talent and expertise, we will be taking less risk than somebody else that came into that deal without that talent or expertise. So, for example, if I were to invest, if I were to go on to fund that flip and invest in a flip deal, I'm probably going to have a lower risk than somebody that knows nothing about flipping houses going on to fund that flip and investing in another flip deal or the same flip deal, because I know how to evaluate that deal.
J Scott: Maybe I've seen houses like that, maybe I know that location. Certainly I can assess whether their renovation costs are reasonable. I can assess whether their resale value is reasonable. I'm taking less risk investing in a particular deal than somebody else going in and investing in that exact same deal. And so for me, and we're both getting the same returns, so that asymmetric risk is a benefit to me.
J Scott: And so what I recommend to a lot of people is find those deals where you have some beneficial asymmetric risk because you can evaluate the deal or you can evaluate the risk, or you can do something to ensure that you're more likely to succeed than the average person coming into that deal because you're going to be taking less risk but still get the same returns.
Brendan: Yeah, I think that's what a lot of the investors that had our say in this kind of relates back to the team component that you talked about. So in the case of Fund that Flip or any sort of crowdfunding site team could kind of go two directions. You can go the team that's running the operation, which is the fund, that flip team, who's doing the underwriting, who's doing the vetting.
Brendan: We have a territory manager on site that has likely met the borrower in person. There's also the team being the borrower themselves, right? So I think part of the draw of from that flip are people like fund that flip companies like us is we try to take some of that due diligence piece out, put it on a conveyor belt, make sure that it's consistent each time.
Brendan: So that way, whether someone is extremely experienced like yourself, they can verify that our underwriting is correct, or if there's someone who's maybe a little bit newer to the real estate world, they have an underwriting package to look at, right? So they don't they don't have to learn all of themselves, but definitely understand that having that additional knowledge is what's going to really allow you to be very strategic about what you pick.
Brendan: My my question on the back half of this day is there's unlimited asset classes for people with money in the bank, accredited investors, high net worth individuals for them to go invest. What do you think drives people, in your opinion, to real estate if they're not a real estate person per se, but they're just attracted to the to the space?
J Scott: Yeah. So I want to step back and address something you said real quickly, because you made a really good point about fun, that flip. And when I was talking about asymmetric risk, yeah, a lot of times that asymmetric risk is coming from the vendor or the operator themselves. And so full disclosure, I'm an advisor to fund that flip.
J Scott: I've been working with the company since 2014 and I was heavily involved early on. I was actually remember being involved early in discussions when we were talking about building the underwriting guidelines and the underwriting models. And I've been involved in building those underwriting models. And I would like to think that A that Flip probably has better underwriting discipline and better models than pretty much any company in that space.
J Scott: And that's what I mean by asymmetric risk. You can invest in a deal on the fund, that flip flop platform or another platform. The deals may be exactly the same for the most part, but if you do it on the fund, that flip platform, you've got some benefit from a risk perspective because you have another set of eyes that have really put this through a good underwriting model.
J Scott: So I know it sounds like a little bit of a pitch, but as much it's a pitch for me because I think I was able to help you guys do that. And so it's certainly a benefit of the fund, that flip platform. And so anybody listening, take that for what it's worth. Now to your question about why would somebody want to invest in real estate if they're not a real estate person?
J Scott: A couple of reasons. Number one, biggest is probably just diversification. So a lot of people out there aren't investors. They're not somebody who who spend their time and makes their livelihood investing in things. So so they don't understand investing at a detailed level in they're they don't want to to dig into investments and do this kind of due diligence on a detailed level.
J Scott: Instead, they'd rather take the the Warren Buffett approach, which he suggests for anybody that doesn't have this expertise, which is just diversify, diversify, diversify. And so when it comes to diversification, you want to diversify across different asset classes. You want to diversify into asset classes that have what we refer to as negative correlation. So if the market kind of forces the one one asset class to do poorly, another asset class is probably going to do well.
J Scott: And vice versa. It turns out that real estate tends to be negative, negatively correlated with a number of other asset classes. Typically, when the stock market is doing poorly, real estate isn't doing as poorly. And likewise with other asset classes. Real estate tends to stay pretty strong during recessionary periods simply because it's a it's a great way to preserve wealth.
J Scott: So a lot of people when when we're in the midst of a recession, people are going to move money from the stock market to somewhere safe. Real estate tends to be safe. If you look at the last 35 recessions we've had in this country, going back 160 years. We've only seen real estate fall in value. I think three or four of those times.
J Scott: And it was other than 2008, it was never a major drop in value. So real estate tends to be a great place to be just as as a countercyclical investment in the economy. So diversification is a big one. Number two, cash flow is one of the few investments that can give you consistent cash flow. So or I'm sorry, real estate to one of the few investments that can give you consistent cash flow.
J Scott: Certainly, you can get into dividend yielding stocks and there are other investments that provide a little cash flow. But if you want both diversification and cash flow, real estate's a great way to get that. Number three is tax benefits. So there aren't a lot of of asset classes out there that kick off tax benefits to to investors. Now, tax benefits tend to be better in the real estate space.
J Scott: If you're a professional real estate investor. But even if you're not typically with with most real estate investments, at least buy and hold investments like multifamily investment, self-storage, commercial type investments, you can typically generate enough tax benefits to offset the income that you're making from that investment in the first place. Now, you may have to pay tax on it later.
J Scott: You're not really avoiding tax, you're just deferring it until later. But for the most part, for a lot of real estate investments, you can defer paying taxes for the entire time that you hold that asset, which means you can take that money you otherwise would have been paying in taxes and you can kind of parlay that money and make additional money.
J Scott: So tax benefits is another huge benefit.
David: So I've got a question, Jay, about we talked in the first portion of the podcast about kind of a market in transition, right, and how you can make best use of your time there. And we're kind of in the midst of that right now. I've noticed a theme among a lot of investors I've spoken with that, you know, cash is back to being king.
David: Everybody wants to hold on tight to their cash, whether it's to seize opportunities when the market starts to turn up again or because they're terrified of losing it in investments. What would you say to those people? Like, what's your thought on that mentality?
J Scott: So one, I would again, this goes back to the risk discussion. If somebody is going to sleep better at night by having fewer investments and more cash, more power to them, do do what you need to do. Now, to the point that it's a smart financial decision. Certainly I think keeping more cash right now is a smart financial decision.
J Scott: So, yes, I think, number one, there's more risk in the market in every asset class right now. So being safe and keeping cash. So if you lose money, you lose your job, you need emergency savings, stuff like that. Always good to keep it to extra cash. And the number two, potentially, there's some really good deals coming down the pipe.
J Scott: And if that happens, you're going to want that cash to be able to jump on those deals. So keeping some extra cash is great to anybody that says keep all cash because they're scared to invest in anything, I think that's a big mistake. So, number one, just looking at inflation. So inflation's certainly coming down over the last couple of months, but it's unclear what the trajectory of inflation is over the next six, eight months.
J Scott: And so we had inflation at 9%. We're now down at that 6% annual 5.5, 6.1, whatever it was last month. And so we are still seeing inflation well above what, what ten year Treasury bonds are paying, municipal bonds are paying and certainly above what savings accounts are paying in CDs. So if you think inflation is likely not going to come down in the next few months, and I tend to think you probably will, but it might spike up again.
J Scott: If you're worried about inflation keeping cash, you're basically losing spending power. So I don't recommend anybody keep all their money in cash. Now, there are less risky investments. Even in real estate. You can kind of define your risk and define your returns If you want the 20, 25, 30% returns or potential 20, 25, 30% returns, there are deals out there that would give it.
J Scott: And they're high risk deals, obviously. But you can also find deals that are going to return six, eight, ten, 12% that are a whole lot lower risk. And so if you're worried about the market right now, focus on those lower risk deals, focus on those lower returns. But keeping all your money in cash, I think is just is not the right way to be doing it during a highly inflationary period.
Brendan: JV We can transition just a little bit. I know we talked a little bit before the podcast about syndication, and I know you have participated in some syndication. You're you're running a business that's highly involved with syndication. Before we jump in, in layman's terms, what is syndication?
J Scott: Syndication is really just a structure for putting together deals. So if you think about it on a typical deal, let's say I'm going to go buy a rental property, I'm going to be the person that operates that property. And I'm also probably going to be the person that brings the down payment or the money for that property. I'm going to go to a lender, I'm going to get a loan, but I'll bring the other ten or 20 or 30% in down payment and renovation costs, whatever it is.
J Scott: And I'm going to be the person that that operates that deal. When you get up into very large deals. And just to use an example, let's say you want to buy a $20 million apartment complex. If you want to buy a very large deal, you may want to operate it, you probably want to operate it, but you probably don't have all the money to put down on that deal.
J Scott: Let's say I can still get 75% loan to value, so I can get 15 million of it in loan. I still have to come up with a $5 million down payment and if I'm lucky, maybe I have 5 million, probably don't have 5 million. I certainly don't have multiple five millions to do a lot of those deals. So what do we do?
J Scott: We go find other people that can bring the money. Now, typically we don't want to give them control over the deal. We don't want to give them voting rights over the deal. We don't want to like allow them to come in and tell us how to operate the deal. All we want is their money. And so they're going to come in is what are called passive investors.
J Scott: They're going to give us their money, but they're not going to have any control. Now, the SCC doesn't really like the Securities and Exchange Commission, doesn't really like people coming in and handing over their money to somebody and not having any control on the deal. That's called a security. When you create something where somebody gives you money but you don't give them any control and you basically control their money for them, that's called a security.
J Scott: And the SEC says, Nope, we don't allow you to to create a security unless you're licensed to do that or unless you create this business entity or this structure called a syndication or a fund where you can legally bring together an operator and passive investors, and together they can go in and invest in a deal. And so the idea of a syndication is really just the structure of bringing together somebody who's running the deal with Warner More generally, it's a whole bunch of people that are passively investing in the deal.
J Scott: And the syndication idea isn't just limited to real estate. In fact, real estate is probably one of the newer uses of syndication. So we can use syndication. This idea of bringing together operators and investors to buy a $20 million apartment complex to build 200 unit single family residential development to buy a self-storage facility. But we also see the same structure outside of real estate.
J Scott: So if you ever invest in a business so you hear about venture capital, you hear about angel investments where people invest passively in start up businesses, they structure their business the same way people that are running the business, the operators. And then you have the passive investors that are bringing money and funding the business. And so a startup business or a business that's getting venture capital is very much just a syndication as well.
J Scott: And we see it in other places, artwork. So there are people that go out and buy $10 Million Pieces of Art and they raise the money by bringing in passive investors and they create a syndication to do art or a syndication to do racehorses. I own racehorses. And so some people basically bring in passive investors and create this thing called syndications to buy racehorses.
J Scott: So any time you want to buy a large asset and you want to kind of pair up the person running the deal with the people funding the deal, that's done through a syndication.
Brendan: Very cool. How how do people find syndications most readily? Right. So is there a marketplace to be able to go find really great places to locate syndicate syndication opportunities such as, you know, any of the different investment areas that you're in?
J Scott: There's not there. There are some websites you can go to and but to get a holistic and a comprehensive list, there's really no place that you can go. Typically you find these people via word of mouth. So I run syndications. We buy large multifamily complexes around the country and we raise money. And so the way I get the word out there is I do podcasts like this.
J Scott: I go speak at conferences, I talk to people at local real estate meet ups. I go speaker, companies like Google and Microsoft, and I give presentations on investing. And so what I recommend is if you're looking for more real estate syndications to invest in, go hang out at those places that people like me hang out, go go to real estate conferences, jump on bigger pockets.
J Scott: So bigger pockets is the largest real estate investing network in the planet. It's an online forum, bigger pockets dot com. And there are a lot of people that syndicate deals that that hang out there. Maybe if you work for a big company maybe they bring in guest speakers that help with investing. Good go to your IRA custodian if you if you have an eye, a self-directed IRA, go to your custodian and say, do you have any speakers that come in and invest in real estate that offer investments?
J Scott: So things like that, It's really it's word of mouth and just kind of getting out there and trying to find it. Well.
David: Gee, I think the idea of a syndication can be intimidating for anybody that hasn't done it, whether it's, you know, accredited investors that are passively investing but want to be more active or people like yourself that went from, you know, kind of the 1 to 4 family residential investing to larger multifamily investing. So kind of a multipart question here.
David: Like did did you face that kind of anxiety the first time you went into a syndication? And do you think that do you think it's best to go in maybe as kind of one of these limited partners first and be an investor in the syndication versus somebody that just spins it up and, you know, learns to run the syndication on their own for the first time experiencing that.
J Scott: So let's start with the idea of do you start with as a limited partner? And the term limited partner basically means passive investor. Somebody is turning over their money as opposed to a general partner, the person that's operating in the deal or part of the team that operates the deal. I kind of look at the two as very separate.
J Scott: So you can be a limited partner and a general partner. You can be just a limited partner, you can be just a general partner. And it really boils down to what are you trying to accomplish? So if I have cash that I want to invest passively. And so, for example, in my IRA, I have a whole bunch of money in a self-directed IRA that I really don't want to put in the stock market.
J Scott: I don't really want to put anywhere else. I like real estate, so I invest as a limited partner or a passive investor in a lot of other deals. At the same time, I've got this 40 hours a week that I want to do something and work and make money. And so I choose to spend that time being a general partner.
J Scott: And so for me, I'm both a limited partner and a general partner. I don't see a lot of value in being getting experience as a general partner from investing passively just because oftentimes when you invest passively, you're not going to get a lot of insight into the deal. You may upfront again, you're going to be able to evaluate the deal, do your due diligence.
J Scott: But once you turn that money over, the people that are running the deal, other than giving you quarterly financials, giving you a paragraph or two every every month on on how the property is going, you're not going to get a lot of insight into the day to day management of that business. So how do you do that? Well, the way I did it and the way that I would recommend anybody that's looking to start in in syndication, multifamily or any other type of syndication.
J Scott: Basically, I went out and I found somebody that I knew her name was Ashley Wilson, and I knew that she was doing multifamily syndication. We had been friends for a while. I had a lot of respect for her and I basically went to her and I said, Look, I'd love to learn this business. Will you teach me the business in return?
J Scott: I will give you a year of my time, my effort, my knowledge, my money, my network, my connections, whatever you need. If in return, you'll teach me the business and I'll tell you. You have to go tell somebody. You'll dedicate a year your life. But for me, I had the time and I was willing to do that. And she basically said, okay, let's let's do it.
J Scott: And so I basically joined her team kind of as an intern for about a year. And we ended up doing a deal together later that year where I was able to play a very specific role. I helped with the underwriting, I helped with some of the fundraising thing, I helped with some of the due diligence, and in return she gave me a percentage of the equity, a percentage of ownership in the deal for doing that.
J Scott: And so that was kind of my first foray into into syndication. And so what I recommend for anybody that's looking to start is figure out that one place in a syndication deal where you have some expertise where you could help somebody else that already has a team that's already doing this, but you can make their team better in return for a piece of the equity.
J Scott: And if you do that, you're now part of the inner circle. You're going to see how that deals run. You're going to get to see every piece of the process. So when I talk about the pieces that that that teams need, I'm talking about things like acquisition. So maybe you're really good or you can get really good at finding these deals that a team might want.
J Scott: So we do a 150 plus unit deals. We're very specific on our area, we're very specific on the types of properties we're buying. If somebody can get can go out and find me a deal that meets this criteria for us, we're happy to give them 10% of the deal. If they want cash upfront, I'll give them $100,000 commission for bringing us a deal.
J Scott: That's a great way to get involved. You can find these deals, go find me a deal and bring it to me and you can get involved tomorrow. My team. Maybe you don't know how to find deals, but maybe you're really good at underwriting. Maybe you've you've learned how to underwrite these types of deals. You can know how to put together an underwriting model or know your way around an underwriting model.
J Scott: Well, go find a team that doesn't have a strong underwriter that really needs somebody analytical who can help them underwrite deals, and maybe they'll give you five or 10% to help them underwrite a deal that they end up closing. Maybe you're good at capital raising. Maybe you have a lot of wealthy friends or colleagues or people in your network that have a lot of money that are looking to invest.
J Scott: Go raise money for these deals and earn your equity that way. Maybe you are really good at managing deals. Maybe you've been a property manager for an apartment complex before or an asset for an apartment complex before you go to a group that says, Hey, I know you're really good at finding deals and underwriting them and doing due diligence and buying them, I can help you actually manage the well and make money on them, and so go do that.
J Scott: So find some place that a team needs and get a piece of the equity for providing that one service. And at the same time, again, you're going to get on the inner circle, you're going to see how the deal runs, you're going to learn all pieces of the business. And in my case, after that first deal I did with Ashley, where I got a small percentage of the equity and I realized we worked really, really well together, we realized that we had very complementary skills.
J Scott: She was really good at half the business, the the acquisition side of the business, the managing the property side of the business. I was really good at another side of the business, which was the capital raising, dealing with the business side of the business systems, processes, h.r. Accounting, all those sorts of things. And we said with these complementary skills, we make a perfect partnership.
J Scott: And so in 2020, we kind of teamed up and I became a 5050 partner in barden investments because we had such complementary skills. She manages half the business. I manage half the business. And so I kind of grew from playing a bit supporting role in a deal to becoming a partner in the business. And so I think that's a good evolution for a lot of people.
Brendan: Get out of curiosity, what's what's the method behind the name pardon investments?
J Scott: So Ashley's husband, Kyle Wilson, was an NHL hockey player, a successful NHL hockey player, and bar down is a hockey term. It's basically the best shot you can you can score in hockey, which where basically the puck hits the top crossbar and goes down into the goal. It's really hard to defend. And so that being the best of the most difficult shot in hockey, we thought that was kind of a good representation of what we try and do.
J Scott: We do really hard deals and when we make them look easy.
Brendan: I love it. That's really cool.
David: Cool. Yeah.
Brendan: Jay I'm curious, out of so you mentioned in your first syndication deal, but also if someone's looking to get this syndication deal, you're saying take your strength and use it as a wedge to put yourself in a situation where you can be involved in a syndication deal. How is that gone full circle with Barr down, Who within your organization reached out to you guys and said, Hey, I have a really strong skill set here, here, and it's really complementary to Jay and Ashley skill set.
Brendan: How did that pay it forward then kind of come back around, if at all?
J Scott: The best example is Ashley met a woman a couple of years ago who basically said to Ashley, I'd love for you to like, mentor me, I really respect you and I want to learn the business. And Ashley, they they became friends before she agreed to mentor her. But Ashley realized that she was really strong on all the skills that would make a great asset manager.
J Scott: And going back, the asset manager was kind of the CEO of the project. They're the ones that tell the property management company what to do. They control the construction management. They're the ones that their goal is to take the property from an X dollar property today to a2x stellar property tomorrow. By increasing the revenue and decreasing the expenses.
J Scott: They decide when to kick people out, when to how quickly to renovate units, how much to renovate units, all those sorts of things. They're really kind of literally the CEO of the project and Ashley realized that she had a lot of those skills. And so I actually spent about a year mentoring her, allowing her kind of see inside of what we were doing.
J Scott: And then about two, two and a half years ago, we said, okay, are you ready to kind of take on a project yourself? And she said, I would love to. We brought her on. She's now a full time employee. She's managing three of our projects for us and just doing a tremendously good job.
David: Find a mentor, bring value.
J Scott: Yeah, right. Absolutely. And always start with value. Don't ever ask. Especially in this business. There are a lot of successful people in that business that are happy to help you. But I promise you, we all get asked every day things like, Hey, can I pick your brain? Hey, can, can, can you teach me something? Hey, can you do this?
J Scott: And it's always about do this for me, Do this for me, do this for me. And I've heard it so many times that I just tune those people out. And as soon as somebody comes up to me and says, Hey, I your website sucks, I'm a website developer, let me let me help you make some changes. I'm not going to charge you anything, or maybe I'll charge you like some nominal amount, but let me help you.
J Scott: First thing I'm going to respond is, Oh my God, that's awesome. How can I help?
Brendan: You know.
J Scott: So lead with value.
Brendan: I love it. Jay last topic before we let you get out of here. So you're obviously extremely passionate about business. You've started countless businesses. You've been an advisor to from that flip in our business, Dave and I are curious, any angel investing or seed run investing, anything fun on that front that you've been involved in in the last 1015 years?
J Scott: Yeah. So have a lot of a lot of good investments right now. It's funny, I never hit it big on any deals like I've done the Uber or the Airbnb where you make the thousand times your investment that some people have done. So I could tell you a couple of the deals that that I've made money on. You'd have never heard of any of the companies.
J Scott: But that's the nice thing about angel investing. It's just like real estate. You don't have to buy a New York City skyscraper to make money. You can hit a single or double and you can still do pretty well. A couple of the investments that I'm really excited about now, a lot of them are in the real estate space, but I just got into one that's outside of the real estate space.
J Scott: It's a company called Clear Run k, l y r, and you probably haven't heard of them, but I'm guessing in a year you're going to recognize them as kind of a a leading spirits brand there. They're migrating off the East Coast very quickly. They just got some deals with some big casinos in in Las Vegas. They're now the official brand of the Philadelphia Phillies.
J Scott: And I think maybe also maybe the Philadelphia Eagles. So I don't know if you like Rome or not. I'm not a huge rum fan, but but the brand is awesome. And what they're building is awesome. It's it's like this 12 times distilled rum. And so yeah, let me let me just pitch clear rum there for anybody that likes rum.
J Scott: Sorry about that.
David: I love a good mojito. So yeah, when I see it on the shelves, I'll have to give it a shot.
J Scott: Yeah. So that's that's probably my most fun investment right now. And then I focus a lot in the proptech space, and Proptech is kind of property technology. Those companies that, that, that straddle that the market between real estate and finance and technology so fun that flip for example is in the proptech space. It's a technology company related to real estate.
J Scott: And so I've investments in a number of proptech companies ranging from companies that do investor portals, companies that do software and tools that allow people like me in my world to to better run my business, etc. A lot of the businesses I invest in are businesses where I would use the product and a lot of the businesses I invest in or businesses where I sit on the advisory board because I really like to have control over my investments.
J Scott: So if I see an investment where I think I would use that product and I could help them actually succeed, that might be a business that I invest in.
Brendan: So what's next? What's next on the Invest or seed round investing side of things? What's what's caught your eye that's coming down the pipeline that you're excited about?
J Scott: Honestly right now nothing So it's a tough time to be investing in businesses just like with real estate where values have come down a little bit over the last few months In the business world, values have come down considerably. And so a lot of companies that have raised money in the past, if you look at their valuation, if you look at what those companies are worth, they're actually worth less than what they were valued at in the last round, that they raised money.
J Scott: So I think what we're going to start to see in in the tech space and in the in the startup business space is a lot of consolidation. I think we're going to see some big companies see the opportunity to buy some of these smaller and mid-sized companies for really cheap like cheaper than than what they last raised money for, because these companies are going to be able to raise another round because their money's so tight out there.
J Scott: And so I think we're going to see a lot of of of consolidation. I think we're going to see a lot of the smaller mid-sized companies either go away or get absorbed. And I don't think we're going to see a whole lot of deals emerging over the next year or two that look really attractive. So right now I'm trying to help the businesses that are invested in stay afloat and thrive and and just waiting for the good opportunities, just like I'm doing in real estate.
Brendan: Great. Stop it, Jay. Thanks again. 2 hours collectively across both episodes. I mean, just a wealth of knowledge. Appreciate all the you share with us so far. And again, where can people that are interested in learning more about syndication or even about Barton Investments and how they can get involved? Where can they go?
J Scott: Yeah, anybody that wants to find out more about me, the company might want to invest with us go to WW W dot connect with Jay Scott dot com and that will link you out to everything you need to know about me.
David: Awesome. Well, listen, Jay, I think we could sit here for another 2 hours and keep doing this. We'd Love to have you back, you know, down the road, maybe later this year or something. And you know, we'll revisit some of these topics and see how things are going. But in the meantime, thank you again for your time and I'll sign us off.
David: So for Jay Scott and Brendan Bennett, I'm David Dugan, and thanks for tuning in.
Brendan: Good stuff. Thanks, Jay.
J Scott: Absolutely.
Brendan: It was awesome.
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