Today, my guest is David Silliman David is the CEO of Eazy Do It and he's here to speak with us about Opportunity Zones, and Opportunity Zone Funds.
I'd like to ask you, David Sillamon, what is the BIGGEST RISK?
David Sillaman 38:47
I see. Okay, the absolute BIGGEST RISK to the whole program is going to be fraud. Alright? Fraud because these are private by design to be between you and me as individual investors into development, Alright? They're long term in nature, which means that we're not thinking about it every single solitary day. As an investor, we already know going into whatever we're putting our money into long term, years, six years, 10 years because of how every last one of these and it's such a brand new market that, you know, there's no not not a single Opportunity Fund has a major prior performance track record. So taking money in from an investor promising them that we're going to do this, we're going to do that, and then closing up or never even filing the right way to begin with causing, you know, detriment to the investor from a tax standpoint, thinking that here they're deferring and now they've been collecting interest on taxes that are due because the fund never did the right thing. And the people behind the fund made it look so great. That, you know, they took the people's money and ran. And when we look at look back at the history of track record of government programs, I speak truth on this because I built and operated one of the most successful loan modification companies on the East Coast was called Cornerstone group 175 employees, two call centers. I built a multimillion dollar business on the back of a government program once before. Fraught the proverbial saying of a few bad apples will ruin the entire basket was absolutely true in that program. We heard horror stories that people that you know gave money to companies out in California told don't make your mortgage payments and then ended up losing their houses and the company's closed up shop. That program was very dramatically changed through legislation and strokes of Penn from executives at the White House. This program has an immense amount of propensity for overwhelming overwhelming Change in an amazing way opportunistic way, in America, an amazing way to make a lot of great money. What it lacks because of how it's written, there is no set platform yet. There is no set directory yet. There is no set, hey, this is the proper process and what you need to be able to do when you build one of these things and so that way, all the way down the supply chain, it's transparent and everybody can get into it and know that okay, no matter what, that doesn't exist yet, because this market is a brand new financial market that is penetrating both real estate and business. And within that it has to grow. And it's like a baby right now that's teething. It has the ability to do amazing, and the legislative support behind it is bipartisan. But at the same time, biggest concern would be fraud. The second biggest concern I think that would be to go along with fraud and I briefly touched on it, I think it probably plays into that fraud. The biggest way is right now, as an opportunity fund being private, you've got SEC compliance, you've got, you know, state compliance, blue sky laws plus whatever your corporate entity, you know, is both, you know, registered in and foreign because most of the time, you're gonna have two entities at a corporate level with these, just a lot of this is still the compliance side. And that would be the the second biggest risk, none of them are performing. Proven. And I can't tell you as an investor, hey, listen, you know, this fun is performed at a 10% interest rate of return for the last 10 years. Not a one, I can tell you that, hey, my company has done you know, $50 million in development projects and so you can trust us. But at the end of the day, as an investor, you know, and that's that's the risk is at the moment because there is no centralization on really, you know, what it looks like? You know, from that mass propensity of fraud, and then you couple that with no performance, they're ultra ultra ultra high risk investment vehicles with huge upside potential, but also really high risk up front.
Today my guest is Travis Watts. Travis is a full time passive investor. He's been investing in real estate since 2009 in multifamily single family and vacation rentals. Travis is the director of Investor Relations at Ashcroft Capital. And Travis has invested in over 30 syndications. And in just a minute, we're going to speak with Travis about passive investing in real estate.
I'd like to ask you, Travis Watts, what is the BIGGEST RISK?
Travis Watts 47:39
I would say the BIGGEST RISK in passive investing to me is partnering up with the wrong team. It can be disastrous, as we've talked about, but, you know, if you can't execute a business plan, specifically if we're not talking about value, add real estate. So say we're talking about new development new construction, it can be a very bad scene. So I would say you're aligning yourself with the right folks picking the right partners and doing your due diligence up front to mitigate those risks. And in the deal itself, you're looking for a sponsor or or yourself if you're doing your own deals to be as conservative as you possibly can be. You mentioned earlier on the call cap rates, you know, on real estate. So if you're buying something at a five cap, you should be and you're hoping to sell it in five years, you'd like to see a higher cap rate down the road, right? Maybe you project a sell at a six cap, you're just being conservative in case the market softens in case COVID ends up being a, b, c or d. You're using your best judgment to mitigate risk that way. So those are kind of the to two part question. Two part answer.
Today, my guest is Mark Ritter. Mark is the CEO of MBFS and an expert in credit unions, real estate investment lending and small business lending. His primary role at MBFS is leading company efforts to assess assist credit unions and making commercial loans and helping businesses and investors.
I'd like to ask you, Mark Ritter. What is the BIGGEST RISK?
Mark Ritter 30:00
As a lender and people who like to lend money for your real estate investments, my BIGGEST RISK that we come across is is it is kind of nothing to do with real estate. It has to do with the people behind it. When loans go bad in our cases, the vast majority of time it has to do with the people behind it. Maybe you had something go on in your personal life, maybe you you had that vise that you have to get taken care of. Maybe sometimes enough that some things are never enough, where you you can't put the brakes on your growth. And because what happens is maybe when that personal life is out of whack, whether it be a whether it be a substance, whether it be some values, whether it be too much spending is that tends to cause people To make take too much risk in their commercial real estate business, where their margins and and window of error is much tighter. And then as soon as there's a bump in the road, things start to snowball. So we really that's why to manage that risk, we really want to get to know the people behind the transaction as much as the transaction itself. Because, you know, if we have good people who manage their personal life and their expenditures, all right, in a good manner, then all that then you're much more prepared to manage the risk in your commercial real estate life.
Today my guest is Rich Sarkis. Rich is the executive chairman of Reonomy, a leading provider of property intelligence to the commercial real estate industry. And in just a minute we're going to speak with Rich about Reonomy and how you can utilize that to help grow your business.
I'd like to ask you, Rich Sarkis, what is the BIGGEST RISK?
Rich Sarkis 40:28
So from my point of view, the BIGGEST RISK right now that folks within our industry have is the risk of complacency, the risk of getting crippled by what's going on with COVID-19 and obviously, the situation is fluid, it's evolving it's it's, to some extent, getting worse in many areas of the country and that is not good news. And there's you know, no real light at the end of the tunnel because yes, there's there's vaccines in flight and therapeutics etc, but nothing really concrete. that's readily available and where we can say, okay, by this date, you know, business as usual, right. And so in the face of such huge and unprecedented uncertainty, the BIGGEST RISK right now for companies and individuals alike is to almost freeze and to not make decisions that they ought to be making. In our world. That means specifically embracing data technology, information insights, to be able to when things do pick back up beyond the front foot and not get caught, shortchanged, basically. And to probe a little bit deeper, one of the things that recessions tend to do, right, and you don't know if we've seen the last of the, you know, big dip that we had in March, April, and whether it's a true V, you know, recovery, but there are going to be headwinds, at the very least, and we're even seeing you know, job numbers come back and we're was picking up now because states are having to shut down again, it's going to create some more negative outlook, they're one of the one of the benefits, perversely enough of a of a shock to the economic or financial system is it shines a light on inefficiencies. And whereas when the sun's out and everyone's making, hey, you can sort of throw more bodies at the problem and say all hire more people, and we'll do this do that. When times are tough and belt tightening happens, it's like, well, what are these people doing? Do I really need this? This? This is how we do that. And so when you are critically looking at those inefficiencies, there's this almost this, this cleansing mechanism where you then say, Okay, well what is the most efficient way to do this function or to prospect to risk to assess risks to underwrite to whatever it is to conduct an appraisal? And that's where invariably all roads lead to data technology, systems and machines doing what a lot of folks were doing. And don't get me wrong, I'm not saying machines will do everything, but it's really the highest best use and making sure that the appraisers, the brokers, the investors, the lenders, the insurance agents are focusing on their highest best use, which is doing bringing their local knowledge, their insights, their judgment. And that's things that are very difficult to train a system to do, right? And let the computers and the machines and the data crunch through all the data and do the dirty work, frankly, right, the 80% of it, and let the people do the 20% of their highest best use. And so the BIGGEST RISK is to not embrace that not realize that there is this huge opportunity ahead of all of us to really sort of shift the paradigm and go to a much more efficient and I believe sustainable, long term outlook for the industry.
Today my guest is Glen Mather. Glen is the founder of NuView IRA and has been its leader since 2003. In 2018, he also created NuView Trust, expanding the growing business of self directed IRAs into new services to further reduce and eliminate taxes. In just a minute, we're going to speak with Glenn about how you can use a self directed IRA and a little bit about the difference between a custodian and a fiduciary.
I'd like to ask you, Glen Mather, what is the BIGGEST RISK?
Glen Mather 39:19
is this? Are you asking us for my clients and self directing?
J Darrin Gross 39:23
Yep, I'm gonna let you define it for you to kind of, however the BIGGEST RISK, you see, what would you see that is, if it's a client's that's, that's great.
Glen Mather 39:33
I think when you go well, with any kind of investment, you kind of have two choices. You can invest based on the recommendation of others, or you can invest based on your own knowledge. And certainly, maybe alongside recommendations for others where you can actually do your own due diligence on the process. That's what self direction is all about. And if you just get tagged if you're just coming along and doing an alt with a recommend from somebody else, that you don't really know the basis of it, then you might as well be in the stock market. It's no different. I think the the risks, the risks are no greater or less, it's when what you're doing is you're mitigating some of those risks, as you said, or lessening some of those risks through your own knowledge. And, you know, I've certainly heard that Warren Buffett say several times about he won't invest in any business he doesn't understand and I take that to heart is I don't invest in anything and I get some pretty creative things that are thrown at me. And I just recall something if I can tell a brief story, there's a new freeway that's going around Orlando, on the on the west side of Orlando, and it's it just completed almost all of its stops. And, but when you when you build a ring around the city, you generally go through wilderness, right? There's nothing there yet. The freeway effect which we learned in LA right, which is you put a freeway houses are going to come When you own the land around interchange, it's valuable beyond belief, right? So I had I invested in something like this similar that worked out and then the guy told me, he said, I got another interchange, I go great. Bring it in and show it to me. You know, and by the way, it's only for me, it's not for my clients, I don't share it with my clients. And he talked about how he has a land option is going through this company and then you taking that you're splitting the depreciation off and you're moving it to a third company. And then there's a developer who gets 15% of the back end load. My head was about to split. You talk about being the slow guy in the room I was I couldn't get it and I I stopped it after about 30 minutes of trying to sketch it out on a pad and I said I can't invest in it. You guys got a phenomenal track record. All I'd be doing is throwing you money and I trusting you and I don't want to do that I promised I'm not going to do that my with my IRA and or my any over my retirement. So that's been my mantra, the less I know, the more I'll go to partnering until I know, without a lot of money, so, so my risk is mitigated by the fact that generally on my investments until I get to an educated state, is that I'm in it with you. If and if I'm in it with you, Darrin, I suggest that you're probably pretty interested in your money and your segment, you're going to make sure it's as good as your education. So that's kind of as close as I get to risk is, I may look at a deal. I'll educate as much as I can, and then I'll go in at 20% with Darrin. And if Darrin is screwed me is screwed himself 80% you know, and you're not going to do that. So I think it's a pretty fair and easy way to learn and to reduce the risk. But make no mistake, it's on you. No one else is making these selections. It's on you. So that's where the risk lies. And and I don't think that you should be somebody anyone should be scared. Do it with their retirement plan and be Cavalier enough to shove it to somebody else and say go manage it for me. We're in it's stunning because I talk to well educated people. And they're very quick to wave off and say, I don't know anything about investing. I make 600,000 a year but I don't know about investing. So I have my buddy take care of it. I just like it. It shocks me.