EP NNA 56 – Hedging Your Bets: Creating A Successful Syndication And Hedge Fund With Joel Block From Bullseye Capital

NNA 56 | Creating A Successful Syndication

NNA 56 | Creating A Successful Syndication

 

There’s a saying that you should always make sure to hedge your bets in order to protect yourself from most risks, and the same principle holds true in real estate as well. Taking on a syndication project is, for the most part, the wisest way to function in the real estate industry so as to protect one’s investments from the most possible harm. Joel Block is a business executive and professional speaker who specializes in real estate, finance, and sales. Scott Carson interviews Joel about what goes into creating successful syndications and hedge funds when one is looking to do larger deals. Joel talks about the “Wall Street way” of raising capital, and why it’s one of the most effective and rewarding ways to do real estate and note investing on a larger scale.

Listen to the podcast here:

Hedging Your Bets: Creating A Successful Syndication And Hedge Fund With Joel Block From Bullseye Capital

We’ve got a great topic that I think many of you probably have to ask a lot of questions but make some notes. Because as we all grow in real estate and business, we all want to take our things to the next level. Sometimes go into the next level, it takes away a lot of headaches, makes a lot a lot easier for you the long run of doing business. We are jacked up for our special guest. It’s a little bit of housekeeping for those that are joining us for the first time. We do these episodes when I’m not traveling or out of the country. We’ve got a variety of people here. Note and real estate investors, people interested in notes, and people interested in raising capital.

We are honored to have a guy who was doing amazing things over the 30-year track record of kicking butt and taking names when it comes to raising capital and helping other investors create their syndications and hedge funds out there. We’re honored to have the chief bottle washer from Bullseye Capital out in LA. An avid LA Dodgers fan and had a wealth of experience. If you’ve been on our Note Camp, we’ve had him on there before. We’re honored to have the man, the myth, the legend, Mr. Joel Block joining us here. How’s it going, Joel?

I don’t know if I could live up to the man, the myth or the legend, we’ll see. I’ll do my best.

We appreciate you being here and then taking the time to share your knowledge with everybody. There’s always deals to be had. You and I had this conversation before, but a lot of us grow from doing a couple of deals here and there then growing to different levels. As you shared it, I think doing a bigger, offering and takes away a lot of the headaches and are able to find a lot of solutions when you get bigger.

Here’s what happens. You got to get started, however you get started. You beg, borrow, and steal. You get your first money to get started. You’re doing some deals. You’re buying some notes. You’re buying some real estate, whatever you’re buying, you’re doing it however you can do it. What ends up happening is after you’ve done 2, 3, 5, 10 transactions, you wake up in the morning and say, “I’m good at this. I probably should not have to pay the hard money lenders, the private money lenders, the same rates that I’m paying because I’m not as much of a risk.” At the beginning, you get it that you’re a big risk and they’re taking a chance on you. After a while, you’re good. That’s what you wake up thinking.

That’s when guys come out and they find me and they say, “Joel, how do the pros do this? How is it that professional people make their money?” This is all about raising capital the Wall Street way and understand it does not matter what you use the capital for. I’m not saying that it doesn’t even matter, but for purposes of this episode, whether you buy notes, you’re buying real estate, apartment buildings, building ground-up, making a film or doing venture capital, it doesn’t make any difference. The technique is the same way that Wall Street handles this.

Wall Street is good at doing that few people know how to do is taking an asset, like an apartment, building a pool of notes and slicing it up like a loaf of bread so that people can buy exactly as much as they want of that asset. They’re going to buy some piece of whatever it is that you’re selling. That’s the trick to this whole deal. Let’s talk about how we are going to move away from the expensive forms of financing and how you get to the next level. Because I don’t care how great your deal flow is, if you don’t have the money to monetize that deal flow, you will never get to the next base, whatever that is for you.

You have to be well aware of how important this is. Let’s talk about the money business, which where is syndication. You hear a lot about syndication. Syndication is nothing more than putting people’s money together in a pool. It’s simple. There’s your way, the way you do it and there’s the Wall Street way. One of the things that is clear and obvious is that most of us, the way we do it is we finance properties typically using either hard money, private money, JV money, however you’re going to do it. There’s a small number of ways that are legitimate for you to do this business for you to raise money and be compliant with both federal law, state law and all. I’m not an attorney.

I am a CPA, but I’m not. You’re a CPA, so I can’t give you any specific advice. The question that I always like to ask and anybody who’s financing properties this way is you’ve got your way of doing it, but do you think that your way is a great way? Do you think maybe the Wall Street way is a little better? Do you think maybe those Wall Street guys, they’ll a little something that you don’t know? That is a relevant question. Let’s think about who understands this business better and who is further along in this process. Clearly enough, Wall Street does not do it your way. Wall Street has a better way of doing it. It’s more profitable. It’s safer. It’s less a liability. All the problems that people have are much more under control of the way that Wall Street runs this business.

I’ve got a friend. His name is Chuck. He and I were having lunch one time, and Chuck is telling me that he’s got this big development deal in escrow. This isn’t anything different than any of you. You get a big note deal in escrow. Somebody offers you a pool of notes, but you’ve got to act fast. Whatever it is, you don’t have the ability to close this by yourself. He’s got lots of investors that are circling in the deal. They’re all interested in the deal. None of these investors have closed. He doesn’t know why he’s not a professional money raiser. As he tells it to me, I’m able to hear all the reasons why people are closing clearly.

The question for each of you is who controls Chuck’s deal? When I asked Chuck this question, it was embarrassing and irritating at the same time. It bothered him greatly that I was insinuating that he didn’t control his own deal. He goes, “Me, it’s my deal. I’m the one that tied it up. I’m the one that got it organized. I’m the one that did everything.” The truth is, if it were your deal, it would be funded and closed. Because you don’t have the ability to close, the investors in these people that you’re begging and to come into your deal are in control. This is not the right way to do it. He’s operating a higher-level business with lower-level financing and it’s a mismatch. Because of that mismatch, it’s causing him all sorts of problems.

What’s the solution? What kind of money does this guy need? He needs money and there’s a lot of different ways. He could get a bunch of his friends together and then get a bank loan for the balance. That’s okay. That’s one way to deal with it, but when you put friends together, then you’ve got all kinds of securities problems. Should he go to a private lender? No. He could go to a private lender and have somebody to loan him all the money, but then you’re in the situation where the person wants to do due diligence and all the other things that are happening. It’s difficult. Hard money you have to have some equity money in front of the deal. If you’re going to buy a pool of notes, you have to be able to put some money in front of that debt that you’re going to put on.

The hard money is too expensive. Hard money probably doesn’t apply for notes anyway because they don’t get the security, the collateral, and the backup that they need. All these issues come into play and it doesn’t work. To me, the solution seems obvious, but to Chuck, it wasn’t obvious at all. Maybe to those of you who are paying attention, the solution is not necessarily obvious. Here’s what Wall Street does. Wall Street takes the pool, takes the building, takes whatever it is that you’re working on and slices it up. In other words, let’s say that it’s $1 million deal and you need $1 million to close. You probably need to have some work in capital, some rehab money, and some extras, but let’s say round numbers, it’s $1 million that you need.

They’ll slice it up and do, let’s say 40 shares or 40 slices of $25,000 apiece. They’ll go out and they’ll offer them to people. This is what you would do. You’d say, “Who wants to buy my shares?” Somebody will say, “I’d like to buy two,” Somebody will say, “I’ll buy four,” Somebody else will say, “I’ll buy eight.” You sell the shares until they’re gone and then you have the money. You go shopping and you buy things, you buy whatever the asset is that you want with the money. Sometimes in hand in advance, sometimes that after the fact, but one way or the other, that’s how you get the money organized. You’re not taking money from a professional hard money lender or a professional private lender or from a bank. You can take the equity money that you raise and you can say, “Instead of taking that $1 million, let’s put $500,000 into this deal and go borrow from a bank $500,000.”

Let me promise you that when you borrow $500,000 from a bank with $500,000 of equity in front of it, the bank is going to be a lot more receptive to lending you money than if you ask them to put up money and you’ve put up 3%, 5%, 10%, maybe 0% or something else. This is a much preferred way to do it. How do you slice up a piece of real estate? This is the art form of Wall Street, and this is something that you probably have never been exposed to before. Let’s expose you to this. The first thing you do is simple, an attorney or you going to form an LLC. You’re going to sell the shares, which can be crowdfunded or it can be done hand-to-hand and meeting people.

You’re going to sell those shares to a bunch of people. The first step in the deal is you’re going to elect a president. The company is going to need a president in order to continue. Once that’s done, the president is going to hire a real estate broker or someone else to represent them in the transaction. That could be a note transaction where you’re buying notes. You might have to hire a broker or somebody who’s licensed or you can go direct. Whatever you want. The asset gets acquired, the asset gets put into the LLC, and that’s pretty much the way the deal works. The investors come in, they put the money into the company, the company then goes and buys the asset. The asset ends up in the LLC.

What are the investors have? They have shares of stock that they then own the LLC. Say they don’t own the asset directly, but they only share a stock which owns the asset. By doing it that way, it doesn’t sound that different from, “Why don’t we get ten people then put the money in by the notes?” The reason has to do with the way that the laws work. If you do it any way other than how we’re talking about, you’re going to find yourself in trouble probably and you’ll have to talk to an attorney about why. The way that professionals put these deals together, is you structure it in a way that lets people buy shares of stock in a company and then the company goes and buys their real estate. You get some protection and everything else.

Lots of other great things happen too and we’ll talk about that. Why is it that you’d go to all the trouble to do this? Why not do it the shortcut way? Number one, you’d be out of legal compliance and there are issues there, but there’s a lot in it for the promoter. Let’s talk about what things are in it for the promoter. The promoter is you, it’s me. It’s those of us that are putting these deals together. The person that goes out, slices the deal up and do slices of 25,000 and sells them. That person’s the promoter. They’re the quarterback, so that’s called the sponsor, the deal maker or the manager of the company. That person stands to benefit in lots of different ways. This is what you have to understand.

Number one is you have lots more control. The way you do it, you probably don’t have a lot of controls, so this is going to give you lots more control. It’s also going to give you lots of speed because if you have the money raised in advance, then you’re going to find yourself in a situation where you can get what I always refer to as a readiness premium. If you show up and you say, “I’d like to buy this asset,” and they say it’s $1 million, and you say, “I’ll give you $1 million. I’ll be back in six months with the money.” They’re going to say, “Are you kidding me? I’m not waiting for six months.” I’m somebody that has a fund. I show up and I say, “I liked the deal. I’ve got the money with me here. I’ll give you $800,000 on the spot.”

The person says, “$800,000 is a little bit low.” How many in a quarter? I’ll make $175,000 more for being ready. When you have to go shopping for your money, you’re not ready. There’s a series of steps. You have to learn how this works, but it’s not hard to do. You have to be supervised and you have to understand what you’re doing. You just have to have a little experience. This doesn’t get to work if it’s your first day on the job, but if you bought 5, 10 or 12 notes and you’ve turned them around, you’ve revitalized them and you don’t, you’ve done, then you’re probably going to be okay.

NNA 56 | Creating A Successful Syndication

Creating A Successful Syndication: Wall Street is good at taking an asset, building a pool of notes, and slicing it up like a loaf of bread so that people can buy exactly as much as they want of that asset.

 

Another great thing is because you have a pool, that doesn’t mean you’re exclusive to that pool. You can do note deals in the fund or you can do no deals outside of your fund. That’s another good way of doing it. There are no interest payments made inside these LLC arrangements. That doesn’t mean the investors don’t get paid, but they don’t get paid interest. The problem with interest is, when you put an interest note on a property or on a note or something else, what happens is that if you don’t perform, then you breach the contract because interest is a contract. When you don’t pay and you breach the contract, there are some rights that the other people have. One of the things that they can do is they can foreclose and take that asset away from you.

Even though you’ve put a lot of dollars into the asset, that asset can be taken away and you could lose all the equity that you’ve accumulated. All the economic benefits that have come your way could all be gone in a heartbeat. You want to be careful. The way that I’m suggesting, there’s no interest payments. Instead, it’s what’s called a preferred payment. The other thing is if you structure these things correctly, your cost of capital is effectively zero because there’s no interest payment. That doesn’t mean that there isn’t a revenue share. There is a cost, but it’s not being paid before you get your split. A lot of times, guys will split their money. First, they’ll pay the amount that’s due to the noteholders, whoever they are, then they’ll pay the interest payment and whatever’s left, they’ll split.

Much money has been paid to the interest holder that the amount they split is low. If you do this right, you’re going to pay for the rehabilitation of the asset and then you’re going to split. That’s going to give you a lot more than if he had to pay off of an interest component or something else. That’s part of what makes the benefit of working in this way as opposed to a hard money deal or a private money deal. It’s advantageous. Here’s another one. This is probably the most substantial one in addition to your participation, the readiness premium and all the other great things that happen. You’re going to get paid for your services along the way. When you’re buying the notes, there may need to be a note purchaser of record. Somebody is going to do due diligence on the front end.

Somebody needs to be paid for that. The investors, since they’re not probably going to be paying you a salary are probably going to be okay with you being paid to do the diligence. The front end for you to do the acquisition on the front end and then again on the back end. Do the maintenance, do the collections and every single step that you provide, you can take a fee for doing that, provided that you have properly disclosed this. That’s what we help people to do with the attorneys. We help them get organized. Number one, you have to learn how it works, and number two is that we help you put this together. It’s a compliant deal. I didn’t make this system up. As a youngster, I worked at Pricewaterhouse, the giant accounting firm.

Besides working on the Academy Awards, which was quite a famous engagement, I did hundreds of tax partnerships for real estate syndicators back in the 1980s. I watched and learned this business. This business is about 50 years old. It’s just a little bit, but more or less, we’re doing what is standardly approved of. It’s understood by attorneys and accounts when they go to law school or business school. The government of the United States is approved this. The Supreme Court of the United States is ruled on it. The IRS doesn’t like it too much, but they don’t have any choice because the Supreme court said that the tax benefits and everything else, they’ve laid it out in a way that the government can’t push back.

When it comes to this octopus, you’re being paid in many different ways, but they fall into two giant buckets. The first bucket is that you’re being paid for being smart. Every one of you, that’s what you do. You get paid for being smart. What does that mean? You find a note. You add value to it. You foreclose, you repossessed the real estate, you sell the real estate, whatever it is that you do, you’re being paid for being smart. That’s terrific. In the course of being smart, you’re spending a lot of time. You also need to be paid for your time. That’s the second part of the formula. All the fees that come are based on your time, when you get your big payment on the back end, that I’ll go straight to the bottom line.

The way that a lot of guys run their affairs, the way that I see is that they’ll put some money out. They’ll work for several months to negotiate these arrangements and get everything all figured out and then they sell the note and make a profit. They show the profit with those investors. By the time they get it, they’re busy paying off all the credit card balances that they’ve accumulated during their rehabilitation phase that there’s no profit. That is not a wealth accumulation strategy. The way that Wall Street does it is we get paid for our time and then we get paid for being smart. You have to get both those things. If you forget to get paid for your time, then the amount you get paid for being smart is barely going to cover the time that you paid. If you can work that out, it’s going to be to your advantage.

What are the things that are paid for your time? Number one, anything that you would pay to a third party. If you’re capable of doing yourself, you’re welcome to do that yourself. That can be anything as long as you properly disclose. You’re going to be paid for stabilizing cashflow and funding growth, all those things. The workbook has a substantial list of these. Most of these are real estate fees, but we have a whole other page that’s for notes. There are real estate fees, note fees, and then the note business turns into real estate because after you foreclosed on a note, then you can start taking all the real estate fees. You ended up double doubling up on those. There’s a substantial amount of fees that are handled for being smart.

You’re participating in cashflow, you get back end profits and all the other money. That’s a cool thing. I put this out there in case this comes up, you want to make sure and take your share profit before the cost of capital. If you take it after the cost of capital, if you subtract your interest payments, the amount that you’re dividing is going to be very small. Before the interest, the amount that you’re dividing could be large. You want to make sure that you do this correctly. This is what we help people to understand. Take my word for it. If you learn how this works and you understand it, this is the magic of money and structure.

It’s the magic of making big money. It’s the way that the Wall Street guys do this exact thing. My goal for you is to get you out of the note and real estate business. What business should you go in? You’re sitting and saying, “In fact, Scott’s probably shaken his boots.” Don’t take him out of the note business. You don’t want to be in the note business. You want to be in the money business because when you have the money, you can buy all the notes you want. The money is not made in real estate. It’s not made in the notes. Do you know where the money’s made? It’s made in the money. That’s the trick. Because when you control the money, you can buy all the real estate, all the notes, all the assets that you want. That is the bottom line. I’ve got a wholesale strategy example. This is geared for real estate people and not so much for you. Let me run through this quickly. Scott, you think this is appropriate to go through a wholesale example for real estate?

I think it’s totally perfect.

I think people get this right away. Let’s say for example, somebody puts a building under contract for $1.5 million. I don’t know how often this happens that you’re doing these big deals, but I picked a big one just because, so it probably doesn’t happen all that often. You set it up for $1.5 million and you’re going to sell the paper and you’re going to make $100,000 quick, which is terrific. It doesn’t happen too often, but you’re going to do it. The difference between syndication and fund, syndication is a specific project. That’d be like buying one big note. A fund is putting a bunch of money in a pool and then buying stuff over time. One is you buy the note, you rehabilitate it, you foreclose on it, you capture it, whatever you’re going to do, you execute the business plan and then you wind down the partnership and you give everybody back their money, plus their profits and you’re done. You wash your hands.

A fund is an ongoing situation. Investors put their money in, you buy notes, fix them, sell them, keep the profit, put it back in the fund, share the profits, some part of it with the investors but you keep the principle. You’re not raising money all the time. In the syndication model, you’re raising money all the time. Here you’re not. The money comes in. You have different situations. Some people have a fund and then they still do some syndications. Some people start with syndication. They morphed into a fund. It depends. Here’s how it works in a syndication. You got a contract on a building for $1.5 million. You’re going to take a brokerage fee of 3%, $45,000. It’ll probably going to take a mortgage fee of a couple of points on 75%. There’s $22,000 and then you’re going to take a property management override for several years because you’re going to be paying a property management fee.

Let’s say you make a couple of points. Maybe it’s more. Maybe you don’t take an override. Maybe keep the whole thing because the building’s in your backyard. You’re going to get a rehab fee for managing the project or a construction management fee or something. You get a general contractor fee if you’re licensed to do that. As long as you’re licensed to do these different things, you’re good to go. You have to disclose those things to your investors. You’re going to participate in cashflows. It’s $80,000 over a period of time. You’re going to sell the building for an appreciated value because you’ve done a lot of value add work. Let’s say you’re going to sell it for $2.4 million. The net that you’re going to sell it for after brokerage.

You’re going to make about $700,000 give or take. These are round numbers and it’s an example over a period of say five years. Probably not that far out of the ballpark. Your share of the net profit is $280,000 plus. You’re going to get the brokerage fee on the backend for $72,000. When you add all these things together, the total that you’ll have made between the fees, which is the time and the backend split, which is the fee you get for being paid for being smart, it’s $539,000, which is over five times what you would have made if you were flipping or wholesaling this deal. You can do 2 or 3 of these a year and you can do them year after year because this is not an extraordinary deal. It’s a normal deal, but it would be an extraordinary deal for you to wholesale this property. Even if you bought it from the wholesaler, that person made $100,000 on a quick notice, you’re still making a solid profit. It’s a solid way to do it. You got to build your pipeline. It’s the way that it works.

The investors are going to get about 12% a year and you’re going to make a big clump. Are they upset that you made a big clump? They’re making 12%, which is awesome. I would say that most investors are going to be satisfied with what they get. Although they could try to recalculate what you get, what you get was laid out in advance that your documents and you said, “If we perform and do what we’re supposed to do, we’re going to get paid handsomely.” You do that and that’s the way it works. I would tell you, stop working hard and start working smarter. That’s something that people in our business don’t always do. If I can help you take better care of your family and be smarter, that’s a cool thing. Let’s burn through a little more material.

A disclaimer, I’m not an attorney, I’m a CPA, but not your CPA. I’m not giving any advice. I’m giving information. Everything that you do that’s specific to you, you have to run by your advisors. Let’s work on making this better than next because that’s what it is. I want to make it different. We’re going to divide this into two sections. The money business, which we went through. It says three, but we’re going to have to leave one-off in the interest of time. We introduced why syndication is such a powerful tool. Finally, we’re going to talk about why funds get the best deal. When you understand this, it will be clear to you. About crowdfunding, we’re not going to have time to talk about crowdfunding in this little period of time, but we talk about this at the symposium, where we teach this material in great detail.

This material is taught over three days so that you can understand it and then go out and legitimately, legally, and properly raise money to do deals. It’ll help to professionalize your business. I was talking to a guy looking to raising a fund for acquiring assets. One of the things that was most important to have is that the collateral needs to be professional. He’s professional and the documents. When investors look at properly drafted materials, they recognize that there’s a right way to do this, and that’s what has to happen. That’s where we’re at. I’m not making this up. I spent plenty of time with the school of hard knocks. I came from Pricewaterhouse originally. I worked in syndication. I spent the next several years of the real estate syndication business then fell into a venture capital transaction called Financial Facts, which I built, grew and ended up selling to a Fortune 500 company. I spent the next many years in venture capital.

In 2008, I got a call from an executive at Marcus & Millichap, the big real estate company. The guy asked me to come out and do a program for them on how to raise money to buy real estate. That’s the program that we’re offering to you. That’s the program that Scott wanted you to learn. As a result, I’ve been running our Bullseye Capital Fund for the last several years. I asked the question, which is more important capital or deal flow. A lot of people will tell me, deal flow. The people who tell me, it’s deal flow, are people that only have deal flow. The truth is if you go to an REIA meeting, a meetup or any other real estate meeting and you show up and you say, “I have the most smokiness hot deal, who wants it?”

Do you know what’s going to happen? Nothing ever happens because nobody has any money. If I show up and I say, “I’ve got $1 million on my debit card and I got to spend this money in the next ten days.” Do you know what’s going to happen? The meeting’s going to stop. People are going to line up and they won’t be able to continue the meeting because everybody will want to get a piece of that debit card. That is the truth. That tells you everything that you need to know about the importance of money versus the deal. Granted, deals are important, but you know what people always say? Bring a great deal, the money will follow. The money does not follow. If you don’t know how to do it, you don’t know how to get the money.

NNA 56 | Creating A Successful Syndication

Creating A Successful Syndication: Just because you have a pool doesn’t mean you should be exclusive to that pool. You can do note deals in the fund or you can do them outside of your fund.

 

If you don’t know how to organize the money, if you aren’t ready to take the money and you’ve got to be ready to take the money, then all sorts of things would be done differently. I asked the simple question, are professional investors and I’m a professional investor. Some of you are potentially professional investors if you’re not already. Are they 500 times smarter than everyone else? The answer is certainly they’re not. Why is it that professional investors make more money in five days than other people make it five years? Why is that? There is a reason and I’m going to tell you what it is. You are either going to get yourself onto my side of the table or you’re going to stay where you are. That is entirely up to you.

Here’s how this works. Professional investors understand the deal structure and the advantages that the deal structure brings. What that means is that all the way that we structured that revenue octopus and the way that the deal, the money shows, what we have getting paid for being smart, getting paid for the time. Those are all structural components that make the deal work better than how you’re working your deals. Professional investors understand their marketplace better than other people. I would imagine most of you understand your marketplace well. If you don’t couple it with these other things, it’s not going to go your way. Finally, professional investors are highly focused. They don’t jump around between asset classes. They’re not working on funding films one day, venture capital another day, real estate another day, and mortgage notes another day. They pick a genre and they target that and they get good at it.

That’s important to do. Finally, maybe most important, they’re always ready to go. That’s the question you have to ask yourself. Are you ready to go? My sense is that most people are not ready. Being ready doesn’t mean I have my private money lenders’ phone number in my Rolodex. My phone ready to hit the button, so when a deal comes along, I call that person. Let me promise you. Remember that when somebody else loans you their money, they’re in control of your deal. That person could say, “I’m sorry I’m on vacation with my family. I got all tied up with another deal. I’m in a bad mood.” It doesn’t matter what the reason is. If you don’t control the money, you don’t control anything. Let’s get you in control so you can have that readiness.

Maybe there’s something else. Let me tell you that there is something else. That’s something else that when it comes to money, everything in this world is rigged. I think that most of you probably believe that that’s true. You may not know what the rig is or where the rig is, but there certainly is a rig. The bottom line here, he who writes the rules, rigs the rules and you have to get into the habit of writing the rules so you can rig them in your favor. If you don’t do that, you’re either going to rig them in your favor, somebody else’s going to rig them into their favor one way or another. You either are proactive about this or you’re going down the drain.

That’s the way that it works. How does it work in real estate and the note business, this example is for real estate more so than notes? Although probably 70% of the funds that we’ve built had been real estate funds, 30% have been notes. Most of the groups that I address are real estate groups and there’s much crossover between the two. You guys all understand what we’re dealing. Let me tell you what rig is in a real estate. You will understand this. Understand that a rig does not mean anything is illegal, improper or bad. What our rig is that somebody bends the rules or writes the rules in their favor. There’s nothing wrong with doing that. They understand the game better than other people if that’s what it is.

Let’s take a look at how this works and let’s get a sense about it. Let me start by saying that in Las Vegas, we all know that the rules are rigged. We all know that the casino, everything is to their advantage. Because we all know that everything is written to their advantage, we don’t even bother to ask the question. We know that roulette, the odds are not favorable to us. Craps and blackjack are not favorable to us. None of the games are favorable to us. They’re favorable to the casinos. All you have to do is look at the landscape because you know that those casinos were not built by winners. If you need any other proof, I don’t know what it would be. Here’s the rig in real estate.

Number one, my gun is always loaded. I am always ready to buy. I’ve got a debit card with money on it. I’ve got money in a bank account ready to wire at a moment’s notice. That’s the first most important thing. Let’s say that a broker gets a phone call from his client and the broker’s client says, “I’m in a world of hurt. My business partners cheat me. My wife is leaving me. The government’s chasing me. I’ve got many problems. I don’t know what to do, but all I know is I got this property on 4th and Main. It’s free and clear. It’s worth $1 million, but I will take $600,000 because the government’s going to put a lien on it in two weeks. I got to have the money in ten days or else they’re going to leave my property and I’ll be able to get any cash.”

Would the broker call you? I have said this to people in real life and people will tell me that is the snotty question. Somebody said to me, “You hedge fund guys are snotty, you think your money’s greener.” I will say our money is greener. The reason it’s greener is that we’re ready. I’m going to give you all the reasons why the real estate broker is going to call me the guy that has the fund with the money ready to go then calling Dr. Smith or somebody else because that person is not ready to go. Number one, who’s given deals to that real estate broker all year long? I’m giving deals to that guy all year long.

When that person has an opportunity to reciprocate that person certainly wants to do that. The next thing is Dr. Smith, “Is this cash ready?” We don’t know if it’s ready, but let’s say that the guy’s got a couple hundred thousand at Merrill Lynch or Bank of America and its insecurities. Is the cash ready? Not exactly ready. He’s going to sell some securities. Most people do not have the level of readiness that a professionally organized funder group like us would organize people that are organizing money the way that we are. That’s a big advantage that we have. Another important thing is due diligence. Let’s say the real estate broker calls a meeting and says, “There’s a due diligence appointment on Thursday at 2:00.” “Thursday? I’m in surgery that day. I can’t do Thursday. What other day could you do?”

That doesn’t work. I can have five guys in any city in America any day that I want. That’s what needs to happen here too. That’s a reason that the real estate broker would much favor someone like me than a doctor. My schedule is clear. I can work on this a nonstop. This is the most important thing that I have going on in my life. That’s it because it’s my business. The next thing is I don’t have to borrow any money. I’ve got the cash on hand and ready to go. I’d be refinanced later, but that’s not this guy’s problem. I may pull my cash back out. Dr. Smith has got a couple of hundred grand at Merrill Lynch and the deal is $600,000. Dr. Smith’s going to need to borrow $400,000. You say, “Where are you going to get the money from?”

“I’ll get it from Merrill Lynch. They’re going to be a line of credit.” That’s great, but they’re not going to give you a lot of credit in two weeks or ten days. They’re going to need to do some examination. It’s inexpensive money, but it’s slow money. It doesn’t give you that readiness premium that we were talking about. Another thing is the real estate broker knows from our experience together that I’m going to respect the commission because we have a lot of history. He doesn’t know if Dr. Smith is going to treat him with the same courtesy. Another important thing, another part of the rig, is that the real estate broker knows that we’re the same network. We maybe belong to the same club. Maybe we a network together, we did dinner at the same restaurants, whatever it is, that broker, we have something in common.

We’re near each other a little bit. There’s a little bit of a simpatico that we have together. Finally, they’re a little bit of horse-trading. This is a common thing. Nothing wrong with this, but the way things work is, “I’ll scratch your back if you’ll scratch mine.” The real estate broker says, “Joel, I’m going to give you this good deal. Would you mind to organize a dinner meeting for me and that a friend of yours, that private equity friend that I know needs to buy more real estate like you do?” “Sure, I’ll set that up. Let’s make that happen.” Here are all the reasons that the real estate broker is going to call me. They’re probably not going to call Dr. Smith and I’m going to get the deal.

Here’s what ends up happening. When that’s done, we buy this property for $0.60 on the dollar and that property is worth at least $0.90 if you’re going to sell it super-fast. I’ll sell the property to Dr. Smith for $0.90. Dr. Smith thinks that he got a smoking hot deal and all, I’ve made more money in five days than Dr. Smith will make in five years. That’s the unfortunate way that the game works. There’s not a lot that you can do about it. What I would tell Dr. Smith is, “Instead of fighting, because you can’t beat me because I’ve got the cash ready to go is give that capital to me and let’s go out and be a team.” That way I can find the deals because I’m on the street and my team knows what’s going on.

You’d be the capital supplier, we’ll split the profits in some formula. That’s why investors get involved in these deals because they know they can’t beat us. They want to participate with us to make sure that they get the best deal. You try to get the best deal you can, but we’ll beat you out too. That’s why I’m telling you that we want you to be ready. We want you to be able to go out and do better. Let me make a suggestion. We produce a giant library of materials that we produce every week. Twice a week, we set up videos where people write in. They ask me questions, “Joel, what’s the difference between a syndication and fund? What’s the rate of interest to pay? What’s the preferred? How does this work? How does that work?”

We answer these questions and we’ve got a giant library with 140 assets in it. You’re welcome to have those. They’re absolutely free. Like Scott’s thing, text the word ASSET to the number 72000. You’ll get free information. We’re not going to spam you. You’re going to get the videos. There’s not a lot of garbage that goes out to our list. We have a very simple arrangement. You’ll start getting those videos. Once you open up the videos, the whole library opens up to you and you can have lots of videos, not just the one that was received in the mail. People binge-watch these. It’s a cool thing.

People ask me, “Joel, where are the investors?” In the old model a years ago, you have to go to the country club and they were hard to find. With the crowdfunding rules, it’s gotten a lot easier. You can advertise for investors. There’s a lot of ways to find investors that are powerful. In the old rules, private placements were private and now they’re not. Investors are like yellow cars. If I tell you to look for a yellow car, you’re going to find that. You’re not finding yellow cars because you don’t know what to look for. You’re probably finding a lot of hard money lenders, a lot of private lenders.

Why are you finding those people? Because that’s what you’re looking for. If you start understanding what the parameters of a person are that would make a private investment as opposed to a private money alone, which by the way is not secured. Remember, they’re buying stock and then you get to use that capital from the sale of the stock to buy assets. You have lots of flexibility and the people are sharing profits. If you understand the profile of this person, then you’ll have a much easier time of doing that. There’s my friend with a yellow car. They tell you that when the student is ready, the teacher appears. Some of you are going to be ready. If that happens, I’m happy to be your teacher.

I’d like to help you to get through this. Are you somebody that can control the money? It depends. If you’re a real estate professional licensed in some state, then you’re eligible. That could also be a mortgage broker, somebody who’s handling notes and otherwise. You’ve got to be one of these criteria. Alternatively, you could be a financial or intermediary type of person. If you meet those criteria, you’re eligible to participate with us. Finally, if you’re an asset class specialist, you understand, you’ve done 5, 10, or 15 deals or more than you’re eligible. The reason we have these criteria is because we don’t want beginners. We don’t want to be. We don’t want early-stage people because this is a good trick and a beginner would not be able to pull it off.

For people who are ready, it’s an amazing, powerful tool that you can’t imagine. If you’re ready to go, April the 19th and the 22nd, we’re doing our 24th National Symposium. We have produced more than 1,000. People have gone through our program. We’ve probably produced close to 100 funds and more than getting close to 200 syndications. It’s been a substantial run. This program will be at Las Vegas and we’re only selling 50 seats. That’s it. Scott, we put a couple of aside for your people and I will say that the seats, they’re $2,100 apiece but we’ll sell them at 2 for 1. We’re not going to reduce the price, but if two people from the same company want to come and they want to do it, they buy their ticket and send me their paperwork and all of a sudden, I’ll send the link to register the second person for free. Scott, that’s what I want to tell your guys. I don’t know what else I need to know. There’s the info. If they want to buy the ticket, they know a deal-making symposium. We asked them to text the word ASSET to 72000. This isn’t something where anybody’s going to twist your arm. It’s something that you either get with this is or not.

That’s the biggest thing there. There are no gimmicks. That’s one of the beautiful things that we had you on for because you’ve done such a great job helping put some big funds together and syndications. I’ve got a question here. What would you say the average size of the syndications that you see is taking place out there?

NNA 56 | Creating A Successful Syndication

Creating A Successful Syndication: If you don’t know how to organize money, then you aren’t ready to take the money. Always be ready to take the money.

 

Almost all of them for people who are kind of early-stage is between $1 and $10 million. You can make a lot of dough on $1 to $10 million. That’s a lot more than you’re making.

It’s also easier. Once you get the word out and know what you’re doing, raising $1 million is a lot easier than most people think.

It’s not laying in an envelope on the street, but it gets easier over time. Once you have a couple of million, then you can go to $5 million. Once you have $5 million, you can go to $10 million. Because you’re accomplishing something, you’re doing good with the money. That’s the way it works.

The 19th and the 22nd?

That’s Sunday night through Wednesday.

Where’s it being held in Las Vegas?

We only tell the attendees. It’s one of the good hotels.

You’re keeping it secret. I understand it. You want people to show.

We don’t hire security, so we don’t want any sneakers. You’ve had a couple of occasions where a couple of people found out that they tried to sneak in and it’s awkward. I prefer to share the information if you could come and no sneakers.

That’s a good response. I can understand that. John asked the question here, “Do I have to find the real estate first in order to have the fund slice up the shares?”

If you are doing a syndication project, you probably have to find the deal first, and then you have to go out and get the money and get your documents organized. That is clumsy. It’s a hard way to do it, but that’s the way a lot of guys do. Sometimes it works out. We built syndications, we build funds. Sometimes there’s a reason to do it one way or another. The fund, you generally get the money in advance. It’s a little harder to get the money in advance because people have to trust you more. If you have more deal flow, then having the money in advance is awesome. If you don’t have a lot of deal flow, then you probably do not want to have the money in advance. You’d probably want to look for the money as you find deals. It depends on your situation. You could do it either way. The beauty of this business is it’s flexible. As long as you know what you’re doing, you’re good at your craft. This business is going to work out well for you.

I got another question that says, “How difficult is it to get your syndications approved by the SEC in the different states?”

You do not have to get them approved. We work under these rules that make us exempt. There no registration. That’s part of what we teach you in the class is the way that you stay exempt. When you were fifteen years old, you learn how to drive. It seemed so complicated. You took a class. You practiced, you took a test. There’s no test or anything here, but you’re going to take a class, you’re going to learn how to do it, and then we’re going to help you to make it happen if you want that. Ultimately, you were up and running. By the time you’re seventeen years old, people are shaving in their cars and put lipstick on while they’re driving. I don’t recommend that. I don’t like that as an adult. You get comfortable. Once you get better at doing this, the same thing’s going to happen for you.

Every different deal is a different entity. You’re keeping everything separate.

If you’re doing a fund, they can all go into one pool. If you’re doing syndication projects and everyone’s going to be separate for sure. Even at a fund, you can separate them for liability and asset protection. You have a lot of flexibility, but you don’t have to.

In your experience, it may or may not mainly a shock. What’s been the most interesting thing you’ve seen something put an indication to get it for?

Cannabis is big. People are doing with these cannabis deals. I’ve been involved in every kind of venture deal you could think of. I’ve been involved in film finance. We had a finishing fund where guys would run out of money and then we’d buy their assets. Turn around funds. There are all kinds of things that you can do and we’ve been involved in a lot of those different things. I can’t tell you what’s most interesting. I will tell you, when I was at Pricewaterhouse as a youngster, besides doing real estate, I was doing windmills, those energy deals. Every one of them, they’re all interesting. What’s interesting is making money. You can’t make money in every one of these deals.

This is the 24th time you’ve done this?

We have been doing it twice a year, but frankly, I’m retiring from my fund. This is going to slow down. There are not going to be all that many more of these.

People need to take action here. Are you going to retire when the Dodgers win the World Series?

NNA 56 | Creating A Successful Syndication

Creating A Successful Syndication: If you are doing a syndication project, you have to find the deal first, and then go out and get the money and get your documents organized.

 

Wouldn’t that be awesome? I was in Houston one time. There’s quite a lot of animosity there. I drove by Minute Maid Park, the place where the problem happened.

I’m a bigger Twins fan than I am an Astros fan.

I was at the World Series game seven in 2017 when the Dodgers lost. Darvish pitched that terrible first inning. Maybe it wasn’t such bad pitching. Maybe it was that the Astros had the angle.

The beauty of what you’re doing here, it takes the mystery out of everything. You’ve got everything up front, you’re making more money by putting it all together and you are an expert at doing this and helping. I know you’ve got a huge success rate. A high percentage of the people that are coming through this are doing amazing things.

We’ve got a lot of success stories.

The website is DealMakingSymposium.com or you can text the word ASSET to 72000. You can go to SyndicateFast.com as well to get registered for the videos and stuff like that too. You’ve got a podcast, Joel?

Yes, it’s called Profit From the Inside. It’s not a real estate podcast. It’s strategies to give your business the inside track. It’s a business podcast.

It’s great stuff. Imagine coming into Vegas on a Sunday night and walking out Wednesday night having a game plan for doing something big. We all want to take our businesses to the next level. One of the biggest regrets that I did is I didn’t take more time to do this. I got used to doing the old way of doing things as Joel talked about beforehand. I kept going. It ended up biting me in the butt. If I’d had done it exactly how Joel is outlined in this for you, you would avoid a lot of headaches and this is a great way. That’s why I want to bring him on so that you guys don’t end up running the same mistakes. That’s one of the best things. Learn from my mistakes. Learn from some of the things that we goofed up on and put the things together in the right way. I’m a big fan of what he is doing. We met years ago on a crowdfunding class back in Vegas. Johnson said, “I was offered a portfolio of 90 notes from Fannie Mae.”

Scott, this is how this works. I don’t know how much a portfolio from Fannie Mae is. Let’s say it’s $10 million. That’s a big number. That’s a lot of notes. I don’t know what the deal is. Let’s say that there probably is some commercial financing available and you got to put 30%, 35% down. Scott, you’re the expert and you wouldn’t help organize this. In order to get financing, you’ve got to put some equity in. Let’s say you raise $3.5 million of equity from the investors and you get 35 guys to put in $100,000 apiece. Each one gets the slices of the $100,000. Everybody puts their money in and you, the promoter is going to control a large percentage of the profit, 20%, 30%, 40% of it for putting in a relatively small amount of the capital.

You’re going to run the deal, you’re going to get fees and you’re going to make it happen. That’s the way it works. This is legal. This is compliant. The security attorneys organize all these things. It’s a good business. The keyword there is business. It’s not a one and done. It’s not a fly by the seat of your pants. You don’t make it up as you go along. You got to do it right. If you don’t do it right, you’re going to find yourself in a world of hurt. If you want to play ball at a higher level, you’ve got to learn how to play ball. You don’t just show up and start throwing the ball around. You’ve got to learn how this works.

This is not something that you do by trial and error. One of the things I’ll tell you is investors do not want to find out that you’re practicing with their money. There’s a reason that doctors practice on cadavers. These are low-value targets. You want to make sure that you’re not playing games and you’re doing a good job. As long as you do, this is going to be a great format for you. Scott, to reiterate, give people through. If they buy their ticket, go to DealMakingSymposium.com. Buy one, I’ll give you a second one. Buy two, I’ll give you two more. That way you can share it with a friend or you can bring a colleague or whatever you want. That’s the deal for here. These tickets never go on sale.

They shouldn’t. The value you’re offering is 4 to 5, if not 10 times what the cost is.

If we are selling beginners, they would probably sell for five times more. We’re selling to sophisticated people. We’re building a network of syndicators of sophisticated people. That’s the way it works. We can debate the merit of that logic, but the way I look at it, these are sophisticated people and they get it. We have a lot of alumni that asked to come back. We make a few seats available every time for alumni to come back because the quality of the network that we deliver is quite extraordinary.

This is the opportunity for you guys to take things to the next level. I know many of you are closing on deals. Go to DealMakingSymposium.com. Get your two for one ticket. It’s a special offer that Joel offered. If you’re not ready, then check out the SyndicateFast.com. It’s a great way to get videos and get ready to rock and roll for the next time that Joel offers this up.

We have a membership library. As soon as you buy your ticket, that library opens up for you. People can learn a lot before they even get to the program.

Joel, thanks for coming on. Thanks for delivering as always. Readers, take advantage of what he’s offering. Go to DealMakingSymposium.com and get signed up and get the 2 for 1 special. Otherwise, we look forward to seeing you in Vegas, Joel.

Scott, thanks.

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About Joel Block

NNA 56 | Creating A Successful SyndicationJoel G. Block is an American business executive and professional speaker specializing on the topics of real estate, finance, and sales. He also assists attorneys in complex litigation cases involving real estate, securities and alternative investments. Block’s roles involve consultation, litigation strategy and expert testimony.[1]

Block has been cited in media and press outlets including Entrepreneur, the Los Angeles Times, Wall Street Journal, Forbes Small Business, San Fernando Valley Business Journal,[2] Investor’s Business Daily, Los Angeles Business Journal, and the San Antonio Business Journal.[3]

Block was involved with the iLearning Global, a Brian Tracy organization, as an adult education program faculty member.[4] This elite group was set up for the Top 50 Business Success trainers internationally.

He holds licenses in accounting, real estate, and insurance. In the community, Block is the founder and chairman of the National Association of Syndicators and serves as chairman of the board for the Los Angeles Boys & Girls Club.[5]

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