Navigating the High Seas of Real Estate: A Masterclass with Billion-Dollar Investor Ryan Garland | E2 - The Paradyme Shift

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The takeaway for any listeners out there is like, if
you are going to be a custodianof someone's money, you should
be reporting over reporting.

Speaker 2 (00:06):
Yeah, and you should use every tool available.

Speaker 1 (00:08):
Yeah.

Speaker 2 (00:08):
Especially if it's free social media videos.
I mean, it's not rocket science, and if you're not doing that,
then you're not going to be ableto keep up with the other guy.

Speaker 1 (00:17):
All right guys, welcome to another episode of
the Report.
Today we got a little sunshinedown here and we are in the
studio in downtown San Diego.
We got a meetup tonight anotherbeers and deals meetup and I
got a special guest who I firstconnected with out in Miami for
his mastermind with JordanBelford and Wes Watson and
excited to have him on the showtoday.
I got someone who owns half abillion dollars in real estate.

(00:39):
I got my man, ryan Garland.
Ryan, welcome to the show,thank you, brother.

Speaker 2 (00:43):
I really appreciate the opportunity got my man Ryan.

Speaker 1 (00:44):
Garland Ryan, welcome to the show.
Thank you, brother.
I really appreciate theopportunity.
Dude, super excited to connectwith you, obviously on this
podcast, this conversation andour meetup tonight.
But we first connected out inMiami.
That was a good time out therewith Jordan Belford, wes Watson.
I got to meet Ryan Garcia onthat weekend.
That was a big, memorableweekend for myself and the team,
so thank you for that.

Speaker 2 (01:02):
Yeah, absolutely.
You know, a change ofatmosphere is nice.

Speaker 1 (01:05):
Yeah, no, it always is.
Especially being out here inSouthern California, I feel like
to get out east.
I would say Miami is probablyone of my top three favorite
cities in the entire country.

Speaker 2 (01:14):
I love Miami Every time.
I go out there, I have a greattime and meet really good people
too.
There's a lot of wealth thereand it's kind of nice to be
around like minded people.

Speaker 1 (01:21):
Yeah.
So tell me, how did this Miamimastermind about six weeks ago?
How did it all come to fruition?
What was the idea there?

Speaker 2 (01:27):
You know what, I'm really big in kind of the
institutional world right, I'mreally watching what the
market's doing and, believe itor not, I had a relationship
with Jordan Belfort through someother friends of mine that had
lived really close to him,actually in LA.
When he was in LA and I wasintroduced to him, I don't know

(01:49):
six, seven years ago, we becamefriends.
My wife actually worked foranother company.
That was really close, that hekind of coached and spearheaded
them going public and I thoughtyou know Jordan Belfort, given
his background, he's probablyone of the smartest guys I've
ever met.
You know he's very, very sharp,not only on sales but when it
comes to what the government'sdoing, what certain politicians
are doing, where the money'sbeing spent.
All of the political side andmine and your business has ran

(02:09):
so heavily on politics let's behonest, they drive the world.
Where the money's going is wherethe world's going to go.
So what I wanted to do is bringsome value to my network by
bringing guys at his level inand share their secrets or some
of the things that they'reseeing, just to kind of help
everybody kind of hedge andprepare for what the market's
what's going to happen in themarket.

Speaker 1 (02:29):
Yeah, I agree Politics is huge.
I mean politics also drivesmigratory patterns.
I mean the direction in thestates that people are moving in
and out of a lot of that ispolitical driven.
Yeah, I mean you see a lot ofpeople leaving California.
You see a lot of peopleactually coming into California
as well, for different reasons,right, or coming back to.
California, yeah, yeah.
So all that stuff plays afactor.
I mean, you know, for us buyingboutique hotels, we're going

(02:51):
into more liberal areas becausethere's more bureaucracy and red
tape, but we actually like thatas boutique hotel investors
because those areas tend to havetighter Airbnb regulations,
which we like for the hotel sidewhich drives traffic to you.
Yeah, I own a short-term rentalin Scottsdale that does really
well, but I don't want to own aboutique hotel out there.
There's 6,000 short-termrentals in the city of

(03:12):
Scottsdale alone.
So anyways, dude, we had a goodtime out there in Miami.
That was a blast.
I know the team had a greattime.
It was good to just connectwith some folks out there.
You and I didn't have a chanceto chat too much.
You were entertaining andhosting the whole event.
It went really smoothly.
Your whole team was great, sothank you for that.

Speaker 2 (03:28):
No, you bet man.
I'm really glad you came.

Speaker 1 (03:29):
So, dude, I'm really excited to learn more about what
you're doing in the space.
I mean half a billion dollarsof real estate.
You got reggae offerings isyour second reggae, I believe.
You're in the hard money, theprivate money space.
You're lending to real estateinvestors.
So there's a lot of moneychanging hands here and
obviously there's a lot going on, a lot of volatility in the

(03:50):
capital markets right now.
So a lot to talk about.
But before we jump into allthat stuff and the man cave
stuff, I'm really interested inthe man cave stuff and your
developments.
What are you seeing right nowin this climate in terms of the
capital markets, the interestrate environment and that sort
of thing?

Speaker 2 (04:02):
Well, I think there's a lot of volatility.
That's not a secret.
I think everybody's feeling thepressure.
Where do I think the market'sgoing to go?
I think we have a soft landing,kind of on data, like data
shows soft landing, but I thinkwe all agree that a political
shockwave could create differentatmosphere for us.
I believe that certain assetclasses are going to thrive.

(04:25):
I think it's easy to trackmigration, and that migration is
really in the baby boomer space.
If you look at spending habitsof baby boomers, they're going
to go to where things are.
You know, cost of living's downhealthcare is a big deal for
them.
So I think, for the operatorsguys like you and other guys
like me that are bullish andkind of have the back office and

(04:46):
track record and have access tothe right data they can make
some pretty good bets on whereto start investing.
So I think, ultimately, anytimethere's a downturn like I was
sharing with you my 2008experience there's always a way
to make money, and so it'sreally just making sure you're
positioned and maneuvered intothat right space to capitalize

(05:08):
on opportunity.
So I think, at the end of theday, we're patient, we are
watching what's happening, we'vealready started making shifts
and moves and I feel verycomfortable on where we're going
to land.

Speaker 1 (05:18):
Have you guys seen in the private you know you're
funding other operators' dealsprivate you know you're funding
other operators deals.
Have you guys seen a tick up inprivate funding and demand for
it, since the rate environmenthas kind of doubled over the
last 24 months?

Speaker 2 (05:32):
So here's the secret sauce to private lending.
So I manage a hundred milliondollar debt fund.
Now All of my fund is equity.
The difference is that mosthard money lenders go get a line
of credit right.
That line of credit is afloating rate line of credit
against whatever assets theyhave in their fund.
So, for example, you raise 10million as an operator like me,
as a fund manager lender, I cango get sometimes, depending on

(05:53):
the nature of the market,another a hundred percent
leverage against that.
So now I have 20 million right.
My blended costs Cause that lineof credit would say in a good
interest rate environment is a5%.
I'm giving my investors a 10%interest.
You know pref if you willcashflow.
Now if I took 50% on this loanand 50% from this fund and I put

(06:14):
it together, my blended ratesright down the middle right
Eight and a half percent thatline of credit, because interest
rates have spiked, that cost ofcapital for the lenders have
gone through the roof.
So what you saw was privatelenders that had given a hard
money loan to a guy at eight anda half 9% and as the interest
rates spiked after that loan wasalready funded, when borrowers
are looking for draws for therehab, the cost of capital went

(06:37):
over the initial note rate theygave their borrowers and they
can't draw down.
Now it's costing the lendermore money to give that borrower
his draw for his construction.
So what that did is?
It closed a lot of doors.
The ones that are surviving arethe investors, that are, the
fund managers that have equitycapital, meaning they don't have

(06:58):
any leverage against their fund.
To answer your question moredirectly, we are seeing a huge
shift in borrower activity.
Meaning, like high demand areaslike Nashville, tennessee,
where we're headquartered,that's still booming, right,
certain areas in Texas andcertain like Scottsdale there's
areas that are still booming andyou're still seeing the
borrowing activity there.
But to second, the issue oflines of credit, you also have

(07:23):
the same problem at aninstitutional level to the guys
who are buying the notes off oflenders like us.
So it's the same concept, right?
Like on average, we would havea loan on our balance sheet, we
would turn our loans every 12days, right?
So I'd fund a loan 12 dayslater, I'd sell the note, I get
my money back and I'd do anotherloan.

Speaker 1 (07:40):
Really yeah.
So even these private bridgenotes, you guys aren't keeping
those in house.

Speaker 2 (07:45):
So what we do is we'll fund the loan.
But what I'm doing is with myinstitutional buyers, the ones
who bought my note.
I have a contract with themwhere I continue to manage
servicing and fund control, sothe borrower still communicates
with us, so the borrower doesn'thave any idea?

Speaker 1 (07:58):
Nope, got it.
What percentage of privatelenders do that?

Speaker 2 (08:01):
I would say 90% of them do.

Speaker 1 (08:03):
Really yeah Interesting.
I had no idea.

Speaker 2 (08:05):
Yeah, here's why Because a lot of lenders only
need $10, $15 million and theycan do $30 million a month.
Think about it For $1 millionas an example and I'm turning
that every 12 days let's justsay that's twice a month that's

(08:25):
$2 million.
For every $1 million, that's$24 million a year.
With $1 million undermanagement, the number is $10
million.
It's $240 million.
It's a big number.
You start looking at muchlarger numbers.
So if you have again, if youstart raising that $30 million,
$40 million range, you can startdoing a lot larger deals.

Speaker 1 (08:37):
Okay.
So let me just throw out anexample and you tell me how this
would work.
So let's just say, for simplemath, I got a project that's a
$10 million project.
I got a lender that's going tofund a $7 million worth of it
and two points up front closing.
So we pay the two points.
They fund the deal.
They go into the secondarymarket.
They sell this $7 million noteoff to someone else, the buyer

(08:57):
of that note.
Are they just taking over the,let's just say, the 12% interest
rate?

Speaker 2 (09:01):
No, you're going to dig this.
So the reason why hard moneylenders make so much money is
because when I sell that notelet's say for my fund right now
I pay my investors 10%.
If I charge you 12% and I sellthe note, my institution gets
the 10%, but I keep the 2% yieldso my buyer can buy what we
call a strike price.
What strike price is that notebuyer going to buy the note from

(09:24):
me?
So, for example, if I'm stillmanaging servicing and fund
control, that's a cost right.
So if, even though I'm payingmy investors 10%, if I get my
capital back, I got to put itback to work, right, number one.
But if that, if that, if I havean institution buy that note
from me or a note buyer andlet's say they buy it from me at
9%, right, because it's a greatlocation.

(09:44):
Borrowers has 20 deals in itstrack record, right.

Speaker 1 (09:48):
Whatever Good down payment whatever, it is right
Low risk.

Speaker 2 (09:52):
I can negotiate what they're going to buy it at.
So if the note rates 12% to you, I can sell that note for 9%
cost.
That 3% yield or spread comesto me every month, even though
I've recaptured 100% of theoriginal loan amount I funded.

Speaker 1 (10:07):
I love that.
And in addition to that, youcaptured the two points at
origination, at closing, yeah,and so the more you can turn and
burn per month, the moreorigination again.
So you guys make a lot of moneyin the origination and the
ongoing cashflow, the yield forservicing.
So here's the hat.
What's the hat?

Speaker 2 (10:23):
I put the hat on and I go okay, from a fund manager
level, I want volume, I wantnumber, I want to do volume, I
want unit count.
Why?
Because the more money I putout on the streets, the more
money I'm going to turn over.
It's not necessarily about thetwo points, because most of the
time the two points go to theloan officers If I have loan
officers, processors, overhead.
So typically your originationfees is to cover your overall

(10:44):
management costs.
Where we make our money as afund manager is that yield.
When we sell the note and weget a 2% yield, 3%, whatever
that number is, we're gettingthat as cashflow back to the
company.
So that's where the fundmanagers really make their money
.

Speaker 1 (10:58):
Wow, okay, that's a really interesting thing.
I had no idea.
I knew this happened in a lotof like residential commercial
stuff, like more permanent debtstuff, right, like non-QM loans,
but I had no idea this happenedwith bridge notes.

Speaker 2 (11:12):
So you'll like this.
So what happens is is guys likeme.
This is why a lot of investorslike my particular model is
because, as you know, I alsodevelop projects so I can start
working with more note buyers.
Because here's what happens inthe purchase called the MLPA
master loan purchase agreement.
Okay, so I have an agreementwith my buyer.
All those buyers want it'stypically like a, it's like an

(11:33):
institution, you know you'retalking about like Mitsubishi,
you're talking about Wells Fargo.
These are larger institutions.
When they buy that note, theyonly want their yield.
They don't want bad deals ontheir balance sheet and, as you
know, you have foreclosures withhard money loans.
So the risk goes up.
But for the institutionalbuyers, if we had an agreement
that says, if you have a noticeof default or a foreclosure on

(11:55):
your balance sheet after I soldthe note to you, I'll buy it
back.
So now I buy back the note at100% so they get their capital.
Now they don't have anything ontheir balance sheet.
Their investors are happy onthe institutional side.
I then buy it back.
I go through the foreclosureproceedings.
I either take back the property, through whatever means.
I repurpose the property, Isell it.
Now, when I sell it, I give 70%of the profit back to my fund

(12:17):
for my investors.
I take 30% as a GP and I takedisposition fees, reposition all
that stuff in fees.
So a guy like me, if I decideto take back a property, I make
more money as a hard moneylender.

Speaker 1 (12:28):
And that's why, six weeks ago, you told me about an
opportunity that you guys weretaking back.
Was that a note that you hadsold in the secondary market and
then you were taken back?

Speaker 2 (12:37):
No, that was actually a 90-day loan I did for a guy
and for 90 days.
I didn't need to turn that overand so I just did a 90 day,
kept it on my balance sheet,charge them a pretty good
interest rate and some extrafees, so basically, as if I
would have turned that paperover, I charged them the same
thing in interest and more feeslike six points to get the deal
done, and I just left it in mybalance sheet for 90 days.
Now he never came back andnever sold it.

(12:59):
He didn't pay it off and Iwanted to share this with you.
That particular deal, it's anAirbnb structure.
He's generating $54,000 a monthin cashflow and our mortgage
payment was only 11,000 that heowed us.
He stopped making the payments.
The property is fully renovatedand fully occupied.
You know to give it whatevermodel you want, but it's it's.
It's making tons of money andhe didn't.

(13:20):
He's not performing and I gavehim five months.
I gave him all these extensions.
He stopped making the paymentsand I said okay, buddy, I got to
start foreclosure on you, sorry, but you know.
Mind you, it's valued at twoand a half million and I think
our note would pay off is withdefault interest and legal fees
is like just under one five.
Interesting so there's a milliondollars in equity there.

Speaker 1 (13:39):
What?
Um cause?
You know, one of the theactually, the last asset that we
bought was in December of lastyear and that was from our
lender, and they do similar towhat you do, but they're on a
bigger scale.
So they're a REIT and now I'mgoing to.
I'm going to ask them hey, whatdo you guys do with these notes
in the secondary market?
But anyhow, so they sold usthis asset up in Washington and
same thing there.

(13:59):
That was a little bit differentsituation.
This is a developer anddeveloped the deal in 2021 and
stopped making his debt servicepayments.
He was developing condos in thearea, cross-collateralized the
condos onto this hotel, stoppedmaking the debt service payments
.
They took it back before theend of last year and they came
to us and they said hey, rich,we got to get this off our books
before the end of the year.
We're not hotel operators.

(14:20):
We think you guys would be theperfect buyer.
We can sell it to you at a gooddiscount and uh, zero percent.
Uh, you know, do the note zeropercent for, uh, for six months.
So we can kind of get thisthing stabilized and on its way.

Speaker 2 (14:32):
So that was the last one killer relationship.
Yeah, so what they saw in youis what investors see in me is
like, hey, your boots on theground, you know how to get your
feet, your hands dirty.
You're gonna reposition thatproperty.
Yeah, these guys, they're suitand tie guys.
They're managing a REIT.
They have tons of oversight anda lot of compliance and a REIT
is all based on income.
So a REIT they don't sell theirnotes.

Speaker 1 (14:52):
They can sell one-in-one shop but they balance
sheet everything.

Speaker 2 (14:55):
That's the real estate investment trust.
So they have to balance sheeteverything and cashflow.
And then they get the taxbenefit for investors, so they
have to balance sheet everything.
But they probably have a lot ofmoney under management.
They're probably pretty bigright.
So what happens is when a dealgoes bad, they got to offload
that thing, like as soon aspossible.

Speaker 1 (15:11):
So they get the depreciation while they have
first trustee position on thereal estate.

Speaker 2 (15:16):
So it's the income?
Yeah Well, not necessarilybecause they don't have
ownership.
It's a security instrument,it's a first TD, right?
So what really the way it workson a REIT is you only get taxed
on a percentage on the incomethat you get, on the dividend or
the cash flow for the investors.
So, for example, it's like 75%.
So if you, let's say, for everythousand dollars that you make

(15:36):
in cash flow, you're onlygetting taxed as if you only
made $750.
So that's the benefit for theREIT.
And, as you probably know, 95%of all of our mortgages in the
country, whether it'sinstitutional level, 30-year
mortgages, they're all realestate investment trusts.

Speaker 1 (15:51):
They're all REITs?
Sure, yeah, yeah.
So I know a little bit abouttheir model.
I know they pay a preferredreturn to their investors.
I think it's like I want to sayaround 8% or 9% and then
anything above that.
I believe they just split 50-50.
And that's kind of their model.

Speaker 2 (16:05):
Yeah, and that's very common because it's a private
rate, I'm assuming, so they'reprobably more in.
Hey look, I can produce 8%.
We're going to be much morediligent and underwriting we're
going to create a much tightercredit box.
Better borrowers, better lookat right, what have you?
And then, when something likethat were to go down, they got
to offload that as soon as theycan because it's all about

(16:26):
cashflow.
So the mindset of that fundmanager or fund managers are we
got a cashflow.
We can't have negative stuff onour balance sheet, because they
are going to report that totheir investors and they don't
want to see that they wrote badloans.

Speaker 1 (16:37):
Yeah, yeah, they do a lot of due diligence and I
think their default rate isaround 1%.
They said right now it'screeping up closer to 2%, but
they do a lot of due diligence.
I mean a lot of these deals.
They'll send people out acouple times once to walk their
property in initial, and thenthe week of closing they'll send
someone out to walk theproperty as well.
But they do a lot of duediligence, which is very

(17:00):
relationship-based, and you andI were talking before we started
recording.
I love working with lendersthat are relationship-based, you
know.

Speaker 2 (17:12):
You know.
So I could have gone bigger butI've just built so many
relationships on the smallerside that I actually left one of
my old divisions and went toAnchor Loans and they're a much
larger company.
This is years ago and because Imoved over I lost a lot of my
old relationships.
That really kind of helped meput food on the table Right.
So I just had it sick to mystomach and they were so big so
I ended up actually leavingthere and opening up my own
division to keep thoserelationships in place.

(17:33):
So I am a firm believer thatyou know your network is your
net worth number one.
But two, I've been doing loansfor people that I've known their
families and I've gone tobirthday parties and you know
getting married and you knowthese are now almost like family
to me in some cases, you know.
So I've been in the space 20years, so it's been really good

(17:53):
building those relationships.
I got to stay small and keepthat moving.

Speaker 1 (17:56):
And as an investor, you know, it's like once I find
that good relationship with alender, like the ones that we
work with, I'm like I tell theteam like, hey, whatever we got
to do to keep this relationshipsmooth, like when they sold us
the Washington deal I said, hey,let's just make this the
easiest, smoothest transactionfor them as possible, because I
want to continue to buy more ofthat stuff, you know, and I want
to cultivate this relationshipbecause I know you know finding

(18:18):
good lenders like this in thisspace that can do these kind of
deals- it's finding a needle ina haystack and it's hard now.

Speaker 2 (18:26):
It was easier two years ago, right?
So it's kind of going back tothe original question of things
bottling up.
Yeah, definitely, the liquidityis not there.
People are going more into acash position and hanging on to
cash because of the volatility.
They don't know what's going tohappen with war.
We don't know what's going onin politics.
People are really worried.
So people are kind of hoardingtheir cash and people are.
But I will say, because of someof the PR that's going out on
kind of a soft landing, peopleare making investments again,

(18:48):
but they're going to be a littlemore conservative.
They're going to look at heylook, I'm looking at tax
strategy.
I need cashflow, I needliquidity.
So, like your offerings, loveyour offerings.
Look at your pitch deck.

Speaker 1 (18:57):
Thank you.

Speaker 2 (18:58):
Perfect.
I think that's right up mostinvestors' model.
They don't want their moneyspent for too long, they want to
be able to see how they'regoing to receive dividends,
cashflow, and they wantaccumulation.
You've hit it on the mark.
You hit it right on the head,because most of your investors
are probably boomers.
They're all looking to retireor have retired.
They need cashflow.
They're worried about theirfuture.
They want to leave their wealthto their kids, right?

(19:18):
So these are the commonconversations.
So if you're able to producecash flow so they can enjoy
their life by allowing theirmoney to continue to grow and
it's not stuck into somethingtoo long, you hit on the margin,
so you hit on the market.
So I think you're the nichethat you've created.
That's why I'm here.
I love everything that you'redoing.

Speaker 1 (19:34):
I think you nailed it , buddy you know, four years ago
, five years ago, when I started, I remember my first couple of
raises, it was a lot of friendsand family.
Now we're starting to attract alot of sophisticated investors
investors that you know listento the podcast or social media.

(19:54):
They jump on a couple of quickquestions and they're wiring
their money in, whereas beforeit was a lot of long
conversations with family andfriends and back and forth, and
it's just now becoming okay,this, this constant funnel and
pipeline of, like investorcapital, which has kind of been
nice.
But you know, I guess for thelisteners out there that are
just getting started, I mean,that's just.

(20:14):
That's just the name of thegame.
You know, until you build thattrack record and establish
yourself in the space, you'regoing to have to put in more
work, you know.

Speaker 2 (20:22):
You know, they say, if it was easy, then everybody
would do it.

Speaker 1 (20:25):
Yeah.

Speaker 2 (20:25):
And I think that's kind of the underlying
conversation you and I probablywill have after this right.
Because we don't share all ofour secrets, but the reality is
is that it takes a lot ofinfrastructure to provide that
security and red carpettreatment for investors to feel
comfortable One being your trackrecord, one being accessible
and three, being able to have areal property they can drive,

(20:46):
they can feel.
You know what I mean.
They need to be able to seewhere their money's going, and
there's been so many negativeactors out there and bad actors
and we all hear the stories, sopeople are very cautious, which
I agree.
So the only way for us guyslike you and I is to
consistently level up andconsistently provide a higher
level of transparency than thenext guy.
And that's what investorsreally need, because when they

(21:09):
get to a certain point in theirlife, the money they're
investing they cannot lose.
That's 90% of the conversations.
So I really like the way yourmodel is and how you're
providing that transparency toyour investors, because that's
exactly what's needed.

Speaker 1 (21:22):
Yeah, and you know what, Early on in my journey I
had a co-GP that I did in myfirst couple syndications with
old school guy out of theSoutheast and 7,000 apartment
units, but very limitedreporting Report to the
investors once a quarter, nophotos, nothing like that, Just
very short and kind of like highlevel doesn't share any of the
numbers type of thing, and itwas great.

(21:43):
But like high level doesn'tshare any of the numbers type of
thing, and it was great.
But I'm like you know, when westarted Summers Capital, I'm
like no, we're going to domonthly reporting.
I want photo, video updates,reviews, all the renovation
progress, the good and the bad,and I put everything on social
media.
We'll do, like you know, we domeetups every single month.
We'll do events with ourinvestors, so we do the grand
opening these properties.
We invite all our investors out.

(22:03):
We'll do, like you know, winetastings.
We'll, you know, basically letthem all meet each other and
it's more than just becoming alimited partner.

Speaker 2 (22:09):
You know, when you're in our investor community and
that's kind of how I want it tobe Become part of the family.
Yeah, you're part of the family.
We treat them all like family,and it's a lot more than that
this sounds so cliche and cheesy, but one of the game changes
for us and it's so funny becausepeople are like, how did you do
so well in raising money?
And I'm like there was, I thinkI've narrowed it down.

(22:29):
It was one thing that reallygot us over the hump on the
first few deals was that we puta camera on site, a construction
camera on site and really theback.
The reasoning for it originallywas two reasons One, because,
depending on where we aregeographically compared to the
project, I want to be able towatch everything that's going on
right.
I want to know when my materialis going to be there, how many
workers I have there, right,what have you on the development

(22:51):
.
And then the second reason isis because of what happened in
2008,.
There was so much fraud goingon between contractors and draw
requests and all that that.
If you put a construction cameraon site that can be recorded,
you can get your builder's riskpolicy to drop, so it's like a
wash.
You can get a camera, yourbuilder's risk policy drops and
it kind of becomes a wash.

(23:12):
So I'm like, well, cool, I canwatch this.
You know, watch what's going onwith the project and I can
bring my builder's risk policydown.
It's all in one.
So in the back of my head I'mlike why don't I just provide
access to my investors and theycan watch it anytime?
So with all the investors Ithink we have close to 400 in
our, in our platform now and Idon't get one phone call for
updates, because we're so goodat you know emails, video

(23:34):
updates, portal updates.
You know they can look on thecamera during you know pillow
talk with their significantother and watch what's going.
They also get.
So they can.
They can turn the camera, theycan zoom in, they can, you know
time lapse it.
They can see when the materialis being ordered, I mean are
being delivered.
You know it's pretty cool.
So that one thing it's good.
It's just it's transparency andproviding you know updates.

(23:55):
That's so good, that's all youneed to do.

Speaker 1 (23:58):
I like that idea.
We policies can get quiteexpensive.

Speaker 2 (24:01):
Well, and insurance costs are going through the roof
.
Think about what's going on inCalifornia right now.

Speaker 1 (24:04):
But to your point, man, I think, like you know, the
reporting is so huge.
So we had, with the rains, wehad the record rains late
January, all over California andSan Diego got like really bad.
I mean, this podcast studio gotflooded out.
It told me my new constructionbuilding that I live in even the
entire like top floor, which Ilive on, all the carpets had to
be replaced and that's a brandnew construction building.

(24:27):
So all the buildings got it.
But, that said, we had four ofthe units at our new, newly
renovated hotel get flooded outdue to the rains and you know,
did video updates completelytransparent with all the
investors, right?
I mean, I even put out stuff onsocial media for everyone to see
the good and the bad, but likewe didn't get one call from any
investors of questions of what'sgoing on just because we're so

(24:47):
transparent with everything, andI think you know the takeaway
for any listeners out there islike if you are going to be a
custodian of someone's money,you should be reporting over
reporting.

Speaker 2 (24:55):
Yeah, and you should use every tool available.
Yeah, especially if it's freesocial media videos.
I mean, it's not rocket scienceand if you're not doing that,
then you're not going to be ableto keep up with the other guy.
So if you're starting a newfund and you have to work harder
and you're going to have toprovide the updates that
everybody else is doing, thatare larger operators.

Speaker 1 (25:13):
I agree With real estate investing, asset
protection and protectingyourself from personal liability
is huge.
The best way to address this isto correctly set up your LLCs
and entity structure.
For us at Summers Capital, weuse Prime Corporate Services to
set up, manage and provideguidance for all of our entities
, making it truly hands-off.
If you want to learn more,visit Prime Corporate Services.
Slash Rich Summers to book afree call and receive a special

(25:34):
podcast listener offer Again.
Visit PrimeCorporateServicescom.
Slash Rich Summers to book afree call.
Now back to the show.

Speaker 2 (25:49):
So, before we jump into the man cave stuff, I'm so
interested in it I want to knowwhat is it like starting a debt
fund?
Well, it was kind of seamlessfor me because I was always a
lender.
That's how I got in the space20 years ago.
So I think it was a littleeasier because I already knew,
you know kind of theunderwriting models and I
understood I have my my, have mysupport team, I had processors,
underwriters, doctor, I alreadyhad all that.
So I think a lot of the heavylifting was done.
But ultimately, because I wasalready raising capital for
equity, I saw most of myinvestors are looking for

(26:12):
diversification and as I becomemore savvy in the investment
space, I knew investors aregoing to look for something
that's a little bit more on thedebt side, which has an
evergreen structure, andsomething that's a little bit
less risky.
And that's exactly what a debtfund is.
The mortgage-backed security MBSmarket doesn't really get much
more secure than that in realestate.
That's why we're in the middleof getting approved with TD

(26:34):
Ameritrade and Charles Schwab,so now we can work with every
advisor in the country and say,hey, look, we're doing a
mortgage-backed security fund.
It's all equity, your investorsget in, they get cashflow, but
it's evergreen as well.
So, to kind of answer yourquestion directly, I think what
it was.
What it comes down to is is thelast thing you want to do is
raise money and not haveanywhere to put it, because

(26:55):
pretty soon your investors arelike well, if you're not making
me money, give me my money back.
So I wanted open up a debt fund.
They're the suit and tie guyscame from an institution Morgan
Stanley, what have you?
And they've managed funds or aportfolio managed before at a
larger scale.
They try to peel off and dothat, but they have no boots on

(27:15):
the ground.
They don't have relationshipswith agents and borrowers and do
meetups and follow up withsocial media.
They don't have any of that.
So they go and open up a debtfund and then they try to spend
a bunch of money in marketingand launch this new fund and
you're having all kinds ofissues because you're trying to
establish relationships and youdon't really know what you're
doing Ultimately, where the riskis in your underwriting.
So if you have a background inunderwriting and you know who

(27:37):
you're going to do yourtri-merge account for credit and
you know what servicer you'regoing to use.
All you're doing is taking allyour underwriting metrics,
sticking it in a businessstrategy, opening up a fund with
disclosures and going to yourinvestors in your network saying
this is what we're doing.
But there is a different kind ofmindset.
That mindset shift has beenwould I do that loan for myself?

(27:58):
So most loan officers, they'rejust chasing the commission.
They never really askedthemselves would I do this deal
for myself?
That's really the idea.
So when you're underwriting,you're underwriting for worst
case scenario and when I've beendoing as long as I've been
doing it, there's things thatI'll get on the phone with the
borrower and I have thatintuition now.
Over all the years I've seenall the fraud.
I've gone through lawsuits,I've sued people, I've gone

(28:20):
after projects.
I've done it all.
So there's a certain intuitionthat comes with really managing
a fund at a debt level.
When you're doing high volume, alot of unit count, it's very
fast pace.
So it's definitely differentthan equity.
You go hard raising the money,you raise the equity, and then
it's kind of slow rolling.
You do your job.
Investors get to kind of sitback.
When it's kind of slow rolling,you do your job at.
Investors get to kind of sitback.
When it's a debt fund, it's aconstant hamster wheel new deals

(28:42):
, new borrowers, new right andso turning paper, selling notes.
So it is definitely a differentspace and you definitely have
to have a larger team and moresophistication.
So you have a fund admin, moretax strategy, larger institution
, institutional players.
You got to get a third partyaudit now right.
You got to get an SEC regulatedaudit and you have to provide

(29:03):
all that information to yourinvestors.
So it's a lot more management.
But again, remember, you havemoney coming and going
constantly from draw requests,lending money, points and fees,
extensions, service fees so thatthat that account is constantly
being looked at by four or fivepeople every day, making sure
we're managing our booksproperly, getting ready for our
audits.

Speaker 1 (29:22):
So it's a lot of different, but what you said at
the beginning of the show is youcould have a $30 or $50 million
debt fund and be turning $30million a month because you're
selling these off in a secondarymarket.
That's pretty unique.

Speaker 2 (29:36):
Yeah, it's a good model where you can.
If you have a network like whatI've established over the years
, then I have consistentborrowers that are doing 20, 30
deals with me a year right, theyhave their whole family working
for them, right kind of thing.
It's their business, their life.
When you have a handful of guysthat are doing that type of
volume, you don't need to go getnew borrowers all the time.
Now the risk profile goes downon your fund because you're not

(29:58):
funding new borrowers and youknow you can trade those notes
because there are guys that haveexperience.
So when it comes to managing afund, there's a lot of moving
pieces to the debt side, but itcan be pretty seamless.
It just depends how big youwant to go and how complicated
you want to get right.
We're nationwide 44 states.
That becomes a little morecomplicated a lot of licensing,
different rules and regulationsin each state.

(30:18):
Good thing is we have one lawfirm that keeps up on all that
provides all of our loan docs,so a lot of that risk comes off
of us too.
So it's just making sure youhave the right resources and you
have the right underwritingskillset.

Speaker 1 (30:29):
As far as risk tolerance in your debt fund, are
you guys sticking to morecookie cutter stuff, or are you
guys able to kind of do theriskier deals, but then you
charge a little bit of premiumin terms of the rate.

Speaker 2 (30:41):
So you'll like this.
So I kind of have a mindset ofhaving a blend between keeping
certain things on my balancesheet with a high yield, a
little more risk because I'm notstressed about getting my hands
dirty if needed to having acertain amount of capital where
I can rotate right, where I canfund loans and sell notes.
So what happens is when themarket shifts like it is, what
you'll see is that guys like mewill put more on their balance
sheet because the fix and flipmodel shrinked.

(31:04):
Not as many borrowers areflipping properties.
Right now it's hard to findinventory right and the spreads
are questionable in some cases.
So as that shrinks, the capitalI have under management I have
to put out on to long term orlonger term and sit on my

(31:25):
balance sheet.
So therefore, typically to getbetter deals, there's this
separation between a million anda half and about 5 million.
Where the majority of the riskis is in that space.
So a million and a half to 5million is where the majority of
the risk is.
Once you bump over that 5million depending on what it is
multifamily, boutique, build,something that you have it
changes the risk profilesignificantly.
So I love that profile betweenyou know, 100,000 to a million

(31:47):
and a half, and then I love that5 million and over.
I don't have anything sittingin that middle space.

Speaker 1 (31:52):
Why is it that middle space 1.5 to 5, to where it's a
little bit higher risk?

Speaker 2 (31:57):
So you really have.
So like, let's use Californiaas as an example so like, for
example, like you have, let'ssay, like new builds, because I
get a lot of new build at a500,000 to a million dollar
budget.
That's really kind of safe Onceyou start bumping up into that
$2 million space.
If you look at the exitstrategy by them, they're going

(32:18):
an institutional level, right,they're going to go to.
Typically, your buyer is goingto get a conventional mortgage
at some level.
Well, that's shrinkingsignificantly and with interest
rates climbing it's hard to findthat income levels to qualify
at that space.
So you're always going to lookat it from an exit side.
So the data that I'm trackingis what are the people's
spending habits andaffordability at that space and

(32:41):
what are the people's spendinghabits and affordability at that
space and what are the lendingcriteria for an institutional or
conventional mortgage.
If that's having the hardesttime, then that's a problem.
I'll use this as a funny example.
You know how they say valets atVegas.
The valet guys are the onesthat know everything that's
going on.
They're the ones that know allthe secrets.
The valet guys right.
So out by me, it's the detailguys.

(33:02):
Out by me on my projects, theguys that do all the details for
the guys that have big boats,small boats, really expensive
RVs, you know all that fun stuff.

Speaker 1 (33:09):
In terms of like pulse of the economy?
Yeah, because they see whatpeople are spending, right, so
they're just using one as anexample.
Kind of a funny conversation.

Speaker 2 (33:15):
I just went and did a uh, just kind of a quick video
with a guy that I've I've beenfriends with for 10 years and he
owns it's called detailspecialists.
It's in Los, it's in Havasu andhe's he's probably the biggest
player there.
So I always go in and I go tohim and I say so what's going on
in the market?
Where's everyone spending theirmoney right now?
And he goes well, look, theguys that are buying boats right
now, where the money's beingspent is that million, million

(33:36):
dollars and up.
So pretty much actually 650 andabove on the boat purchasing
space that you know, 150 grandto that 600,000, that space is
basically dead.
But all the ones underneath it,those are guys with money that
just love buying boats and justhaving more to their inventory,
or guys that are kind of gettinginto the space new families,
what have you?
So you're seeing that middlespace, that middle market is has

(34:00):
having an issue overall.
It's the same concept of what'shappening between white and
blue colors a big separation onmiddle class.
That's exactly what's happeningwhen you look at, watch the
where the money's being spent.

Speaker 1 (34:10):
So now, as a part of that, within the boat example,
because the folks that arebuying the million plus boats
are paying cash and they're inthe ones that are paying 150 to
a million.
They're financing, but theinterest rate environment is
affecting their ability toborrow.

Speaker 2 (34:23):
So you have a lot of guys, so most of those boats are
cash buyers.
Now, the reason why those guysbuy cash is because you can go
get a loan in 72 hours and getliquidity on it if you need to.
So what you'll?
realize is, a lot of the wealthyguys will start buying those
assets, cash.
But if they need capital, theycan just lean it real quick and
grab it, but they still havetheir toys right, so they're
just rotating.

(34:43):
Oh, I need 300 grand for a flip.
Real quick, boom, lean theirboat, grab some capital, go flip
a boat, flip it, pay off theirboat again.
It's like a line of credit.
It's how these guys operate.
It's pretty.
It's pretty interesting thatworld.
But, what you're seeing is justnot necessarily so.
The interest rate environmentis high.
So most people right now thatare buying boats, they are still
leveraging, but it's still thatbecause it's a luxury item,

(35:06):
that's crunching too.
So that's another kind of partof the conversation we can have
is are the luxury marketstrading?
And some of them are and someof them aren't.
It really depends on the area.
And are they getting financing?
Not necessarily.

Speaker 1 (35:35):
You're hearing more cash acquisitions for sure.
So that's really happening inpretty much everything, whether,
regardless of what the assetclass is, it's more cash buyers,
less borrowing, because peopledon't want to.
They don't want to borrow at 8,9, 10 percent, and at that
space you're at that a littlebit with the cars.
I mean my buddy, he's themanager, actually one of our
investors too.
He's the manager at the Forddealership here in San Diego,
and so I was talking to him theother day.
I'm like yo, his name's Scott.
I'm like yo, scott.
What's going on with the carindustry right now with the high
interest rate environment?
How have you guys been affected?
And he said most of thosebuyers with the high cash, you

(35:56):
know.
So he's not seeing a bigdifference there, but the folks
that are buying Mercedes, bmwand Lexus, they're seeing a dip
because of this rate environment.
You know, because those are theones that are financing their
leasing and all that sort ofthing, and that's the point.

Speaker 2 (36:10):
So you're seeing that that that affordability side is
really crunching hard.
So the ones that are reallygoing to it's that separation,
it's the people who've got themoney are going to go buy those
stuff and they're actuallygetting good deals.
Because if you look at whathappened in the pandemic I know
this sounds kind of funny, butI'm going to tattletale here you
know a lot of the PPP loans.
They were giving those thingsout like they were butter and

(36:31):
people were buying stuff withthat all day long.
So all of those luxury itemsjust blew up.
Cars and I couldn't tell youhow many phone calls I got from
past friends that literally didthe same thing and I'm like, wow
, I can't believe you used a PPPloan to go buy your Lambo, but
now do they have them anymore?
No, they don't.
Do they have their boatsanymore?
No, they're up for sale.
So what's happening is the guysthat were patient or have the

(36:51):
money and have true wealth aresitting there waiting for those
things to drop and then they goand strike better deals.
That's what I did in 2000 whenthe pandemic hit, because I lost
everything in 08.
I stayed cash heavy and I wentand struck a deal on my boat on
a house, because everybody wasfear dumping in the early 2020s.
As soon as the pandemic hit,right around May June, everyone

(37:12):
didn't know what to do yet, so Iwent and bought a truck that
was, like, you know, $100,000truck.
I bought all these things atmuch, much larger discount and
struck a huge deal on a propertythat was worth a million more
because everybody was thinking2008 again and I was going it's
okay, I'm cash heavy, I'm goingto go buy the assets, get the
write-off, and my wife and I can.
I can work at Del Taco if Iwant to, you know if I needed to

(37:32):
but it worked in my favor.
Now all of those assets I cansell for much more, but I just
played the cards.
But again, I already had theexperience.
So that's what's happening withthose guys right now.
They're smart.

Speaker 1 (37:45):
You're a big boat guy .
I'm a boat guy too, but I'mmore into like sailing, not like
ocean boats, but you're more ofa lake boat guy, right.

Speaker 2 (37:52):
Well, mine's an offshore boat, so I grew up on a
lake boat.
I grew up on a lake, so I stilllove the river.

Speaker 1 (37:58):
What kind of boat do you have?

Speaker 2 (37:59):
So I got a 360 Doug Wright, so it's basically an all
full carbon layup boat.
It's all carbon fiber.
It's about 5,400 pounds with450s on it outboards.
And I do 125 all day long, yeah, but my videographer and I will
just sit in the front seat anddrop it.
We'll do 125 and we'll talkjust like this, doing 100 miles
an hour.

Speaker 1 (38:16):
What's the length of that thing?
36.
And was it twin outboards?

Speaker 2 (38:20):
Twin outboards, yeah, how much horsepower 450s each
Okay.

Speaker 1 (38:24):
And what's the fastest you've gone in your boat
.

Speaker 2 (38:25):
That boat I've done.
I think I did 124 is what itshows, but I just changed the
offset and I think I can getinto the 130 range now.

Speaker 1 (38:33):
Wow I haven't tried.

Speaker 2 (38:33):
I just got it serviced yesterday and adjusted.

Speaker 1 (38:35):
And so we we're talking glass water, calm
morning, like no wind at allright Now.
You mentioned offshore.
Can you really take this thingout in the Pacific Ocean?

Speaker 2 (38:45):
I had it in Miami.
Really Remember the boat on theside.
That was my boat.

Speaker 1 (38:48):
But that's still an inlet, though.
I mean we're not— oh, I took itout we ran to the Keys that day
.
Did you really the day?

Speaker 2 (38:52):
after.

Speaker 1 (38:55):
So was it Sunday.
What is that ride like?

Speaker 2 (38:57):
Oh, getting down there was nice Coming back.
It was windy and choppy.
I'm like man.
Give me a kidney belt.

Speaker 1 (39:01):
So windy choppy, how fast are you comfortable running
that thing?

Speaker 2 (39:04):
Windy choppy, You're going 50 to 70.
It depends because a lot oftimes to pitch.
So the cool thing about thatboat because it's a tunnel what
happens is the faster you go themore that is, and kind of the
direction of the waves, if youwill.
But I can kind of skim overthose waves as if I'm kind of
flying over.

(39:25):
So it depends on kind of theoverall, the setup.
But that boat the idea is itloves three foot, four foot chop
all day long.
I won't even feel, I just kindof skim over it.

Speaker 1 (39:34):
And that was the same boat that you pulled up to
Jordan Belford his place theWolf of Wall Street for the
podcast right, Same boat.
That's pretty cool.
Yeah, so he's got a dock in hisbackyard.

Speaker 2 (39:42):
Yeah, so he's on one of the islands there in Miami.
So as soon as he told me hisaddress, I called him.
I said, hey, well, I alreadyhave my boat, and then mind if I
just pull up with my boat.

Speaker 1 (39:54):
Actually it was much faster.
It took us 11 minutes toproperty via boat.
Is it harder to find theaddress?

Speaker 2 (39:59):
No, I just Google mapped it and I was like okay
this is this island, this house,and I looked at the color of
the property.

Speaker 1 (40:05):
Yeah, you can identify it Right, so I was like
oh, there, it is Pulled rightup.
Yeah, I saw your boat pull upwhen I was.
I was like pulling up to thethe mastermind and I think you
guys were just pulling up backfrom the podcast maybe, but it's
very cool boat.
I seen some shots online Likeyou got like helicopters and all
that.
Like what was that all about?

Speaker 2 (40:23):
You know what.
So that was more of like thegrand opening, uh, and the
ribbon cutting for, uh, ourparadigm storage project in my
Cavasoo.
So as soon as we delivered ourphase one, we were fully sold
out.
A lot of those buyers wereserious players, either in the
current community or some youknow guys that are local here
that wanted to buy and put alltheir toys in there.
So I was like you know what?
There's a lot of class, there'sa lot of money guys.

(40:44):
This basically they're allmillionaires that are buying
because they all bought cash.
So my largest unit, 300 grand.
These guys are dropping youknow 300 000 like their skittles
, but they're paying.
If you look at what they'reputting in there, they're
putting you know million dollarcoaches, million dollar boats in
there, so they're putting a tonof their toys.
And so I said, you know what,we'll just deal with it with
class.
And I have a buddy who's got achopper.
So I was like I'll just throwmy, put Paradigm on the side and

(41:06):
go do a cool video shoot.
And yeah, I had a good time.

Speaker 1 (41:08):
Yeah, that's cool, man, that's cool.
What does that boat cost?
Brand new?

Speaker 2 (41:11):
With that boat.
You're probably at six realclose to probably 700,000 right
now.

Speaker 1 (41:15):
Yeah, and you?
You keep it in Temecula.

Speaker 2 (41:18):
No, no, I keep it in Havasu.

Speaker 1 (41:20):
How did you get it from Havasu?
How'd you get it from Havasu toMiami?

Speaker 2 (41:27):
So I have a guy who does all my hauling and it was
funny cause we did a video andhe's got 20,000 miles on that
boat so far in this last 12months, so I'd have a ship it to
Miami.

Speaker 1 (41:34):
I go to Tennessee, I'll ship it all over the
country and I just fly him.
Hey, I'm going to be in Miamithis weekend.
Make sure it's ready to go,yeah grab it and go.

Speaker 2 (41:41):
Wow, he basically maintains the whole boat for me.
He just took it and had itserviced for me.
Goes to make sure my house islocked up in Havasu.
Make sure he has a detailedside of it.
Make sure my stuff's detailed.

Speaker 1 (41:56):
I take clients out all the time, so I like.
You have, let's go I'll do itall day.

Speaker 2 (42:00):
We'll be there.

Speaker 1 (42:02):
How long will it take you to get there, because I
know that could be 20 minutesmaybe.
Because let's just say fromDana Point, let's call it
Newport Beach.
From Newport Beach, that's DanaPoint, dana Point, it's about a
31-mile run, right.

Speaker 2 (42:12):
If I did 100 miles an hour about two hours, 60, 70.
Well, no, yeah, catalina,though from where long?

Speaker 1 (42:20):
from dana point is 31 miles.
It takes the ferry about twohours.
How quickly can you get it?

Speaker 2 (42:25):
we'll be there we'll be there, no problem.
We'll be there in about on acool nice morning, because you
gotta do it in the morning rightso we'll be there in 30 minutes
oh, that's crazy.
Yeah, that's fine I willliterally have it shipped in a
week if you want to do it damnso, let me know, me know.

Speaker 1 (42:40):
Yeah, we'll run it.
That would be fun.

Speaker 2 (42:42):
And it's cool because you go to Blue Water Grill and
I know all the guys there.

Speaker 1 (42:45):
So just kind of lock up.
So you just roll out for lunchand pull out.
I take my clients out, damn soI take my and it's life changing
.
You know, I don't know if intoit.

Speaker 2 (43:02):
So that's life changing to you.
If you do, you'll talk about itfor like two weeks.
But when I tell everybody, whenyou get in that boat and you go
as fast as we do, that's awhole different experience.

Speaker 1 (43:07):
Are you strapped in or how does that?

Speaker 2 (43:09):
work you can.
I don't have straps on that,but you do have a harness and a
vest on.
So not a harness but a vest.

Speaker 1 (43:14):
Yeah, okay, dude that man.
What does it feel like whenyou're doing 120?

Speaker 2 (43:18):
like you're alive man .
There's nothing better, bro.
There's nothing better like.
I'm such an adrenaline junkie.
So whether it's dirt bikes,fast cars, it just doesn't
matter.
But I think the ultimate, themost fun I ever have, is in a
boat.
But I've also grew up going out, you know, to the river, so
it's kind of in my blood at thispoint.
But you know, I would say,getting on a boat going that
fast, there's literally nothingbetter I don't know anybody
who's done that.

(43:38):
It's like this has been thebest day of my life.

Speaker 1 (43:40):
Yeah, yeah.
Well, I'd love to take you upon it sometime, dude.
So good transition here.
Segway, you're raising $14, $15million right now and you're
doing a big project out inHavasu, multiple phases.

Speaker 2 (43:52):
Yep, tell me about what you're doing out there with
the man Cave stuff, so what.
We've kind of realized thatthere's a niche and there's a
demand really for not only theboat and RV storage like we've
built right now.
So we have we currently havefor any of you that are watching
on the North side of LakeHavasu, next to home Depot,
there's 720,000 square feet ofretail, which is the mall, and

(44:12):
on the other side of the highwayis the airport.
And I struck a deal a couple ofyears back to build 225,000
square feet of boat and RVstorage.
But what we did is we condomapped them and each unit's a
for sale product.
So that opens up doors to amuch more like much larger pool
of investors or buyers, and I'llgo down that road later.

(44:34):
So I'm building 225,000 squarefeet as we speak.
That same landowner has 18 acreson the opposite side of that my
current project.
I just struck a deal with himand we're buying that property
for 4 million and then I'mcoming in and building.
It's a $58 million project.
I'm raising 14 million.
I'm going to rotate that oneach phase build, sell and then

(44:57):
rotate that capital right ontothe next phase, and that is
going to be a little different.
So when we were selling ourphase one, I love to, I'm a
listener I listened to themarket right.
Two ears, one mouth.
God gave it to us for a reasonright, so I listened to my
buyers, most of my buyers.

Speaker 1 (45:12):
I wish everyone understood that though.

Speaker 2 (45:13):
Right, right.
So what's nice is my buyers andagain, this is according to my
broker and some of theconversations I've had people
ask can you stay in, can youlive in there?
And you can't, based on zoning,and right.
So I I started listening.
I'm like, well, you know, foryou to buy a three bedroom, two
bath property out there, you gotto be in the like eight 50
range and North of that to evenbe in.

(45:34):
You know the acquisition side.
So from a workforceaffordability, there's just
nothing out there.
So it's like extreme wealth inessence out there or kind of
like super retired, right.
So you have that.
You have that.
That gap Right Again.
Well, how do I fill that gap?
And so with people asking, canI live in this?
I go, well, shoot.
Basically, what we're doing andyou already know this from the

(45:54):
storage side is you know, youcan compress your cost in a
development if you do less stickbuild.
Because you can compress yourcost in a development if you do
less stick build, because youcan have your building
manufactured while you're doingyour horizontal improvements.
So by the time your horizontalimprovements are done and your
foundation is cured, you cancome and bolt this thing right
up like they're Legos, right,and you can do it really quick.
So, for example, in one of mybuildings we built 36,000 square

(46:16):
feet.
We actually framed it up in oneweek, seven days.
Wow 35,000 square feet.
We actually framed it up in oneweek, seven days.
30,000, 35,000 square feet, soyou can build these things
really quick.
And I said, well, why don't weutilize those methods, design
and build these where you canget conventional mortgage and
build residential like arebasically it's their, their
glorified townhomes with largegarages is what they are, right?

(46:36):
So they're one, building theirtownhomes in each building, so
they're condo mapped and thenyou buy the unit and it has you
know, the largest is threebedroom, three and a half baths,
1600 square feet, superentertainment, and then it has a
drive-through garage.
You have one side that has a14-foot garage with a mandora
cantilevered patio cover forkind of outdoor living space.
And then you have the back hasa regular two-car garage and

(46:59):
kind of like an alley, so youcould still have one 65-foot
driveway where you could putyour boats and your trailers and
RVs and all that in one side.
And then you have the otherside has a two-car garage where
you can park your regular carsin and out of.
So in essence it's adrive-through.
So we're building basically wecall them the barn caves, but in
essence it's a glorified mancave.

(47:19):
So these are 28, 30 feet wideby 60 deep, so they're big
garages, and then you have yourliving space just above it.

Speaker 1 (47:27):
As a busy real estate investor or entrepreneur.
Time is money and firstimpression is everything.
Every day, to make it easy onmyself, I wear a Built Basics
clothing.
Whether you're a girl or guylooking for workout gear,
joggers, shirts, button downs,hats or shoes, Built's got you
covered Super comfortable,tighten all the right places to
make you look fresh and cleanall the time.
Visit builtbasicscom and usepromo code SUMMERS20 to receive

(47:49):
20% off of your order.
Again, that's builtbasicscom.
That's B-Y-L-T.
Basicscom.
Use promo code SUMMERS20 toreceive 20% off of your order.
Now back to the show.
You were showing me the photosbefore we started recording and
and dude, I mean, this is notjust your everyday thing.
I mean this, it's dialed, itlooks high-end finishes, you
guys full kitchens.
Um, you could do a lot withthat space in the ceiling.

(48:10):
How tall are the ceilings?

Speaker 2 (48:12):
uh, so on.
Well, it depends, because youhave some of them slope out,
right so, but the garage itselfis 14 feet, some places are 16,
some, some places are 18.

Speaker 1 (48:20):
Wow, yeah, yeah, immaculate, and so have they
always been nicknamed the mancaves, or is that something you
came up with?

Speaker 2 (48:26):
I kind of came up with it.

Speaker 1 (48:27):
Really, I like it.
It's catchy.

Speaker 2 (48:28):
So you'll love this.
So the barn dominium movement'sa big deal right now.
Barn dominium you ever heard'rea barn.
What the hell is a barn?
It's like a high end barn likelike let's say, exterior skin it
looks like a barn, like a highend barn back east somewhere,
but when you walk into it, itfeels like you know a high end

(48:50):
apartment or high end home.
And that's what you're doing isthese guys are getting smarter
to build shells with steel,which in some cases is better to
build, especially depending onthe atmosphere and where you
live Right, but you build theseand then what you do is you
insulate everything like youwould a regular house, and then
foundation.
You know basically everythingyou would do, whether it's sewer
, septic, what have you and it'sa real house.
So what I'm doing is I'mutilizing the model of a barn,

(49:12):
dominium, and I'm designing theinterior like a barn, high-end
barn, and then you're going tohave your man cave below.
So it's, it's.
It's something.
If you look it up, you'llunderstand it.

Speaker 1 (49:22):
Yeah, I love that.
What's the average squarefootage of of one of these that
you're selling the man caves,and what does it sell for?

Speaker 2 (49:28):
Average square foot is a thousand because I have
smaller ones at like seven, 50,like one bedroom, one and a half
baths, and then I have up tothree bedrooms, three and a half
baths, but my average is abouta thousand.
So the biggest is 1600 andchange smallest is 700 and
change average is about athousand.

Speaker 1 (49:43):
And what is the 700 and change one, uh, start at two
80, two 80 to purchase.
And what does financing looklike for that?
Conventional?
You can go to conventionalmortgage 30 year.
Yeah, Wow.

Speaker 2 (49:52):
Yeah, so regular.
So I and that's one of thebiggest things is, I work with
UWM a lot so we also have amortgage division.
So I basically pulled theirpolicy and looked at the
insurance policies on the natureof what you have to build these
units, because we're kind oflike spearheading the design.
So the idea was to build theseand stick frame just a certain
areas which you kind of need tofor certain infrastructure and

(50:13):
then making sure that this canbe financed through a
conventional mortgage.
So we figured it out.

Speaker 1 (50:17):
So is the idea that someone would.
I guess I'm trying to figureout your typical buyer.
How are they utilizing thisproperty?
Is this something where they'reliving long site part-time, or
are they just kind of using itfor part of the year and they
live in other part of thecountry the rest of the year?
What does that, your averagebuyer, look like?

Speaker 2 (50:34):
So let me tell you, remind me to talk to you about
the gym that we're buildingthere.
Okay, so don't forget that.
But to answer that, so you havea kind of.
I originally was looking at itfrom an affordability side.
Right, I have a conservativeoutlook as a fund manager.
I'm going to stay in aconservative approach over the
next five years.
So if I build something that'sin the affordability range, I'd
be probably pretty smart.

(50:55):
Right, you kind of can't gowrong.

Speaker 1 (50:57):
Yeah, it's recession proof, right yeah.
Or go wrong yeah.

Speaker 2 (50:59):
It's recession-proof Right yeah, or
recession-resistant.
Yeah.
So the idea is to try to makesure that we're aligning the
demand for the area and theaffordability, spending habits
and what have you and whatpeople's needs are.
What I love about thisparticular area is not only the
mall that's on that side, butthey also are building an urgent
care there.
So health care is a big deal,especially in a retirement
community.
Then you're looking at okay,what are the income levels for

(51:22):
first-time homebuyers there,people that are just regular
employed and live in the city.
If I can build something thatwas affordable, where people can
start buying homes and we canbring in workforce, we need it
Because I'm dealing with laborissues, like everybody else did
on construction.
So I already see the issues andin my job I've been going out
there for 30-something fiveyears, so I know the issues that
the city's having.
So I also know that if I canmarry up the demand with what

(51:45):
city needs are, I'll probablyhave a pretty good investment
right.
I'll get the support.
But what I'm seeing in theseare the conversations I've had
recently.
So one of my investors, so alot of.
I've had a lot of investors.
I have one investor has beenwith me for 17 years One of my
investors I had a conversationwith and they have cancer.
Husband has cancer and he has abig house up in the reserve up
there.
So he wanted to sell it, moveback to California, be next to

(52:08):
his grandkids.
Well, his house, which isbeautiful, it's a five bedroom,
it's big, out there in Havasu hesold it for like 2 million
bucks.
But his kids he has two olderkids that are my age and they
have, you know, kids and theyhave.
So he has grandkids.
Well, they all go to the riverand so they all store their
boats at his house when he hadit.
Well, now they don't have ahouse to go to, so he goes.

(52:30):
Well, hold on, ryan, I can buythis one three-bedroom,
three-and-a-half bath for under$600,000.
I can sell this house for $2million and then I have a huge
30-foot by 60-foot man cave thatI could park all my stuff in
there.
Yeah, and that's what theseguys are, that's what.
So that's one buyer.

Speaker 1 (52:46):
Gotcha, so you can live there if you want to.
Yeah, absolutely yeah, it'scompletely legal.

Speaker 2 (52:49):
Yeah, one of my other investors, one of the reasons
why he's reinvesting into thisproject.
He's like Ryan I have condosaround the world and I go and I
love the lock and key.
I just come, I go.
No real overhead, no head, nomaintenance.
You know, I just kind of come.
I live in it, I move, leave andI'll have to worry about
anything.

Speaker 1 (53:03):
You have that component.
Could you buy one of these andAirbnb it out when you're not
using it?

Speaker 2 (53:07):
I'm not going to allow Airbnb's in that community
.
So, I'm going to own the HOAcompany, right, because?
that's my project.
So I'm going to own the HOA,but I'm not going to allow it.
And the only reason is isbecause Airbnb's in Lake Havasu
insane.
In fact, several of my buyersand not only my paradigm storage
and several investors into thisexisting project, have sold
their Airbnbs because of themanagement nightmare.

(53:29):
And people go out there andparty and they beat these houses
up.
So the returns that you thinktypically Airbnbs make, it's
just not that out there.
Because you're constantlyshutting down the house, having
to fix problems, those depositsdon't go very far, right, so
they're getting tired of havingto manage that and they're like
well, hold on, I can rent thisout and get the cashflow if I
need to 1031, exchange intobuying one of these units and

(53:54):
rent those out and get cashflow.
And, mind you, if you decide torent these units out which you
can your upscale buyer, they'regoing to probably make the
payment and again, you have nomaintenance.
It's a metal box.
Will you allow, like, 30 dayrentals?
Yeah, absolutely so.
30 day and up is fine.
Yeah, so, mind you, these arethose particular ones I'm going
to sell.
So I'm selling.
So whoever the end buyer rightbuys it, I will allow, through

(54:15):
the HOAs, for them to have, likea short term 30 year or 30 day
lease.

Speaker 1 (54:20):
Yeah, what's the HOA run there?
So here's this is what I wantto tell you.
I'm not a big fan of HOAs, solet's talk about it.

Speaker 2 (54:27):
So one of the biggest things I don't care who you are
, I don't care if you're amillionaire.
Everybody hates HOAs, right?

Speaker 1 (54:49):
I have HOAs in my property.
They always go up, they nevergo down, and they're they're
typically older, demographic,where they never really had any
power ever.
And so now they get a littlebit of power and they're like
all anal with all this stuff.
Okay, that's, that's one thing.
But number two gripe is this Isthere not real estate investors
and entrepreneurs?
And so all these projects, allthe CapEx, all the repair
maintenance, all that stuff thatneeds annual attention, they

(55:11):
don't know how to go in priceand how to negotiate the best
deals, and so they'reoverspending.
So their budgets just go up andup and up.
And you know, unfortunately,what I mean.
What that means for thehomeowners is their HOA payments
are going to go up.
And you know, unfortunately,what that means for the
homeowners is their HOA paymentsare going to go up.
And as the HOA payments go up,over time less buyers are
willing to buy that unit,because it's a higher payment.

(55:31):
And that higher HOA paymentit's not paying down principal,
it's not building equity, it'sjust a higher payment, it's a
sunken cost, and so for thatreason it puts a cap on the
long-term appreciation of thatcondo or that townhome because
of the HOA keeps going up.
And so you know, as a singlefamily home in the same market
without an HOA goes up, let'ssay a hundred percent over 15

(55:51):
years, that condo with the HOAthat just tripled over the same
15 years might only go up.
You know, let's say 30% insteadof a hundred percent that the
single families are.
And that's my biggest twogripes with the HOA.

Speaker 2 (56:07):
So you're this.
You just hit on kind of one ofthe main metrics, number one.
What you just listed wasliterally dead on From us on the
management side, when it comesto maintenance and upkeep, we're
more definitely on forwardfacing, on materials and costs
and so forth.
So we're building, we'reputting more concrete down,
we're doing differentlandscaping, so the management
is much lower.
But I also have an institutionalmindset.
If I build a million squarefeet of projects let's say it's
a for lease product I can sellthat to a big institution and

(56:30):
they're going to look at big.
Most of the time they're goingto look at how I built and what
materials I built.
If I wanted to sell it toGoldman or what have you Right?
So I've always kind of lookedat it like I'm going to build a
little bit larger, a little bitbetter, superior product, not
only just to kind of get the PRin the in in the area, but also
for an exit, and that's alwaysbeen great.
That's why we're selling ourunits over our competitors out
there.
But to piggyback off the HOA,you're going to dig this and

(56:53):
this is kind of going to dig it.

Speaker 1 (56:54):
Let's hear it.

Speaker 2 (56:54):
So my current project , one of the biggest things, the
reason why my project HOA costsare so low and we also get more
buyers is because of how bigthe project is More units you
can press your HOA costs rightPer unit.
So 208 units.
My smaller unit, the 14 by 50s,it's like a $22 a month HOA.
It's nothing.
People love that.

Speaker 1 (57:14):
Yeah, that's nothing.
It's not even a conversation.
It's $22.
Dropping the bucket.

Speaker 2 (57:19):
Yeah.
So they're like oh, you got adump station, you got security
like, you got all the greatstuff.
So here we go, ready.
So I'm very, like I said, I'mvery sensitive to HOA.
So when I was so this Barn Caveproject because there's
residential and it's Lake Havasu, it's Scottsdale, Las Vegas,
it's hot out there, so what I'mdoing is I have to build a
community so, just like aregular apartment project, it's
got to have a pool, it's too,hot out there not to have a pool

(57:41):
.

Speaker 1 (57:41):
Love that.

Speaker 2 (57:42):
Just like insurance costs and what you and I just
discussed in regards to yourbuilder's risk policies, your
insurance costs overall aregoing up.
When I went to go bid out myinsurance costs for that pool
and for HOAs and to maintainthat pool, it was like $58,000 a
year and I was going like holyshit, this is way too expensive.
Because now if I take that andI divide it by, you know my unit

(58:04):
owners and square foot- Is thatjust for one phase, or that's
the entire?
Project, the whole project peryear.

Speaker 1 (58:09):
That seems pretty cheap.

Speaker 2 (58:10):
No, no, no this is after I build it.
This isn't the builder's risk,this is after I build it.
So the insurance policy just tomaintain that pool and for
liability purposes.

Speaker 1 (58:19):
That still sounds cheap to me for liability
purposes.

Speaker 2 (58:21):
That still sounds cheap to me For the entire
property $56,000?
No that's a lot.
And then the owners of theseunits are paying their own HOA.
No, no, no.
So their HOA is going to coverthat insurance cost.

Speaker 1 (58:31):
Right Now they still have their own insurance cost
for their particular unitcorrect For their own unit
correct, and so this is onlycovering basically the amenities
, just the HOA.

Speaker 2 (58:38):
Yeah, okay, so it only covers the amenities.

Speaker 1 (58:41):
Yeah.

Speaker 2 (58:44):
So what I did was is I go, man, I can't, like I can't
get people to buy a 600,000 ora $280,000 property and pay $300
a month in HMOs.
This is not the way to go.
So I was like how do I compressthis?
Well, I don't know if you knowthis, but are you familiar with
like lifetime fitness?

Speaker 1 (58:58):
Yeah.

Speaker 2 (58:59):
Okay, so lifetime fitness is actually by trade.
A multifamily developer.

Speaker 1 (59:03):
Really.

Speaker 2 (59:03):
Think about it in the back of your mind right now.
Whatever Lifetime Fitness thatyou're kind of thinking of
mostly like, maybe go back, it'slike Denver, vegas, all of the
multifamily around them not allof them, but a lot of them.
They build those and if youlook at what they built, they
got rid of their amenity packageand they built those units to
maximize as much rentable spaceas they can, and then they give
their tenants a discount to goto Lifetime Fitness across the

(59:25):
street.

Speaker 1 (59:26):
Interesting.

Speaker 2 (59:26):
So it's smart, it's a private equity plan.

Speaker 1 (59:28):
I just worked out a Lifetime Fitness like two
weekends ago up in Newport Beach, yeah yeah.

Speaker 2 (59:32):
So not the Newport location, because it's so dense.
There you have a lot moreoffice and retail.
I'll buy that one because Iknow which one you're about like
.
Like Denver, if you look at theones in Denver, if you look at
the ones in Vegas, they'rebuilding a third one there.

Speaker 1 (59:43):
by the way, Dude I spent like, uh, it was like 50
bucks for a day pass and thedude was like it was like 300
for a monthly membership andthey didn't even have a protein
shake.
I'm like yo what's going onhere?

Speaker 2 (59:54):
Well, you gotta, you gotta go to their like little
you know restaurant's real sexy.
Because what you do is if youhave the developer's hat on now,
mind you, some institutionsdon't want to lend on the debt
side because you're like youhave no amenity package and
these other comps over here havepools and gyms.
Well, if you think about it,when you have a pool and a gym,

(01:00:15):
that's just a cost to thatproject.
It's not really, it's justamenity to get tenants in there.
Well, if you're like, hey look,you can, you can lease this and
we're going to give you a passto go to lifetime fitness across
the street, most of the peopleare just going to go to lifetime
fitness and lifetime fitnessman Right.
So they were very, very strongin that model.
So what I'm doing is I'mactually separating that gym, my

(01:00:35):
amenity package on a differentparcel and then I'm going to
build the shell with my budget.
So, instead of me doing all theTIs for the gym itself and
building out everything, I'mbringing in a larger operator to
do a lease for me for 20 years.
He's going to maintain, he'sgoing to do all the TIs.
He's going to lease thebuilding for me.
It'll increase the value I getcashflow.
It removes the liability andthat cost for HOAs and now my

(01:00:59):
unit owners have access to thatgym and those amenities and it's
a public gym.
It's not a small, it's a bigpublic gym.

Speaker 1 (01:01:05):
That's so smart.

Speaker 2 (01:01:06):
Yeah.
So now you have a big publicgym.
It's going to increase thevalue because you have more
retail right, in essence, rightnext to your project, right next
to the mall, and I have alarger operator that's going to
come in with a big name, a bigreputation.

Speaker 1 (01:01:19):
Yeah, more demand to live there.
You'll be able to sell theunits for more and then you're
lowering the HOA costs.

Speaker 2 (01:01:23):
It's a win-win and removing liability.

Speaker 1 (01:01:25):
Insurance went from $54,000 to what $23,000.

Speaker 2 (01:01:28):
Wow look at that.

Speaker 1 (01:01:29):
All these HOA communities need more Ryan
Garlands.

Speaker 2 (01:01:32):
They just need forward thinking and innovative
ways of making it happen, andthe idea is to try to think of
your exit buyer.
I think a lot of people just goI want to make a bunch of money
.
It's like, yeah, but you got tothink about who's going to buy
it.
What's the affordability side?
You got to look at that data.
You got to know what you'redoing and who's going to be able
to afford it.

Speaker 1 (01:01:50):
You should start a new company.
It could be a consultingbusiness and you go around and
consult all these HOA boards onhow to save on cost seed round
and buy a bunch of.

Speaker 2 (01:01:59):
HOA companies yeah.

Speaker 1 (01:02:01):
And then you could be like hey, everything we save
you, I'll just take a 10% offthe top.

Speaker 2 (01:02:04):
Yeah, that'd be cool.
Actually, that's a good idea,yeah.

Speaker 1 (01:02:06):
And then the homeowners will pay for it,
because then now their equityappreciation goes up.

Speaker 2 (01:02:10):
And my incentive is to save as much money as I can
to get that delta.
There you go, I like it, I likeit.

Speaker 1 (01:02:15):
So yeah, I mean, look at the photos and the there man
.
That's pretty exciting.
Could someone put like anairplane in there if they wanted
to like an airplane hangar?

Speaker 2 (01:02:25):
Well, you could, I mean.

Speaker 1 (01:02:26):
You said it's close to the airport, right.

Speaker 2 (01:02:27):
Yeah, but you can't get an airplane in there.
I mean you could?

Speaker 1 (01:02:30):
You'd have to take the wings off and stuff it in
there and put the wings back on?
Is the driveway big enough tolike take off?
You think?

Speaker 2 (01:02:38):
on a small Okay, done that before.
That'd be pretty cool.

Speaker 1 (01:02:41):
Yeah, so this is in Havasu, and are you doing
projects in other parts of thecountry as well?

Speaker 2 (01:02:47):
I got a 21-unit boutique apartment project being
built as we speak.
We're pouring concrete nextweek for a foundation on
apartments in San Antonio, rightby Riverwalk in the Pearl.
I just finished some projectsin Denver.
We have the winery in TemeculaEuropa Village.

Speaker 1 (01:03:02):
Tell me about the winery.

Speaker 2 (01:03:04):
So the winery in California, in Temecula, europa
Village.
Tell me about the winery.
So it's called Europa Village.
Okay, so that's like a littleclose to my heart.
So long story to short storywas the president of my company,
is the former mayor of Marietta, doug McAllister.
Doug has a 40-year relationshipwith the developer, which is
Dan Stevenson.
He's the godfather.
When you meet him, just hisenergy alone, you just feel
honored to be around the man.
$3 billion in development, ownspretty much every storage

(01:03:25):
project out there, by the way,and he's developed I don't know
10,000, lots in his career.
And his kind of end, I wouldsay, his kind of, I would say
what do you want?
To call it?
Like his last hurrah, if youwill, sure village.
And so, in essence, what it isis it's three different wineries
on one large location 50 acresand it's French, italian and

(01:03:47):
Spanish are basically bringingall the European themes all to
one location, so you get toexperience all of Europe in one
shot.

Speaker 1 (01:03:54):
Wow.
So this is in Temecula threewineries, one property.
What's the experience like fora guest?
Let's just say, a lot of folksin San Diego they like to go up
to Temecula do wine tasting.
They'll rent like a limo bus.
They'll put like 12 friends inthere.
Everyone will go up there, winetaste of the day, come back.
So what would that look likefrom a guest standpoint?

Speaker 2 (01:04:14):
So first of all, of course I'm going to be a little
biased here, so forgive me Bebiased.
I would honestly say say thatthis project has probably got
the most class out of any otherproject out there.
Just nature of the build, okay.
So like, for example, bolero,the Spanish style winery is done
.
I've been through Europe, mywife has traveled all through

(01:04:35):
Europe and when, if you gothrough Spain at all, when you
go to this winery, promise you,the very first thing you're
going to think of is you're inSpain.
Now all of the wines as well.
They have 92, 95 point wines.

Speaker 1 (01:04:46):
What does that mean?

Speaker 2 (01:04:47):
It's the quality of the wine, and then you have
which is really hard to get tothose numbers.
In fact, one of the winemakersis from Napa and then the
executive chef opened up 29,four seasons around the world.
So the PR for the food isunbelievable.
You have people from all overLA and you know pretty much
Southern California.

(01:05:07):
Come there just to have dinneror lunch or what have you.
So I would say from anexperience that if you like food
, you kind of can't beat thefood, especially kind of in that
area.
Wine is obviously super classy.
It's the thing I like aboutTemecula compared to Napa, is
number one.
They have bars there where youcan have more liquor.
They do allow you to haveweddings there, so you have

(01:05:28):
bigger parties.
There's areas a little moresecluded where you can be a
little more quiet or you canhave more of a happening spot,
which Napa is not like that inany way.
So it's definitely more of anup-and-coming area.
Guys like us in our age group, Iwould say that say the Gen X is
millennials.
You'll see a lot more of themthere.
Uh, you obviously a lot ofboomers too.
But you have, if you're, anowner cause we raise capital for

(01:05:50):
that project, right?
So every one of our investors,when they invest into that they
get a lifetime wine clubmembership and they have
exclusivity to all kinds ofdifferent amenities there.
And then we do.
We do investor appreciationevents every year and we show
what type of profit that thatproperty makes and we show all
the financials.
Last year we made $16 million.
So that project overall isunbelievably stunning.

(01:06:11):
We have a cave and everything.

Speaker 1 (01:06:13):
This project's already been open and operating.
Yeah, so this back story is,and this is what got me into it,
so I could go up there thisweekend.

Speaker 2 (01:06:18):
Totally.
Okay, and I live literallyaround the corner.
So let me know Totally, and Ilive literally around the corner
, so let me know.
So to kind of give you an idea.
So, if you remember 2008,alcohol sales went through the
roof when I engaged in this.
Darren had originally designedthis back and he bought the land
in like 2006 and 2007.
He had planned it all, designedit all, and when 08 happened,
he couldn't get debt financing,and rightfully so.

(01:06:40):
So he was smart, he raised alittle more capital and he ended
up starting the actual winery.
So he popped up a little 2,700square foot wine tasting room,
started offering, you know,weddings and started basically
making his blends of wine untilthe market came back around.
And then he'd go get debt andhe actually is one of the
largest clients for a huge bankhere in San Diego that
constantly gives him debt.
So which he was smart.

(01:07:05):
What he did is he took allthree of those buildings in
essence each winery and separatethem on each parcel and instead
of it being because it's $185million capital, stack 40
million in EB-5, just FYI.

Speaker 1 (01:07:13):
What's that?

Speaker 2 (01:07:14):
EB-5 capital.
So think of, like Chinese moneythat want to come into the US
and get a green card.
Minimum investment 700, well,it was 700,000.
I think it's well.
I think it was 550 at one timeand it moved up to 790 per
couple thousand you can investin.
So EB-5 capital is really cheap.
There's a couple of differentmetrics.
Eb-5, for one example, you haveto have like X amount of

(01:07:35):
employees or you have to employa certain amount of people for
you to qualify.
He has 300 employees.
It's a very big operation Then.
Then what's nice about from adeveloper side is it's cheap
capital.
It's like 5% mesdent.
At 5% you get to borrow 20, 30%.
You can go after less equity.
So now you can not dilute yourequity.
You can produce better returns.

(01:07:55):
You can fill your capital stackpretty quickly.
Right, and a lot of people,especially in certain times this
is before Trump took office itwas much easier to raise Chinese
capital.
As soon as Trump took officeand a lot of the issues happened
with China, a lot of that moneypulled back.
You started seeing stuff morecapital coming in from Singapore
and the Philippines, but not asmuch on the Chinese side.

(01:08:18):
It's all kind of coming backbecause there's so many
questions on the volatility onother markets, which doesn't
look nearly as good as ours.
So you're seeing an influx forcapital.

Speaker 1 (01:08:27):
What exactly is MES debt?
I've heard of it for a lot oflike ground up development
projects, but what exactly isMES debt?

Speaker 2 (01:08:33):
So there is.
So you have the kind of aninstitutional MES, and then you
have private MES.

Speaker 1 (01:08:37):
Okay, right, so let's talk about.
This is like what.

Speaker 2 (01:08:39):
So let's call this, so it's like a guy like me that
will do like a second mortgage.

Speaker 1 (01:08:43):
OK.

Speaker 2 (01:08:43):
So they just call it Mez debt.

Speaker 1 (01:08:45):
OK.

Speaker 2 (01:08:45):
But a real Mez.
Institutional debt is like,think of it, that it's kind of
tied to your tax roll, so reallyit takes a first position.
So ultimately, what it is.
So the thing that I like, orC-PACE have you heard of C-PACE,
so C-PACE.
What I like about C CPACE isit's mesdet is what it is.
But CPACE basically gives you aloan against your project

(01:09:06):
according to certain buildingmaterial that's like green
building material or good forthe environment or solar, or
certain underground sewersystems or what have you that's
good for the environment orsafer for the environment If you
use certain.
So this is some of the secretson the way I build my projects
and how I get my capital.

Speaker 1 (01:09:25):
Tell us all the secrets, man.

Speaker 2 (01:09:26):
I can't.
It's my private baby, I don'twant everybody to do what I do,
but yeah, so there's a lot ofthose things that you can do.
I can bring those materials inand go get very cheap
institutional capital, right?
So Mesdet in essence allows youto go get cheap capital, even
from, like, a GP position wherelet's say I bought the land, I
entitled it and plan it, where,let's say, I'm building, so this

(01:09:47):
.
I'll tell you an example.
We built 45 units of townhomesin Denver.
Okay, this is out, actuallyit's just outside Denver, it's
called Lakewood and we actuallywent out and structured C-PACE
and Mez.
So C-PACE, mez, that same thing.
And what we did was and becauseof the nature of Denver, we
knew we can get this financingmuch easier right, let's be
honest, it's all about playingchess.
What we did is we acquired theland, did all the planning and

(01:10:08):
entitlements, got the plansapproved and we went and got
CPACE.
Now CPACE was able to cover allof our horizontal improvements.
So most banks, if you go to aninstitution Wells Fargo, you
know First Bank what have you?
They typically want all of yourhorizontal improvements done
and signed off and you know,basically, your foundation is
ready to pour, right.
So once you have that ready,that's when the construction

(01:10:31):
loan will cast their loan.
What we did is we came in andsaid, hey look, this is the type
of material that we're going toput underground.
This is the way we're going tobuild our foundation.
This is this type of steel andwhat have you.
So we were able to do all ofour horizontal improvements and
pour our foundation for ourbuilding one, and then we went
and got cheap debt at like 5.75%from a bank.
So, our equity investorsactually made more money than

(01:10:52):
what we projected because wewent to them like worst case
scenario if we couldn't get thattype of financing at the time
of-.

Speaker 1 (01:10:58):
It might be 10%.

Speaker 2 (01:11:00):
Yeah, it could be 10% and we may have to do it in
phases on a revolver privatemoney, what have you.
But we were able to revise thatcapital stack in the favor of
the investors.
So by the time we got to themand say, by the way, check this
out Now.
It was really kind of nicebecause when we were in the
middle of phase three of sixphases, that was right when the
pandemic hit.
Well, at that time constructioncosts went through the roof.

(01:11:22):
Appreciation wasn't there yet,we didn't see it yet.
But then, as construction costswent up, there's two things.
You have a.
You know most of the so whenyou deal with larger commercial
contracts I don't know if youknow this Are you familiar with,
like a G-Max contract, aguaranteed maximum price
contract?

Speaker 1 (01:11:40):
No.

Speaker 2 (01:11:41):
So what happens is when you go to a contractor and
you say hey look, this is a $50million project.

Speaker 1 (01:11:46):
Oh, I see with the contractor.

Speaker 2 (01:11:48):
You need to make sure that if I have no change orders
and I don't change materials onyou, you need to deliver by
this time, this date, what haveyou yes.
And they guarantee it.
If they go over time orwhatever, then they have to eat
the cost, right.
So it's kind of the sameconcept.
You got to have like a GMAXcontract.
Well, what a lot of peopledon't know.
Depending on the size of yourloan, you can actually get an

(01:12:10):
insurance policy to guaranteeagainst loss for your LP
investors.
But you have to have likelarger institutional capital.
You have to have, like you know, like Martin Harris or Whiting
Turner or some of these big,like the guys that are
developing, you know, san DiegoAirport.
They can get an insurancepolicy because they got a
billion dollars in the bank and750 million in receivables.

Speaker 1 (01:12:31):
And so that insurance will cover any change orders
that goes over the GMAX.
Absolutely, yeah, got it.

Speaker 2 (01:12:36):
So it's really that too.
Or if there's any losses or thething burns down or what have
you, now you have certain otherinsurance policy that can cover
that.
But it's really if you have anissue with the contractor or
something, so that contract willcome in there and salvage a lot
of that right.
So there's a lot of really coolthings that you can do from an
institutional side.
But to kind of circle back up,when it came to raising capital

(01:12:58):
for, like the MES debt, thoselarger companies are going to
implement those, uh, capitalstack practices because again
you can get better incentives,you can get max more material
because it's not being orderedin bulk for some of that green
building material, um as much.
Well, at that time.
And then you know, obviously,if you're able to compress your

(01:13:20):
costs, you're mitigating risk.
But with the, with the denverproject, as the appreciation
rose, our, even though our costswent up, we just said, hey,
just sell the units and we'lljust eat the cost.
And as the units, as the valueskept climbing, we ended up we
thought we were going to sellthese units at 400 grand.
At the end, the very last unitwe sold for 575 grand, and you

(01:13:44):
may know this, but like where alot of builders make money is in
the design and the like, thefinished design.
So like if you have a buyer andyou just put white countertops
and you know carpet when theywant to do upgrades yeah, you
make like 50 margin yeah youmake a bunch of money.
So we were expecting like anaverage of like 25 000 upgrades
per unit.
The average was 75 000 per unitso it was just awesome.
You know rates were low and soit was just awesome.

(01:14:06):
And then you know rates werelow and so you know it was just
killer time.
So we made a good a lot ofmoney on that.
So that just obviously rotatedonto more projects.
So same practices, justdifferent areas, different
locations.
You just have to play the part.
Different asset classes allkind of have different way,
different contractors.

Speaker 1 (01:14:20):
So so back to the winery.
Uh, is there a residentialcomponent to this?
Like if folks want to stay thenight, is there any hospitality
hotel portion?
So how does that look?

Speaker 2 (01:14:29):
bolero has 10 casitas .
There's a yeah and then the uhvienza, which is the next phase
that we just completed.
They're actually building.
So there's two buildings on thenext phase.
They're building the next 45units of of hotel there, and
then they have an outdoor pool,like it's almost like an
infinity edge, overlooking thevalley.
It's stunning, and I thinkthey're going to have 25 units

(01:14:51):
and uh, c'est la vie, which isthe last unit, the last phase,
and then across the street theyhave a 10 room bed and breakfast
.
It's all kind of tied togetherwow, yeah, that's really cool.

Speaker 1 (01:15:02):
So, uh, out of the half billion billion with a, b,
how much of those are you guysself-operating versus you came
in as a capital partner.

Speaker 2 (01:15:11):
I would say about half of it.
Now we're self-operating.
The other one, like really thebig slug, is like Europa Village
.
We're more of a capital partneron that one but capital and our
management because, again, thiswas Dan Stevenson's vision and
when the pandemic hit he made aton of money with alcohol sales,
right it went through the roof.
So it was nice from us on thatside.
But yeah, so I would say it'sabout half half right now.

Speaker 1 (01:15:32):
Dude, I can wrap with you forever, man, but we got to
go catch this meetup, brother.

Speaker 2 (01:15:37):
So I appreciate you coming down.
How can listeners get in touchwith you?
Hit me up on so you can do.
Paradigmcompaniescom isprobably the best way to reach
me, just to kind of look at whatwe're doing overall.
And then I have my Instagramhandle, which is just look me up
, Ryan J Garland, you'll find me.
And then obviously, my LinkedIn.
Linkedin's really good.

Speaker 1 (01:15:55):
It's funny because, you know, I went out to Miami,
we were hanging for a weekend,but we didn't really get a
chance to like, really like chopit up.
But, dude, just chatting withyou, I'm like bro the energy.
You're a wealth of knowledge,dude, so looking forward to, uh,
getting to know you betterthank you, I really appreciate
it.

Speaker 2 (01:16:08):
Yeah, thank you for coming down yeah, of course he's
ryan garland.

Speaker 1 (01:16:10):
I'm rich summers listeners.
Thanks for tuning in.
We'll see you in the next one,peace.

All Episodes

Navigating the High Seas of Real Estate: A Masterclass with Billion-Dollar Investor Ryan Garland | E2

Episode Transcript

Popular Podcasts

Are You A Charlotte?

Dateline NBC

Stuff You Should Know

.css-15opob5{left:0;position:absolute;top:0.8rem;} All Episodes

.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Navigating the High Seas of Real Estate: A Masterclass with Billion-Dollar Investor Ryan Garland | E2