EP 242: How to Diversify Like a Pro: Lessons from Jeremy Roll's Portfolio

[00:00:00] Hello, and thank you for joining us today on The Gentle Art of Crushing It Show, where we focus on learning and sharing with our listeners all there is to know about how to create success in our lives. This show stands on the shoulders of giants. Our mission is to empower and inspire our listeners to create the life of their dreams whilst having a blast in the process. Let's celebrate life together. Welcome to the show.

[00:00:28] All right. Welcome back to The Gentle Art of Crushing It podcast. My name is Randy Smith, and I'm your host today. And I am just really excited to have Jeremy Roll with us today. Jeremy is who I want to be when I grow up as a passive investor. I've been following him for years and years and just could not be more excited about having him on the show. Jeremy is a full time passive cash flow investor with over 20 years experience. He's the president at Roll Investment Group, and he's also the co founder of Four Investors,

[00:00:58] Five Investors. So Jeremy, welcome to the show. Jeremy, welcome to the show. Thank you for having me. I appreciate it. And I hope this is helpful for everyone. It's actually the first podcast I'm recording in 2025. Me as well. I went on a two and a half week hiatus. So we'll have to sharpen the saw a little bit here, I suspect. Well, let's just jump right into it, Jeremy. Can you give me your perspective or an assessment on today's current market here in January of 2025?

[00:01:26] And how you think that might be impacting passive investment opportunities? Yeah, absolutely. So and thanks again for everyone for joining us. And I should tell everybody, I'm not a financial advisor or anything such as my perspective as an investor, not financial advice.

[00:01:39] So I'm going to break it into two different answers. The first is, keep in mind that we're recording this prior to January 20th of 2025. So Donald Trump has not started as new president, which I think, you know, we're gonna have to see in his first 100 days what policies come up, because that could definitely impact things as well as interest rates and many other things.

[00:01:58] So right now, in the micro down to like the week, there's a lot changing all the time. We just had data early this week, that was implying more inflation, and potentially for this year and less of a probability of interest rate reductions from the Fed. But everybody knows interest rates aren't everyone's minds right now. But predicting them is very difficult. So there's a lot going on. What I would say more macro is and so by the way, I should just preface everything else as well, is that things are changing constantly.

[00:02:25] So more so than in a typical environment, because of all these potential factors coming up. What's happening today changes by the week. But what's happening at a macro level is, one thing we know for sure is that interest rates were spiked by the Fed in 2022, as of March of 2022. And we kind of had what I call the first domino to fall at the end of an economic cycle, which is interest rates went up. And that caused a very drastic reduction in the value of a lot of assets, including the real estate that we're talking about.

[00:02:53] For those of you who are new, we've had, I'm going to call it a crash, I define a crash as over a 20% decline. That's how a crash is defined in the stock market. So in the real estate market in the on the non single family side, so you know, apartment buildings and everything else that's larger, you've had depending on the location, the quality of the asset, and you know, how new it is, and you know, its state, actual state of affairs for itself.

[00:03:16] It's probably on average, in an institutional space, those values are down between 25% and 35%, some say 40. And so that that's a lot. Now, it's actually worse than it sounds, because if you're new, but you probably didn't really factor into that, is that sometimes people take loans as high as 75 to 80% loan to value, that actually implies that anyone who invested equity is completely wiped out in terms of book value, you know.

[00:03:43] So that was kind of what I call stage one. And so it's been a lot of carnage, to be honest, a lot of opportunities that have had to pause distributions, some others that have actually had issues with floating rate bridge loans that have reset in terms of their interest rate. And some of those have been extended, some of those are in some challenges, and some of them have been foreclosed already, you know, so we're facing quite a lot of headwinds right now for the past two years.

[00:04:06] The second domino that I believe is the highest probability of what's going to happen in terms of falling is a recession. I think that's a very high probability event for many reasons we can get into. And if the second domino falls, then what that's going to, what will result in a typical kind of what I call recession playbook, is that you would expect the net operating income of properties to go down, because you'd expect vacancy to go up, you'd expect pricing power and rents to potentially either go flat or come down.

[00:04:31] And that puts pressure on your profit or NOI, because typically expenses continue to go up at that time. And so what I'm concerned about and why I've been on the sidelines for a number of years now is we know what the result has been of interest rates going up, but we don't know what the impact could be of a recession. And those can compound on each other because the value of property is based typically on the NOI multiplied by the cap rate or the multiple that someone's willing to pay.

[00:04:58] So also, if we end up in a recession and the stock market crashes, which is actually also the highest probability scenario at the moment, just using historical data, then I think that the multiples are actually going to go down a little more on what people are willing to pay. And at the same time, you're going to have a compounded effect on the profits going down. And so I'm being very careful because, of course, there's a thousand ways to invest. None of them are wrong. But the way that I invest is I go into a stabilized deal that's 8,200% occupied and may or may not have any value at upside.

[00:05:25] So if I'm not going to be in a deal that's pushing value up, then I have to be particularly careful about the price that I'm going into and the basis. So I'm being very cautious right now, and I'm very concerned for the next 12 to 18 months. Are you interested in real estate investing but don't know where to get started or think you don't have the time or money? Are you stuck in your W-2 because the golden handcuffs make it hard to walk away?

[00:05:50] If this sounds like you, check out impactequity.net and schedule some time to talk with the founder, Randy Smith. Randy went from massive income to leaving his W-2 through passive income, and he can help you do the same. www.impactequity.net Awesome. Thank you for that. That is kind of a sobering way to start the podcast, especially for one where we're focused on educating newer, newer, past investors.

[00:06:16] But I brought you on specifically for that reason. A lot of times you find folks in this space that are talking all rainbows and unicorns, and that's not the whole story. So I like to have your perspective. It's something that I follow and listen to closely. So I'm wanting my investors, I'm wanting my listeners to hear the same story. So, well, before we jump into it, Jeremy, can you give the audience just kind of a brief overview of your background?

[00:06:43] I did a very high level overview of who you are when you first introed, but tell us a little bit more about yourself so we know who we're listening to. Yeah, yeah. And I'll try to keep it really high level. So I'm originally from Montreal, Canada. I spent about half my life there growing up, and then I moved to the U.S. in my mid-20s to do an MBA or master's in business over at UPenn or the Wharton School. I graduated there in 2000, moved out to Los Angeles at that point, and I was in the corporate world for over 10 years.

[00:07:09] My last two jobs were at Disney headquarters in Burbank, and my most recent one was in Toyota headquarters at the time, which was in Los Angeles. They moved to Texas many years ago at this point. And in 2007, I left the corporate world to become a full-time passive cash flow investor. So I started investing in these alternative investments like real estate in 2002 in syndications after the dot-com crash.

[00:07:33] Really, the reason is, just so everybody understands, is I was sick and tired of both the lack of predictability and the volatility in the stock market. I was watching the stocks go up 30% up and down in a year, and it just wasn't the right fit for me. I'm a very low-risk, more slow and steady guy. And so I was looking for a more predictable scenario, and I came across the concept of kind of more stabilized, predictable cash flow via real estate.

[00:07:57] So I've been investing in these types of opportunities for almost 23 years, but full-time for almost, I think, 18 years, if I'm remembering correctly. Yeah. So it's been a long time. So I went through the previous recession in 2008, and now I think we have a recession coming up again that I'm going to go through. Certainly, you've had a lot of challenges regardless. And so, yeah, I tend to be highly diversified. I'm a very big fan of putting small pieces across many things. I tend to focus on diversification across asset classes, geographies, and operators.

[00:08:26] And I tell people that I trade control going into the passive opportunities in exchange for diversification because if you're investing actively, you can go into many fewer deals because you have to put much more money into a deal to buy it yourself. Yeah. So hopefully that all makes sense. Yeah. Yeah. No, that's great. I literally just wrote down 10 more questions just from that brief interest. Can we kind of walk through your learning process in this space when you first got started? So you were out of Ward in 2000. You started investing in 2000. I'm sorry. 2002.

[00:08:57] 2002. What did those first deals look like? How did you get exposure to them? Because this was prior to the Tax Act and all of those. Yes. Talk to me about that if you can. That was 10 years before that act. So that was a whole different area. First of all, there was barely the web. There were not smartphones. So, you know, it's a whole different time, right? Yeah. So essentially, when I started in 2002, I had two big challenges. One is that I had to learn about the space itself.

[00:09:26] And two is that I was new to the U.S. really and new to Los Angeles for two years. I didn't know who to trust and where to go, frankly, even. So I was very lucky because I had lifelong friends in my family in Montreal, happened to have been investing for decades and actually happened to syndicate. So what I decided to do, even though I was living in the U.S., was start deploying capital and deals in Canada where I would specifically do that to learn from those deals and get probably even more learning and better exposure than I would from a typical sponsor that I'd be investing with with those people. Because you knew them. Because I knew them.

[00:09:56] So I literally didn't say to myself, which asset class do I want to start in? Like, I didn't have a really great plan. It was actually just more like, I can make a bet on these people. They're doing these asset classes. I'm going to learn from it. So I started to rotate my money from stocks and bonds in 2002 into those types of deals. And what ended up happening at that point is it took a lot of networking. Like, at that time, I was not married. I had no kids. I was young. So the bad thing about L.A. is there's a ridiculous amount of traffic.

[00:10:22] The good thing about L.A. is it's a huge city and we don't have anything virtual and you have to go to in-person meetings. There's a lot of meetings. So I went on to meetup.com, which was fairly new at the time. And I would go to about two to three meetings a week all across L.A. And because I was in a big city, I was able to do that. And I basically learned a lot by going to those meetings for many years and talking to many investors. So I kind of built a network over time.

[00:10:45] And then what happened in 2007 is that when I left the corporate world, one of the first things I did is I co-founded something called For Investors by Investors or FIBI. And the reason why I did that is because the problem with the meetings is that there were a lot of sales pitches. And often I'd have to sit through a two-hour sales pitch just to network with people at the end. So what would happen is I would literally bring my work from these companies and sit in the back row and do it and then wait till the end.

[00:11:11] I remember very well, the first meeting I went to after I was out of the corporate world, I got there. They started a sales pitch. And I said, oh, boy, like, what am I going to do? I don't have work to do. I'm going to have to listen to this for two hours. And I was like, why don't I just start my own meetings where there's no sales pitch? The core foundation has just helped everybody learn. We want to break even on the meetings. We're not trying to make money off of it. And that's what For Investors by Investors is. And so as a result of starting those meetings, I ended up building a much bigger network.

[00:11:41] I love it. I love it. Great story. It's funny. I was at a meetup literally on Monday of this week, and it was the same thing where we had 30 minutes of networking before, which I showed up 15 minutes before so I could network. And then they start the pitch, and I'm ready to go at that point. I drove an hour for 30 minutes of networking, essentially, is what it was. So that's good. Yeah.

[00:12:03] But honestly, like, for those of you who are listening, there are times – I can tell you stories of which you spend that 30 minutes of networking, and it can literally change your entire course or life. And there are many times you go to those meetings, you spend two hours of networking, and nothing comes of it. So it's one of the risks you have to take, but it's part of the deal. I mean, today's totally different. But it's – yeah, I would encourage people to always try. That's for sure. This is kind of to go down a different path. I'm curious if you have any tips or ideas or suggestions for people that are networking.

[00:12:31] Like, how can you get the most effective results out of showing up at a meetup that you may or may not know anybody at? Yeah, that's a really great question. I know it's very hard when you're new, and it depends on how your personality is relative just going into somebody random, right, which can be hard for people. If you have trouble going up to random people, what I'd recommend is try to break into a conversation where there's like four people in a circle talking.

[00:12:56] And the reason why I like four or five is because if it's just two, you may be interrupting a proper conversation that's going to be annoying for them. But if you're four or five, often they just kind of let you stand there, and it wasn't like a one-on-one conversation, and you're kind of not causing an annoyance. So that's kind of tip number one.

[00:13:11] Tip number two is sometimes I find people who are brand new coming in very eager, and they're either very aggressive with a lot of questions, or they're trying to pitch something, or they're being, you know, it's almost like they're a bit wound up, and you could tell they're just nervous. I'm a very big fan of being more laid back and more passive and listening, and especially because when you're new, you're going to want to listen to what's going on in the market, the local market, what are people thinking about talking about. That takes a lot of listening and less talking, right?

[00:13:40] So, and actually it can be more helpful for someone who's not as comfortable talking or going up to somebody, right? But honestly, if you just get into that circle of four or five and listen and don't even do much talking, you could potentially get a lot out of it. So that's less intimidating than thinking about how am I going to carry a conversation for the next 10 minutes with this random person. So, yeah, those are just a couple of tips. I know it's not easy, but the final thing I'll say is I promise you the more you try it or do it, the easier it gets.

[00:14:08] It's like imagine the first date you ever went on with somebody, and then like the 10th date that you've been on with people becomes easier because you now know what you're going to say, how it works and everything. So it's just one of those things where you just have to get over the first time, the second time, and then it gets a lot easier. Actual steps. I love that. Thanks so much, Jeremy. Yeah. I heard somewhere once where somebody suggested 30-second rules.

[00:14:29] So like the second you walk into a networking event, like find somebody and decide that within 30 seconds you're going to go over and talk to that person because if you can start a conversation quickly, then that will generally lead to other conversations as well. So, yeah. Yeah, I'll give one more tip, which is I've always found that I like asking people what they do, make them talk because that's more interesting to them than hearing a story from a random person potentially. But then also try to find common ground when you find that one common ground. So let's just say you're talking to somebody.

[00:14:59] If I am talking to somebody being from Canada and they're from Canada, boom, that's a huge common ground. If I'm talking to someone, for example, who is from Wisconsin, just picking a random place where it's cold and there's a lot of hockey players, then I could say, oh, are you into hockey? They'll probably say, yes, I know enough about hockey to talk about it, right? So I kind of try to find the common ground that then can make people more comfortable, and that just makes the whole conversation much easier. Yeah, and so random thoughts. I'm from northern Michigan, big hockey thought.

[00:15:26] And you mentioned Toyota in California, and I used to work in Torrance, like literally a stone's throw away from the Toyota shop. Yeah, that's right. Yeah, interesting. Yeah, western or 190th. That's it exactly. Crenshaw right by there. So very good. All right. Well, we didn't schedule this to talk about networking and commonalities that you and I have. So let me kind of jump into some of the more detailed stuff.

[00:15:49] My goal ultimately is to find the best operators, the best deals, the best strategies for the passive investor. So considering those three areas, where would you care to start? Like, does it make more sense to just talk about like strategies, passive investment strategies to start? Whatever you think is going to be most helpful, I know it's not a very good answer, but it's really, I'm happy to talk whatever you think will be best for the audience. Okay. Well, let's do that. Let's talk. I know you talk about diversification.

[00:16:17] You mentioned that earlier, putting small dollars into a number of different buckets. Talk about that diversification strategy. My strategy is I like to diversify across asset classes, geographies, operators, business plans, and then also vintage. So I'm curious your thoughts on that strategy and how you might adjust that. Yeah. So this is really important for anyone who's listening. Look, you have to create what I call your own box, right? So there's a thousand ways to invest. None of them are wrong.

[00:16:43] So if I tell you my box is my target, it doesn't mean it's going to be the right fit for you. And it doesn't mean that what you decide is wrong, like is wrong because I'm doing something right. So that's the most important thing is what is your comfort level? So, for example, it's interesting that you mentioned about vintage. I have a very specific vintage target in general, you know, by asset class, because there's a lot of factors that can play on vintage. And I can give you a lot of examples. But so I don't necessarily diversify by vintage because I prefer to be within a certain range of vintage.

[00:17:12] And that's my comfort level. Other people may, like you, may specifically diversify by vintage because there's risk associated with different vintages. And so you're actually diversifying across risk. I'm just low risk. I'm constantly looking for the low risk spectrum. But there's definitely a lot to be said by diversifying across vintages because it actually gets you across a lot of risk spectrums, which is good. So I mentioned vintage. And then what was the second to last one you mentioned as well? I mean, deals, operators, regions, business plan as well. Yes. Okay.

[00:17:41] So same thing again. I tend to focus on that really low risk, lower risk side. And so even medium risk or high risk, I tend to stay away from. Somebody else may say, I'm going to do a combination of medium risk and low risk. So I get a little more exposure. Maybe they'll do all three. So I think the most important thing is I'm happy. I can go into what I'll give you guys a very, very good solid definition of what I look for. But please understand that it doesn't mean that it's the right fit for you at all and may not be the right way for you to even think about it. Right.

[00:18:09] So I tend to target kind of a minus or B plus type of asset and what I call like an A minus or a B market. I invest outside of very volatile pricing markets because I look for predictability and stability. So I'm not you're not going to find me investing in typically in Los Angeles, San Francisco, New York, Miami, a lot of prices going up and down a lot of volatility. I tend to invest in primary and secondary markets and not tertiary.

[00:18:32] And I tend to look for stuff that's 80, 200 percent occupied, stabilized and may or may not have any value at upside. For me, the thesis is I want to go to sleep tonight, wake up tomorrow and not much has changed because I live off the cash flow. That is not the right fit for everybody for sure. But that's what I do. So for me, getting diversified within that box across asset classes, geographies and operators has been the best fit for me, it seems. But again, there's a thousand ways to invest and none of them are necessarily wrong. OK, thank you.

[00:19:01] And a couple a couple of questions there. You said occupancy 80 percent or more and 80 percent seems low to me. So I'm curious. That's a good question. So actually, some asset classes, it's not really low. Right. So that's the problem. So we need to get into the asset classes. So I'll give you guys some examples. So on a apartment building, that could be relatively low. Right. If you're looking for real stability. So I usually actually invest in 90 percent plus. I was giving you across the whole asset class spectrum.

[00:19:25] But in a mobile home park with lower expense ratio, 80 percent could be a great thing because it gives me really good cash flow while also having upside where in most asset classes to get that type of upside, there's more risk because the expense ratio is higher. So that's why I mentioned that 80 to 100 range. I've been in deals, for example, in retail or an office where 80 percent is still actually OK. Probably retail more so than office depends on the lease structures and everything else. And so each asset class is different.

[00:19:53] Right. And in fact, I would argue that based on what I've learned over the years, self-storage, if you hit 88 to 92 percent occupied, you are optimized as you have someone using dynamic pricing and maximizing revenue. I would actually argue if you invest in 98 percent occupied self-storage deal and it remains that it's not being run correctly in that optimized revenue. So it actually really depends on the asset class. And thank you for that clarification. I'm primarily in the multifamily space is where I hold 80 percent of my dollars.

[00:20:23] So when I heard 80 percent, that concerned me. So now you mentioned you're a cash flow investor. Interesting. When I left the W-2, I was more of a growth investor. I have since grown to learn that that was probably an issue, even though I had very high income when I was in the W-2. Can you talk a little bit about your targets for cash flow with your portfolio? What are you trying to achieve? And then how do you how do you how do you achieve that? Yeah.

[00:20:53] So that that's actually a great question and a very big challenge at the moment. And I'll explain why. So the way that I work is that at the beginning of a cycle, I tend to target specific year one projected net net cash on cash returns to investors and maybe a 10 year average annualized cash on cash return net to investors. I tend to target preferably 10 year terms, sometimes shorter, but most of the time it's 10 years my real sweet spot.

[00:21:17] And so so what I do is I have a certain minimum target for that year one and average annualized. And then I put that across pretty much all asset classes that applies to everything. And then what happens is that certain asset classes tend to be more favored than others as you go through the cycle. So a great example is in time when the cycle reset single family, a lot of foreclosures. It was very obvious to investors that people had to move into apartments because they were foreclosing. They were going to move somewhere to live.

[00:21:46] So there was a lot of demand for apartments from 09 to 12. But at the time 2013 came along, I found prices were too high. And one of the ways I knew that is because I wasn't in my cash flow targets anymore. So what happened is that I dropped off of apartments at that point in the cycle with the exception of unique opportunities. I've invested in many apartments since then, but they've all been unique. And then I just kept going on the rest of them. And then when I as slowly over time, the rest of the asset classes caught up.

[00:22:12] And then the last bastion in 2016 and in 2016 was mobile home parks that got too expensive. So since 2017, I've been highly defensive because I was not meeting my cash flow targets. And what I'm waiting to see now is if the cycle is going to reset, if we have a recession, where am I going to end up with realistic cash flow targets? Because each cycle is different. And I'll have to calibrate my expectations based on where we start. But I don't think we've reset yet. And I think we're going to have a reset. So I'm waiting.

[00:22:41] So I'll tell you, though, high level that I'm not very comfortable going into something that doesn't cash flow. At least 7.5% net to investors projected year one. And at least, let's say, a 9% average annualized. You know, those are like minimums. I strongly prefer 8% year one and maybe a 90-10% average annualized. I don't know if we're going to get back there for this next cycle. But that's how I work. Okay. So you mentioned there are opportunistic deals that come along in that space that could provide those type of opportunities. I've heard you talk quite a bit.

[00:23:10] And we focus on tax abatement quite a bit with impact equity. I'm curious your thoughts about tax abatement and then also other strategies that might kind of fit the kind of special circumstances or opportunity. Yeah. And actually, you probably mean the same thing, but I wouldn't call it opportunistic in terms of what I look for. I look for unique. Because opportunistic to me, I get concerned about people thinking, oh, they're getting it. They're like adding a lot of value or something, right? Opportunistic. But I'm not usually getting into those.

[00:23:40] So I've actually done a lot of tax abated investing and also low-income housing tax credit investing since probably about 2017. I've done it primarily with one sponsor. And I'm a very big fan. And the reason why that I was very attracted to that was because it was one way to mitigate higher prices, in my opinion, as well as it was defensive play going into what I thought was going to be a recession.

[00:24:01] So just to be clear, I was going defensive in 2017 under the assumption we have a recession in 2020, which I think we actually would have had had we not had the pandemic and all the money printing because we had an inverted yield curve and everything was lining up. So I've been investing defensively into those types. So the only multifamily deals I've actually invested in since 2017 are either low-income housing tax credit or tax abated and no floating rate bridge loans. Yeah. We don't have to get into that discussion. We've beat that one up a ton here. And I know your opinion on that for sure. Yeah.

[00:24:31] Okay. So tax abatement you like. I'm curious your thoughts on the back end of these tax abatement deals. Do you think it's kind of a positive piece to have that attached to your deal when you're trying to go full cycle and sell this thing? Or is there going to be some concerns? And then secondly, I'm curious your thoughts about it looks like a lot of the municipalities are getting concerned with tax abatements. So what are your thoughts about seeing those for years to come? Yeah. Good question.

[00:24:57] So first thing I'll say is obviously, I mean, a lot of them are similar, but every tax abatement deal can be different. And it gets done probably differently depending on the exact local municipality and all these other rules. But the typical ones I've invested in have had 99-year leases. And I've actually invested in land lease deals in the past, not to do with multifamily. And what I found is that as long as there's a very long remaining term, the buyer who's obviously going to be comfortable enough with that niche anyway will be okay with it.

[00:25:23] I think where you have to pay a lot of attention is, you know, if you're like starting to run into like 30 years or less left into a land lease, you start to have to be careful in terms of the eventual exit. Now, taking a step back, keep in mind, my focus is on predictable cash flow, not on appreciation. And so if you say to me, you're going into a tax abated deal, you're going to get some, you know, fully amortized or mostly fully amortized loan with not a lot of interest only or no interest only.

[00:25:51] You're going to be in it for 10 to 20 years and you're going to get the same amount back at the end. Okay. That's not a very good IRR, but that could be a very solid cash flow play. That would actually not be optimal, but I'd be totally okay with that outcome. A lot of people wouldn't, right? So I'm less concerned about the outcome necessarily in those scenarios because I'm specifically investing for the predictable cash flow. That's my focus. So I look at cash on cash as opposed to IRR, for example, which a lot of people don't necessarily, but I live off the cash flow.

[00:26:21] So I'd rather have 20 or 30 years of predictable cash flow and a lower IRR than a higher IRR and, you know, a seven-year exit or something. And I'm just making things up. But sure. So really that, I think that question is philosophical in terms of what you're looking for, but I am, as long as there's a lot of term left on the land lease, I'm not very concerned about it. Okay. And then do you think we'll continue to see tax abatement? Right. Sorry. So, yeah, we have definitely already seen less tax abatement than we had because a lot of areas,

[00:26:51] have been clamping down on it. There's been some, I would say, what's the word I'm looking for? Creative solutions to that also come up that weren't available before. Do I think eventually it's going to get much lower volume? Yes. But I also think there's a probability as time goes on, inflation continues to go on, people can afford less and less, unfortunately, which seems to be the direction this country is heading in, that there'll be other government programs that maybe will be somewhat similar or almost, you know, equivalent or maybe partially equivalent.

[00:27:20] But I think for tax abatement specifically, if you told me that that's almost gone in five years from now or 10 years from now, it wouldn't surprise me. But I think there'll be other opportunities to look at it. Yeah, I would agree. I think, yeah, we're going to see municipalities kind of shrinking those opportunities there. But affordable housing is an issue that's not going away. I think at some point, municipalities and government, whoever that is, is going to have to throw something into the mix. Otherwise, dollars just aren't going to flock to that area like they're going to need to, to handle or to answer this challenge that we're having in the U.S.

[00:27:50] Yeah, it's a challenge. And I only see it going, getting worse, unfortunately. It only appears to be going in one direction. Yeah, I agree. Okay. Well, I know we only have a few more minutes here before we kind of wrap up with the final questions, but I'd love to get your idea on strategies around allocations. I hear some people talk about, you know, no more than three to 5% with any one operator, no more than 2% in any one deal. I'm curious how you spread your dollars around.

[00:28:16] Yeah, so this is a, because this is also, I believe, like a very much each person should really make their own decision on what they're comfortable with. The first thing I'll say is that I am most comfortable with the concept of being in at least 20 deals, which takes time. If you're very picky and very careful with what you're going to invest in, that'll take a few years for that to happen. Like someone who finds 10 or 20 deals in a year or two is either being crazy aggressive and has, is doing this full time, or maybe isn't being as picky as they should, or, you know, it could be both.

[00:28:45] It's just really rare that I see that happen. So it takes many years to get properly diversified, in my opinion. As far as operator exposure, I'd probably like to see a maximum of 10% exposure to one operator, and that would be extreme. And that would, by the way, that would occur over many years. That wouldn't occur like two or three years later, you've got 10% exposure. Now, in the case of people who are just starting and don't have much capital deployed, those can get a little out of whack short term.

[00:29:09] But if someone's looking at this as a long-term strategy, which is what I do, that's kind of the way that I think about it. So if you look at the 20% number, by the way, sorry, 20 deals, that's 5% per deal. I would tell people that if you're working full time, I know that can be a lot to get through. And I think, think of it more like a five to eight year goal, as opposed to, you know, you got to get this done in the first two years. Okay, great. I just want to say one more thing. No, it's very important.

[00:29:39] So there are a lot of what I call 1% risks in passive deals, and those can never be gone. So I'm going to kind of give you some examples. So you could have fraud, mismanagement, or Ponzi scheme. You can have those start after you've invested in a deal with someone who's been operating for 30 years, literally, you know, even just mismanagement. You can have, there's so many, you can have a building burned down. The insurance doesn't agree to pay. You have capital calls because you have to sue them.

[00:30:07] And five years later in the courts or 10 years later, you lose, right? I'm just saying these things can happen. And so because there's all these 1% risks that you can never really get rid of, the diversification is really critical. Yeah, thank you for that. And it's, I'm involved in an opportunity right now that had been running smoothly for six to eight years. And now all of a sudden, it looks like it could be turning into a Ponzi scheme, which is... Yeah. Yeah. And that can happen.

[00:30:32] And again, that's why the diversification, you know, when you're giving up control, the diversification, that's why I tell people I trade control for diversification. And so just, you know, the biggest takeaway from this podcast, hopefully if you're new, is that if you can only afford to be diversified into two or three or four things, and that's, you know, your entire nest egg, for example, this is absolutely the wrong thing for you. Absolutely. One final question before we jump on to our final questions here. Curious your thoughts around debt fund.

[00:30:59] So I am probably not the best person to get feedback on debt funds because I don't, you know, have I ever been invested in a debt fund? Probably not. I've been invested in debt. I've done a lot of hard money. I've done, you know, I've actually have been in a note fund once now that I'm thinking about it. So my concern about debt funds is the following. There was a pivot from equity to debt funds probably like two years ago when rates started to go up. And I thought that was exactly at the wrong timing. And I still do.

[00:31:26] And the reason is because if you're lending and you're getting into these loans at the end of a cycle, that's not good timing to be lending. Right. And so and also note that notes, for example, are highly volatile. And we saw it in the last downturn. They fluctuate a ton in value in a recession. And so if people are looking to pivot and they thought debt was better, I would argue that debt is not good at the end of a cycle.

[00:31:51] And now whether they don't agree that we're at the end of a cycle is a different story, because if you feel like you're sure that we're not at the end of a cycle, then that might be a good fit for you. But the one thing I will say, too, is the reason why I don't invest in debt hardly ever is because I look at the low risk spectrum of the equity side. And because I'm already at solo risk, which is one of the one of the benefits of debt is that you could potentially go lower risk depending on the criteria. I figure once I'm already going so low risk, I like to get upside if it's there.

[00:32:19] So I'm already investing is quasi not quasi debts, the wrong word, but I'm investing along the lowest one of the lower ends of the equity spectrum getting towards the risk level debt. And by the way, there's all types of that. Some of it's more risky than others for debt. Sure. So I'm just not the right person to be giving you an answer on that. But I would caution people to, you know, another takeaway for this podcast is you have to consider where we are in the economic cycle. And I've had conversations with probably thousands of investors over the years.

[00:32:48] And the very common scenario I get is, hey, my name's so and so. I just sold my business. I have a lot of cash and I want to create cash flow from it right away. Like I have an urgent need. And the first thing I say is congratulations. That's fantastic. Have you thought about where we are in the economic cycle? And does that even make sense right now? Right. Because someone could have called me in 2007 and had that conversation. And I would say, you know, I don't know if you should be doing this right now. You know, did you even think about it? And I find a lot of people don't think about that enough.

[00:33:18] And it's you really if you want to be in this space to protect yourself, it's one thing to do. It's on the sponsor, the business plan, et cetera. You have to have a very firm opinion about where we are in the business cycle when it makes sense to invest. And by the way, that's why I didn't invest one floating rate bridge loan deal. Because that's the riskiest at the end of a cycle versus the beginning of a cycle. Yeah, thank you for that. That's amazing. I have investors that come to me that want to deploy big checks and I say, fantastic. Let's spread it over three, four or five deals over the next couple of years.

[00:33:46] And that's not usually the answer they want to hear. Yeah. Yeah. But that is, it sounds like the right thing to do. So. Yeah, absolutely. Well, gosh, Jeremy, this time's gone really fast. I feel like I need to extend the length of these podcasts because I'm getting great guests like yourself that I feel like I could talk for another hour with. But certainly have enjoyed the conversation. And if you have just a couple of minutes, I'd still love to go through our final five, if that's okay. Absolutely. Go for it. All right. Very good.

[00:34:13] So considering these questions from the lens of the newer, newer passive investor, is there a particular resource, a book, a podcast, a training series? Is there any place that you direct people to when they're getting started or trying to learn more in this space? Yes, absolutely. So more high level, if you're brand new and you have not read Rich Dad, Poor Dad, and then also, which is by Robert Kiyosaki. And if you have not read Cashflow Quadrant by Robert Kiyosaki, I'd strongly recommend those two books in that order.

[00:34:43] They are a little repetitive. The second one has some of the first content, but those can be life-changing. So Rich Dad, Poor Dad, and Cashflow Quadrant, they're actually really easy books to read. I hate reading. They're very easy to get through. That's number one. I could not recommend those more. Number two, if you are new to multifamily and want to learn about all these things we talked about and more and some also due diligence and other things, I strongly recommend two books. One is Brian Burke is the first one I recommend, and I honestly forget the name of it.

[00:35:13] I always blank on it. But if you look up Brian Burke. Hands-off investor. Hands-off investor. Just go on to Amazon. You'll find it. That's book number one. And then book number two by Rob Beardsley. B-E-A-R-D-S-L-E-Y. S-L-E-Y. I don't remember the name of his book either, but that one gets into more granular detail about due diligence and going through due diligence. So in those orders, because Brian's higher level and Rob's really gets into integrity, those two books can be very helpful as well if you're new.

[00:35:41] And is it Rob's book on underwriting or is it his second book that he wrote? Okay, perfect. No, I actually didn't even know he did a second one at this point. So it's the first one on underwriting. So his first book, I'm sorry, I don't know the name. Yeah, no, fantastic. Both of those are great books. Actually, I've made the promise that anytime Brian Burke's book is mentioned on the podcast, I'll offer to investors or listeners if they want a copy of it. Just shoot me an email or put a comment in one of the threads and I will send you a copy of it because I think it's such a great book. Yeah. Very cool. Yeah, Brian's a great guy.

[00:36:10] If you can connect with him, he's done a great job. He's a very careful investor. I have a lot of respect for him for sure. Good. Very good. Now, how about for you personally? What are you listening to? What are you excited about? Books or podcasts or anything that you care to share? Well, the truth of the matter is I'm most focused on economic data right now because of where we are in the cycle. So I do a lot. I actually read about two to three hours a day. That's really not a that's true between the morning and the night on economic news, charts, cycles, just thoughts.

[00:36:39] I actually do a combination of reading just on my phone and also videos. And that's my biggest focus right now. So I'm not if you ask me for one book, I just read recently Die to Zero, which is a very interesting book. And someone else just recommended a new book to me as a second book to that. I don't remember it. I'm sorry. I just ordered it. But Die to Zero, if you haven't read it and you're kind of in a very quick summary, it basically talks about why I like dying with no money is a better strategy than dying with a ton of money.

[00:37:07] And I won't get into more of it, but you can read the summary and see if it's the right fit for you. It's very interesting. Yeah. No, it actually changed my whole perspective on saving for retirement, saving for giving away like this idea and concept of return on experience, I think is just just changed my whole mindset. Yeah, I literally just got off the phone with someone this week who called me to thank me because I was like the eighth person recommending the book. And I was the one who tipped him over the line. And then it changed everything for him over the past year. And he was explaining it all to me.

[00:37:37] And frankly, hearing him talk about it, even after I read it, was even with actually now may have put me over the line to rethinking about it, honestly. So yeah, it's changing people's lives, which is very interesting. Very good. All right. So are there one? Let's just do one. What do you think is the most important due diligence question that past investors should be asking? Yeah.

[00:38:00] So I'm going to say something probably that is not typical, which is I feel like due diligence going forward is going to be much more difficult than it was. If you told me due diligence 10 years ago versus today, I think it's going to be much more difficult. And the reason is, is that now I have to think about. So remember, I said I didn't invest in an individual floating rate, original and apartment deal. And now I have to think about, okay, who did? What happened? What challenges are they dealing with? And is that going to impact their ability to operate?

[00:38:29] And also, if somebody did invest on a lot of them, then they're probably not on the same philosophical page as me. I'm not saying they're right or wrong. It's just not the right fit for me, right? So I'm going to have to forget all the basic questions, the thousand questions you have to go through. It's like, who are you making a bet on right now? And are they the right fit for you? So I guess where I would start for sure today is, you know, tell me about the last five years, what you did. And I actually, I want someone who says to me, and I have a mobile home operator who's in this boat.

[00:38:59] You know, as of 2018, I stopped acquiring, except if it was unique and it was A, B, and C. Or I have a multifamily operator I'm investing with who has only done low-income tax, housing tax credit, and tax abatement since 2017, for example. That's what I want to hear. I'd actually rather hear someone's done zero, even though I have no proof of concept or experience, or I'm blanking on the word, like to actually look at for the last six years, like results. I'm talking about a new acquisitions versus someone who acquired 30 deals because that's not the right fit for me.

[00:39:28] It's not what I would have chosen to do. So that's going to be the hardest part, and that would be the first thing I would focus on right now. Fantastic. Great answer. Yeah, I don't normally do this, but I'm going to do it. But my thoughts on – or what are your thoughts on operators that did buy dirt? Well, I guess I already know the answer to that. So my concerns are there are operators that were buying throughout the downturn or the upswing, and then now they're starting to do more deals.

[00:39:57] And the deals look fantastic today, but my concerns are that they've got this portfolio that is extremely challenged. Any thoughts about that? Yeah, so that's exactly what I would stay away from. And by the way, I could be wrong on – you could take a lot of scenarios where that person is going to do really well, but because I'm so low risk and I have other options, that won't fit my box. Like part of my box is going to be avoiding someone who did that. And I'm going to give you another really good reason to why, because they could turn around.

[00:40:25] Let's say you go into a five-year deal, and it's a five-year fixed rate loan, and it's doing really well. But they were involved in the floating rate bridge loans, but you don't agree with that. But you go in because they're getting these cool deals now. Five years from now, it's not the right time to sell. They go refinance. And now they're refinanced to a floating rate loan again because I think that's the right thing to do at that timing where you wouldn't have agreed with that at that time, right? So it's not just – it's a philosophical thing. That's what I'm really trying to nail here. And it just wouldn't be seeing eye-to-eye.

[00:40:51] And when you're in the deal already, you have very little control over that type of thing potentially. And even if there is voting for it, you as a past investor are such a small piece, it's almost inconsequential typically. So these are important things to think about at this specific time. Okay. Thank you for that. Okay. A couple of fun questions to wrap this up. Do you have a recent bucket list item that you've checked off your list or one you're hoping to in the near future? I'm a car guy. I've been a car guy for decades.

[00:41:18] And I've also unfortunately become a very big proponent of delayed gratification for decades. And so there's a car that – I haven't bought a car in a long time. And I've been holding off. And I'm waiting to see if I may get a couple of payouts this year from some stuff. We'll see. But I'm still focused on that. And frankly, I'm getting older. It's probably something I should have done already. And die with zero, like all these things together, right? So that might be something that's coming up, but I don't have anything specific recently.

[00:41:48] Okay. So what's the car? Is there a dream car that's on the list? Or are you comfortable sharing? You don't have to. Yeah. No. It's a used – I don't typically buy a new car, but it's a used Audi R8 convertible. Yeah. And they depreciate a lot. So I'm not going to buy a $300,000 or $500,000 car or anything. Sure. Yeah. And, of course, buying something used also helps with the value down the road as well. Absolutely. Always smart investing, Jeremy. Great job. All right. And then final question.

[00:42:15] If you had $100,000 to place today and you couldn't put it – I guess you don't have your own deal. So $100,000 to place today, where would you buy it? It's a very easy answer for me. I'd put it into short-term treasuries. I'd space it out and ladder it over three to six months. I'd be buying three to six-month treasuries to try to max out the yield. That works particularly well for someone like me who lives in California and they're basically federally tax-free.

[00:42:40] The reason why I would do that is because – which is what – it's actually what I've been doing for myself now – is because I don't think it's quite yet the right time to deploy, but at least you make somewhat of a decent return. But it positions you to have the cash in case things change. And so that's what I'm doing right now. And what are those paying right now, approximately? Yeah. Well, I buy them on the secondary market, so it's a little bit different than – if you read what the three-month treasuries today, it varies slightly.

[00:43:06] But I think the last I looked, you probably could get 4.2% to 4.3%, maybe 4.35%. Which is not something I would normally like at all. And you can argue that may not even be keeping up with inflation. But I think it's the best – for me, it's the best solution at the moment. Awesome. Well, Jeremy, this has been amazing.

[00:43:27] I've got to share, I was a little intimidated actually inviting you on the show because I'm kind of starstruck almost but have been following you for years and just love what you're putting out there. But thank you so much for being on the show. I really appreciate it. No problem. I am just another investor in person, so you don't have to worry about that. But thank you for having me. I'm just hoping this is helpful for the listeners. Absolutely. Awesome. All right. Well, to the listeners, as always, I encourage you to continue your passive investing education journey.

[00:43:54] More importantly than that, though, I do encourage you to make a decision to place some capital in a passive investment as soon as you're comfortable with. I'm convinced that once you do, you'll just wish that you had started that much sooner. Be sure to join us again next Thursday for another great episode. And don't forget to like and subscribe. Well, there you have it, ladies and gentlemen, another episode of The Gentle Art of Crushing It. It was an amazing episode. Sarah learned a lot, and we hope you did as well.

[00:44:22] We want to take a second and thank you so much for viewing or listening to this episode. And please just know that we only ask for one favor, and that is to make this life magnificent. Thank you and have a wonderful day.