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by | 16, Nov 2022

3 Things Your GP Isn’t Telling You

As General Partners, it’s pretty rare for us to get questions that we haven’t heard before. And there are definitely questions that you, an investor, need to be asking your GP. Because there are things that your GP may not be telling you.

This isn’t to say that they are withholding information… only that there are important answers to some difficult questions.

For example… what happens when you die? No… not if there’s an afterlife or anything like that. But seriously, what happens if the GP dies? What would happen to the asset? Is there a plan in place if, god forbid, something terrible were to happen to the General Partner?

These are difficult questions. And more often than not, a GP will not lead with these questions in their pitch. But as difficult as they are, it’s essential that you ask them.

So, what are 3 things your GP isn’t telling you?

Find out on this week’s episode of Multifamily Investing Made Simple!

Tweetable Quotes:

“I don’t hear anybody really asking this question on the bigger syndications, where there’s maybe like six groups and you’re like… what happens if they die?” – Anthony Vicino

“You can regulate it without it [crypto] being centralized. I think the problem is the assets themselves are fine. It’s the firms who you’re trusting to transact on your behalf. Those are the bad actors.” – Dan Krueger

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five rules of investing

The Five Rules of Investing

*Transcript*

3 Things Your GP Isn’t Telling You

[00:00:00] Anthony: Hello, and welcome to the podcast. I am your host, Anthony Bino. Joined. Once again by Daniel. I always forget your middle name here. George

[00:00:26] Dan: Daniel. George Group. How many

[00:00:27] Anthony: times do you think that you’ve told me your middle name on air at this point, maybe four or five.

[00:00:32] Dan: Isn’t that many?

[00:00:33] Anthony: It’s not that many, but for our avid listeners, do you think somebody at home was like his name’s drawer, It’s George.

I think

[00:00:39] Dan: anybody knew. I doubt that I’d be concerned if they did. Well, I’d be like, You probably have my social and my mother’s maiden name as well, so please tell the dog’s name

[00:00:47] Anthony: is. . I’ve

[00:00:48] Dan: never used that as a security question .

[00:00:51] Anthony: Um, mainly because your dog does not inspire, like, thoughts of security. I’d be like, That’s a weak password.

Yeah, he’s gotta get cracked. I

[00:00:59] Dan: got another pet [00:01:00] name that no one’s ever gonna guess, do you? Yeah, but not a living pet. But the pet questions,

[00:01:05] Anthony: don’t worry. Listeners on, on a mission to, to I’ll sleuth this out. I will talk to Hi Liz. I will talk to his, Liz doesn’t know his siblings. I will. . I have, I have ins.

Don’t talk to my siblings. Yeah, don’t . Yeah. I know where the weak point is. Now, uh, we’re gonna socially engineer this one and we’re gonna hack you,

[00:01:22] Dan: right? We should stop before I get my attending stolen. That’s fair. Okay, .

[00:01:26] Anthony: Um, so what do we, you know, what’s an interesting thing? I wanna put a pin in the fact that we’re, we’re talking about the, the possibility of you having your identity stolen.

And at the end of this episode, I’m gonna recommend a book that, um, is gonna tie in very, very nice. To that concept. Hmm. Okay. So that’s me kind of planting a seed for the listeners to be like, I gotta stick around to the end to figure out what that is. And I know, I know that you could just scroll forward on your podcast listening device or YouTube or [00:02:00] whatever, but don’t do that because, um, I, I, I don’t, Oh, we’ve

[00:02:07] Dan: got a really good raffle.

We’re gonna be giving away a ton of money every three

[00:02:10] Anthony: minutes, every 30 random intervals throughout the podcast. Yeah. Yeah. So you gotta stick around. Don’t, just don’t, Just try and take the meat and get outta here. Um, okay. So today we’re gonna talk. Oh, no, wait, wait, wait. I got some really cool news. I told you guys, I was really jazzed about this before the episode.

You’ve been excited

[00:02:26] Dan: about something.

[00:02:27] Anthony: I wanna share something with you guys, uh, that I do not think Dan will care about and I do not think Reed will care about, but there is somebody listening to this. I guarantee what I’m about to share with you is going to transform your life. And if you, if you, if you, if you take action on what I’m gonna share, you’re gonna reach out in three months and be like, Anthony, you’re my bestie.

Thank you for this recommendation. About a year ago, maybe two year, no, this is longer. Maybe two years ago, my friend Richard, he got invited into this very exclusive [00:03:00] club called Superhuman, and this club is a very, very special email browser. Now, might sound not sexy, but it’s super, super cool. Okay, So there’s this company that they, they created super.

And it’s like this, I’ve seen it, this module that sits on top of Google and on top of yours, it’s all about inbox zero. It’s called Yep. Inbox zero. And it’s a game. It’s like, not gamified, but it’s all about quick shortcuts and like, um, email for 2022. And he was invited way, way, way back in the day when it was pre beta.

And it was like super hard to get into it, super exclusive. Everybody, you had to know somebody who had a, uh, like a referral token to get you in and they, it was like this really sexy thing. So earlier this year they finally went live, I believe, and it’s 30 bucks a month. I get That’s a lot to pay for internet or for email browser, whatever.

I’ve been using it for two days now and it is one the coolest software I’ve ever. Two, [00:04:00] it makes me like fly through my emails at blistering speeds. It’s re i i is a bunch of shortcuts. Lot of shortcuts. A lot of key codes. Yeah. You don’t use the mouse at all. Which at first I thought was gonna be really, really weird.

Cause you have to kind, you have to get the muscle memory, you have to learn all the codes and everything. But it happens really quickly. And it’s really fun because you can, I, I can fly through my inbox in like seconds. It’s. It’s so cool and I just wanted to share that with people cuz if you guys want to get in on it, I have a referral thing so you can try it out for free.

Um, I don’t get any kickbacks or anything like that, but I just think I was playing with it and it’s the only software I’ve used and I can’t even remember how long where I felt the need to reach back out to the developer who onboarded me and be like, Seriously, this is the most fun I’ve ever had in my email.

So I wanted to share that with everybody. Now Reid, I don’t think you’ll care too much cuz you don’t do a ton of. Um, and you are so tied into Outlook that I, I can’t imagine you ever leaving it, but they do have a version that sits on top of Outlook. Now they [00:05:00] do. Cuz

[00:05:00] Dan: when I was looking at it, it just released awesome.

But you’ve gotta use Google, which it just released. I don’t wanna like trash talk. What? So maybe I can share. Yeah, I’ll definitely, I’ll definitely do the Outlook version. Sweet. But I was like biting my tongue cause I’m like, I just hate the Google interface in the like free email. So. Totally, totally. But I was like, this is awesome.

And then I got to the end and they’re like, No Outlook.

[00:05:19] Anthony: Yeah, I think they just released it for Outlook. They don’t have it for Android. They do have it for iOS, so that sucks. I can’t use it on my phone, but it’s not a big deal cause I don’t really use my email on my phone. Yeah, you need all 10 digits to really gotta get in there, get it done, put God seriously.

People for 30 bucks a month is the coolest thing in the world. So let that, For somebody out there who’s a power user of email, that might have just have just changed her world. It did for me. Now back to the real. So your referral code, what it, what is it? You just, I’ll send it to, Oh no, I don’t know what it is.

I have to like, I go inside the browser and then I like shoot it to you. I’ll, I’ll shoot it to you. Oh,

[00:05:50] Dan: okay. So not in the show notes or anything?

[00:05:51] Anthony: Not in the show notes. You have to reach out to me. Anthony invictus multifamily do com. You regret this, Don’t worry. That email, I’ll be able to process it rear real quick.

Book. [00:06:00] You gotta leave a book, put an

[00:06:00] Dan: expiration down that Cause you say like from like episodes, like from like two

[00:06:04] Anthony: years ago, people email and you say like I may, or depending on when you listen to this, I may or may not be using superhuman. Yeah. When you send

[00:06:11] Dan: that email to him, say, I want the superhuman link.

Don’t just be like, Send me the thing.

[00:06:16] Anthony: Don’t say send me the thing. Yeah. And, um, Rita’s right, like a little quote pro quo. So you gotta leave a review for the podcast. So you gotta leave a review and then you gotta shoot me a thing and be like, Gimme that superhuman. I’ll do what I can. Cool. I’ll make a, I’ll make a referral.

Um, seriously, guys, you’re gonna love it. Um, I feel like the, the, the men’s warehouse guarantee guy, I’m like, You’re gonna love the way you email guarantee guarantee. Um, I’m trying to find my notes now. Okay, so here we go. Today’s episode we’re gonna talk about, uh, three things that your GP is not telling you that you need to know.

And this, this came about because I did a presentation recently for a group of investors and I wanted to come up with some, some questions or some things from our GP [00:07:00] perspective where I’m like, You know what? I bet. If an lp, an LP should know these things, but no LP has ever asked me these things, and they’re not the type of things that you just are gonna volunteer because they don’t, they don’t really come up in organic conversation very naturally.

However, these are very, very, very, very important things to know about your gps. So with that said, I need you to just hold your horses. We’ll get to that in a second. Well, Dan, yo, you take us on a merry. Mary go round. Go round of bad investing

[00:07:32] Dan: advice. Yeah, it’s actually not a merry go round. It’s very direct and straight to the point.

There’s nothing Mary about this. There’s nothing Mary. This is just negative. And anyways, bad investing tip of the week is if you want to make a lot of money in whatever you’re investing in, you’ve gotta be early. first mover. First mover’s advantage. Right? That sounds like it makes sense, right? The people who got into Bitcoin at five bucks or whatever, um, that’s where the real money’s made.

Now, [00:08:00] that is a strategy

[00:08:01] Anthony: at this point. They’re the only ones that have made money on Bitcoin.

[00:08:04] Dan: No, I mean that, that it’s, it’s a strategy. But here’s the thing, when you’re investing is depending on when you enter into an asset class, um, you’re either gonna be taking information risk or. Price risk. What that means is if you’re super early, you’ll probably get a really good price point, a really good entry price, but you’re taking information risk because there’s a lot of unknowns still.

Or you could wait until something has been proven out more, it’s got more of a track record and it’s more, um, established. But at that point, the price is gonna be a lot higher. So you could either take that price risk and get in at a higher price when it’s more established or be an early adopter. And for some people, for their personality, they.

Deal with the volatility of being an early adopter because there’s always gonna be, uh, things that happen in a new industry. And right now, November, 2022, there’s a lot of things going on with crypto again. Um, and that’s just, that’s just the nature of, of, [00:09:00] of a new space. It’s always the wild west. There’s always gonna be bad actors in a new.

Uh, until there’s some sort of regulation, then that all gets fixed. But, uh, don’t feel the need to be early if you cannot sit through extremely volatile environments and or you have a problem with losing all the money you invest. It just comes with the, comes with the game. Yeah. This is

[00:09:20] Anthony: super interesting and maybe the smartest thing you’ve ever said actually, because, um, I’ve never heard you talk about this before, but it’s, it’s when you’re, when there’s an information risk, there’s a potential to go to zero.

Right. And there’s also potential to go to like a billion. Yep. But it could go either way. When there’s the price risk, there’s not as much of a chance of it going to zero. Generally it could. It could, but. It at that point because you have so much more information, It’s more credible, it’s more proven, has a track record, it’s stable.

Like you’re, you’re getting priced in to that stability. Mm-hmm. . Right? And so understanding where you are, what type of investor. Yeah. Maybe if you’re really early in your life cycle of investing, you could stand to, [00:10:00] to take more information risks. Maybe if you’re really, really wealthy and you have a lot of disposable income and you can have like a good chunk of money you can put towards information risk category, cuz that’s where you can also get some outsized.

But generally for most investors, you probably just wanna sit in that, that that price risk middle, where you know, , you’re protecting the downside, The chances of going to zero. Limited. Yeah. I’d be willing

[00:10:25] Dan: to bet that the vast majority of people fall into the category of, um, they’d be more comfortable taking the price risk, uh, because I think it’s a very small subset of people that can actually deal with the early stage stuff.

It’s really sexy. It sounds really good. Everyone wants to be an angel investor or in venture capital, but at the end of the day, I mean, um, I think it was Sequoia. Uh, very substantial, uh, private equity firm. Put, I wanna say 250 some million into ftx, uh, which is just filed for bankruptcy. Um, and that effectively went to zero in like two months.

Man, that, [00:11:00] like, they just put that money in. That’s

[00:11:01] Anthony: crazy story too. So, Samuel Bank, Freedman and that whole Friedman.

[00:11:07] Dan: Sam Bank and

[00:11:09] Anthony: Freed. Bankman. Freed. Yeah. Fried Friedman

[00:11:12] Dan: Bankman. You’re, They made me question this now. Very Sam, Man, Bank man, Freed man. Sam. Sam. No, everyone calls him s

[00:11:19] Anthony: bf Sam went from being like, I don’t remember what it was.

Net worth was, but it’s gone. It’s a hundred percent. It’s gone. He went and I, I was just listening to a

[00:11:28] Dan: podcast. Podcast. A couple money. People’s money is, Mostly gone. Well, it’s

[00:11:32] Anthony: the same.

[00:11:32] Dan: So his is like whatever, but like all the, just like normal people that thought it was a great thing to put their money in cause they could get 6% and it’s like, now

[00:11:42] Anthony: that’s just, I mean this, this, it’s happened again, right?

This was six months ago with, um, it was a South Korean guy. Um, and, and, uh, so there’s a Celsius stuff, but, Oh, Luna. Luna, yeah. So it’s like a very, very similar thing where what, what’s really disappointing, and this is the real issue with [00:12:00] crypto. The, I think we’re seeing the, the, the weak underbelly of it is that it’s, the strength is in its decentralization.

However, when these things happen, it’s because it’s like, it goes back to being centralized. There’s, there’s a centralized risk node, and it’s not entirely clear to me how you can ever entirely work that out of the system.

[00:12:20] Dan: You can regulate it without it being centralized. I think the problem is like the assets themselves.

are fine. It’s the firms who you’re trusting to transact on your behalf. Those are the bad actors. Mm-hmm. , and there’s no transparency.

[00:12:33] Anthony: But you look at, and that’s what I mean about the centralization, right? Like the centralization is the fact that they are the ones ultimately that like are the nexus. So it’s not a government, but yeah, it comes down to an entity that’s, Yeah.

Being trusted on your behalf to do well.

[00:12:47] Dan: Yeah. It’s, it’s, it stinks. But I mean, like I said, I think like, you know, the fundamental concepts, the, the technology that’s all. It’s these firms that you are just currently just putting your trust in to, to [00:13:00] do what they say they’re gonna do. Um, you look at Coinbase though, they’re publicly listed.

They publish their financials, they’re audited a lot more transparency. But Fdx, they’re based in, um, uh, The Bahamas and they don’t have to produce any kind of audited statements. You just have to kind of believe that they’ve got what they say they’ve got or had what they said they had.

[00:13:18] Anthony: Did you do, do you know the story of how, um, Sam of ftx like made his first couple.

You ever heard of this? No, I don’t believe so. So, so I don’t know exactly the details, and I’m not gonna be able to tell the story particularly well because of this, but, What he realized is that there was a pricing discrepancy between Oh yeah. He was doing arbitrage. Arbitrage because of like, because of location, right?

Because of something about the timing, the like, buy it here, sell it in Germany, or whatever. Yeah. So it was like cheaper to buy in Singapore and then sell in Japan. So if you’re trying to buy it from in Japan, It was higher for whatever. I don’t remember what the reason was. And so we figured out a way to like offload, go to Singapore, buy it up, like tons of it, and then come back and sell it into [00:14:00] Japan.

Market market used used to be able to do

[00:14:02] Dan: that in the US and on stock markets because like the NYC would have a different price than like the cme. Exactly. And you’d buy it over here, you sell it over here and there was like a delay in information and so you had this a opportunity. So it’s the same thing basically.

Yep. Which works on a small. For a little bit until everyone figures it out and then everyone does it and then it’s gone. Yeah. He

[00:14:20] Anthony: was, he was the only one doing it in those particular markets for a bit, and I don’t even think the margins were all that crazy. Great. Right? Like it’s a, it’s a thin arbitrage, but you do it at a scale.

That was the other thing too, is that he needed to go to these banks and I think it was like in Taiwan or Korea or somewhere, and like convince them to like, like give ’em a pretty substantial line of credit to be able to float this. Mm-hmm. . Very, very interesting dude. I’m, I’m sure he’ll be back on top in, in no time, but, um, no, I think he’s going to jail.

Oh, is he? Probably. Well that doesn’t stop people from getting back on top. Martha Stewart , she’s

[00:14:53] Dan: dominating. I mean, if what people are saying he did, he actually did. He’s probably gonna

[00:14:59] Anthony: be in jail. [00:15:00] Well, he’ll be back. Um, it’s just like Mar Martin. He’s in jail. He’s out former bro’s back. So here’s an interesting thing.

I mean, this ties in nicely with our topic. Here’s an interesting thing about Ley. Yeah, that’s true. Ley. I hate that dude. Oh, I hated him, actually. But that was because I only had like mainstream media’s like take on him and like he has a very punchy face. He’s incredibly arrogant, incredibly arrogant. Did you know that he puts out a ton of free content?

Yeah, I’ve watched a decent on, and it’s, it’s actually

[00:15:30] Dan: pretty good. It, I mean, he, well, he just live streams his whole day trading. True. So that’s boring. But, um, he does a lot of stuff where he like, uh, like he’ll have like followers, like ask him questions and like, sometimes he’ll say some good stuff, but a lot of the time he’s like a huge dick to everybody.

[00:15:46] Anthony: No, he’s a dick. So totally a dick. Not saying he is a good person, but, um, I

[00:15:52] Dan: haven’t heard him say anything, all that. .

[00:15:55] Anthony: Yeah. I, I, Well, that’s the thing, is like, I don’t listen to people to hear like really [00:16:00] profound things, because a lot of times it’s just like the simple basics of just well executed simple basics.

Yeah. Like, Oh yeah, I knew that. Like, but why doesn’t work for me? Oh, it’s, I haven’t heard that much from him, to be honest. Yeah, that’s fair. Anyways, this has nothing to do with real estate, but it does have stuff to do with gps. Mm. So here are the, here are three things that your GP isn’t telling you. You should know because depending on how this, how they answer this, it could have really big ramifications for your investment.

So what do you got? Number one, who is really in charge? , And this is an interesting question because in the landscape of syndications, there’s a lot of different roles. People are maybe on the acquisitions team, they might be a capital risk or they might be the asset manager, right? And so it’s not uncommon to see like a 50 million apartment complex that has like 10 different GPS or entities on that side there.

Some people are raising the capital, some are doing assets, whatever. Now depending on who you are investing through in that equation, [00:17:00] might not be the ones that are actually in charge, because at the end of the day, there is probably one entity that is truly in charge. They’re the ones that have the, the majority of the voting power.

They’re the ones that are on the day to day basis going to control the bank accounts, control what happens on the asset and all of that. And if you’re investing, say, through a capital razor, from my experience, a lot of times the capital razors don’t get a lot of insight. They don’t get a lot of power.

They don’t have a lot of voting rights or. And so when you’re investing with an operator, it’s very, very helpful to figure out, okay, at the end of the day, of all the people that are on this deal, who’s daddy? Who’s the one that everybody else defers to?

[00:17:45] Dan: Yeah. I think this is a good one to bring up because it’s easy for us to kind of forget about this being a thing.

we’re the ones who do everything on our deals. We don’t have like nine gps like some groups do, Uh, which is fine. You could do it both ways. Um, we’re kind of control freak, [00:18:00] so we like to keep. You know, as few cooks in the kitchen as possible. But, uh, there’s a lot of groups out there that’ll have capital razors.

They’ll have the key principle and they might have, uh, two other groups that are kind of in the mix doing multiple things. And it might not be clear, like you said, like, is the person I’m talking to now the person I’m beginning to know, like, and trust the one who, uh, is calling the shots? Or is there somebody over here who I’ve never met who might be a complete.

Might be scr that might change the dynamic a little bit if all the sudden you find out pharma bros the one making all the decisions. So it’s, it’s a good question to ask and people should just, uh, you know, be able to, to answer that straightforwardly and say, Okay, no, you know, these guys are actually the ones who are making all the, uh, the operational decisions.

Maybe you should talk to them. Mm-hmm. , you shouldn’t have any issue doing that. If you do, might be a red flag.

[00:18:47] Anthony: Yeah, and this one came, came up recently cuz I was talking to an investor who was frustrated by her first couple of investments where the communication just wasn’t as good as what she was expecting.

And as we kind of like unwound it a little [00:19:00] bit to get to the, the dirt of like what was causing the issue, I was like, Okay, so the issue is that you invested with a guy. Bill, let’s say, who’s raised capital for this deal? Well, Bill, unfortunately, like you’ve known, like, and trust him, he’s great, but Bill only has access to so much information.

Mm-hmm. , and that information is due to whatever the key GPS or the, the daddy gps will call him, um, are allowing you to, to have access to. So if another group sucks at communication, then it reflects poorly on Bill. But it’s not really Bill’s fault, but it is Bill’s fault in the sense that like he should have picked his partner.

Hmm. So yeah, that’s number one. Agree. You agree? You think that’s

[00:19:40] Dan: a good one? I agree. Yeah. I wouldn’t have thought of it. Like I said, just because our dynamic is so different than a lot of groups, but, and it’s

[00:19:44] Anthony: not something that groups I’ve, I don’t see them like leading with this information usually. Well, no, I think

[00:19:49] Dan: everyone who’s like bringing a deal to somebody wants to kind of like, be like, It’s their deal.

It’s my deal. Even if it’s not so much. So

[00:19:57] Anthony: not so much. Okay, so number [00:20:00] two, this is one that we’ve talked about a lot, you and. It it, but, well, we like beating dead horses, so, but no, this is a good one in the sense that we have an answer for us, but what happens if you die? So if not, you, as the investment.

You don’t have to phrase it that

[00:20:16] Dan: way either, cuz that might come off

[00:20:17] Anthony: weird. What happens if, if you’re asking us at the gp, what happens if one of us dies? What happens if, like, let’s say that Dan is the sole GP of Invictus and you come invest just with Dan. The question being like, what happens if something happens to Dan?

Who steps in what happens to the company? I have

[00:20:35] Dan: been asked this actually in the past. You have? Yeah. Okay. So only like less than five times though out of all the conversations. So very rarely

[00:20:43] Anthony: it doesn’t come up very much. And it’s something that you and I have talked about a lot cuz we have actually insurance policies on each other so that if you die, you know, I get paid, watch out, whatever.

[00:20:51] Dan: So we can about to cash in tonight.

[00:20:53] Anthony: A hundred percent. Well, because what ends up happening in these situations is, you know, , the whole company could implode because [00:21:00] now you know, money is due to next of kin and all that stuff. That’s one thing, but I don’t hear anybody really asking this question on the bigger syndications again, where there’s maybe like six groups and you’re like, Okay, so they’re the, they’re the daddy, gps.

What happens if they die?

[00:21:16] Dan: Yeah. Then what I would imagine that this is probably more of a risk with the smaller groups where you’ve only got one or two individuals who really know what the hell’s going on. Yeah, I think so. And it’s probably less of a risk, uh, with larger companies, with bigger teams. But you still wanna ask because if there isn’t a good answer, that’s gonna be an issue regardless of whether it’s a one man show or a 10 man show.

Um, But you’ve gotta have that figured out If it’s, you know, multiple gps on one team, like it has to have been discussed. What happens if XYZ happens? All these guys get hit by buses, Who’s doing what? Um, it’s key is what it is. Yeah. So you’ve gotta make sure that there’s, that’s been thought about and it’s been addressed.

And maybe you’re working with somebody who’s brand new and it’s just one guy and it’s a [00:22:00] risk that’s hard to avoid. Right. It’s hard. It’s hard. You gotta be aware of it, even if it’s there.

[00:22:05] Anthony: This one came up because I was talking to a guy who was looking to partner with another guy, kind of like we did, like at Invictus, where Guy and another guy, the guy and another guy.

And you and I, you know, we’re, we’re 50 50 on Invictus. And, um, I think that’s a risk factor that a lot of people don’t stop to consider is like, if one of us gets hit by a bus, like you’re not gonna wanna, you’re not gonna want to keep giving up 50% of the company to my, my estate into perpetuity simply.

you know, I was around in the early years, right? So there has to be an exit contingency mm-hmm. . And that right there can really employ the company if you’re not prepared for it. Yeah. And so, uh, I was, I was just like having this conversation with these guys and they’re like, I never thought of that. It was like, Yeah.

So this

[00:22:46] Dan: one’s actually not just a, a question that ops need to be asking GPS is probably a question that GPS need to be asking each other. Yes. What are you guys doing? What you guys doing?

[00:22:54] Anthony: What you got? What happens if, uh, I don’t know, What if the bus. If a guy finds you in an [00:23:00] alley, wouldn’t night. What be that?

What you be that? What do you do if, if you’re pushing up the roses, if you’re swimming with the fish? Where do we some heavy

[00:23:07] Dan: shoes on? Why do we go Guido for that? I don’t know. , We got real jersey there for a little bit. We’re good to dial it back. Cause I know that makes you uncomfortable. Yeah. Okay. Uh, what do you got for number three?

Number

[00:23:17] Anthony: three, what happens if you fail to hit returns? Now here’s the angle that I wanna talk about this. Let’s say over the last 10 years, let’s say, it’s been very, very hard to, to not hit proforma expectations. And there is no such as a guaranteed return. And proforma is really just us like drawing a very, very fuzzy target on the wall and saying, I think we can hit this right?

But what happens if like over the next couple of years we go into a rough market, the deals don’t perform like we thought they would. And now we come out the other side and we had projected hitting like a 17%. I. But in reality, you know, times are rough and we only deliver say, a 13 or 14% [00:24:00] irr and that’s not bad.

But in that situation, my question would be, what happened? Like, what are you as the gp, are you still gonna take your full fee at the end? Cause this is gonna be a disposition fee, or are we gonna come to some kind of agreement, some kind of middle ground on maybe like your promote so that maybe, you know, you’re not gonna get me up to the 16 to 17 that we’re gonna hit, but let’s say we missed it by 10.

maybe that means then your, your promote comes down 10% and you know, my return goes up to 15%. Right. I don’t know, but the question’s a good one to ask just to understand how your GP thinks through this problem. Mm-hmm. ?

[00:24:37] Dan: Yeah, I think it’s a good one to ask, um, because I think most people are just so focused on the upside and the rosy scenario.

Um, a lot of people don’t spend enough time digging into what could go wrong in a deal. That’s a good question, and I think the track record should help with that as well. Yeah. To see what did you project on your previous deals, What did you actually [00:25:00] deliver? Are you right on the edge? Are you over outperforming?

Um, it’s a good question.

[00:25:06] Anthony: One, one thing I point to is, um, I mean we had a, we had a situation like this a year ago where it had nothing to do with like projected returns or anything like that, or the deal not performing. It was that a closing got pushed back a month. Than what we anticipated. And so we’re sitting on investor capital for an entire month longer than they thought.

And so technically per the, the rules of the contract, we didn’t need to start having the preferred return accrue until the technical closing, which was in July. However, our investors expected us to close in June, right? And so they kind of missed out on that whole month. And so we retroactively said, Okay, you know what?

We’re gonna honor your preferred return as. It started accruing in June so that, you know, that’s gonna, that that comes out of our side. Right. Like Yeah.

[00:25:49] Dan: And it didn’t like, it wasn’t like a massive amount of money by any means, but I think it just kind of showed people that, you know, that’s where our priorities were as general partners.

Mm-hmm. . Like, we wanna make sure [00:26:00] that you guys are taken care of first and we’re gonna come second. And so if you’ve got that kind of philosophy, uh, with the GP you’re working with, or I should say, if your GP has that sort of philosophy, that’s probably. A good thing for you. Not everyone, not everyone behaves that way.

So you wanna find people that are, are aligned with you morally and philosophically. It’s very important. And I had another, uh, one that I’ve been asked couple of times, which I thought was really good, and I, I feel like everybody should be asking this question so I could throw it in as a box. Okay. I like it.

The question is, what are you worried about on. What stresses you out? What concerns you? Not what are the risks, but phrase it in a way that’s like, what concerns you or what potential issues might you see in this deal in particular? And don’t let ’em just give you the generic real estate risks because there’s gonna be something, even the best deals ever, like there’s always gonna be at least one or two variables that you’re like, Oh yeah, this is still a little bit of an unknown.[00:27:00]

You know, kind of see how that shakes out. But I thought that was a really great question and, uh, one that I think would be really valuable for people to see how, how it’s, uh, responded to.

[00:27:10] Anthony: We actually got that question in a live investor webinar. Did we? Yeah, yeah. Back in like June when we were, I can’t talk about again, like three or

[00:27:18] Dan: four times

[00:27:19] Anthony: ever, I think.

Yeah. But it was a really good question. Um, so in our case, what we were raising for were some deals in Minneapolis, which is right next door to St. Paul, which for us and for people that aren’t familiar with our markets, St. Paul enacted rent control like a year, a year ago, right? So Minneapolis has been like this big talking point.

People are like, Is it gonna come to, to Minneapolis? And so when we get that question like, What are you concerned about? It’s like, well, Truthfully, like we’re, we’re concerned about this cuz it’ll make operating harder. It makes our life a headache, but here’s what we’re planning to do to mitigate it, to overcome.

And like all things told, we’re still confident in the deal despite this risk factor. And just by like, being open and honest and like communicating that like mm-hmm. , letting your [00:28:00] investors know truly, like what are the things that keep you up at night and like, what are you doing as a result to mitigate it?

Like it builds a lot of rapport and a lot of trust with investors. So,

[00:28:08] Dan: yeah, I mean, if there was a deal that had nothing, , no potential issues that the GP sees. There’s, there’s one of two things that could be going on there. One, your G GP doesn’t know enough to recognize the potential risk, which is a problem, or two, they feel the need to try to hide those risks, which is another potential problem.

So what you wanna do is see that they’ve thought about these things, they’ve got good plans to address them proactively, not reactively. And they’re transparent and open about what the risks are. Mm-hmm. , someone’s trying to sugarcoat things. They be like, Oh, there’s, there’s nothing on this deal. There’s no hair on it.

There’s, there’s nothing that could go wrong. It’s perfect. That’s not somebody who, who knows what they’re doing. They’re like,

[00:28:50] Anthony: I’m gonna be making too much money. This deal is gonna, we’re gonna, we could, we could drown into money. If somebody tells you that, like, it’s, it’s, it’s, They’re either stupid, they’re lying or they’re [00:29:00] new.

Yeah. And only one of those is forgivable . Yeah. I won’t tell you, which you guys gotta figure out on your own. All right, so those are, those are three or four things that your GP is not telling you that you, you should know, like truly, like these are though. I never really get some of these questions. Like who’s really in charge?

What happens if you die? What happens if Dan dies? What happens if you guys fail to hit returns?

[00:29:23] Dan: Yeah. I’ve never seen any of these in

[00:29:24] Anthony: a pitch duck. No, I’m not gonna lead with it, but I’m happy to talk about it. Yeah. Um, because these are kind of like in the weed types questions. Like

[00:29:31] Dan: we should add like, like, uh, like some footnotes or something that have these things in there.

Yeah, there you go. Cause it’s not good. You don’t wanna lead with like, here’s what happens when I die. Uh, it’s

[00:29:40] Anthony: weird by the way. You might be concerned what happens if I die? Lemme just tell you. Throw it in the foots. I’m gonna live forever. I’m in kill. I mean, my track record is pretty good so far. You have

[00:29:49] Dan: yet to

[00:29:49] Anthony: die.

I have yet to die. It’s true. 38 years in running boo boo . All right, so, uh, speaking of not dying, here’s your book recommendation for the week. And if you remember, [00:30:00] I put a pin at the beginning around your identity theft question of like, Louie is not his security question. Don’t, don’t even try it. We’re gonna take that pin out now and we’re gonna talk.

Talk about that and how not to die. The book I’m gonna talk about today has nothing to do with real estate except for maybe the title is called Concrete Jungle by Clay Martin. Clay Martin is like a former Navy Seal and he’s all, he’s, he’s kind of a prepper kind of guy, but he’s also, he’s kind of a, what kind of a prepper?

Like he likes to prep and prepare for the end time. So he is all about guns. He’s got like a compound basement of canned. Exactly. So Concrete Jungle is all about, So it’s interesting cuz right now we’re in the middle of an election cycle and depending on which side of the election you are on, you probably believe the world is about to end regardless, right?

Like that’s usually how it goes. 50% of the population leaves an election being like, this is the end times. Mm-hmm. so, But it all keeps going, but it all keeps going anyways. But it might not always keep going. Right? Like, um, you know, Ukraine, Russia, like, you know, things get outta [00:31:00] hand a little bit Crazy.

That actually has improved quite a bit last week. Yeah, it improved in the last couple weeks. But I’m saying like, if you lived in Ukraine, you know, a year ago, like, and you weren’t prepared for what happened, you know, Over the last year, like you were probably in a rough spot. But so what Clay’s book is all about is like how to prepare for like these kind of apocalyptic arm and getin types of times.

And I’m not a prepper by any means, but I do think it’s interesting to at least spend some time thinking about the fact that as Americans, we generally live in a very cloistered very comfortable environment. Things haven’t really gone wrong outside of like nine 11, like for the vast majority of Americans on American soil.

And that is, I would say, an anomaly in the grand scheme of history and maybe not something that continues indefinitely, like maybe there are hard times. And so I think just spending a little bit of time thinking mentally about like, what could that look like and how prepared are you from a physical skills standpoint to resources standpoint, to network relationship standpoint.

[00:32:00] Because the, the time to probably prepare and think about that stuff is well before it ever happens. So this book can help you not get your identity. It can help you not die. Um, and yeah, that’s about it. So that’s part of why I got LASIK .

[00:32:16] Dan: That’s a really good reason actually. Seriously, it’s really good reason.

I was like, if there’s a zombie apocalypse and I run outta contact, I am screwed.

[00:32:22] Anthony: Like if you guys are listening at home and think that’s a stupid reason, like, no, you’re wrong. That’s like the best reason to get lasik. Seriously.

[00:32:27] Dan: I, I’ve thought about it like stranded on Desert Island. Yeah. Like there’s a bunch of situations where like having to rely on glasses or contacts.

Not, is not ideal. Yep. Because there was an old school movie too. No, it was like a Twilight Zone episode where this guy was like the last man on earth, like old school. But he wine

[00:32:44] Anthony: was like really, really bad vision. But he,

[00:32:47] Dan: he, no, he’s like the last man on earth. It was the very end of the episode. And he found like this, he’s like, What am I gonna do?

I’m the last guy in the world. What am I gonna do with him all my time? He a library. Uh, it’s like full of book, full of books. He’s just gonna read all the time. And then he [00:33:00] steps on his, Yeah. And then the episode’s over, I was like, God, that’s, I wanna avoid that. So yeah,

[00:33:07] Anthony: I don’t want that. So, I don’t know if I’ve shared this on this podcast, but one of my goals at the beginning of the year is like, I, I, I, I created this bucket, uh, called, um, Operation Hard to Kill.

And so what, So it’s

[00:33:20] Dan: actual a bucket?

[00:33:21] Anthony: No, no, no. It was, it, it’s a bucket of items of like, Okay, what are all the ways a human is likely to die? I was like, so I was like, Okay, nutrition, physical health, uh, my ability to, you know, defend myself in a fight. Um, so like, those things like make you hard to kill. So I was like, Okay, I need to, I need to be harder to kill.

I need to have better nutrition, better, better physicality, and I need to be better , better able to defend myself. Mm. And that might sound really silly, but it’s actually been one of the most fun like challenges I’ve had ever until

[00:33:51] Dan: that bus comes along. That bus is gonna get

[00:33:53] Anthony: you, man. Now I’m, I’m, I’m prepared.

I just, How do you prep for that? Parkour? . You just leap. I’m just gonna jump [00:34:00] that. I’m gonna jump the bus .

[00:34:01] Dan: Okay.

[00:34:02] Anthony: Right. I mean, I don’t know if I can do it until the time’s, right? Like it’s one of those, you get one shot at type deals. Yeah. We’ll see. So we’ll. But hopefully you guys got some value outta this podcast.

Um, hopefully if nothing at, at minimum you walked away with a couple questions to ask of your gps or if you’re a gp, some things that you should be thinking about maybe that you haven’t already. So get ready. Also, those questions, I don’t know if you really should go pick up this book, Concrete Jungle. It was interesting, um, and, but it just kind of tied in well with the things, so it’s a loose recommendation, very loose.

But if if that’s something that you’re interested in, even vaguely, then yeah, go. Cool. So that’s gonna do it for us guys and gals, we appreciate you, uh, being here, taking a little bit of time outta your day to join us. And I’m not gonna say I’m gonna see you next time. You might see us next.[00:35:00]

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