Grow Your Cashflow Podcast

pascal_wagner:
All right, welcome to the Legacy Wealth Podcast where we teach accredited business owners how to invest in alternative asset funds. And today we have on the show one of my friends from Go Bunants, Matt Faircloth. Welcome to the show, Matt. And today we have on the show one of my friends from Go Bunants, Matt Faircloth. Welcome to the show, Matt. Welcome to the show, Matt. Welcome to the show, Matt. Welcome to the show, Matt. Welcome to the show, Matt. Welcome to the show, Matt. Welcome to the show, Matt. Welcome to the show, Matt. Welcome to the show, Matt. Welcome to the show, Matt.

matt_faircloth___themattfaircloth:
Pascal, thank you. And it's an honor to be here. And I want to tell you that I think this show is awesome. And I think what you're doing is great. And it's very needed in the world. So I think thank you for doing the show. And thank you for having me. Thank you.

pascal_wagner:
Thanks man. Hey, so to kind of like just dive right in, give us your story in relation to how you started investing in funds. How did you maybe

matt_faircloth___themattfaircloth:
And

pascal_wagner:
earn your way up to investing in funds? Yeah.

matt_faircloth___themattfaircloth:
Yeah, well, you know, okay, so I quit my day job in 2005. I was a traveling sales rep that working for a company called Ingersoll Rand. They make heavy machines that are big and are loud, you know, and I used to sell them all over the place. So, but I knew there was a better way and I read Rich Dad Port ad and that turned my eyes to the possibility of investing and making a living from investments versus making a living hours for dollars. And so Richard Porto opened my eyes, but his another book that he wrote called Cashflow Quadrant completely, you know, if that blew my, opened my eyes, that blew my head off, right? So Cashflow Quadrant taught me about the concept that I was working for Ingersoll Rand. Good job, but I was an E employee. And I needed to transition over to being a B, which is I am now, I'm a business owner and my business is called the Dorosa Group. But I'm also an I, which is what we're talking about today, a investor making my living off of investments. Since 2005, I quit my job to become a real estate investor full time. Now, at that time, I was buying the multi-families or the small duplexes, triplexes, single-family homes, whatever, and land-loathing themselves, collecting the rent myself, and dealing with tenant issues and tenant ins and outs and repairs, whatever. own and that makes me either S or a B from his language. I eventually built the business up and had some additional income come in. By that point, once I built my business, I drank the Kool-Aid on real estate investing, a real estate in general as a place to invest. Where else am I going to put my extra cash, but back into real estate? That's been my path. I am a firm believer, Pascal, in investing in things that you know. I don't want any Bitcoin because I don't know it. Not because I think it's bad, but because I don't understand it. And I haven't researched, I don't know that space, but I know real estate really, really well because I'm an operator as well. I'm active in real estate. So most of my passive work is in real estate as well because it's something I know very, very well.

pascal_wagner:
Totally. So when you were working through the Doros group, so you started putting money into your own deals,

matt_faircloth___themattfaircloth:
course.

pascal_wagner:
then you, at some point, you started transitioning off. I imagine you kind of built an in-house team at some point and then

matt_faircloth___themattfaircloth:
Yes.

pascal_wagner:
you're kind of removed, but you're not technically an LP, but you're experiencing what it's like to be more hands-off. Is that what I'm getting? I'm not sure. I'm not sure. I'm not sure. I'm not sure. I'm not

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
sure. I'm not sure. I'm not sure.

matt_faircloth___themattfaircloth:
Well, yeah, that's the first thing you do is as a business owner, you end up investing in people, right? And so my rate of return on investing in people that can do things that I used to do myself is astronomical because it frees me up to then put my time elsewhere because that's why I think investing is not just about getting a return on your money. It's also, it also could be about producing time. That's an investment as well. because it produces time that I can put towards other money making activities or just put towards joy, put towards something else that I wanted that I'd rather be doing. And so I think that that's really the mindset that I've always had is how can I buy time? How can I buy cash flow or buy time with the money that I have? And so that was what investing in my business produced for me. So yeah, I no longer show units to tenants because we just got more units than I could the time doing that on. But we've got good people that do that. And I've also got good people that help us find deals and good people that underwrite those deals. And they do a lot of the things that I used to do that have enabled me to grow and focus my time on what I'm great at, which is raising capital for, because we also, I can speak on both sides of this conversation. I also aggregate money for real estate activities, but I also put my money into real estate activities too, sometimes in my business and sometimes in other people's stuff.

pascal_wagner:
Yeah, yeah, so maybe give me an idea of

matt_faircloth___themattfaircloth:
Thank you.

pascal_wagner:
how much total have you invested as an LP, and then maybe we can even talk about like an aggregate as a GP, an LP together.

matt_faircloth___themattfaircloth:
Sure.

pascal_wagner:
And then, yeah, let's start there.

matt_faircloth___themattfaircloth:
Yeah, probably, well, I've put a lot of money out and gotten it back, but if you total it all up, well, yeah, about a half a million, at least, if not more, that I've put into projects and I've gotten it back, or I still have it working right now. I'm not sure if you can see it, but I'm not sure.

pascal_wagner:
And so you've talked about you invest on your own and

matt_faircloth___themattfaircloth:
Mm-hmm.

pascal_wagner:
you know real estate and you can continue building that up. Why invest in other funds as an LP when you can continue doing it yourself? And so I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point. I think that's a good point.

matt_faircloth___themattfaircloth:
Well, sometimes you don't have a deal. You know, sometimes I wish Pascal that I always had an opportunity as an operator

pascal_wagner:
Thank you.

matt_faircloth___themattfaircloth:
for to invest in, but as you know, being an operator yourself. So sometimes there's just not a thing. And it's not that I, oh, it's not that, oh, the roster group has this opportunity, but it's kind of crummy. So I don't put my money into that, you know, it's that we still don't have a deal. And sometimes I'll, you know, produce a capital check for something that I have working and I want to redeploy it. your group just doesn't have a thing right now. I don't have a place to put the capital. So you can't force it. It's the worst thing you could do as an investor is to force money into a thing. And so I will put it somewhere else. So I've got several investments into other syndications that are what one's a fund of a with a multifamily operator that's in a bunch of different markets and stuff like that. Really, really well-seasoned big operator in that. No multifamily. I know this operator really, really well. And so that just made sense. And we've also invested quite a bit in our own deals, not just a because it's good to do that, but also b because they're good opportunities. And I want to, I want to be on both sides. I want to be a want to make GP profits, but also I want to make the LPs typically win before the GP does. So

pascal_wagner:
Yeah, totally.

matt_faircloth___themattfaircloth:
it's actually better to be an LP than it is to be a GP in a lot of ways.

pascal_wagner:
Yeah, why'd he say that?

matt_faircloth___themattfaircloth:
Yeah. last. I mean, when a if you're an LP looking at a deal, right, the arrangement should be where the GP likely gets some compensation for the sweat equity they put into the point of closing, right? So some LPs that don't really understand things get squirrely about us as GP's charging a fee for closing like an acquisition fee, right? Well, at the end of the day, we don't, you know, this isn't a this isn't a We do need to make some kind of money for what we do. And there's a lot of legwork that happens to get the deal to closing and not just get that deal. We maybe had to make offers or underwrite 70 or 80 deals before that one deal gets to the table. And so it's not just compensation for bringing that deal to closing. It's also compensation for every deal we said no to

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
to get to that. Yes. And that. So the GP makes money there. But then the LP. LPs get all the profit in either their preferred returns or in their share of cash flow. It's a very LP slanted conversation as it should be in the beginning. And that's why the LPs win because the LPs get first slice of cash flow from closing up until the deal is stabilized. Once the deal gets stabilized and the GP typically gets to eat a portion of what they've worked to generate. from closing on, the GP gets a asset management fee, which is good, but it's very hard to live on that. That's really just enough to keep your team fed and to keep your lights on. The GP principles likely don't get very much of that at all of the asset management fee if you've got a good team.

pascal_wagner:
totally and there's tons of expenses that go into that like

matt_faircloth___themattfaircloth:
Yes,

pascal_wagner:
illegal and you know

matt_faircloth___themattfaircloth:
overhead

pascal_wagner:
internet

matt_faircloth___themattfaircloth:
and yeah,

pascal_wagner:
yeah

matt_faircloth___themattfaircloth:
right, all that stuff, right? So yeah, that gets consumed pretty quick. So

pascal_wagner:
again.

matt_faircloth___themattfaircloth:
then the GP then gets a big, hit when the property sells or refinances or whatever, yet again, as they should because that's the promised land. I got the deal to where it should go, but a good GP might invest two to three years into the project to get the deal to that slam dunk, to that level of profitability, and then they get a big check. But guess what? They earned every penny of it to get the deal to that point. That's a good win-win arrangement. If you're an LP looking at a deal, that's what you want to see. GP getting an okay check in the beginning, but then some breath holding until they get a nice check again.

pascal_wagner:
Yeah, and what kinds of deals are you getting into? Is it all multifamily? Is it span of couple

matt_faircloth___themattfaircloth:
Mm-hmm.

pascal_wagner:
things? And then

matt_faircloth___themattfaircloth:
No.

pascal_wagner:
when you're investing, like what is your objective? Are you like a cash flow, or are you equity growth, or a mixture of both? And like how do you decide?

matt_faircloth___themattfaircloth:
Yeah. I mean, equity growth is good. Equity growth is kind of getting put up on a pedestal the last five years because if you look at a lot of investments, it's been, you put in a dollar, you pull out $4 in a year or two. It's like a magic trick. That's because appreciation is we're all riding a wave that we didn't create, but everybody's looking like a genius right now, pounding their chest saying, look what I've done. I've made my investors all this And so that's through appreciation or through equity growth, right? But I am a student of Kiyosaki and he's always been talking about cash flow. He's always talked about cash flow. He's rarely talked about appreciation and riding waves and that kind of stuff. That's just participating in the market, which I can't really control. So I am far and away, Pascal, I'm a cash flow investor. And to me, appreciation is a nice icing. you know, maybe a little cherry up on the top, but the ice cream, the part you should be really aiming for is the cash flow on the investment.

pascal_wagner:
I like that. Okay, so when you're investing in for cash flow and

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
the types of investments that you're making, are they cash flowing on day one? Are they cash flowing

matt_faircloth___themattfaircloth:
Thank you. Thank you.

pascal_wagner:
six months from now? Do you have to wait two years until something stabilizes? And

matt_faircloth___themattfaircloth:
Sometimes.

pascal_wagner:
then, yeah, in what asset classes?

matt_faircloth___themattfaircloth:
Sometimes. So I am not a tax sensitive investor because of my, I'm going to use the three letter word because of my job as a operator. I get a lot of write offs because of the cost sags and negative K-1s I get to participate in. So because of that, I'm not as sensitive towards investing in things that are tax income tax leveraged. The doctor or physician or lawyer that's listening to this right now that's making mid six figures is certainly gonna be very, very tax sensitive. And so I can't speak to that. One of your other guests will have to talk about that because I invest for cash flow because I don't care as much about where the taxes come from. I do invest in syndications, I believe in them, but I also invest in things that are not tax leveraged, not tax benefits, such as hard money loans. And so I've got probably 50% of my investment of my portfolio that I've got right now in passive is in hard money loans. Because they cash flow day one, you know, they cash flow day one and they're collateralized. So there I am protected, arguably a little bit better than a syndication would be, although I've got upside equity and that's what you trade. Is a hard money loan, somebody could smack it out of the park and make like hundreds of thousands of dollars and flip or on the project that you're invested in and you get none of that. Like they get all that. That's all theirs. There's no upset participation, which stinks on a hard-bending loans, but they're making monthly payments at favorable rates. Could it be even be double-digit rates and you're collateralized with some sort of a lean on the property personal guarantee, some means to guarantee that you're going to get your money back. So hard-bending loans are probably like right there with syndications only because syndications are a good way to ride upside. But if you take tax off the table, the hard-bunny loans I think are a great, great investment.

pascal_wagner:
So, and like, when you're thinking about these deals, is it like, hey, I have 50 or 100K that's come in

matt_faircloth___themattfaircloth:
Yep.

pascal_wagner:
and I'm now trying to figure out what to do with it. And it's like, cool, I just got an email about this opportunity, let me see if this is good, or how are you finding your deals, and yeah, tell me about that process. And so, I'm gonna go ahead and do some of these and I'm gonna go ahead and

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
do some of these and I'm gonna go ahead and do some of these and I'm gonna go ahead

matt_faircloth___themattfaircloth:
I

pascal_wagner:
and do

matt_faircloth___themattfaircloth:
tended

pascal_wagner:
some of these

matt_faircloth___themattfaircloth:
like I like to keep my finger on the pulse with it was funny. It's so like serendipity, but like truth be told, like, you know, open, open, open ideas here or open kimono, whatever you want to say. I was late for this call with you because I was talking to one of my borrowers. It's just truth. I was talking to one of my guys who's got a project in in down in Florida. And just just staying in touch with where the project is, how it's going, whatever. So I tend to talk to my operators pretty quickly. And the guy in Florida I just talked to gave me the good news that the fix and flip that I invested in into a hard-bunny loan just went under contract for sale. So now I know Pascal that I gave him 80K. So the 80K I gave him is about to come back. So he's under contract, right? So it's probably 45 days out. So now is when I'm going to start shopping around and where I'm going to put that 80K I'm starting that conversation now on where that goes. Cause I don't, like the worst thing you could have right now is money sitting on the shelf that could be deployed. That's beyond what your security blanket money is. You know, we should all have some security blanket money of just cash, just sitting on the shelf. You're like, just in case, you know, you know what hits the fan kind of money.

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
But beyond that, if you got money that's just sitting, it's dead, it's not growing your net worth. And so that ADK, I am now, now that I know it's coming back, the rest of my week, today's Thursday, so I'll probably be making calls later on today and tomorrow to operators that I trust to ask what they're up to. I'm on a lot of people's email blasts and that kind of stuff. So if I see a new deal announcement come up, I'll reach out to that operator direct and find out when they need the capital that's for the syndication. For that money, the other thing I'd like to do, that is coming out of a hard money loan. So I will likely want to deploy it back into a hard money loan, because I don't want to change So if a syndication comes back, like we've got a syndication that we are in on that's refinancing in the next couple of months, so we'll be getting about 40% of my capital back on that, I'm going to look for another syndication to put that money into, right? Because I like my blend right now. So

pascal_wagner:
Yeah,

matt_faircloth___themattfaircloth:
it's

pascal_wagner:
yeah, yeah.

matt_faircloth___themattfaircloth:
important to trade like for like if it comes back, if that makes sense. You know?

pascal_wagner:
Yeah,

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
yeah. And you've talked, you have like this set of operators that you now have that you trust. Like how do you think about this process of figuring out which operators you wanna work with? And how do you figure out? Like do I wanna be in a fund that's like they buy multiple assets under one or figure out a syndication? And so, I'm gonna go ahead and do that. I'm

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
gonna go ahead and do that. I'm gonna go ahead and do that.

matt_faircloth___themattfaircloth:
It depends on the operator. It all goes back to the operator. The fund, I mean like, there's a lot of brand new operators that are just getting going that are starting funds. And I don't think that that's the right investment for me anyway. The funds that I'm in on, I'm only in one multifamily fund. And that's with an operator that's, you know, that his company owns like, you know, in the five figures of multifamily assets. And they've been around for a while. So that's one that I'm open to. to not gonna invest in a fund for somebody who doesn't have that level of diversification, that level of deal flow.

pascal_wagner:
Operating experience.

matt_faircloth___themattfaircloth:
Yeah, that deal flow and everything like that. Because there's a lot that goes into a fund, right? I mean, like, for if it's a multifamily fund, you've got to show that they know how to take a deal from beginning, middle to an end on a regular basis. They didn't just get lucky a couple times, that they know how to, you know, cycle it through. I like folk. I like syndicators. that are vertically integrated, meaning like they do the acquisitions in-house, they're capital raising in-house, and that I personally would not invest in a fund that doesn't have operations in house too. There's a lot of funds out there that do it, I'm not bad mouthing those that are like that. That's just not my thing. I wanna invest with somebody who's got like control from cradle to cradle, cradle to grave, you know. I'm not gonna say that, I'm not gonna say that, I'm not gonna say that.

pascal_wagner:
because they can better, you know, keep track of expenses and make cuts where they need to or whatever, yeah.

matt_faircloth___themattfaircloth:
Yeah, they didn't just underwrite a deal a certain way to make it look good to me. They actually are beholden to me throughout the life. And they can, and if the deal starts to get squirrely and they know that it's, it's off the business plan, they can do what it needs to, what needs to happen to bring it back on. If it is a fund manager that invested in somebody else's deal, that fund manager has less control. If things start to get squirrelly with the investment, they just do, you

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
know? Yeah. That's just my fly.

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
Again, this is, this is like operator Matt talking now. You know,

pascal_wagner:
Yeah, yeah, no look

matt_faircloth___themattfaircloth:
yeah,

pascal_wagner:
it's helpful right because like

matt_faircloth___themattfaircloth:
yeah.

pascal_wagner:
there are a ton of different people that come from different backgrounds It's like I either came from real estate and I'm looking to invest in other real estate deals It might be hey, I'm you know I have a business owner that's a service business or I'm a doctor or whatever and I'm

matt_faircloth___themattfaircloth:
Mm-hmm.

pascal_wagner:
I don't have expertise in these asset classes And so I'm trying to find the expert what I'd love to do is dive into let's let's take a step back down memory lane And and talk about maybe your first fund that you invested into as an LP. So

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
you've done a couple deals on your own. What led you to get there? And

matt_faircloth___themattfaircloth:
Hmm.

pascal_wagner:
how did that unfold?

matt_faircloth___themattfaircloth:
Yeah, I mean, my first fund that I got into is just the one was one that I, it was not my first investment. Yeah,

pascal_wagner:
Or syndication, you know?

matt_faircloth___themattfaircloth:
yeah, yeah.

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
No, well, the first investment I ever made as an LP in general was a hard money loan. And I think that hard money loans, it's hard to beat Pascal, you know, with regards to getting started, because it's, you're just, you know, lateral, you can look and see the asset. This is the hard-binding loan that we did, was right around the corner from where my wife and I lived. So it was with a local flipper that was like air-quit buddy of mine. To go see where it was and go touch it and look and see, I was one of three hard-binding lenders on that deal. So I knew I was not, I was part of a pool of investors. And he separated us, so it was like lean one, lean two, lean three on the property. But it was a good way. 25k. So all the things I like about hard money, and I wasn't sure if I was accredited at the time in that deal, because, and you don't have to be for a hard money loan. That's one of those things that it's a misconception. To do a hard money loan, you don't have to be accredited. And it was a good way to put some extra cash we had to work. I mean, it's not life changing money. I think we made like 10% on our money at 25k.

pascal_wagner:
Yeah, but you gotta

matt_faircloth___themattfaircloth:
So

pascal_wagner:
start somewhere,

matt_faircloth___themattfaircloth:
yeah,

pascal_wagner:
you know?

matt_faircloth___themattfaircloth:
but you build the snowball, right? And so I think a great place to start.

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
And a lot of it, if you, if you hang out around RIAs, you know, people that are operators and stuff like that, operators always

pascal_wagner:
Riaz.

matt_faircloth___themattfaircloth:
are going to need, yeah, oh, real estate clubs, real estate investment associations.

pascal_wagner:
Got

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
it. Good. Got it.

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
Okay, so you started in hard money loans.

matt_faircloth___themattfaircloth:
Mm-hmm.

pascal_wagner:
You basically had someone that you know that was doing this.

matt_faircloth___themattfaircloth:
Mm-hmm

pascal_wagner:
And then they approached you and were like, hey, I've got this deal. Like, do you want to participate? And then you were like, okay, I kind of know the guy. I can touch and see the soil. And

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
that felt like a good. And then you were like, okay, I kind of know the guy. I can touch and see the soil. And that

matt_faircloth___themattfaircloth:
For

pascal_wagner:
felt

matt_faircloth___themattfaircloth:
that

pascal_wagner:
like a

matt_faircloth___themattfaircloth:
one,

pascal_wagner:
good.

matt_faircloth___themattfaircloth:
it was just gut. I got trusted him. I knew he was gonna do right by me. I knew their track record and that. So it was really just about trusting the person. Now, that's part of it now, but we're a little more seasoned in that. So the investment is a whole different. Like there's a lot more that goes into evaluating our hard money loan on a project versus

pascal_wagner:
Tell me about that.

matt_faircloth___themattfaircloth:
gut.

pascal_wagner:
Like,

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
cool, you did

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
your first investment and then you're where you are today. So what were the learnings? What were mistakes

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
along the way? Yeah.

matt_faircloth___themattfaircloth:
Yeah. Well, that deal, we got in not needing monthly payments or not, just like, okay, it's fine. Pay me a monthly payment towards the end. I like to get monthly payments now. I mean, I wrote a book on this thing, Raising Private Capital, The Bigger

pascal_wagner:
And

matt_faircloth___themattfaircloth:
Pocket,

pascal_wagner:
we'll link that.

matt_faircloth___themattfaircloth:
published. Yeah. But anyway, no, that's fine. And what I'm saying is on the operator side, you want to try and negotiate no monthly payments because it helps cash flow. I talk about that in the book. You do want monthly payments because it helps you your personal cash flow. It helps, you know, in some ways it actually helps you gauge the deal health, you know, that you know that they got a pulse and it's like your pulse of the deal is that check, right? It's

pascal_wagner:
If

matt_faircloth___themattfaircloth:
the

pascal_wagner:
someone

matt_faircloth___themattfaircloth:
heartbeat.

pascal_wagner:
reduces your risk of the investment.

matt_faircloth___themattfaircloth:
Yeah. Yeah. I can't go running away from you because they just owe you their principal and it's not like principal and interest piling up and up and up and up and up, right? I like monthly payments. I also like operators that they're only in one type of thing. So the first investment we did, it was like they were on two or three fixed inflips and they had a couple of rentals and they also were a wholesaler. But they were a buddy of ours and we liked them and we knew what they were capable of. It was also close to where we lived and the loan to value was favorable. It was like 65% LTV all in when you add it all up. So all those things. It's not good. Now, I like investing with small to mid-sized businesses that the guy I was talking to that I was late for this call on, he's got 17 fix and flips going on right now. He's got three crews of construction teams that work for him. He's not hiring anybody. He doesn't pick up a paintbrush anymore. He's only in two markets. He's in North Jersey. he and he's in Sarasota, Florida. That's it. He's a legit business. He's been around for a while and he's sold probably over 100 homes in his career. He either sells them, he refinances and rents them out with his own property management company or he Airbnb's them. That's what they do in Sarasota, Florida. They've got a good business plan. They've got a website, they've got a team, the whole thing. for me because they did their seasoned well run outfit. So, uh, and I like him. And I, oh, my

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
other factors are there too. I still like him. I still think he's a good company. I still believe in what he's doing and he's, you know, proven track record and everything else. So.

pascal_wagner:
Yeah, I mean, I follow a similar sentiment to you. I think when I first started, yeah, I gave hard money loans to this person. But what I'm realizing now, and especially now, I think you're seeing it with the tide going out with the

matt_faircloth___themattfaircloth:
Yep.

pascal_wagner:
economy and what's happening, is like, okay, the people that are doing deals and they do a bunch of other things. Oh, I have this short-term rental portfolio and I do these house hackings and I run this multifamily and it's like, unless you have a team Underneath running all of those things like there's no way that that operator

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
is going to like I want someone if I'm gonna give them my money For them to be 100% focused on delivering returns

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
and not being distracted

matt_faircloth___themattfaircloth:
Pascal,

pascal_wagner:
anywhere else

matt_faircloth___themattfaircloth:
I would never, with the tide going out, as you said, we could look at it, right? There's no way I would invest with a single operator right now, you know, with meaning like, like somebody running this thing, you know, out of their guest bedroom. And they're the only, and there is a time for that. And I was that person. That's why I'm like, I feel like I'm being a terrible, you know,

pascal_wagner:
Yeah, yeah,

matt_faircloth___themattfaircloth:
guest

pascal_wagner:
but you

matt_faircloth___themattfaircloth:
right

pascal_wagner:
learn,

matt_faircloth___themattfaircloth:
now.

pascal_wagner:
you know?

matt_faircloth___themattfaircloth:
What's that? You

pascal_wagner:
We,

matt_faircloth___themattfaircloth:
learn?

pascal_wagner:
we, yeah,

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
we learn.

matt_faircloth___themattfaircloth:
Well, that single operator, they're not going to starve to death. They have other places to this should go to get capital and that. So I went to like immediate family when I was a single operator, which is my wife and I. And I didn't take it to the next level until my wife and I had proven a track record with our own money and with immediate family's money. And that's where single operators should go. But as the tide continues to go out, the single operator that you may invest with may choose, yeah, man, this thing's too hard. I'm not doing this. I'm out. pull up anchor and go become a car salesman or something like that.

pascal_wagner:
Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

matt_faircloth___themattfaircloth:
They may decide to get out of the business, they may decide to just pivot or whatever it is and a business has deeper pockets first of all and they've also got a deeper bench that can help you out. So if just somebody has a bad day, your investment's not going to languish. So it's important to invest with seasoned companies at this point in the market cycle.

pascal_wagner:
Yeah, have you had investments where something's gone awry and

matt_faircloth___themattfaircloth:
Mm-hmm.

pascal_wagner:
what have you learned from it? Yeah.

matt_faircloth___themattfaircloth:
Oh yeah, yeah, yeah, yeah. So I've had hard money loans go. Hard money loans get to a point where I had to make tough, like, you know, tough phone calls. I've had to do workouts, you know, with folks and everything like that where it's like, okay, you owe me 50K. And I get you can't get that to me right now, but working to how can we get that back? You know, what's that gonna look like? We move the coli, you know, we've had to have the difficult conversation. And if you don't, finger on the pulse and do what I just did, talking to my heart money and let my borrowers about once a month or so, you are going, you may end up getting that surprise about them calling you or like me not calling you. Like you letting it go like six months and reaching out and saying like, hey man, what, that 50K I gave you, is that still alive? Oh yeah, I mean, guess what, you know what? That deal didn't go so well, you know? So I don't wanna have that surprise. I like to stay in the loop on it and everything. And so yeah, we've had stuff, over these kinds of things, but I've had to negotiate workouts with people and it stinks, but it is what it is, it's just part of the business.

pascal_wagner:
Yeah, yeah, I imagine like individual loans scare me a little bit. Like I've done hard money loans before.

matt_faircloth___themattfaircloth:
Mm-hmm.

pascal_wagner:
But, uh, like why, why like a hard money loan directly versus like a debt fund?

matt_faircloth___themattfaircloth:
It's not, I mean, debt funds are great. We're thinking, you know, we're thinking, I like our money so much, my company's thinking about launching a debt fund. There's nothing wrong with that. It's just that understand that what you are participating in, I think that the LP would need, I personally would not invest in a debt fund. And the only reason for that is because I'm also by trade and active operator too, right?

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
And I got the time I can put in conversation with my borrowers, where's this, where's that. If I had a demanding day job or something like that, I would certainly be investing in a debt fund and understanding you're gonna get deluded, right? Like, because you got somebody like me that's standing between you and where the money's going and making underwriting decisions and putting your money to work and acting as your custodian, right? So if I did not have time, I would invest in a debt fund. But because I do, and because this is what I do,

pascal_wagner:
Totally.

matt_faircloth___themattfaircloth:
yeah. to make the full burden profit by putting my money to work. And that's like, if you're going to give up some of your time, if you're the cardiologist that doesn't have the time to go find investments and chase borrowers around, then you're going to give up a little bit of your profit and that's okay in exchange for your time. You just make a mailbox money legit. And hard-bending loans are not mailbox money all the way. It does take time to maintain them

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
properly anyway. So.

pascal_wagner:
So someone is like investing or looking to invest in one of their first deals. What advice or what steps do you have that you would recommend? Like pretend I haven't invested in a deal or forever

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
is listening. It's like,

matt_faircloth___themattfaircloth:
Yeah,

pascal_wagner:
you know,

matt_faircloth___themattfaircloth:
first

pascal_wagner:
from the

matt_faircloth___themattfaircloth:
investment.

pascal_wagner:
Matt Faircloth,

matt_faircloth___themattfaircloth:
Yeah, I,

pascal_wagner:
yeah. Yeah. Yeah.

matt_faircloth___themattfaircloth:
here's what I strongly suggest. And I tell this to those that invest with my company as well. The returns on the deal should be your like third thought, you know, because if you're investing in a deal that's, that's quoted to produce like 18, 19, 20% IRR, it doesn't, first of all, it doesn't matter. This does, that's just smoke and mirror numbers on a piece of paper, on a piece of paper, right? If it is your first or second or third investment, you should be investing with an operator that's got, you know, that aligns with your core values in a market that you know, like if you've never even heard of the market they're investing in, then you might want to research the market first. Like if they're telling you they're going to invest in Dallas or like we do, we invest in a couple of cities in North Carolina and in Kentucky, right? So if you are familiar with those markets or if you want to research the markets to make sure the markets, the market tea leaves make sense to you. place, like should I invest in Detroit? I don't know. Let's Google it. Let's find out. Let's talk to some friends I know that live there or whatever. And to be straight, Pascal, if you really start looking behind the numbers, you'll start to see things that maybe look too good to be true. And if things could look too good to be true, then they probably are. And investments that you make, especially in the very beginning, should not be speculative at all. And it certainly should not have to stay down or cap rates have to stay down or whatever it is for the investment to be profitable. So I would like run a worst case scenario test on the deal and it's like, well, you know, if the market completely goes terrible and you know what hits the fan, well, at least get my money back. Yeah.

pascal_wagner:
Yeah, totally.

matt_faircloth___themattfaircloth:
Yeah. And that's, so these are the kind of questions you should be asking, certainly not with the operators telling you the rate of return is going to be because I know as an operator myself that these are all our best. ideas and what we think the deal is going to do, we can't predict the future. So we're going to do our best and the right operator you pick is going to do their best to get you the best return they can. And that's you want to bet on is the operator that's been around for a while, that's going to do whatever it takes alongside you, maybe not the deal that looks the best on paper.

pascal_wagner:
Yeah, yeah, and then do you have a process for how you evaluate operators, or before you mentioned a gut feeling,

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
are all the operators you invest in like that? Do you spend X number of hours with each of them? Do you, you know? I don't know.

matt_faircloth___themattfaircloth:
I like to talk to at least one other person that has. I mean, the only operators I've invested in are operators that my friends have money with first, right? So if I hear that you and I are both in go-bundants, right? It's a lot of folks invest passively in go-bundants and that, so I tend to follow people that are smarter than me. I've got several hard money loans with alongside other friends of mine in go-bundants. Like, oh, they're getting in, okay, I'll do that too. Or they're

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
investing passively with that person, I'll do that too. people I respect that I know they do a lot of due diligence and I know that they're seasoned savvy investors and that's I tend to follow people I respect that are maybe a few steps down the road from me in the a quadrant world and and that's that's another thing that I do when it comes to vetting and then I also talk to I try and talk to the operator or at least somebody on their team to have a phone call with them you know ask them questions about what their long-term game plan is with their long-term goals are that kind of thing what else they got going on that's not like okay we're buying this multifamily asset, what else is your company doing? While we're doing some fixed inflections, some hard-binding loans, we're doing some wholesale, we're doing some of this, some of that, some of this, some of that, no, you're a dabbler. I'm not investing with a dabbler. You know, I want somebody who's built a business and a brand around that thing that I'm investing in. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.

pascal_wagner:
Yeah,

matt_faircloth___themattfaircloth:
Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.

pascal_wagner:
yeah. I mean, also another opportunity to have you on the show as a GP so we can talk about the DeRosa group. But

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
because I have you on, let's like, what are maybe some things now that you've spanned both sides of the spectrum being both a GP and an LP? What are maybe some things that as an LP don't make sense to me? Or, you know, like, or, you know, I could see when you're, you talk to LPs, right? Cause

matt_faircloth___themattfaircloth:
Yeah,

pascal_wagner:
you raise

matt_faircloth___themattfaircloth:
all

pascal_wagner:
your

matt_faircloth___themattfaircloth:
the

pascal_wagner:
own

matt_faircloth___themattfaircloth:
time.

pascal_wagner:
funds too.

matt_faircloth___themattfaircloth:
I do.

pascal_wagner:
Some of them are like, your fees are too high, or they have some sort of objection.

matt_faircloth___themattfaircloth:
I can explain that. I'm like, well, So-and-so does it only take this kind of fee? Well, yeah, let's go into his business structure and I'll show you where they actually are taking the fee and not telling you about it. At least I'm disclosing it to you. Because

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
we have people who question our acquisition fees when we take down a deal. They're like, well, you guys are taking 2%. So-and-so is only taking one. Okay, he's also taking, she or them are also taking a sponsorship fee and a placement fee and a this fee and a that fee. And guess what? It actually magically adds up to 2% as well. Huh, how about that? But at least I'm telling you straight up. I don't take any other fees except what I tell you about, right? So the fee thing doesn't bother me. What makes me scratch my head and go, huh, that a lot of LPs come at me at is value add syndications that magic, very dust, cash flow the first day that you buy them, you know, that are producing a preff or that are able to meet full burden investor returns, And let's discuss that for a second, you know.

pascal_wagner:
Yeah, let's break that down. Wait, value

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
add means you have a property and you're renovating it to improve it. So renovating

matt_faircloth___themattfaircloth:
Yeah,

pascal_wagner:
takes

matt_faircloth___themattfaircloth:
I'm

pascal_wagner:
time.

matt_faircloth___themattfaircloth:
buying it for X. I'm gonna do something to it and it's gonna be worth Y, what I'm done doing what I do, right? And likely, I mean, unless you just found the deal that nobody else was knowing about, likely the deal is not gonna cash flow very well the first day you buy it. Just real estate just does not, it hasn't cash flowed like that in years. You gotta make a good deal. You gotta buy a deal performing and make it perform well, and in that operation of making it perform well, that is where you produce cash flow, but it's not the first day you buy it. And that's what's beautiful about multifamily is because you can buy it for X and it could be worth like two X within a reasonable period of time through work.

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
But it rarely produces a profit in the first year. to as well. Johnny McDonald's down the street is doing a deal and he's offering me my pref of 6% or 7% whenever it is. The first month they're paying out their pref. Where do you think that money is coming from, man? It's not coming from the deal. I'll tell you that. It's because they raised it and now they're just giving you like, that's your money back.

pascal_wagner:
Yeah, and now you're getting taxed on that.

matt_faircloth___themattfaircloth:
They should be just sending you back turn check with your name on it. That's your money. It's like a magic trick. LPs don't realize that. LPs look at a check in the mail as a sign of health on a syndication, a private loan. It is a sign of health, but on a syndication, I've seen syndicators and operators keep their investors in the dark and just pay them a pref and say, okay, investor, you're getting check, that must mean that you're healthy. That must mean we're doing well, as you're getting your monthly distribution or your quarter of distribution or whatever. And for us as a GP, we don't do that. We pay either a portion of cash flow with no pref, or if the pref can't, if the deal itself can't afford to pay the pref that month, we will accrue it all day long. And we'll hold on and it'll owe the pref the next quarter or two quarters or whatever. We are keeping the deal healthy and not just throwing an investor a check on a quarterly basis. That's probably the biggest frustration I have, Pascal, is that there's other operators out there that are just paying no matter whether they really can or not. They're just paying investors to keep the investors quiet.

pascal_wagner:
That's fascinating. I haven't come

matt_faircloth___themattfaircloth:
That's

pascal_wagner:
across that yet,

matt_faircloth___themattfaircloth:
my

pascal_wagner:
but

matt_faircloth___themattfaircloth:
thoughts

pascal_wagner:
that's,

matt_faircloth___themattfaircloth:
about that.

pascal_wagner:
yeah, yeah. Lots of, yeah, I imagine as an operator, it's really difficult to set

matt_faircloth___themattfaircloth:
Yeah.

pascal_wagner:
yourself apart to help ease when you have, yeah, with the markets being so high recently and now coming down, we're seeing that change a little bit, but yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.

matt_faircloth___themattfaircloth:
Yeah,

pascal_wagner:
Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.

matt_faircloth___themattfaircloth:
a lot of operators have had to stop prefs, you know, that used to pay like clockwork have had to stop that because of things like rates rising and rate cap, the cost of rate caps and rate cap escrows and I don't have to get into all that, but if we can if you want, but just by the economy changing, let's say, they are not able to or have decided to cease paying their investors. And a lot of investors are starting to scratch their head and be like, well, you paid the pref the whole time. And you know, what happened? Well, yeah, that's because we ran out of money, because we can't do it anymore. You

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
know, so I think it's, you know, you got to look beyond the preff as investors and start looking at profit and loss statements and looking, you know, looking at more about the deal, that you know, know how to read a P&L, that's Kiyosaki 101. As an LP investor, you need to be qualified to know how to read a P&L, know how to read a balance sheet and make sure your operator is sending

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
read them and then make sure they make sense when you get them.

pascal_wagner:
Yeah. Man, Matt, this was awesome.

matt_faircloth___themattfaircloth:
Okay.

pascal_wagner:
I appreciate this. This was amazing. Learned a

matt_faircloth___themattfaircloth:
Thank

pascal_wagner:
ton.

matt_faircloth___themattfaircloth:
you.

pascal_wagner:
And things to look out for as an LP. And where can people find you, Matt?

matt_faircloth___themattfaircloth:
Sure, I really see dorosagroup.com, D-E-R-O-S-A, dorosagroup.com. They can hear all kinds of stuff that we offer from a passive standpoint. And they can contact me and my team there as well, if you guys wanna pick my brain a little bit further about my thoughts on the world. And although my crystal ball's broken, Pascal, who knows, man, who knows? But

pascal_wagner:
Yeah.

matt_faircloth___themattfaircloth:
I do have thoughts on where I think things are going and we try and stay a bit ahead of that as operators and as passives too.

pascal_wagner:
Yeah, and you have an email list and podcasts as well.

matt_faircloth___themattfaircloth:
Yeah, I did a podcast, but I tried that, but it didn't work out. That's all I commend you for doing this, man. There's a lot of work running a podcast. Uh, I'm just, I just take the lazy road and go on good friends, podcasts like yours, uh,

pascal_wagner:
Hey.

matt_faircloth___themattfaircloth:
as, as a guest to, uh, to, to do that, but I don't have a show right now, but they can certainly join our email list at that. DeRosa group.com.

pascal_wagner:
Cool. Well, thank you again, Matt, and thank

matt_faircloth___themattfaircloth:
You're

pascal_wagner:
you

matt_faircloth___themattfaircloth:
welcome.

pascal_wagner:
everyone for joining us.

matt_faircloth___themattfaircloth:
Thank you.