Grow Your Cashflow Podcast

Pascal Wagner:
All right. Welcome to another episode of the Legacy Wealth Podcast where we help accredited business owners learn anything and everything there is to investing in funds. And today we have on the show one of my good friends from GoBundance Pasha. And he is he used to be a professional poker player. You know he dropped out of college and to make money playing poker. And then in 2011 he finally got into real estate where he started. flipping homes at auctions and you know since then has been involved in over $250 million of transactions in real estate across all different asset types anything from multifamily to mobile home parks to boutique motels and then in recently he has built up evoke capital which their primary objective is to help others achieve financial freedom through real estate investing and to date. They've invested in over 1300 units. So I'm excited to have Pasha on the show. Welcome, welcome to the show Pasha.

Pasha Esfandiary:
Thank you Pascal, I appreciate being here. Let me ask you a question, did you avoid saying my last name? Because,

Pascal Wagner:
I did, we've

Pasha Esfandiary:
because there,

Pascal Wagner:
known

Pasha Esfandiary:
there,

Pascal Wagner:
each

Pasha Esfandiary:
there,

Pascal Wagner:
other for so long and I still...

Pasha Esfandiary:
there was a pause and I just, because I've done the same thing before, like I don't want to mess it up, so.

Pascal Wagner:
Yeah, okay, so give me the last name.

Pasha Esfandiary:
Sfandiari. Yeah, there

Pascal Wagner:
Isfandiar? Oh yeah,

Pasha Esfandiary:
you go. Yeah,

Pascal Wagner:
I was

Pasha Esfandiary:
I

Pascal Wagner:
totally

Pasha Esfandiary:
know.

Pascal Wagner:
gonna butcher that.

Pasha Esfandiary:
But I am really excited to be here. I think what you're doing is incredible. I think this is so needed. And I'm ready to deliver as much value as I can, man.

Pascal Wagner:
Hell yeah. Well, cool. What I wanted to do is just start out with a little bit of your background and how it relates to you starting investing into funds and that you know, I think maybe starts as early as you know, your poker career as we talked about earlier.

Pasha Esfandiary:
Yeah, sure. So, you know, my journey is a little different than most. School was always really tough for me. After about eighth grade, it just became really tough for me, ADD. You know, even though I think ADD is misdiagnosed now way too much and just so easily given to everybody, but that was really tough for me. And so, When I got to college, I just knew really quickly it wasn't for me. My brother around that time won a big tournament for 1.4 million, right? As poker was kind of blowing up. And, you know, I'm competitive. So if he could do it, I could do it. Right? Like that's how it works between brothers.

Pascal Wagner:
course.

Pasha Esfandiary:
And then, so I started playing poker, you know, either the players were really bad or I was really good. And I'm going to. I'm going to swing on the side that the players were really bad. And I started making really good money for being 21 years old and essentially travel, was able to travel the world. I was making more than most people were making in like C-suite positions. And I was able to do whatever I wanted as a kid. The trouble with that though, is that poker can highlight a lot of, um, your good habits with your bad habits. And you know, So as much as I was making money, it's not like I was ever taught in the educational system or by my parents or my father rather, because he was always gone working two jobs providing for us how to manage money. So I would go on these crazy swings with my bankroll realized very quickly on into the career when I was about 25, 26. I just realized this wasn't for me. I want to build something bigger than myself. Poker is great, but where my aspirations were in life, this wouldn't do it for me. I wanted to also be a family man. I'm really into health, et cetera, et cetera. I always knew real estate was the end game for me. So I went and interned for a family friend for three months and I learned how to flip homes. at auction site unseen. This was right about end of 2009, 2010 range and I learned as much as I could and I just kept underwriting deals forever and I found my first mobile home in a mobile home park and I finally bought after probably six months of just trying at the auctions but I just wanted to be ultra conservative on my first one. Made every mistake you can make. Made about three thousand dollars still. Got the bug and then it was just lights out since. and everything has been real estate, therefore.

Pascal Wagner:
Got it. And so you got into mobile home parks after that and you started investing across a bunch of different asset classes

Pasha Esfandiary:
Yeah.

Pascal Wagner:
right.

Pasha Esfandiary:
Yeah.

Pascal Wagner:
Talk to us a little bit about maybe all the different types of assets asset classes you've invested into and that we talked about before the show.

Pasha Esfandiary:
Sure, so I obviously started with residential and investing in that, it was kind of where I got my education, it was the lowest hanging fruit and I did that for many, many years. Then I did land up construction in Los Angeles on Hillside which was a whole other beast that I would just, it's boring, it's tedious, it sucks, I hate the city, I hate the neighborhood councils, I'm just not doing it anymore. And then after I decided I wanted to get out of residential, I was really kind of seeing what worked. I think one of... The many blessings I have is I was able to ask myself some really powerful questions. With my ADD, what can I invest in or buy that's going to have faster results to keep me occupied and interested? So I ended up getting into a motel because you see results every day and it's also a business. So if the manager is not performing, you can make instant changes quickly. I love that aspect of it. I also noticed how tedious that is as well and difficult. But then I started buying some multifamily apartment complexes in Kansas. Obviously, I'm in apartment complexes. I still have my own portfolio of apartment complexes. And then I really got led to mobile home parks for a myriad of reasons. just because I like the consistent cash flow. I like the depreciation. I like that there's a stigma around it and for all these reasons. So I've invested in all of those and I'm invested into some funds for crypto. I've invested in a bunch of startup companies, smaller amounts because I know those are very volatile. So I'm a little bit all over the place, but super focused on the real estate front, now mobile home park, very focused.

Pascal Wagner:
So what I'm hearing is, so you started out as like this college dropout who played a bunch of poker, you were making some serious money and you were doing this for five or six years. And

Pasha Esfandiary:
Yes.

Pascal Wagner:
I know how extensive that experience is, as you've told me a bunch of crazy stories.

Pasha Esfandiary:
Yep.

Pascal Wagner:
And then you started buying and getting into the real estate game. So you started with small homes and then you've slowly upgraded. further and further down the stack. You're someone who knows how to find deals and do them themselves. And so

Pasha Esfandiary:
Mm-hmm.

Pascal Wagner:
now you run your own fund that does mobile home parks. When was the point that you started to invest in other operators and not just do it on your own and why?

Pasha Esfandiary:
Yeah, I think it's been more of a recent transition in operators. I've invested around four or five years ago in businesses because that was an allocation that I don't have any exposure to, right? I was so heavily focused into real estate. Alibis, probably not that great. Businesses have a big failure rate, especially when you're investing in tech, as you know, which that has changed. My strategy has changed towards that in the latter parts of my life so far. Sorry, you got to edit this. What was the question?

Pascal Wagner:
Yeah, yeah, yeah. So what I'm trying to do is get you into, like how'd you start investing in other

Pasha Esfandiary:
Okay,

Pascal Wagner:
people's

Pasha Esfandiary:
got

Pascal Wagner:
deals?

Pasha Esfandiary:
it. Yeah. Yeah, and then then after that it was that I just was so overexposed to mobile home parks Which I think are incredible But what I really started to see now, at the point I am in my career, I like to be diversified in different avenues. So now I'm investing in some crypto funds and some other operators who are in multifamily apartment complexes. Because there's pros and cons to every single investment, and you really need to know what's gonna be highlight for you, what works for you as an investor, what's your appetite, what are you looking for? And if you can find those and be really picky then go for it. I think the second thing to really talk about there is now that I've been in the game much longer, I've met so many more operators and so now I can really distinguish who's a good operator, who's not a good operator, who has the track record, who do I trust and then I can make those decisions.

Pascal Wagner:
You said something in there, which I remember correctly. It was like, you've had this transition of starting to figure out of investing in other things. Like, why did you think that was the right transition period? Was it like, hey, 90% of my net worth is in real estate, so I want to venture out? Or is it, yeah, how did that happen?

Pasha Esfandiary:
Yeah, I think I have two different buckets, right? So coming back from my. Poker background, I understand asymmetrical bets. Let me talk about investing in the crypto fund, right? And I believe in crypto, I believe in technology. When I look at how I wanna be positioned for the future, it's like I understand what my bucket in real estate's gonna do. I understand what IRRs I'm gonna make. But I also understand there's this new tech that's coming out that I'm really excited about, that I really like. But I also don't know anything about it. And there's people who are studying this and consuming this 24-7. So let me go invest with the experts and who are able to play the game on a bigger and higher level than I am. So I look at it as how do I want to be positioned 30 years from now, not so much of on a ratio that I do. Now, obviously I look at my portfolio and I say, wow, I'm invested almost 95% in all real estate compared to my net worth and assets. So let me diversify this amount into that. It helps guide my decision. But I also just always look at 30, out and work myself backwards and say, how do I want to be positioned then on? What do I want to pass on to my kids? And that's how I make all my investment decisions from the end goal first and I'll work my way back.

Pascal Wagner:
Yeah, and I know, you know, on the topic of crypto, you know, I know that you have both invested in a fund and personally in a bunch of different coins. So how do you how do you decide, you know, as you know, as a prospective LP, someone who's thinking about, oh, I want to get into crypto, you know, should they pick their own? You know, how did you how did you decide which fund to go into?

Pasha Esfandiary:
Yeah, this is a powerful question because let me tell you what happened when crypto was first coming out It was so much easier to do a lot of research and digging into each Coin that was coming out see how they're uniquely positioned try to figure out how much you can about the operators and and where they're going What happened in crypto was that as the industry grew more and more, more and more, highly intelligent people come and started to, you know, bring these funds together, started to syndicate the ICOs underneath them. And what I noticed is that I wasn't able to pick the winners as much as I was early on in the stage. When there's a lot of, I wouldn't say misinformation, but there's not all complete information. there's opportunity in that. So poker is a game of incomplete information and you need to capitalize on that and make really good decisions. That's how it was in crypto in the beginning. It's a lot of information, some of it good, some of it bad, and you can pick winners. What I realized is as more and more people were making larger and larger sums, VC started to come in and capitalize on where the real money was at, was those ICOs. And I started to find it harder and harder. So then I realized, hey, out, I can't make all of these great decisions. And I said, now I need to invest with VCs who are on the ground level, who are making all the money. And you got to get your ego out of the way when it comes to like that. And so that's when I really decided, hey, you know what, I can't pick winners as much as I used to. It's not doing that good. So let me go invest with somebody else, which is actually better for me. So I don't have to think about it as much.

Pascal Wagner:
Right, yeah, and let alone like all the time dedicated to doing all the research on top of running your own company, and I know

Pasha Esfandiary:
Yeah.

Pascal Wagner:
you have your own podcast.

Pasha Esfandiary:
Yeah, this was before I started the company when I was really being able to be really into it in the But you know, it really has slowed down and i've also noticed that there's so much information flying with crypto It's like hard to keep up with everything. So i'll let i'll let the experts be the experts And that's why that's how I made that transition

Pascal Wagner:
Yeah. Yeah. And what, you know, for anyone listening, we keep talking about like crypto funds, like, tell us a little bit about this crypto fund, like what makes this fund interesting to you. Yeah.

Pasha Esfandiary:
Yeah, so I'm in the Long Game Fund, right? And I'm sure a lot of GoBunners people know about it, ran by Dan Nune. Really what made it interesting to me, which is always who are the operators? I know the operators very well. I trust them. And that's like number one. Right. But I also like how they're uniquely positioned because they're uniquely positioned with coin and Tyler who run Bitcoin magazine, who are on the forefront of everything, who have connections on a deep level. If someone just started it and they were just crypto enthusiasts, I wouldn't invest with them. What's their unique proposition. They might be smarter than me. They may be able to study it more than me, but still I need something that's more unique. network comes in, I think this is also what you're doing, Pascal, is so beautiful because what you're delivering is access where access wouldn't typically be allowed. And so when you invest in these funds and you develop these things, it's because of your access and your network that you're able to get into them. That's what made it really interesting to me because they're on the ground level and they're able to get deals because I do know that people who start new projects will probably wanna work with them because of their connections that they have. So.

Pascal Wagner:
Totally. Yeah. Okay. So to just add a little bit more color. So, so the long game fun is run by three of our friends in go buttons and and two of which run Bitcoin magazine that also hosts the largest Bitcoin conference in Miami. So the largest players probably in the space. And

Pasha Esfandiary:
Yeah.

Pascal Wagner:
so therefore get access to all that deal flow. And that's what Pasha is saying is that unique advantage. So same same trend of of find operators you trust and what is their unique advantage?

Pasha Esfandiary:
Right.

Pascal Wagner:
Yeah.

Pasha Esfandiary:
Yep.

Pascal Wagner:
Before the show, we talked about all the different kinds of funds that you've invested into. So you mentioned that you've invested in a crypto fund, multifamily and in obviously mobile home parks through your own company. You also mentioned that you've invested in, you know, a cannabis fund. Talk to us. Yeah, I would love to dive into that and talk through the

Pasha Esfandiary:
Oh

Pascal Wagner:
lessons

Pasha Esfandiary:
God,

Pascal Wagner:
learned, what

Pasha Esfandiary:
yeah.

Pascal Wagner:
happened, give the scenario.

Pasha Esfandiary:
This was about, I invested in this cannabis farm about five years ago and it was one of my earlier investments and so I had known the gentleman but I hadn't vetted him enough. Right? Back then when I invested in this, there's so many lessons that I can teach you. But really there was a lot of red flags very early on with him, but I had trusted him. I knew him from personal development work and I knew he was creating cannabis farm. And also went along with my investment thesis is that I like to invest in macro trends. I like to invest what's gonna happen 10 years from now and not so much what's in the moment. Cause I have that bucket in real estate. I know what's happening. So I really liked that I knew him, but again, it goes back to our back thing. If I had a better network at that time, I wouldn't have invested in his, there would have been other opportunities. I just liked the deal. So I invested 100,000 to this deal. And really quickly on, the red flag was the lack of communication with him and the lack of actual answers. And it sometimes took me two to three weeks to get him. On the actual phone and I never saw any results. I never saw quarterly updates. I never saw anything so That was really big red flags and you know anytime I try to get them to give me anything It was always a runabout and I I quickly wrote it off in my mind like this is going to fail and it actually just failed a few months ago because uh sad to say we found out he was essentially stealing from us. So he was taking the investment money and when another investor audited all the books because he took over we had the board vote him in just found out that he essentially took our money and didn't invest it where he should. So this is why trust is really important at the end of the day.

Pascal Wagner:
Yeah, so that's a common theme that I'm trying to figure out how to solve of like, how do you make the transparency and how often you get reports from operators?

Pasha Esfandiary:
Yeah.

Pascal Wagner:
How do you think you solve for that now, right? Like, it was only after you made the investment when you were trying to figure out how was the project going. Like, were there signs beforehand that you maybe could have seen or how do you try to avoid that in funds moving forward?

Pasha Esfandiary:
Yeah, listen, I have learned time and time again, and I think many, many, many people have learned this, is that when it's too good to be true, it's too good to be true. So when he showed me his numbers back then, I realize now that there's no way he's ever gonna hit these numbers. And I also took his word for what the industry was. Now, I also do understand that the industry got hit and the prices that he was showing me at the time, it dramatically decreased because so many different farms came onto the market, especially here in California. I understand that, but I don't have a strong operator. So there's a ton of things that you could do, vet them, call other people, ask for references, ask specific questions to see if they will be transparent and I did not do that because if anyone is transparent, they'll be like, no, yeah, no problem. Here's a bunch of referrals, go ask this person. I had one investor ask me to run a credit report, score on me. Added a background check. I said, sure, of course, no problem, right? Because I had nothing to hide. Very transparent. But I would have asked some of those questions and then seen if they were uncomfortable and see what they would be willing to do and to give. So that's a really good way to see if you trust them or not. But at this point, what I have learned, go ask for referrals, go see people, go get the track history of this person. Has he ever done anything? Turn over as many rocks as you can.

Pascal Wagner:
Yeah,

Pasha Esfandiary:
Yep.

Pascal Wagner:
yeah, I have a rule that I, I try to really only invest with operators that have a business doing this and have a

Pasha Esfandiary:
Mm,

Pascal Wagner:
like, you

Pasha Esfandiary:
very

Pascal Wagner:
can see

Pasha Esfandiary:
good, yeah.

Pascal Wagner:
that they've, they've maybe opened up multiple farms in your case.

Pasha Esfandiary:
Exactly. That's such a good point to look at as well.

Pascal Wagner:
Yeah. How do you like so you've had this one poor experience with investing in this cannabis farm? How does that? How does that change your mindset? Or what? Like, do you want to continue investing in cannabis? Or is it like, hey, you know, I'm still hot on the space. I just, you know, I learned my lesson, I picked the wrong operator.

Pasha Esfandiary:
Yes, I wouldn't when I see a macro trend I want to be in I want to be in it If I lose money, it doesn't affect me like it affects everybody else lose like that sucks like the rule number one of investing is that you shouldn't lose money because it takes so much time, but Listen, you just got to shake yourself off and just keep going. So I still love what cannabis is going to deliver maybe on a longer time horizon than I had originally thought five years ago, but it's still gonna become federally regulated and it's gonna be national and there's gonna be a lot of money and there's gonna be a lot of big winners in it. So if I find the right one that also matches my investment criteria, I will absolutely invest in it because again, it's not about now, it's about what's gonna happen 15 years from now.

Pascal Wagner:
When you, so I'd like to maybe go down this rabbit hole. You know, before we talked about maybe going down this rabbit hole of how do you look at macroeconomic trends or how do you educate yourself to figure out what you invest into? What is your thesis on cannabis? Like why are you so hot on?

Pasha Esfandiary:
because I just know that there's so many states that still need to give a regulation and make it legal within their state. So there's a big opportunity there and everyone already does it. There's enough evidence to know that

Pascal Wagner:
Yeah

Pasha Esfandiary:
everyone smokes weed and does weed. I don't, it messes me up too much, but I don't. But I also understand there's a massive marketplace there. And I also always think follow the money. States are gonna wanna make it legal because they have a lot of revenue that's gonna come from it. So eventually it's all gonna be taxable and the government, I promise you, is always looking for new avenues to make more taxes. So I know it'll become legal and I know that the big players will start to consume these medium players and the medium players will consume the small players and I know capitalism will shine. So it's a hundred, this is such an easy trend to follow because you know, if you're an adult, so many people do it. Click a no-brainer.

Pascal Wagner:
Yeah, yeah. Is that how you I mean, I feel like these are just perspectives or views that we kind of have from having conversations or you might go to a seminar, like, where are you coming up with these thesis? Like, is it you're talking to friends, you're, you're starting to see things in a different light? Like, how do you decide cannabis versus, you know, something else?

Pasha Esfandiary:
Just open your eyes. No, here's the thing. So do I try to look at macro trends for short? Do I research things that I'm interested in personally? Yes. I don't want to invest in anything that I'm not interested in because I don't care. There's a lot of things that are out there that are super profitable, but if I don't want to educate myself, if I don't want to know the updates, why am I going to invest in it? I'll make money elsewhere. And this is another thing is that there's so much opportunity in America and there's so many different avenues to invest in. So I like to personally invest in things that I enjoy, that I like, and I can see it right in front of me. I see how many people smoke weed, so it's very visceral for me. And that's what I like to invest in. Because It makes it easier for me to want to do the research and to easy to follow the macro trends. And I also look for no brainers, right? I'm not trying to be the smartest guy in the room and research just one crazy niche within a niche within a niche and do all these creative things. No, man, like get rich slow. And that is a trend that's on the wall.

Pascal Wagner:
Yeah,

Pasha Esfandiary:
Yeah.

Pascal Wagner:
no, I like that. Talk to me about your first fund. You've gotten to this point where you are now a fund manager and you've also invested in other people's deals.

Pasha Esfandiary:
Yeah.

Pascal Wagner:
What was your first deal? What was that like?

Pasha Esfandiary:
the first deal that we did as a company,

Pascal Wagner:
No, just

Pasha Esfandiary:
or

Pascal Wagner:
you as

Pasha Esfandiary:
that

Pascal Wagner:
invested

Pasha Esfandiary:
I invested.

Pascal Wagner:
in as an LP.

Pasha Esfandiary:
As an LP, yeah, there was Obsidian Capital with a kid named David Tupin, and I met him at a conference. and he was my mentor for underwriting. Because I hired him to teach me how to underwrite before he had all of his programs and before he had his pro forma out. And so I just knew the kid was incredibly intelligent, so I trusted him. I knew how passionate he about was, and so you wanna bet on the jockey. And so he brought the first deal over to me, and I invested 75,000 into his deal, and it worked out wonderfully. Yeah, because it was in great market. There was a lot of macro trends, I liked it. I trusted the operator. I trusted the numbers, right? One thing that's... you got to be really careful for in operators and in real estate. Not so much in go buttons, but really anyone who's listening though, within their network, it is really easy. And this is the hard part. It's really easy to change your numbers, to make it look good for an investor. Like it is so incredibly easy for me to change an exit cap rate, one point or a hundred basis points to make my IRRs super padded. But that's why you really have to test these numbers. You have to understand what you're investing into and ask the hard questions. And you have to work with operators that you know, right? So I saw a lot of deals that I wasn't interested in, but I know David Tupin's numbers. I know what his conservative underwriting is because things will go wrong in real estate. If you're not positioned to absorb that, it's gonna go wrong. And that's what a lot of operators do. They just wanna make the fees. They wanna make... the big box and if something happens man, you're screwed.

Pascal Wagner:
Yeah, so walk me through that. I'm investing in a fund, or prospective listeners investing in a fund. What is... What do I look for? Like, if this is my first time, like...

Pasha Esfandiary:
Right. Okay. I could walk you through what I look for specifically. First thing is first is I wanna like the market trend because I feel like a market trend can absorb if an operator ends up just whiffing it. Okay. So likely if you invest in let's say Dallas or if you invest in Austin or all these big cities. You know, the market is so hot, it can help pad your numbers if you go wrong. So that's number one. Number two is, do I trust the operator? And now with the vetting process of asking them uncomfortable questions, going in deep with them, a bunch of referrals, track history, demeanor, everything about it, that is the most important because whenever you're investing into a fund, you're investing in the operator and not the deal by deal basis, you're investing in the operator. So you have to trust them again. And then with, then I'll look at the numbers. What are their rental increases? What are their payroll numbers? What are their numbers for utilities? More importantly, what's their exit strategy? How are they evaluating five years from now? Do they think cap rates are gonna keep going down? Well then, you're insane. What if it doesn't? You don't know what's gonna happen five, 10 years from now. So always make sure there's a lot of... potential there because then if they can make these numbers with a little bit of a higher cap rate like a 0.5 difference of cap rate higher, then I'm like, okay, we're good. That's in multifamily, right? In mobile home parks, it's a little different. Then I personally, because I'm a cash flow investor, I love passive income. What are the cash flows? When do I start getting my cash flows? And then what are my IRRs? I have to have over 17%, 18% or I won't even look at it. And so what's the depreciation? If I'm not getting depreciation and your operator's taking depreciation away from me, I don't even wanna be in it because this is the, 80% this year, 60% year, I wanna hoard as much depreciation as I can. Are there fees aligned? So this is another one. Is this an operator who is feeing me to death? Do they need to make this deal work so that they can put food on the table? Usually I only invest in deals. where their alignment of interest are there. And so if they're feeing me to death, there's a bunch of excess fees, it's just kind of like you're just a deal junkie at that point and you're not here for longevity. And then lastly is how much are they putting into the deal themselves? And then that way I know that their interests are aligned with me essentially. So it's all over the box.

Pascal Wagner:
I love that. That was a great walkthrough. So there's two points that I maybe wanted to hit on here, which is one is fees. How do you know what fees are appropriate? And how do you if you're making your return, like let's say, you know, GP gives you a 25% IRR. Do you care? Like, you know, if they if

Pasha Esfandiary:
This...

Pascal Wagner:
they took a ton of fees,

Pasha Esfandiary:
Yeah.

Pascal Wagner:
and you still make a huge return, like does that matter to you?

Pasha Esfandiary:
This is such a good question, Pascal, because I think there's two types of investors. There's an investor who counts my money, and then there's an investor who counts their money, right? And I never wanna work with investors who count my money, basically. Like, I'm doing a lot of work, you don't see what's happening behind the curtain and what we're doing for you guys. So yes and no, it does matter, but it doesn't matter. If someone's giving me a 25% return on my capital and I trust them and they're taking a 10% fee and I love everything about it, good, make money. You've made a niche within it. I'm still making 25%, that's freaking excellent. But then also then what are the factors? What are the risk factors? Are they still aligned with me? Are they still investing with me? I want people to get rich. If they found something and they're doing all the hard work, good for them, make money. But then also... But if you're just starting off in let's say in a multifamily apartment complex and you don't have a track history, I don't really know you and there's a bunch of fees that are going on but the numbers are still low, then no, like go screw yourself. I don't want to be part of this thing, right? Where's the incentives here? So.

Pascal Wagner:
Yeah, do you have a knock on if there are acquisition fees or disposition fees or like are there certain fees you just absolutely don't like? Is that you know?

Pasha Esfandiary:
I don't like loan guarantee fees when there's no recourse. Like, if it's not recourse debt and there's a loan guarantee fee, it's a different story. In mobile home parks, everything I do, it's all recourse debt. In my first fund, which I'm going to change to the next one, I'm going to put a loan guarantee, but it's all recourse debt, so I should get something from it. I don't like when they do that. I don't like when the asset management fees are too high. But then, you know, like you can read, and there's not one that stands out, but when you read these documents, and they don't have it like really like disclosed. in the fund deck and then you start reading the fine print and it's like I don't like it when there's like seven different fees for like the smallest things Right and there's not one I can that stands out but it's like you have a two percent here one percent here One point five percent here point five percent here point five percent here one percent here. It's just like Why like

Pascal Wagner:
Yeah.

Pasha Esfandiary:
just make it simpler and be honest and transparent about it and people respect that more

Pascal Wagner:
Yeah, well, okay, so just to recap for our listeners, some concepts I wanna make sure we cover. So we're talking about recourse debt and non-recourse debt. So just recourse debt means, it's basically when you get a loan on, let's call it one of Pasha's mobile home parks, and that, if the bank wants to be able to take that back, that's recourse debt. And non-recourse debt means that the, the company, the bank cannot take that piece of that loan can can get Pasha to pay back the loan because it's based on the property and not him. How would you explain that?

Pasha Esfandiary:
Yeah, just explain. Non-recourse debt essentially is they can't come after me as an individual. So everything I sign is recourse debt. So if I fail and the property goes in bankruptcy, they can come after me after anything that I still owe them, right? And so I'm individually liable for any of my properties that go wrong. And so you do not want recourse debt. Non-recourse debt happens, let's say in a 2008 scenario and everything happens and people stop paying rent, they can only go after the property as a non-recourse debt. I don't have any liabilities. So as an operator, you want non-recourse debt. As an investor in general, you want non-recourse debt. The difference for what I do is because I work in secondary and tertiary markets with smaller properties that need a lot more work up front, typically the bigger banks like Fannie and Freddie don't invest into our deals because we still have to do a lot of operations. So we have to go to and we have to sign a personal guarantee, which falls back on me if we fail.

Pascal Wagner:
Got it. And so you're saying, hey, look, people that have non recourse debt, but then still charge you a fee for, you know, guaranteeing the loan. That's basically like

Pasha Esfandiary:
Why are they getting like, okay,

Pascal Wagner:
they're

Pasha Esfandiary:
I'll

Pascal Wagner:
not

Pasha Esfandiary:
guarantee

Pascal Wagner:
guaranteeing

Pasha Esfandiary:
that loan.

Pascal Wagner:
anything.

Pasha Esfandiary:
Yeah,

Pascal Wagner:
Yeah.

Pasha Esfandiary:
yeah.

Pascal Wagner:
Yeah.

Pasha Esfandiary:
They have to do paperwork and that's fine, but label the fee as like,

Pascal Wagner:
an

Pasha Esfandiary:
you

Pascal Wagner:
admin

Pasha Esfandiary:
know,

Pascal Wagner:
fee.

Pasha Esfandiary:
yeah, exactly.

Pascal Wagner:
Totally. Something you also mentioned was talking about how much the operator invests with you. How much capital they putting down. How much are you looking for them to put down? And does that change if you're working with a fund that has a billion under management, for example?

Pasha Esfandiary:
Course, yeah, 100%. I don't think, I mean, the easy answer is if it's under 5%, I don't really wanna deal with it because I'm sure they can roll in their fees. I want something at least 10%. It depends on the size of the fund. It depends if they have a lot of money into it. If I'm evaluating a deal or a fund that has a billion dollars worth of assets and the guy has five million invested in there, it's like he doesn't care as much as the guy who has 200 million invested into it.

Pascal Wagner:
Right.

Pasha Esfandiary:
They're just going to work harder. They believe in someone who has a lot of their own personal net worth tied up to that fund. They believe in what they're doing and you have to understand that. There's people who just have funds and syndications and they just are doing it because they need to make money. There's a lot of good operators that are out there, but I want to make sure that they're really driven for results because they have their net worth tied up into it as well.

Pascal Wagner:
What are some of the biggest, I don't know, scratch your head moments? So you run a vote capital, you raise capital for mobile home parks, and you deal with LPs and potential investors all day, and you get different kinds of questions. Like, what

Pasha Esfandiary:
Yeah.

Pascal Wagner:
are maybe some misunderstandings that you get from prospective LPs?

Pasha Esfandiary:
I think I'm positioned a little bit more unique because I feel like my job as the operator is to educate people on mobile homes and mobile home parks and how it actually works. So I find a lot of my calls are essentially me educating what we do and how we do it and why this works. But it's different in an apartment complex as everyone understands how that works. I think the biggest misconception that a lot of my investors have some pause on or need more education around or need a little bit more just thought and effort into it is their tax incentives, like their tax depreciation. A lot of my investors don't understand how to utilize that as well as I would say some savvy investors. have everyone understand the value of velocity of money and how important that is to truly creating generational wealth. And so I find a lot of times re-explaining the velocity of money. Again, now there's savvy investors who all know this, but I also have a lot of investors who don't know this. And so it's really those two. And then secondly, just teaching them how mobile home parks are different than apartment complexes, but how we're uniquely positioned in that context.

Pascal Wagner:
Yeah, do you feel comfortable diving into those two topics? I'm

Pasha Esfandiary:
Sure,

Pascal Wagner:
interested.

Pasha Esfandiary:
let's go.

Pascal Wagner:
Yeah. Okay, so let's start with the first one like tax wise. What do you savvy investors maybe understand that someone new to this doesn't understand this one?

Pasha Esfandiary:
Yeah, so I think savvy investors understand the tax implications if you sell very quickly, what happens and you're going to have to repay that. So I think unsavvy investors say, oh, look, how much money I'm making. But savvy investors will say, well, I'm going to make this, but then what are my tax implications?

Pascal Wagner:
So someone invests with you and then two years later, you sell the mobile home part.

Pasha Esfandiary:
Yeah, you're going to have to pay capital gains on that. Right, which we don't because we don't sell. We have a long-term fund. It's a forever fund. We don't sell. We're long-term holders. So yes, you're gonna have to pay taxes on that. So even though, yes, you're making X percentage amount, you're gonna have to automatically go ahead and pay 35% of that unless you uniquely position with your CPA, I'm not an expert. Figure it out yourself. And then the second one is the depreciation, right? Everyone, so savvy investors understand what bonus depreciation is and what it did years, eight years for us and how it's going away now. how to utilize that, how to prepare for that. And so they really use that as a tax shelter against other passive income, unless you're a real estate professional, please again ask your CPA, I'm not professional. I am literally trained to just, that is an automatic response for me just to say please consult your CPA. And how to use that to really avoid paying taxes and how it could roll over on the future. So a lot of my investors now, who are high earners invest because in mobile home parks, let's just say for last year, for example, just to give some contrast in an apartment complex, on average, you can, the bonus depreciate last year, 35% of the purchase price upfront for the purchase price that you bought it, right? So if you bought a place for a million dollars, you can do a bonus depreciation, right off $350,000 off of. your taxes, but in mobile home parks, I'm easily achieving at least 70% on average, 75%. So in that million dollar scenario, I'm now able to depreciate $750,000 in year one. So for high income earners, that's massive. Especially for people who live in California, like myself, that's a 50%. You can't write off state taxes here in California. So that's 40% you can write off. So a lot of my investors are really interested in mobile home parks because of the tax depreciation. So someone can come and invest $100,000. Last year in the fund alone, we were able to write off 95% of the investment amount. My syndication deal, I was able to do 120%. It just depends on the LTVs of the loans that we were able to get. So if you invest 100,000, you automatically can save 40,000 in savings. Your basis is really 60,000, if that's how you look at it, and a lot of my investors do. And then so I think anything after that is just easy and cheddar. Actually,

Pascal Wagner:
So, so is that when

Pasha Esfandiary:
I'm

Pascal Wagner:
you.

Pasha Esfandiary:
wrong. Sorry, you could write off. I apologize because we're able to write off more. On a 100K investment, we gave 95,000 in depreciation. They're going to be able to write that off. So really their basis, if you look at that, that is... neutral.

Pascal Wagner:
Yeah,

Pasha Esfandiary:
Yeah,

Pascal Wagner:
so

Pasha Esfandiary:
so.

Pascal Wagner:
when you when you have these LPs on is the confusion around how depreciation works or

Pasha Esfandiary:
Yes.

Pascal Wagner:
got it. And it's like, okay, knowing what you can write off what other what income you can write off, for example, like your W two, not easy to write off unless you can sell your CPA and

Pasha Esfandiary:
consult

Pascal Wagner:
maybe get

Pasha Esfandiary:
your CPA,

Pascal Wagner:
a

Pasha Esfandiary:
you figure something out, which I know some have figured it out, some CPAs allow certain things, some don't. I don't know, like I said, you can figure it out.

Pascal Wagner:
Yeah, okay. And then the second piece that you talked about was velocity of money. Let's dive into that. So it's like

Pasha Esfandiary:
Yeah, so velocity of money is, I think, what every real estate investor should be thinking about. How do I get my money in? How fast can I get my money back out? Doing two things that are so important, de-risking your whole investment, right? And now you're in a basis of zero. If you're able to get in and out too, plus depreciation, you're just already winning. Then secondly, how do I take that money and go invest into another asset that's going to do the same thing? Right. And so again, if we have a long-term lens on here We want to put money in, we want to take it out so we completely de-risk our investment, and then we go reinvest that initial investment amount into something else. And now you have two assets instead of one that's appreciating for you because we're never going to stop printing money in our economy, right? And so things are going to naturally inflate.

Pascal Wagner:
So something I'm thinking here is like, okay, I invest 200K with you, you give me 200K back, my investment has now ended. You're talking about in deals where there's a refinance and you might get your principal back but you're not taxed on that, correct? Can

Pasha Esfandiary:
Yes,

Pascal Wagner:
you give an example

Pasha Esfandiary:
thank you.

Pascal Wagner:
like by the numbers?

Pasha Esfandiary:
Yeah, sure, thank you. Thank you for explaining that because we do a big refi project. So let's say someone invests $100,000 with us. we're going to give them an 8-pref, so you're going to make an 8% interest on your money for as long as we have your initial capital in. During that time for us, we're able to hit double digits, cash flows in year two in all of our portfolios. That's one of our metrics that we go by. So not only are you making $8,000 the first year on your $100,000, you're going to make about, this is ballpark, $10,000 the next year, $12,000 the next year. I found $14,000 the next year after about average of what you're going to make, on average 12%. In year five, we're going to be able to refi and get 100% of your money back. When you do that, you completely de-risk your investment. You take that 100K back plus whatever all cash flows you made in the years preceding as well, minus some capital contribution because of the higher above the prep. Right, but for easy numbers, you get the 100k back and then you still have equity in the deal moving forward In proportion to your investment amount which you will keep getting cash flows on In proportion to your investment amount. So not only have you de-risked your investment You still are building equity and cash flows and lifetime cash flows and what we call The infinite cash flow club. Yes, it's a little cheesy, but it's that's what it's called And so you've completely gotten your money back. You now have cash flows on money that you can then go reinvest into another deal. That's the velocity of money. So that in that year five scenario, now you go buy another property, now you have two properties that is building equity for you and appreciation and cashflow. And then the theory here is in another five years, you go refi out of those two properties and then you can keep doubling. And that's the velocity of money that's like compound interest at work. But what we're able to do because we're in commercial real estate, we're able to do that sometimes earlier. than that year five. So that's the velocity of money. How fast can this money work for me? Get back, go work on another property for me. And that's velocity of money. And that is one metric I hammer in into any deal that I'm looking at and who we are at Evoke. We're all about velocity of capital. And this

Pascal Wagner:
Yes.

Pasha Esfandiary:
is why we like the niche that we're in.

Pascal Wagner:
So you make, I'm all on board with the velocity, I think in the same way. When you, but there are investments that don't have that quality. So,

Pasha Esfandiary:
That's correct.

Pascal Wagner:
so like, is it more, hey, I want to invest in crypto, for example. I don't know if my, you know, you're not like refining and get

Pasha Esfandiary:
Да.

Pascal Wagner:
money out of this other asset

Pasha Esfandiary:
Да.

Pascal Wagner:
class, right? And so, you know, saying you look for, you look for when you're investing in real things that have a high velocity of money, and then maybe when you're at other asset classes, that's just like a factor that you don't care about? Or how do you think about that?

Pasha Esfandiary:
Again, it's your investment profile and your risk profile. For me, investing in that crypto, I look at it as something I don't even consider coming back to me because it's such a volatile asset. And I know that. I've lost money in crypto. I think most people in GoBundles knows that, but we're not going to get to some numbers there. But... It's okay because I look at it as an asymmetrical bet. I believe that the reward outweighs the risk if it hits. And so that IRR return on a crypto fund could be. astronomical, right? And so I already have my buckets in real estate that are very conservative. That's how I look at the difference. Everything is a ask yourself powerful questions. Would I want to be in here? Would I want to regret it? How am I going to be positioned in the future? How do I do it? Do you use it in a self-directed IRA so that if you have those astronomical returns, do you have to pay taxes on it? So you have to start asking all these really important questions. And I think, again, it's on a deal-to-deal basis, but you really have to understand The biggest thing that surprises me, Pascal, is that investors don't know their goals. They don't have a strategy in front of them. They just maybe come into some money and they don't understand what to do with it in the sense of they don't have an end goal in mind. And when you have a very clear end goal in mind, you can really make your decisions very easily. But when people are like, well, should I invest in this or should I invest in that, should I invest in this? It's just very clear to me that you don't know where you're trying to work for. And some investors love the development deals. They love that big equity multiple, right? And they don't care about cash flows. It's a different game. So you just have to understand what you're looking to accomplish and then invest with those same alignments.

Pascal Wagner:
How did you figure that out for you?

Pasha Esfandiary:
Um, I bought, you know, it's, there's no science to it. You just got to ask yourself powerful questions. I, I know that I am a passive income investor. I want to create enough passive income. I've always had a dream that, uh, if I don't want to work. I don't want to work and that's kind of what I've told myself since I was young. I want to get to the point where if I don't want to work, I don't have to work. Right. And so that's passive income. So it's not net worth because you could have a hundred million dollar net worth, but you still have to work depending on how that's structured and bringing money in and whatever. But me, it's like, Hey, I just want to have a lot of cashflow coming in. I want to build my foundation. So I'm conservative that way. I want my foundation to be so strong. And then I'll take that cashflow and keep going by more real estate, which I'm more of the snowball effect, right? And that's what I'm waiting for. So that's just aligned with me and that's not for everybody. There's no exact science to it. You just

Pascal Wagner:
Yeah.

Pasha Esfandiary:
gotta know your risk profile. Do you have a family? Do you have what are the risks? What do you, what worries you? What gives you anxiety? All of those things.

Pascal Wagner:
Pasha this was awesome, thank you so much for coming on the show, I really appreciated this.

Pasha Esfandiary:
Yeah, this was fun. I think what you're doing is awesome, man.

Pascal Wagner:
Thanks man.

Pasha Esfandiary:
Peace.