Syndications are one of the best investments you can make passively IF you make the right choice with which ones to put your money into.
In this episode, I chat with Nate Shields, a seasoned real estate investor, about how to spot a good investment deal, especially in today’s unpredictable market.
We dive into the biggest risks you should be aware of when investing in real estate syndications, how to vet potential deals, and why it’s crucial to trust both the sponsor and the investment. Nate also shares some invaluable tips on due diligence, and offers a free copy of “The Hands-Off Investor” for those who join his ecosystem.
Nate’s Links:
- https://www.instagram.com/nate_shields?igsh=c2p0aXl4aG5vOTN5
- https://www.nateshields.com/
- https://www.instagram.com/missionalcapital?igsh=MjFzbWFwejZoMzRm
- https://www.linkedin.com/in/nate-shields/
Passive Income Calculator: https://bit.ly/4e1Zf2R
TRANSCRIPTS
Speaker 1 (00:00):
But how do you really know if you’ve found a good deal or not?
Speaker 2 (00:04):
If I’m going to give someone $50,000, I would even venture to say that it’s worth your time and money and effort.
Speaker 1 (00:29):
Hello, my fellow Ripples. This is Chris Miles, your cashflow expert and anti financianal advisor. This shows for you those that work so hard for your money and you’re now ready for your money to start working harder for you today. You want that freedom, the cashflow now, not 30 or four years from now, but you want it today so you can live that life that you love with those that you love. But guys, not just about getting rich, it’s about living a rich life because as you’re blessed financially, as you’re prospering financially, you have a greater capacity to bless the lives of those around you. Thank you for allowing me to create this ripple effect for you guys in your life today. Appreciate it so much. If you haven’t done so already, go to our website, money ripples.com. We got a passive income calculator. If you’re curious to know how much passive income you can create in your situation right now, go ahead and fill that calculator out today to see what your number is.
(01:13)
Hey guys. So I’m bringing back a repeat guest, someone that was from four years ago. Therefore, if you haven’t binged at least 400 episodes, you probably don’t even remember Nate Shields here, but we had him on during the pandemic and we’re inviting him back again because right now many of you have been asking, alright, how do I know when’s the right time to actually buy any investments for that matter, should I invest in anything? I know some of you have told me I’m afraid to do anything right now. I’m just holding onto cash not knowing what to do. That’s what I want to interview Nate about today. Now, Nate’s in himself, he’s been a real estate investor for over a decade. He has a 95 units that he owns, and of course he’s a guy that’s just got a great reputation in this world. We want to ask what are those risks? What are those questions you should be asking before you just jump into any investment? So Nate, welcome back.
Speaker 2 (02:00):
Thank you. It’s great to be back. Can’t believe it’s been four years.
Speaker 1 (02:04):
It flies by, I mean, 2020, it felt like five years in one year, and then we get to 20, 21, 2 and three, four, and we’re like, man, this is the shortest four year period that felt like shorter than the 2020 period.
Speaker 2 (02:18):
Yeah, yeah, yeah. Time works in mysterious ways sometimes, but it’s really good to be back.
Speaker 1 (02:23):
Yeah, sure is, man. So help fill in the gaps. Tell us a little bit more about that, your background, what even got you into real estate in the first place?
Speaker 2 (02:31):
Yeah, I mean, what got me into real estate in the first place was really just not liking my job. That was really the first thing. I wanted to escape that nine to five, the constraints around that, not that it was a bad job, but I wanted more flexibility. We were having our first child, and so I was like, what can I do to be my own boss? I had read Kiyosaki, right? Kiyosaki’s books, dad, poor Dad. Yeah, rich Dad, poor Dad, and the Cashflow Quadrant. And the Cashflow Quadrant really spoke more to me because it talks about the four ways you can make money. You can make it as a W2 employee, self-employed, business owner or investor. And at the time I was really only a W2 employee, so I was in that bottom quadrant and there’s nothing wrong with that, but it opened my eyes up to other ways that you could achieve financial freedom faster.
(03:23)
And so really the next step was, okay, well what does self-employment look like? So for me, I got into real estate as a real estate agent, and so within eight months I was able to quit my nine to five job and go full-time as real estate agent, which was a great base for what I’ve done the last decade. Two years into that, I found real estate investing specifically through BiggerPockets. I found their podcast, started listening to that at the time, I think it was around episode a hundred, so I listened to that and then all the way back to the beginning, read some books and within about six months I had partnered up with my buddy and we bought our first property. It was just a single family foreclosure. It was total gut rehab. I think we bought it for 62,000, put about 60 into it, held that for seven, eight years, something like that. That’s what really got us our start in real estate, and now we’re buying multimillion dollar large multifamily complexes.
Speaker 1 (04:26):
That’s awesome, man. Well, tell us, I mean obviously you’ve seen some different markets swings and whatnot. Tell us what you’re seeing now in the real estate game
Speaker 2 (04:37):
Right now. It’s been an interesting couple of years. Obviously interest rates have caused quite a lot of concern in the market, and even prior to that, we saw such a hot market when we were in the beginning of Covid right through the end of 2022. It was so hot and during that period of time, a lot of people were trading real estate. Prices were going up. It seemed like the market was going to go up forever. There was all this influx of cash into the market as well, so people had funds plus interest rates were still low, so it was easy to borrow money cheaply. And so a lot of people got into the space, whether it was on the smaller side, single family duplex, stuff like that, or buying bigger stuff, going after these bigger multi-family or other commercial assets. Then as we saw all this kind of coming up, we saw a lot of people not putting in their proformas what happens if interest rates actually go up?
(05:37)
No one really had that on their radar. Everyone was thinking because really the commercial assets, they were trading every one to three years, which is somewhat unusual. Usually you’re having a longer hold period, maybe three to 10 years on a commercial asset, and it was moving very quickly during this period of time. And so people were kind of used to that. They were just trading, trading, trading, trading, and then they were getting short-term bridge debt on a lot of these properties. They knew that they could exit the market at some point, and in their proformas they were saying, yeah, we will either be able to sell it, which was very common then that things were trading quickly or we can refinance it at a favorable rate because rates were pretty low. We can refinance it four to 5% interest rates went up though, and in their proforma, they didn’t account for that happening.
(06:31)
So a couple things happened. One is all of a sudden this floating debt, they’re having to pay double or more on what that debt is, and they’re not able to pay their investors back or they’re having to even make what’s called a capital call where they have to go to their investors and say, Hey, we actually need more money. Or they’ll stop distributions altogether, or they’re just in a tight spot when it comes to servicing the debt in general and they can’t refinance because it doesn’t make sense. And the market slowed down quite a bit because of interest rates. So they also can’t sell at least at the number that they had anticipated. So the last year and a half, two years have been a very interesting market, to say the least when it comes to commercial real estate because all these problems kind of came up if they weren’t being conservatively underwritten with longer timeframes.
(07:25)
So right now what we’re starting to see and what we’ve kind of seen the last six months or so is a lot of this bridge debt is coming due and they don’t know how they’re going to service it. Like I said, capital call can be one thing, stopping distributions or a combination of those two or some properties are having to go into foreclosure or you give the deed back to the bank. There’s definitely some turmoil in the market. That being said, that doesn’t really scare us. We are always a buy and hold mentality and we have much longer timeline on our deals that we look at. And so as long as you’re buying a property appropriately, whether it’s a single family or a huge multifamily, real estate’s, very forgiving asset class, and if you hold onto it long enough and you manage it correctly and you didn’t buy it at outrageous levels or have the wrong kind of debt on it, it’s very forgiving and you should expect pretty good returns in the long haul.
Speaker 1 (08:21):
Now, I know you’re talking about before the air, what are the three biggest risks you see in these syndications?
Speaker 2 (08:27):
Yeah, so I think there’s three. I mean there’s many, many risks, but these are three that were kind of top of mind for me as a limited partner. If you’re investing with someone like myself, a general partner with a few other partners, we’re finding the deal. And so you have to not only the deal, you have to vet us, you have to invest the entire investment, but the first thing that there really is there is personal risk with your money. Just if you put it in a stock market or into a business or anything, you’re always going to have some risk with your money. Really, that comes in two forms. One, you can lose all your money. That can happen, it can go to zero. So that’s always a risk that’s on the table. So make sure that you’re only investing what you can afford to lose.
(09:09)
And the second thing I think that not too many people really talk about, but there’s opportunity risk as well. What’s the best opportunity on the table right now, given my personal timeline? Is it a short-term investment? Is it a long-term investment? Is it passive? Is it something that’s semi passive? Will I get a better return if I just go buy a single family property or maybe a turnkey property then I would if I invested in a syndication or the stock market? So those are kind of the first bucket of risks that I kind of see. So definitely think about that. What’s your personal strategy? And then the second thing, which I kind of alluded to is really the deal risk itself, and that falls in the two buckets as well. It’s the deal itself. Is the deal going to be a good opportunity for me to put my hard earned money into and can I trust the sponsors to do a good job with this?
(10:00)
So with that, I think there’s a couple other things like what kind of locations am I comfortable investing in? Because right now we invest pretty much in the southeast, mostly northwest Alabama as kind of our sweet spot because we’ve done deals there for the last eight years. We have excellent property management in place. We know the market very well, we know that it’s growing, that’s what we like and where we operate. However, someone might not like the south. Maybe they think, okay, there’s a lot of tornadoes, or they don’t like the politics of a certain state or something like that. I want to invest in the upper Midwest. So there’s things like that with location. And then timeline is a big thing too because some of these projects, like I said, they were flipping every two years or so, and if you need money in two years or you want to see your return in two years, maybe you’re looking for an investment like that, but your timeline might be farther out.
(10:53)
Maybe you’re roughly our age, you’re not retiring for another five to 10 years, and so you’re okay holding an asset, a high quality asset for five to 10 years and letting your money ride while also receiving distributions and cashflow. So that’s kind of the second risk. Those are a couple things to think about. And then the third one really is sponsor risk. The general partners, it’s more about the jockey than the horse. So even though deals are important to look at, it’s important to understand kind of what to look for in a proforma and things like that. Understanding p and Ls and whatnot, it’s more about the sponsor than anything. Do you trust the sponsor? Do they know what they’re doing? Specifically? What kind of track record do they have? How long have they been doing this? What types of exits have they had from properties and what’s their reputation?
(11:44)
That’s really the three risks in a nutshell. Specifically this book, I haven’t written this book, but this helped me greatly as we were starting more of our syndication business, the Hands-Off Investor by Brian Burke. Excellent book. I really consider it the Bible when it comes to investing in syndicated real estate deals, all things commercial real estate, although it does apply to other things, you could also invest in syndications like oil and gas or someone who flips luxury yachts or it could be a million different things. But this specifically does go into how to think of investments as a passive investor. What are the things I need to be aware of? What questions do I ask these general partners? How do I find them? What are the things I really don’t know? There can be a lot of blind spots going into something like this. Now, once you find someone and you find a good sponsor and deal, it is really about as passive as you can get. Basically, when we raise funds for our properties, it’s having a conversation with us, understanding the deal a little bit, looking at the proforma, and then DocuSign some paperwork, wiring money, and then we will send out quarterly distributions. So it really can be super, super passive. And that also has some benefits too with tax benefits, which is something we could talk about as well. But most of the time we’re doing some sort of cost segregation analysis in the first year to accelerate the depreciation, and that really helps offset taxes as well.
Speaker 1 (13:16):
Yeah, that’s great. Now, I know you have a gift for those that get into your ecosystem. How would they get access to your little gift for our listeners today?
Speaker 2 (13:25):
Yeah, so today I would love to offer this book for free to anyone who does two things. One is to sign up for a newsletter, so go to our website, missional group and sign up for a newsletter. And then the second thing you would need to do is follow us on social on one of our platforms. So either Instagram, Facebook or LinkedIn, whatever you prefer, screenshot that you followed us, and then just shoot us a DM on either one of those platforms. If you do those two things, I’ll mail this book out myself, and we’d love to have a conversation with you in the future as well.
Speaker 1 (13:59):
That’s a great gift. And actually I’ve even once or twice mentioned that book on this show as a great book for people trying to get the right questions to ask when they’re trying to do that. And you said missional group, that’s missional on your shirt there, like M-I-S-S-I-O-N-A-L, correct?
Speaker 2 (14:15):
That’s correct, yep. Missional capital group, but it’s missional group is the website.
Speaker 1 (14:21):
Perfect. Yeah, definitely generous gift. I really appreciate that, Nate. That’s awesome. I want to go back to talking about some of these things you mentioned because it actually brings a smile to my face because one, we talked a lot about this stuff on our show on and off, but I had just spoken with a client. We have an infinite banking client that we have that now wants to hire us as a consultant to doing their passive income consulting where we can help people strategize based on some of one of the risks. You say the opportunity risk, is it the right fit or not doing those of things. And he was doing investing on his own and he got burned badly with several of these kind of syndications. He’s like, yeah, I’ve been in this deal with this person, this deal with this person and this deal with this person.
(15:02)
It is like two of these, especially I have lost all of my money, everything in these deals. Fortunately, he’s diversified a little bit. He didn’t put all of them in those deals, but he mentioned about some of the talking about sponsor risk, right? He mentioned one of the sponsors, I know this sponsor. He had been on everybody’s podcasts except mine, I think. And that was just because whenever I had clients ask us like, Hey, what do you think about this deal? Or What do you think about these sponsors? I remember seeing him. I was like, okay, this guy has a lot of clout. He’s obviously everywhere in the media. I can see why they’re asking about him. He’s a good marketer. But then I looked at really what kind of real, you mentioned make sure they have done the same kind of investment a long time.
(15:46)
They’ve have good experience in track record in that kind of investment. Well, he was doing different investments than he started out doing. He’s like, I’ve been doing real estate since 2012, but he was just buying single family homes. He didn’t even get to the multifamily space with apartments and whatnot in commercial development until 2019. So even if this said, oh, we’ve made great money on this. Well, everybody made money in 2019. I am an idiot when it comes to trying to do my own syndication, and I probably would’ve made money accidentally in 2019. And so to see that happen, and of course now his deals are not even just capital calls. They’ve just gone flat. They lost all their capital and the money’s gone, and he’s not the only one. Obviously, we’ve seen a lot of people in the industry, even people that are reputable still get burned.
(16:29)
So I appreciate you sharing those kinds of things there. I guess. So I mean, the risks you talk about are spot on. And so I guess the question would be is, I mean, really there are no guarantees. How do you really know? How do know? We’re betting on the jockey, but I’m glad you said it was the jockey over the horse, but really you need both. There’s got to be a good horse and a jockey together, but how do you really know if you’ve found a good deal or not? Especially because starting to see the market hit near a bottom and start to turn around. So how do you really know Nate?
Speaker 2 (16:58):
Yeah, I think there’s a couple of things you can do with due diligence and this book really goes into it. But yeah, I mean, definitely have calls, have Zoom calls with the group. I think one thing to look out for too, and there’s nothing inherently wrong with this, but some groups are small and some are large. So I see some sponsors, especially that have come out the last few years and spent such a hot market. They’re like a single sponsor and maybe they cog with someone else, but there are a lot of moving parts with a syndication. We have five general partners, so we have five people that really run the business, plus we have outside help like CPAs, bookkeepers, cost sake specialists, property management, other things like that. But there’s a lot of moving parts there. So just get to know them, get to know their business, ask for references.
(17:47)
Of course, always take those with a grain of salt as well, because they’re going to hand off the best references that they can find. And it’s tough because sometimes a good deal or a good market can make a sponsor look like God, when in fact they’re still a bad sponsor. It’s just the deal or the market bailed them out. So it really comes down to a gut feeling. But make sure you just do enough due diligence that if I’m going to give someone $50,000, I would even venture to say that it’s worth your time and money and effort to go fly out and meet them. And it surprises me that some people, they’ll just wire $250,000. You might already have that relationship, but that’s a lot of money. So if they’re not willing to meet in person, then I think that would be a red flag. And then just dig a little deeper and if there’s still something holding you back, that’s probably your gut telling you that there’s something there. And listen to your gut, listen to your intuition on that. And good deals come along every week. So just move on to the next thing.
Speaker 1 (18:57):
Great advice, great advice. Well, Nate, like we mentioned, we’ll definitely, definitely love having you on here today. Appreciate the gift of the book. This is fantastic. Everybody. I recommend you go to missional group or tell us again about the social media pages you have too.
Speaker 2 (19:14):
Yeah, we’ve got LinkedIn, Instagram, and Facebook. Just search up missional capital.
Speaker 1 (19:19):
Missional capital, right? M-I-S-S-I-O-N-A-L, which we’ll put in the show notes just in case you guys have that. But again, Nate, appreciate your time. Why is council, why is advice? I think people need to listen to this at least two or three times just to make sure they grasp what you had said here today.
Speaker 2 (19:34):
Appreciate that, appreciate that. One last thing I did want to mention real quick, Chris, is the one thing that there’s a thousand different syndicators out there. As we were moving into this part of our investing journey, we wanted to make sure that we are giving back. So not only can we give you a book, but all of our investors have the opportunity to give to charity and it comes out of our pocket. So when you invest with us, we’re giving to like-minded charities that you can choose from, and that’s just a way that we want to help give back to either local communities or the broader global community.
Speaker 1 (20:08):
Another way to create a ripple effect, right?
Speaker 2 (20:10):
There you go,
Speaker 1 (20:11):
Man. It’s almost like you’re meant to be on the show. It’s
Speaker 2 (20:14):
Weird. So weird.
Speaker 1 (20:17):
Well, again, Nate, I appreciate that. Very generous in both fronts. Not just the book, but also the charity as well. So feel free to reach out to Nate and his team. Definitely take advantage of it, guys. Get in their ecosphere, learn who they are. And guys, I’m just telling you, the best way to be able to know what’s right is to always be at that ground level. Always be in know around the right people. The people you surround yourself, make all the difference to where you can create a lot of wealth or you become broke the rest of your life. And so be sure to make sure you have those right connections, those right relationships. Be sure to reach out to Nate if you guys have any questions. Make it a wonderful and prosperous week. See you later.
Speaker 3 (20:58):
Thank you. Hey,
Speaker 4 (21:07):
Visit us online@moneyripples.com for more resources to help you fix money leaks and get your money working harder for you. Now.