In this episode of the Executive Connect Podcast, Bryan sits down with Mike Zlotnik to break down how experienced investors think about real estate as part of a long-term portfolio strategy, not a one-off deal strategy. Mike explains how cap rates really work, why portfolio construction matters more than deal hunting, and how rising interest rates have reset commercial real estate pricing. They also explore why real estate behaves differently from public markets, how cash flow acts as downside protection, and why today’s environment favors disciplined, income-focused investors. If you are evaluating commercial real estate, private equity deals, or alternative investments and want a clearer framework for managing risk, leverage, and long-term returns, this episode delivers practical insight grounded in real market cycles.

Chapters:

01:05 Why portfolio construction beats deal chasing

02:45 Defining your investment goals before deploying capital

04:12 Liquid vs illiquid assets in a balanced portfolio

06:01 Why real estate shines for income and tax efficiency

07:32 How rising interest rates reset commercial real estate

08:58 Buying below replacement cost and intrinsic value

10:41 Positive leverage and margin of safety explained

12:05 Simple vs complex real estate strategies

13:34 Why commercial real estate is a contrarian opportunity

14:56 Choosing the right operator and sponsor

17:48 How to evaluate deals beyond the spreadsheet

19:11 Negotiating better terms as a capital partner

21:00 Funds vs individual syndications

23:12 Defining your buy box and your do not buy box

25:55 Final thoughts on risk, leverage, and discipline

0:00

the cap rate or capitalization rate. And for those who are not familiar with real

0:04

estate, it’s a common term that describes non-levered rate of return on

0:08

deployed capital. So if you have $800,000 worth of income and you bought

0:13

a property for $10 million, that’s $800,000 divided by 10 million. That’s

0:18

8% per year capitalization rate. So as interest rates rose,

0:24

welcome to the Executive Connect podcast. I’ve got Mr. Mike Zlotnik here

0:29

today to talk to us a little bit about real estate and portfolio construction.

0:33

Appreciate you joining the show, Mike. Thanks, Brian. Thanks for having me.

0:39

You know, so a lot of investors chase individual deals, Mike, but you kind of

0:43

emphasize portfolio construction. Can you talk to us a little bit about why?

0:49

Sure. So, let’s start with the the general theory. I always say, don’t

0:54

chase deals. Uh work with people. So, especially in real estate, investing is

0:59

a little different if you’re operating in the stock markets, but you’re still

1:02

following leaders. You’re still working with people. So, the most important

1:06

thing in my book is to check your head of the horse, who you working with, who

1:11

you investing with. That’s the step number one. Then obviously uh

1:15

composition of deals and then you negotiations of terms. But if you look

1:20

at the portfolio holistically, I believe in some of these really basic principles

1:26

10 12 non-correlated investments. There are other portfolio composition uh

1:31

theories, but the basic theory is of course they have to align with your

1:35

overall goals. So, you got to start obviously with your long-term risk

1:42

tolerance, what you’re looking to invest uh in terms of uh time horizon,

1:48

um the type of income you need, the u uh liquidity you need, um obviously uh how

1:56

much leverage you want to take, some other really basic questions that you

1:59

should ask yourself uh to bas understand what you’re looking for first. So once

2:04

you have your own goals, you can compose a portfolio to match that. And

2:08

portfolios obviously need to be composed uh with a mix of liquid and and and

2:14

semi-liquid investments. We all do that, right? We liquid investments are

2:18

generally publicly traded securities, stocks, bonds, funds uh that are

2:24

publicly traded. And then um you also have opportunities of the private

2:29

investment world, alternatives. I primarily play in the alternatives. I

2:33

primarily play in real estate. I understand that really well. And real

2:36

estate is generally inherently illquid. So um depending on your overall

2:44

portfolio needs uh and the the diversification, real estate could play

2:49

an important role. And um where it plays a really great role is um uh real estate

2:57

is generally is a um a form of investment that uh has a phenomenal tax

3:03

benefits. It has uh opportunity to leverage the investment. It’s got

3:08

amortization appreciation depreciation cash flow. Many things is difficult to

3:15

achieve in stock market. For example, average yield in S&P 500 today is 1.2%.

3:22

Almost insanely how low it is. So, if you’re looking for income, it’s very

3:25

difficult to achieve in stocks. Um, but you you have much better uh capability

3:32

and options to create a an income portfolio in real estate. Uh

3:36

depreciation is a unique uh tax benefit uh that especially now with the bonus

3:42

depreciation being where it is at 100%. You could really enjoy phenomenal

3:47

passive loss from depreciation and have years worth of tax shielded cash flow in

3:52

real estate. I’m going to stop for a second and let you um kind of ask any

3:56

more questions, but it’s portfolio composition needs to have multiple

4:00

strategies. As I said, liquid liquid real estate plays a role. I don’t claim

4:05

to be on a portfolio composition expert of across the entire spectrum, but in

4:10

real estate, we can talk about what diversified portfolio looks like. We can

4:13

talk about uh how you can compose income.

4:16

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4:22

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4:28

now. Don’t just watch, act. Yeah. you know, I mean, I think a lot of

4:33

folks have been through their NBA program and sort of like the holy grail

4:36

is like the non-correlated assets, right? And really what matters is the

4:41

co-variance of returns for the overall portfolio. So that’s one of the things

4:46

that uh I guess if you buy real estate the right way is that profess people

4:50

profess that they are somewhat non-correlated even though they probably

4:54

are in some ways uh depending on what the risks are that you’re you’re talking

4:58

about. Um, so can you talk a little bit about that? I know that folks also

5:03

really love real estate because of the leverage, but the leverage does

5:06

obviously split both ways as well. And the fact that there are um opportunities

5:12

to purchase out of distress a lot of times because they are non-liquid. Uh

5:16

that presents some unique opportunities if folks do have cash available. But uh

5:22

I think one of the things I always think about is uh the cash is also not working

5:27

to be able to you know to produce that opportunity to purchase at a certain

5:32

place. Now you can get things like um lines of credit and stuff like that to

5:37

be able to access things and leverage your balance sheet and stuff like that.

5:40

So I guess just in general how do how should people be thinking about this as

5:44

an asset class? Is it sort of an opportunistic thing or do you really

5:48

think of it more in terms of uh something that’s income producing so

5:52

that you can write out these these times where maybe it’s not the optimal time to

5:56

sell? So from a market cycle perspective

6:01

uh now probably is one of the best market uh best time to to enter the

6:06

market especially commercial real estate. We’ve seen a significant reset

6:10

when the interest rate spiked, when the Fed hiked Fast and Furious and kept

6:15

interest rates higher for longer. They’ve basically dislocated private

6:19

equity uh and they’ve also dislocated uh commercial real estate. It’s been a

6:24

reset, a significant reset. So, if you think about it, there’s really difficult

6:28

to see better time than now. We don’t know if we’re exactly at the bottom. we

6:32

could be already uh on the recovery path or somewhere near the bottom and likely

6:37

are going to see recovery very soon. Um and why I say that is it’s just um look

6:43

at the direction of interest rates. It real estate trades on leverage and the

6:48

interest rates um uh were elevated kept at a an elevated level. There were some

6:54

cuts last year but they were small and not enough and and now the Fed restarted

6:59

the rate cutting cycle and um uh a lot of opportunities because real estate is

7:06

in an inefficient market. Public markets are generally very efficient, real

7:10

estate inefficient. Phenomenal deals could be found for motivated seller

7:15

situations, quality assets but distress motivated sellers uh financially uh

7:20

pressed. So one person’s difficulty is another person’s opportunity and

7:26

unfortunately or maybe fortunately in real estate this is how it works. So

7:30

we’re seeing phenomenal deal flow today. Uh the cap rate or capitalization rates

7:35

um and for for those who are not familiar with real estate it’s a common

7:39

term that describes non-levered rate of return on deployed capital. So if you

7:44

have $800,000 worth of income and you bought a property for $10 million,

7:49

that’s $800,000 divided by 10 million. That’s 8% per year capitalization rate.

7:56

So as interest rates rose, cap rates rose and values fell. I mean they move

8:01

in the opposite direction. Cap rates in the uh in the values because you pay for

8:05

the same level of income more or less as a matter of a price. So today we find

8:09

ourselves where the cap rates are high, prices are low, cash flows have

8:14

improved, fundamentals look phenomenal in many aspects and we’re just going to

8:18

cover some of the really basic uh fundamentals of investing in real

8:21

estate. So obviously uh one of the simplest way to look at this if you can

8:27

buy properties at an 8% cap rate as an example and finance with a mortgage of

8:32

at 6%. That positive leverage magnifies cash flow because you’re getting

8:37

non-levered eight, you’re leveraging with six, you’re improving cash flow,

8:41

you’re all it’s also a margin of safety. On the other side, you see um prices uh

8:47

significantly below reconstruction cost. It’s another way to look at the uh how

8:52

well of a deal you’re getting today is if the owner is distressed uh they can’t

8:58

uh get the price they want. there are very few buyers and those with cash make

9:03

the rules and the bidding is just let’s just call it a little little bit of

9:07

vulture investing. I don’t want to make it sound too negative but when you’re

9:12

getting these great deals it feels like you are getting you know a little bit of

9:15

that. So uh below reconstruction cost we see deals below 50% of the

9:20

reconstruction value for quality assets also is another interesting uh factor

9:25

that and that’s simply how much discount off the peak of the market you’re

9:29

getting today. The market saw the peak in 2122 let’s let’s let’s use the 2022

9:34

as the peak. A lot of the properties trade today at a discount 20 to 40% off

9:40

the peak. So you don’t know exactly uh how much discount you’re getting on the

9:44

AS is basis. uh because the volume of of trades is very limited but you can get

9:50

phenomenal deals relative to what properties where relative on the cash

9:54

flow basis relative to um basically intrinsic value. So the price you’re

10:00

paying relative to intrinsic value is is really great and reconstruction is a

10:04

very relevant point is that the new construction has also slowed down quite

10:08

a bit because of a higher level of interest rates. So the the new

10:12

construction you can’t get a discounted cost to build what it cost to build. So

10:17

uh the the new projects um are much more difficult to justify while the existing

10:23

ones you can buy at a great price point and you lever all that with an income

10:28

strategy as an example. Can you still get these deals today and where you

10:32

don’t take a lot of risk? Right? So uh the risk can also be looked at what kind

10:37

of real estate you’re acquiring and what is the complexity of operation. So if

10:41

you’re acquiring real estate that is just example of industrial real estate

10:46

with an absolute triple net lease where the tenant pays for everything every

10:50

type of increase in cost taxes insurance the new capex the roof the pavement it’s

10:56

all t t t t t t t t t t t t t t t t t t t t tenants responsibility. So if you

10:59

can get into those kind of deals, they become very very predictable. They

11:02

almost act as a uh cash flow bond. They pay almost like a bond because the the

11:08

long lease with the high credit quality tenant makes a very predictable cash

11:13

flows and quite often these leases have rent escalation clauses. So the cash

11:17

flow is growing every year and then the value is forced because you’re growing

11:22

NOI. Just an example of how you could be very programmatic. You get cash flow

11:27

today, you get a cash flow growth, you get a growth of value because the NOI is

11:32

growing every year. And then if the interest rates come down, you’re going

11:36

to get all kinds of tailwind because the cap rates will come down too. So

11:39

suddenly, not only you buying deep today and you’re not really speculating where

11:44

things going to go, you’re expecting your certain rates of return. But if the

11:48

cap rates compress with low interest rates, you’re going to get tailwind. And

11:53

I feel that multiple strategies like open air shopping, industrial, some

11:58

multif family deals could be very very attractive on a relative basis. But you

12:02

got to buy the right type of property. U and today we look for simplicity. We

12:08

don’t want difficult complex projects with heavy lift, a lot of redevelopment,

12:11

a lot of operating complexity. It it’s a matter of taste. You can get involved

12:15

with heavy lifts. It’s just you can find great values without the heavy lift. Why

12:20

get involved with the heavy lift? Yeah. Well, no, that’s that’s certainly

12:24

a sign of the times now, right? Like it’s uh if you’re buying at the right

12:28

time, you don’t necessarily have to force appreciation very much, you know?

12:31

It’s just a matter of being liquid when it’s opportunistic to be liquid buying a

12:37

you know illlquid investment. So that that makes a lot of sense. I think a lot

12:41

of our you got to have courage. Yeah. I just

12:42

want to add one one point. So today we find ourselves I don’t know when every

12:47

is going to get released but the markets are have done really really well public

12:51

markets the max 7 or the the entire markets uh are doing very very well. So

12:57

there’s significant complacency and people don’t necessarily know if the

13:00

bull run is going to end or going to continue but the signs of in my view the

13:06

signs of uh market over valuation although I I you know I don’t know any

13:12

better than you do markets could could continue to march forward and AI

13:17

investments continue to do that but Ray Dalio recently in a recent interview

13:21

said it reminds him like 1999 1998.com boom where Everybody thought it was

13:27

changing the world and it was and people were paying same valuations for all

13:31

these technology stocks and the markets were elevated because of these uh

13:36

wonderful tech companies and then the markets went through a significant

13:40

reset. So to me you got to have courage and conviction and desire to diversify

13:45

to take some chips off that table and move it into what’s not really popular

13:50

today. It’s almost a contrarian play and move it into commercial real estate

13:54

deals with the folks of course that you know, like and trust and feel

13:57

comfortable investing with. But it feels like the return profile in commercial

14:02

real estate on a forward basis will be much more attractive relative to many

14:06

other strategies because it has gone through a cycle while while other

14:10

markets at the peak of the cycle. So it’s almost it’s almost the

14:15

non-correlated investment is they’re experiencing the opposite side of a

14:20

market cycle. Stocks are at the peak of the cycle or or local peak while

14:24

commercial real estate is at the local bottom of the market cycle and we’re

14:27

about to start the recovery in a matter of speaking.

14:31

Yeah. And I think that for a lot of our viewers, I mean, they’re not probably

14:35

off uh sourcing lots of different deal types. And you know, even people that

14:39

are great at this, they they tend to specialize in in one or two different

14:43

types of assets. So, I mean, what would you recommend for folks that are looking

14:48

to invest through either an operator or a sponsor or something like that? You

14:52

know, picking the right asset class is one thing, picking the right jockey for

14:56

the horse is another thing. You know, what how should they be thinking about

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and enter the promo code exec. Sure. So it’s a great question. We

15:34

certainly again we we we run a model. We we are not direct operators. We are

15:37

investors in our heart. We are we called um one term I use is capital partners.

15:43

Another term I use we marry money and opportunity.

15:46

And um at the end of the day when we invest and most investors should think

15:50

the same way. who you investing with and how do you evaluate um their team, their

15:55

capability, how long they’ve been around, what do they like, how they

16:00

think, right? Uh to me, it’s more important to understand how they feel,

16:05

how they think, how they function. Uh obviously, there’s mechanical things

16:09

like reporting updates. You want to invest with people who are pretty good

16:14

on all levels, right? You you can invest a check and they’re good operator, but

16:17

reporting stinks, right? And you’re going to be chasing them to get a

16:20

report. All those things matter. So it’s not a one question. Uh but you

16:24

definitely got to get a feeling of who you’re investing with, what they

16:28

investing into. You have to understand how they make money. What bothers me

16:32

most is when people invest without understanding how the business they

16:36

invest in or real estate project that they invest into or whatever the

16:40

strategy makes money, they’re investing in a black box. You shouldn’t be

16:44

investing in a white box. Should be pretty clear. uh obviously if it’s a

16:48

good jockey but what what asset where is this asset located what type of a tenant

16:53

it has especially industrial you can actually ask these questions you can dig

16:56

into the asset itself uh what location is this you know businessfriendly

17:02

environment is this you know if you’re investing in residential in New York

17:06

City is this subject to rent control so you you got to know some of local

17:10

dynamics as a as an example but some folks uh prefer to invest in you know

17:16

areas where the the governments are more pro business, pro-friendly versus um

17:20

some of the more difficult environments and we do the same the same thing. So

17:25

again, you start vetting who you investing with. Uh there there are many

17:30

ways to do this, but at at minimum spend some time chatting with them. If you’re

17:34

going to write a significant check, obviously meet up on Zoom a few times,

17:38

maybe even try to to meet them in person. I I like to meet people. I’ve

17:43

never gotten a check uh from anyone that I have not spent time with at least

17:48

talking to understanding what they’re looking for. I don’t need a check ever

17:53

from somebody who wants to invest into what we don’t want to do. If you tell me

17:56

you want to invest you have a lot of money and want to invest in ground up.

17:59

I’m going to tell you have a nice day. I can’t I can’t help you at all. But if

18:04

you’re looking for income oriented more defensive strategies today, happy to

18:07

chat. And then uh you know besides the the jockey you got to go look at the at

18:12

the at the deals. A lot of deals today you can convincingly mathematically and

18:18

you know anecdotally get very very comfortable with the with the area with

18:23

location. Obviously underwriting with performance and all the the paper

18:27

underwriting is wonderful but at the same time go to that area if you’re

18:31

going to write a big check. If you’re writing a small check, maybe it’s not

18:35

worth the trip. But if you’re writing a big check, definitely uh fly out um and

18:40

take a look. Uh we we try to go to the SS and and and get an understanding what

18:45

local dynamics look like. There’s nothing like driving around and getting

18:48

a feeling what the neighborhood looks like. Is this in a path of progress? Is

18:52

this already in a good area? Um just kind of getting some some idea of uh of

18:59

local dynamics. uh sort of basic thinking through and

19:03

then the last thing that I’ll say is which is really important we always have

19:07

three so obviously who you investing with what are you investing into and the

19:11

third piece is terms right you can have a wonderful one and two great jockey

19:17

great horse but the terms you’re getting are not necessarily great terms so

19:22

there’s plenty of people I’ve seen uh offer mom and pop terms I call them

19:27

versus institutional quality terms so in real estate It’s a good prof at a good

19:32

split. Could be eight pref split as an example. I’ve seen people offer seven

19:37

pref and 50/50 split. So example again the these are pretty basic terms but

19:42

understanding what happens in a good case scenario. You got to be generating

19:48

uh a lion share of the upside while the people who investing with are not doing

19:52

volunteer work. They need to have motivation to be able to find the deal

19:57

and run the deal. So, it’s a mix of what’s a fair mix. But in this

20:02

environment, there’s more power to capital, to money, than to the folks who

20:07

do deals. Few years ago, if you got a great deal, a lot of money was chasing

20:12

you. You could offer, let’s just call them mom and pop terms. Today, most

20:16

highquality folks, you could actually come to them and negotiate and can tell

20:20

them, “Hey, I’ll write you a big check. Can you get me better terms?” And we do

20:24

that. We do that all day long. I’m a big guy. People call me Big Mike. I’m 6’4. I

20:29

tell them I tell when I meet them, I step on their toes. Here’s a 6’4 guy

20:33

stepping on your toes pretty hard and saying, “Listen, before it was an eight

20:36

prep, an 8020 split. Now I need a 10 pref and a 9010 splits as an example.”

20:41

Now, it’s not necessarily always going to work, but I’m going to tell them,

20:45

listen, I’m writing you a $6 million check versus people writing you a small

20:49

check. If I don’t get those terms, I’m okay to do something else. And that’s

20:53

how the conversation goes. So, you have leverage to negotiate better terms, too.

20:57

Don’t forget that’s another important element of your investment strategy.

21:00

It’s not like you’re buying stock in a stock market. You can’t get a 10%

21:03

discount because the market is the market. Here, if you bring in

21:07

significant amount of money, you can negotiate.

21:10

Right. Right. Yeah. So, I mean, folks would be

21:14

investing presumably through with you through a direct placement or do you

21:19

have your your construct set up as a fund or or do you do both?

21:24

Yeah, we do both. We we run funds but I’ll tell you most of the deals uh

21:28

recently they’re syndications they have their own PPM private placement

21:31

memorandum and there’s a lot more interest in

21:35

direct deals today. People have been really shining away from funds because

21:39

funds is sort of a little bit of a blackbox. You can describe the strategy

21:42

and you know who’s the manager and then the fund manager goes does his or her

21:46

own thing. The reason people prefer individual deals is because they really

21:51

want to get clarity where uh the investment is at and there’s all kinds

21:55

of interesting um statements. Uh just give you example and we try to be uh I

22:01

you know apolitical. I’m kind of the middle of the road

22:05

person. Uh I don’t like extremes on either side and I’ve been in this

22:08

country for a long time and I I love this country. I’m a US citizen, US

22:11

patriot. I came here in ‘ 89 as political refugee from the Soviet Union.

22:14

I don’t like what communists were doing. I don’t like all that. So when I came

22:18

here, I thought America was great, but we’re finding ourselves a little bit,

22:21

you know, things times have got a little different. Where I’m going with this is

22:24

that we’ve seen people that that tell me, I’ll never write a check in

22:28

California or I’ll never write a check in New York. Don’t ever bring me a deal

22:31

in New York because, you know, of political environment. I say, listen, I

22:35

understand. So when we work with folks, we need to understand it’s not only uh

22:40

what they want to invest, but where they’re comfortable to invest. So why

22:44

this is important? because you you got to be comfortable your investment on all

22:48

dimensions depending how you what you like and what you see and we’ve got

22:53

deals in various parts of the country and we look at this is this a great deal

22:58

it’s really interesting how I would never do a a like a multif family deal

23:02

in California or New York but I would do a commercial deal like an open air

23:06

shopping plaza in California we have a deal like this in San Diego downtown San

23:10

Diego why because things are treated very different when it’s a commercial

23:13

versus residential So things like this matter. That’s all.

23:16

It’s all that’s all I’m going to say that uh understanding kind of your own

23:21

preferences is a starting point. Back to the goals. It’s goals and preferences

23:25

you start with and then uh can you connect with with the with the uh

23:32

sponsor uh operator, strategy, location, can you get the right terms? Uh and then

23:38

you you know you can negotiate from there if you really get to like the

23:42

deal. The two primary negotiations that I’ve seen just just to add one more one

23:46

more point on negotiation it’s the frequency of the investments

23:49

programmatic investments I’ll write a check today I’ll write a check tomorrow

23:52

a day after tomorrow right and then the size right if you if you have any of

23:56

those things you have leverage to negotiate better terms I’ve seen even

24:00

people when they like a deal they tell me I’ll call my friend and my friend

24:04

will write a check and his friend will write a check before you know they wind

24:08

up you know friends invest together it’s another reason uh it’s a collective due

24:14

diligence. You look at the deal and then you have two other friends look at the

24:17

deal and they you all can say do I like it or not. So I’ve seen that too where I

24:22

I was at a um conference just last couple of days actually in Houston was a

24:26

gentleman u out of Silicon Valley. He’s an IT and um he’s been investing in real

24:32

estate and he has a group of other IT guys and girls like him and they all

24:36

invest together like like a like an investment club. So you get one on

24:40

board, suddenly many others look and before you know if you get you get a

24:44

whole whole group together. No, and I think that that’s also smart.

24:49

It’s it’s like people that you know, like, and trust that are investing with

24:52

you as LPs, you know, they may be asking a lot of questions, good questions from

24:57

the sponsor or the operator that you didn’t think to ask, right? Um, so I did

25:02

and you know, to your point earlier, there’s probably a little bit of

25:05

bargaining power too when they’re invest in investing as a collective. uh you

25:09

know the same way you know that you’re negotiating with sellers that could

25:12

possibly negotiate with you by bringing a bigger check to a particular deal.

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25:55

Yeah, exactly. It’s um it’s it’s don’t be shy in this environment. There’s no

26:00

wrong question. There’s no there’s no bad question.

26:04

um the fact that you’re looking at their deal, the fact that you’re talking is

26:07

already uh you know, a good sign for them and a an opportunity for you and at

26:13

the same time, you know, keep an open mind. You may not you may not like this

26:17

deal, but you may like the next next deal and communicate your requirements

26:20

of what you like. I’ I’ve seen people look at these deals as a as a binary yes

26:25

or no. Well, yeah, for a given deal deal, it’s a yes or no, but it’s also

26:30

negotiation. And it’s also you could ask listen I don’t like this deal

26:36

but I like the following. If can you do you have something in this in this

26:40

market or it looks like this or you you’re talking about an equity deal.

26:44

What what if uh you know is there anything in the you know medical

26:48

receivables fund or this or that or you guys are not offering a fund but I’m

26:52

more interested in the fund. So what’s really interesting is that connected

26:57

people might have other folks they can introduce you to. So I I was talking to

27:03

we had actually well in Houston we we had a dinner with a few of our investors

27:08

and um uh one of them was asking hey do you know anything in the medical space?

27:12

She’s actually a doctor uh and I I told her we’re looking at potential some

27:17

medical triple net leases. So a surgery center could be um triple net leased to

27:22

real estate. basically a hospital could sell the

27:25

center and then lease it back and and sign 20-year lease. So, it could be very

27:30

predictable. So, we’re looking into specific strategies, but also she said,

27:34

“You have anything else besides real estate?” So, I know a friend who runs a

27:37

medical receivables fund. I said, “I’ll introduce you to my friend.” So, part of

27:41

the conversation is just just to see what what could be a match. Again, I

27:45

don’t know what’s a match sometimes. Um, well, I have this really important

27:50

thought and I I I’ve said this multiple times uh on my own podcast and I

27:56

continue to to say this as a guest. You got to have your own buy box and your

28:00

don’t buy box. So, your buy box is what you really want. And the fact that you

28:06

know what you don’t want is just as important as you know what you want.

28:10

Because sometimes you don’t know what you want, but you really know what you

28:12

don’t want. So, how you can do this? Well, my don’t buy box is pretty much

28:20

any groundup development, redevelopment, any other speculation where my downside

28:25

is not well protected. There’s a lot of risk associated with construction.

28:29

There’s difficult to get a discount and you know I I don’t want to speculate on

28:33

what the future rent’s going to look like or the future price is going to

28:36

going to look like. I would rather get a deal today. But, you know, not all

28:40

income deals going to be interested. People talk to me about oil and gas and

28:43

I tell them, “Listen, I I’m not going to do oil and gas because I don’t like, for

28:48

example, how there’s no return of principal. All your cash flows have to

28:53

be so strong that you get your principal advertised over the payment of a first

28:58

few years of the production. So all the deals I’ve looked at, I couldn’t find

29:02

1. So I’m not a guest oil and gas at all. I am just I couldn’t find the right

29:08

type of returns with predictability of cash flows. Also I vividly remember what

29:13

happened when the oil price spec uh spiked. I was in 2015. I remember

29:18

investing in a publicly traded uh ticker VNR Vanguard Natural Resources. It was

29:24

distributing 15 to 18% yield when the oil price was $100 a barrel. When the

29:29

price collapsed to like $40 a barrel, the thing went bankrupt. So I’m a little

29:33

bit of that, you know, volatility uh can be pretty high in energy sector. So as

29:41

long as you can find the right type of deal and it fits your box is fine. But

29:45

to me, it’s it’s in the don’t buy box. So knowing your buy and don’t buy box is

29:51

very important for the reasons of whenever you see a deal if it’s outside

29:55

of your buy box or I just got an email today from somebody who met me at a

30:00

conference few years ago and they said they’re in Boston area and they um

30:04

they’re buying some leans on condo association leans. I I don’t know

30:08

exactly and and immediately my my immediate reaction was going to be

30:12

highly unlikely. this is not going to be in my buy box because you got to buy

30:16

leans means you’re not cash flowing from day one. You got to know local dynamics,

30:20

local laws, right? So I’ll I’ll have a quick conversation and try to understand

30:25

what kind of risk, what kind of return profile, how they’re secured just to

30:28

just to learn a little bit about the strategy. But at the same time to me

30:33

today, I have to establish high confident value and feel that it’s great

30:38

cash flow and conservative leverage then I can transact because I know my my buy

30:43

box pretty well. I also know my dome box pretty well. It’s easy to see if it fits

30:47

or it doesn’t fit. That simple, right? Yeah. Yeah, I think a lot of that

30:52

ties in with um you know, you can’t be good at 10 different things. And even if

30:56

you’re investing through a third party, if you really are very selective about

31:01

the types of deals that you’re looking at, you can also be really selective

31:04

about the operators who know those types of deals. So, you know, really good

31:08

questions to ask about that rather than spreading your time across 10 different

31:12

types of deal constructs. So, I think that’s that’s just generally good

31:16

advice. Um, I also like your advice about protecting from downside, right?

31:21

Like a lot of people, uh, they underwrite things and, you know,

31:24

everybody can get rich in Excel. Uh, it’s great to be able to to see the

31:28

numbers go up on a spreadsheet, but you know, what what implicit assumptions are

31:32

you making about that and what happens if the market goes down? You know, uh,

31:36

how are you making sure that you’re protecting yourself either through

31:39

non-reourse debt financing or something like that. Um, so those are all

31:44

important things that people should be thinking about just generally.

31:47

Yeah, this is exactly this is a great thinking exactly what you’re saying. So

31:52

when you invest in I’ve seen even this right. So people invest in debt funds

31:56

first lean lending hard money lending funds private credit right bank stepped

32:02

out people uh use lending funds to get current income. It’s probably one of the

32:08

simplest conservative investment strategies to get yield.

32:13

people get 9 to 11%. Let’s just use an example in in hard money lending. But

32:19

one of the most basic questions people don’t ask, do you have leverage in your

32:22

fund? And when you find out yes, they have leverage, you’re suddenly not in a

32:26

first position, you’re in a secondary position. What if some of these loans

32:30

not done well and then there’s a defaults and then all kinds of issues

32:34

start start popping up even in a conservative uh

32:39

lending strategy where you are most senior on a capital stack. When you

32:44

invest in equity it’s even more relevant actually low leverage in both on debt

32:49

and equity side create more conservative investing. If you are a lender, you want

32:54

lower leverage and if you are an equity investor, you want le lower leverage to

32:59

create effectively lower level of risk for both for the lender and for the

33:03

equity uh investors. And there’s no right or wrong how much leverage is uh

33:08

is good and how much leverage is not. Uh but conservative leverage has always

33:12

been 60 65%. If you’re sub 60, you’re generally pretty conservative. If you’re

33:17

going over 65% on leverage, you either it’s not that you’re taking too much

33:22

risk, but you you definitely you’re reducing your downside protection. And

33:26

what what what’s really amazing is when you can get great returns and low

33:30

leverage. So that means you’re really getting into a deep deep value deal

33:35

because because you don’t need to make uh crazy return or strong return without

33:40

higher leverage. You could certainly make it like a bandit with high

33:43

leverage, but you took a lot of risk. So this is very important. So you really

33:47

have to think about risk and risk is not easy to assess. This is one of the most

33:51

difficult things to do. But leverage is one of the elements of risk to obviously

33:55

what kind of strategy who you investing with and uh how they make money. uh it

34:00

takes experience exactly what you said if you don’t have deep expertise if you

34:05

have not developed expertise right you cannot be you know you are an executive

34:11

you know uh at a I don’t know airplane leasing shop right you buy

34:18

airplanes you lease airplanes you’re wonderful at that but now you’re trying

34:21

to invest in real estate a lot of the finance terms are probably similar and

34:26

clear and you could you can understand that but but but uh you may not know

34:30

some of the underwater uh stones of specific strategies, right? So, you

34:35

know, oil and gas stations that it’s real estate, but then there is

34:39

pollution, there’s ground test, there’s some complexity related to uh

34:42

environmental this this uh the best way you basically mitigate is that you

34:48

diversify. You can’t beat diversification as a mitigation

34:51

strategy. You just don’t know. And then you start investing and you start

34:54

learning from your own, you know, start observing. You got to start somewhere.

34:58

So write one check and then because real estate moves slow, you can’t really see

35:04

the full cycle fast enough, right? So it takes five years or four years for a

35:08

cycle. But what you can see is you invested your money today and see what

35:13

happens in three months. Did you get a distribution on time? Did you get your

35:16

reports on time? How your questions are answered? So you continue to uh learn as

35:21

you go along and you continue to see who you want to work with more and who you

35:25

want to work with less. is part of the the whole uh whole story. It’s almost

35:29

impossible to know for sure uh from the get-go, right? This is not you’re buying

35:33

JP Morgan Chase stock or you you you you’re buying Google stock or

35:38

it’s different. It’s just because uh it’s it’s it’s private and it moves

35:42

slow, but you got to keep learning from your own investments by observing how

35:47

they perform and how the people who you invested with um respond, operate, etc.

35:54

Yeah. Well, hey Mike. We could probably talk

35:57

about this for three hours. Both seasoned real estate guys, but I

36:01

appreciate you being on the show. I’d love to for you to be able to share any

36:05

information about how people can get in contact with you or, you know, uh just

36:10

learn more about what you’re doing. Sure. So, fairly easy to remember. We

36:15

have a corporate website, but I I I never give people corporate website

36:18

because it’s an easy to remember website. So, I give them the cheesy.

36:21

Again, I run a podcast, bigmikef fun podcast. It’s a cheesy name, but I’m

36:27

6’4. I’m big guy and fund manager stuck. So, bigmikef fun.com.

36:33

Uh, it’s uh it’s our it’s an entry point. You could listen to the podcast

36:37

if you’re bored, you got nothing else to listen to, or

36:41

you want to learn a little bit about real estate. I do have some cool guests,

36:45

uh, really smart cats. And if you mistype it and you go to bigmikef

36:50

fun.com, you forget the deal at the end. I I promise it’s not a kinky site.

36:56

Well, thanks for being on the show today, Mike. Appreciate the time. Thank

37:00

you, Brian.