Category: Jewels of Wisdom Newsletter

Private Lending -vs- Equity Investments

I’ll define Equity Investments here as investing in a partnership. This might include going 50/50 on a fix & flip or investing passively in my Self Storage Development in Lawrenceville, GA. Private lending is when you lend money in the form of fixed debt-usually using a Note & Mortgage. I personally allocate about 70% to Equity Investments and 30% into Debt Investments as a Private Lender.

These two investments come with very different Risks, Rewards, & Tax Implications. I’m not giving tax or investment advice here-just sharing from my own experience. Please note-the structure of Debt & Equity investments can be very nuanced and anyone considering any investments should seek proper legal council before doing so.

Private Lending / Debt Risk:

• Secured by the Property: If the Borrower cannot complete the project and pay you back, you could become the owner of the property you’re lending on. If the loan is well below the actual value of the property, this might be a good thing.
• Borrower Risk: Does the operator with whom you’re investing have more cash available to cover your interest & guarantee your principal-even if they lose money on the deal you’re lending on?
• Construction Risk: The more construction being completed on a project, the greater the risk of cost overruns & delays. Back to the Borrower risk-do they have enough cash reserves to cover unforeseen issues like this? I personally never go back to my lender for cost overruns. It is always paid out of pocket.
• Market Risk: If the market for the property you’re lending on declines, will the Borrower have enough cash to return your principal?  And Interest?

Private Lending / Debt Reward:

• Defined Reward: I pay my lenders 2 points & 10% interest, no matter what. We lost $150,000 on a single deal and our lender made about $80,000. His reward was defined & his selection of Borrower (Diamond Equity) was ideal because we had plenty of cash to cover that shortfall.
• Principle Protection: When I borrow money from my Private Lenders, I am agreeing to pay their entire principle & interest back, no matter what. I’m contractually obligated to do so-which is the defined principle protection, in writing, which are expected on Debt Investments

Private Lending / Debt Tax Structure:

• Short Term Capital Gains: Debt is normally taxed as short term capital gains, or ordinary income

Equity Investment Risk:

• Principle Risk: In Equity Investments, or Limited Partnerships, your principle is NOT guaranteed to be returned. No matter how much cash the operator may have outside of the deal you’re investing in, they are not agreeing, or obligated to pay back the full amount you invest. If the deal fails, you may lose some, or all of your investment.

Equity Investment Reward:

• Contingent Upon the Outcome of the Deal: If the deal succeeds, Equity Investors participate in that upside. If the deal breaks even, Equity Investors receive their money back, with no interest. If the deal fails, Equity Investors lose some, or all of their money. That last outcome isn’t really an Equity Investment Reward, I guess…

Equity Investment Tax Structure:

• Long Term Capital Gains: Right now, the US Tax rate for Long Term Capital Gains is 20% for those in the highest tax bracket. Short Term Capital gains are 37%.
• Depreciation: Many Equity Investments come with tax losses, such as depreciation, which help minimize tax bills. You can listen to this podcast for more detail on this tax benefit.

The Right Time & Place for Each type

Equity Investments that I currently own were made for these reasons: first, the tax efficiency of the gain. I’m making good money now and have heavy taxes to pay. Making Equity Investments that will distribute profits later as Long Term Capital Gains help me maximize the money I’m left with after taxes. Second-the expected greater return. I’m aiming for 20%+ returns in all of my partnerships.

As mentioned, I’m about 70% in Equity Investments right now. This is a lot of risk. Since I’m not yet near retirement age, this risk is acceptable to me right now in search of greater reward-and a more efficient tax structure.

As time goes on, I’m intentionally moving more toward Debt Investments. Defined risk & defined reward are more desirable long term-as you are better insulated from market swings. Of course this assumes you’re lending to a well capitalized, high quality Deal Maker. If you’d like to view my projects which are available to lend, please sign up at www.FundRehabDeals.com

How to Make $500,000 by Thanksgiving

It’s much easier to “Make” money than it is to earn it. In our business we make money by making deals. Earning money to me is more like being employed and paid by the hour. Very limiting because you only have 168 hours in a week, maybe half of those would be available for work. I always preferred sales & negotiation with commission & profit available with no cap – Like real estate brokerage or house flipping – You can “make” money quickly instead of earning it by the hour.

I chose Thanksgiving to highlight the current 6 month window of opportunity in which we now live- The Spring Market!!. Now through mid October is when 80% of 2025’s deal flow will be made. By Thanksgiving, most of that will have gone to closing. Hence, setting a goal now to make $500,000 by Thanksgiving. Here is my framework for creating this result:

1. Belief System – If you don’t believe you can make $500,000 by Thanksgiving, I can assure you: “You’re right”.  If you DO believe you can make $500,000, I can tell you it’s possible. When I first set my sights on goals of this size, I had to believe in them first-for quite a few years actually-before making it happen in real life. Some reading say to themselves, “I’ve done this & more. Thanksgiving-no problem, maybe even 4th of July.”

My mentor, Dan Kennedy, is known as a Marketing Guru. However, much of his work is centered on belief systems. Like Tony Robbins teaches. He taught me how to change my beliefs about what’s possible by reading biographies of successful entrepreneurs. The Founders Podcast is a shortcut to this-giving you a summary of many, many, more biographies than any of us could possibly read.

2. Knowledge – Knowledge about HOW to actually make $500K is necessary. If you’re aligned with business partners who know how to do this, you found a shortcut. If you have never done this before, or come close, you might have a longer road than 2025 to make this happen. Hitting the $500K mark in a single year took my just under 10 years of trial & error to figure out-not including my career in car sales which certainly helped me learn how to close deals.
3. Communication Skills – Income in our business is directly tied to your communication skills. How you conduct appointments & present offers. The wording in your emails, text, and advertisements. The description in your listing. How you talk on the phone – the questions you ask – your ability to LISTEN. All these and more are intentionally developed as you increase your ability to make deals.
4. DO THE WORK – Extraordinary Results ($500K this year is not ordinary) require extraordinary effort. In our business, that means working the phones and negotiating deals. These are the money producing activities. Now, since it’s the Spring Market, I’m asking my team weekly to level up more now than ever. I’m asking myself the same thing.

The 2025 Spring & Summer real estate market is still a once in a lifetime opportunity, and the market is not guaranteed to be as favorable as it is right now.

 

How to Build a Pipeline of Off Market Deals with $0 Marketing Expenses

I had lunch with a long time friend & business partner this week. We discussed his strategy for doing 40-50 fix & flips per year without losing a ton of money on marketing. This 3 step strategy assumes you have strength in funding deals & renovation resources. First, find & build relationships with wholesalers & agents who find deals. Then, methodically strengthen those relationships-sometimes this is hard, because it can cost more money. Finally maintain contact as time goes on.

I shared this strategy with my buddy Evan, from the Milwaukee, WI area. He more than doubled the number of projects he was finding & flipping without a penny in marketing. This works:

1. Build Relationships – New or low experience wholesalers are the best place to start. Many don’t have much money or experience when they join the real estate industry, so they get ignored-until they start finding deals. Invite them for lunch, ask them to call you with deals, and offer to provide them pricing guidance (what you’d offer) if they have a deal where they’re not sure the value. Keep any information they provide in strict confidence-or you’ll ruin the relationship forever.

As time goes on, you’ll notice 9/10 of these folks either quit the business OR grow from wholesaler to landlord & flipper themselves. It only takes 3-4 of the remaining 1/10 to feed your real estate business more off market deals than you can handle. Here’s how to keep them happy:

2. Strengthen Relationships – Below are 5 tips to keeping a wholesaler loyal. When you do these things below, you’ll get favorable treatment. That might mean steering a deal to you even when you’re NOT the highest offer OR perhaps being the only person in the world to know about the deal-and buying with ZERO competition.
   • Decide Quickly – If the deal is not for you, pass quickly. Nothing is worse than being strung along by a buyer who knew they had no interest, but instead said, “I’ll look into this later when I’m at the office” or something similar. On the other hand, if you say you’re interested, view it as quickly as they can provide access and present your offer immediately-at the showing if possible, but same day every time. It shows confidence in your ability to ACTUALLY CLOSE the deal, if awarded. I still judge buyers on their speed to offer.
   • Pay More if Possible – When you have a reputation for paying the highest price, you will absolutely get favorable treatment. Be careful, if you’re always negotiating hard, your agents/wholesalers will find someone more generous as their #1 buyer.
   • ALWAYS Close as Agreed – Going under contract, even with Due Diligence, and then NOT closing at the original price you offer earns you a black mark in the eyes of your deal source. The best method is to make the offer at the price you KNOW you’ll close-and follow through on that. If you earn a place on the blacklist of an agent/wholesaler, it will be very difficult to regain favor.
   • Never Renegotiate – In most real estate negotiations, the inspection period comes with a renegotiation. In the wholesaler & investor agent world, this behavior will deteriorate your reputation as a go-to buyer. Even if it’s something big-roof, HVAC, electrical-if you can still profit and eat the expense, you will gain future deals with that deal source.

Maintain Relationships – Many agents/wholesalers only come across a few deals per year. They aren’t super professional-yet this is to your advantage. Their lack of professional business skills, while irritating to you, actually creates the opportunity for YOU to be their go-to buyer. These are the type you’ll have to call every month or so to check in-otherwise they’ll simply forget you exist. Perhaps a lunch meeting a few times per year. Make them feel special. Not “buy them roses” special, but some time & attention. Maybe ask them their goals in the business, make a book recommendation, etc. And of course, ALWAYS ask if they are working on any deals where you might be able to add value.

Flipping Houses IS the Best Business Model in 2025

Existing-home sales have decreased by 4.9% in January, marking a notable shift in the market. Current mortgage rates still remain above 7%. On top of that, inventory levels have risen by 16.8% to approximately 829,376 active listings. Sounds bad, but it is not even close to what has been normal for my entire career spanning more than 18 years. See the Fed Chart below for historical inventory levels.

Flipping Houses has NEVER been Better 

Flipping houses from 2006-March 2020 was a real challenge. I remember wondering if anyone would buy each renovated house I was building. It felt like a miracle when we got the offer-and yet another if it appraised & closed. Since 2020, even the past 12 months, the majority of houses we’ve renovated have sold for higher prices than we thought when we bought the deal. And the sales have mostly been in 14 days or less. What a great time to be alive & flipping houses!

1. Houses are Liquid. They sell or rent extremely fast-usually 60 days or less for a sale, 30 days or less to rent. Assuming you’re priced appropriately. Contrast this with my commercial properties. Shopping center units & industrial buildings often take 12-24 months or more to rent. My recent apartment building sales took 12-14 months from the For Sale sign to the closing. I love 1-4 unit residential properties for their lightning fast sale cycle.
2. Renovated Houses are a Premium Product. A well designed & tightly executed renovated house is a special product to the home buyer seeking their dream home. Whether a starter home or their forever home, when it’s renovated, it commands the highest value. They aren’t comparison shopping-their fulfilling their dream. It’s like a Lexus buyer-they buy for the experience of ownership, NOT necessarily to get a good/great deal.
3. Inventory is Extremely Low. The wind is still at our back-there are still VERY LIMITED options for home buyers.  Even less so the buyer seeking a Renovated Home.
4. Now is the Time to “Time” the Market. Home prices will peak between March 15-June 15, 2025. In many markets, these numbers will be the absolute highest prices ever paid for Renovated Homes sold in their respective markets. That said, there are a small number of micro-markets which peaked in 2022 and have cooled since then.

How to Play the Market

If you don’t already have fix & flip deals in process, right now is the time to find one, or several, assuming you have capital and contractor resources to execute quickly. Your goal is to hit the market by June 1 to hit the peak selling/peak pricing season.

Submit quick closing offers with large earnest money deposits. Most “standard” transactions close in 30-45 days. When I want to win a deal and I have contractors ready to go, I’ll close my deals in 7-14 days. Why wait??

My earnest money deposits are almost always 10% on deals under $250K. Once I make an offer, I’m planning to close no matter what, so the large EMD is not a risk to me. The certainty of closing & my quick timeline is the reason my offers win so often.

Of course if a seller needed more time for some reason, I might wait around. Better to book the deal into my schedule and find another for the near term More deals=more opportunity to get lucky in the Spring Market. Although it doesn’t happen as often as 2022, we experience the “multiple offer situation” most often every year between March 1-June 30. It’s been that way since 2006.

What’s it Feel Like to Win?

Two weeks ago I had the idea for this week’s newsletter: Winning. It struck me right as the Philadelphia Eagles won the NFC Championship. Lest I jinx our team (I grew up right outside of Philly), I held off on writing this until now-a week after the win. This year’s Philadelphia Eagles know what it feels like to Win. In a blowout, I might add.

For me, winning feels like I’m living life now in a bonus season. I struggled with addiction through my early adulthood-only quitting at age 32, on Jan 21, 2012. I recently crossed 13 years sober. That’s a WIN!!

“Pop Champagne” Could be Deadly.

There is danger in winning. You go one of two directions after a win. You pop champagne and celebrate-which is often what we do the first time we experience a big win. OR, you humbly get right back to the grind. You engage in those same habits you formed which created the win. In sports, that looks like 5:00 am gym sessions followed immediately by practice. Think Kobe Bryant. Doing the latter-getting back to the grind- is how you set yourself up for that next win. Mamba Mentality

In 2007 I was just under 3 years sober and had been in real estate 2 years. Late that year I had 4 large closings (they were large closings to me at the time-a ton of inflation has occurred since then) and saw 6 figures in my bank account for the first time in my life. I mentally popped champagne, that money went to my head, and a short while later I relapsed into addition. It was 5 full years of misery before I found God and regained my sobriety, sanity, & sustained success in the real estate industry. Grateful to be alive. Bonus Season!!

Within the last few years, our company closed our single largest deal, in terms of profit. I’ve intentionally worked to keep an even keel now-whether a win or a loss-handle either smooth and calmly. When we closed that deal I was glad & grateful, but that excitement of the big win I felt back in 2007-that “pop champagne” feeling was non-existent. That’s a healthy place to be. Neither myself or my partners skipped a beat after that closing. We immediately maintained the habits that created the opportunity. Mamba Mentality.

What is the Most Valuable Habit that Creates the WIN in Real Estate Investing?
Simple. Make offers. That habit-making offers-took me YEARS to develop at a sustainable level. It is very simple, but very easy to get stuck procrastinating and analyzing and checking the comps again and talking to contractors and interviewing tenants and on and on and on.

Get to MAKING YOUR OFFER as quickly and often as you can!! Closing Many Deals requires making at least 10 times as many offers. I mean, we want to close GOOD DEALS, right?? Making offers is how you win those good deals.

When you consistently make offers you experience that rewarding feeling of WINNING-first when your offer gets accepted and then once again later when you exit or refinance that deal and collect that check! Ah, but beware of “Pop Champagne” mentality and get right back to making more offers to setup that next WIN!! Mamba Mentality

3 Lessons Learned at the Commercial Academy Mastermind

1. Go Class A – So Henry, Aaron, Dakota, (partners of mine) & I went out to lunch with a few of my friends. One guy has $180M in retail, another has $1.2B in multi family & another earned $37M in income last year. There were about 18 of us in total. Henry quietly paid the entire check. Class A act here. The lesson here is that it was a strategic move. Once everyone realized what happened, they thanked Henry and had a short conversation. Great investment into building a relationship & Great first impression
2. Bigger is NOT Always Better – One of my friends has a very large, highly vacant property that is taking a TON of work to stabilize. This is a heavy lift-and he does expect heavy profit. But there is a personal cost in energy, time, & sleepless nights that come along with a lift like this. May or may not be worth it-but I learned to include this in my analysis on bigger, heavy lift deals.
3. Choose Wisely-Time & Money are Limited. Along the line of the heavy lift, I further realize that time & money are limited. More so time. There are only so many deals you can do-so choose wisely. Not all deals deserve to get done. The profit must align (meaning there needs to be ENOUGH profit) with the risk involved. I now include the risk of the time wasted on a project in addition to the money risk involved. Can always make more money, but cannot make time.

Data Center Development sells above $1,000 per Sq. Ft.

Over the past few years I’ve heard about Data Centers and never gave them much thought. Then, on the TreppWire Podcast (one of my top Commercial Real Estate investing information sources), I began hearing about sales at $1,000 per foot, $1,500 per foot & up. I’m no expert on Data Centers & AI, but I know enough to see a trend and learn at least enough to survive the coming wave. (Translate that last sentence to “Learn about & implement the new technology and rake cash.”)

This week’s REI Diamonds Show podcast, I interviewed a Chad Fowler, a data center architect. One fun fact I learned is that old technology data centers, think pre-AI, could be retrofitted into old office buildings or warehouses. Now, with the advent of liquid cooled chips, the rigs require 20-24 foot clear ceiling heights. Debunks the idea of converting old office buildings downtown… Listen here.

Why I’m Bullish on Humankind’s Cities

I’m bullish on cities because a majority of humankinds technological leaps have occurred in cities through all of history. It made logical sense for trading & physical goods. Where the people are, there too is the product.

The market forms because of the cluster. Where the people are, there is talent. Talent can then collaborate within the AI (meaning “Actual Intelligence”) produced by the proximity of all of those people. It’s easier to hire other talent, a doctor, home builder, or any other service when there is abundance of people around. So commerce & innovation thrive where many bright people are gathered. I’m bullish on cities mostly for this latter reason-the innovation clusters.

The city is now coming out of a slump, and I believe it has already bottomed out. The “work from home” experiment is coming to an end and I am glad that we are going to return to a culture that prizes production.

Logistics Clusters

Logistics Clusters are cities that feature a location such that goods are transported through in mass. Think highways, airports, & railroads. Atlanta thrives because of it’s central hub location for trucking & air traffic. Chicago grew up on Lake Michigan traffic & railroads. Philadelphia grew out of the Delaware river traffic and continues to be a prime location today due to reasons including the proximity to Washington DC & New York.

I’m bullish on industrial property located within these logistics clusters. As long as people are buying goods, there will be a need to store & ship those same goods.

For a deep dive into Logistics Clusters, I suggest reading Logistics Clusters by Yossi Sheffi.

Well, I’m off to finish the rest of this Commercial Mastermind. Catch you next week!

Trump proposed providing Federal Land for development of homes to address the housing shortage. Surely, this utopia will be named after Trump. I assume this will also provide streamlined zoning to allow record speed in constructing houses and the necessary infrastructure. But then the problem all real estate developers & investors face:

Who Will Buy these Houses? Why Move to Trump’s City?

To solve this issue, I propose a 5 year Federal Income Tax Amnesty on the 1st Million in income for residents who agree to establish residency in Trump’s City AND agree to remain a resident for 10 years. This would incentivize people to move and remain after the tax-free period expires. Here are the options for the location(s) of Trump’s city:

Since you read the subject line & are now reading this, I’m guessing you may have thought, “Wow, I can move INSIDE the US and find a tax haven?” If fact, a policy like this, on maybe 25,000 acres, might allow for 50,000 residents.

This would create a land grab along the lines of the opening of the frontier in 1889. There would need to be a lottery, and perhaps income bracket quotas which could be filled strategically so as not to create a federal housing project along the lines of Cabrini Green over time. Far better to have a wide range of incomes to give the city a solid foundation for future desirability & innovation.

Truth be told, much of this land is not really buildable, so I’m not sure how realistic this whole plan is. Anyway, I’m done dreaming about US tax policy. Having written several large checks for 2024 taxes, and watching bonus depreciation waning to just 40% this year, I am anxiously awaiting the expected tax code updates from our newly elected President…

 

This week I took my dad over to Palm Beach to visit the Henry Flagler Museum. I have been there 4 times now-and I am inspired every time I go. Henry Flagler was the legal mind behind Rockefeller & Standard Oil (Exxon-Mobil).

He invested his fortune developing the Florida East Coast railroad-and cities along it’s route including St. Augustine, Palm Beach, Daytona Beach, & Miami, Florida. Without Flagler, Florida’s economic power may not exist. Henry Flagler believed, as I do, it is better to invest in helping the man help himself, rather than giving a handout. This was his view on developing Florida-provide the catalyst for economic organic growth.

PRO TIP: Before visiting the Henry Flagler Museum, read The Last Train to Paradise to grasp the rich history of real estate development in Florida.

In the car on the way back home I asked my dad, “What would it take to alleviate the US housing shortage using Federal land? How could you jump start a new city without an economic engine such as a port or logistics cluster?  What would bring people to Trump’s federal housing projects?” The answer sparked this idea:

 

Last chance to invest in this Self Storage Deal.  If you’d like to invest, or review the investment presentation you can reply to this email or Schedule a Call 

---

A Major Blind Spot in CRE Underwriting

Underwriting commercial real estate deals is where the money is made or lost. Underwriting is deciding the price and/or terms you are willing to pay for the risks involved in buying/owning the property. Honestly, I prefer “napkin” underwriting, where I am scribbling the current rents, current expenses, potential rents, capital improvements, etc. on a scrap of paper already full of other notes inhabiting my desk.

Honestly, my desk is always cluttered with 6-12 sheets of notes from my interactions on the phone/zoom daily. I ALWAYS take notes on EVERY call I schedule, no matter the other parties skill level, wealth level, or even my own expectations from that meeting. And I’m always surprised to glean a jewel of wisdom from EVERY call/meeting I join.

This week, with one of my partners in our Commercial Brokerage, Henry Eisenstein, we underwrote two deals live, on video. We will both publish these in a few weeks on our YouTube channels. The Major Blind Spot we highlighted on these examples was the insurance cost. These costs have gone WAY up & that’s assuming you can even find an insurer to “buy” the risk (meaning write the policy)

Insurance Cost is a MAJOR Risk in the Future Profitablity of CRE

When I bought my first 3 large apartment buildings, I didn’t even pay attention to that line item for insurance. I simply moved ahead with the deal and got lucky-that I was able to find insurance for the same cost, or less, than the Seller was paying. I underwrote the deal using the insurance costs provided by the seller and believed them.

Now, many sellers have older policies with lower insured amounts. Once you buy at the new, much higher value, you’ll also be wise to buy insurance at that higher amount. This costs more. Not only that, many of the commercial sellers in today’s marketplace DO NOT EVEN CARRY INSURANCE!! In fact, this IS THE REASON THEY’RE SELLING NOW. 

To be clear, now is NOT the best time to sell commercial real estate because the interest rates are so high. If the rates were to drop, more deals will close at slightly better prices. However, if a seller owns a $2M-$10M property with NO insurance, perhaps NOW IS THE BEST TIME TO SELL.

Why do these Sellers Have NO INSURANCE?

Right now, on the heels of inflation, hurricanes, & wildfires, insurers are paying out large claims. In the process of evaluating the risk they hold (policies they wrote, which they may have to payout), they are either dramatically raising insurance rates (I’ve seen 150%-300% increases issued to renew) OR simply dropping the property altogether, leaving the owner with no option but to go uninsured. Terrible situation for that seller.

I’ve also seen a deal where the Seller made a $500K claim for wind damage and was dropped the following year. I offered $8M on the deal, he wanted $11M. I may have paid more, but when I called my insurance broker to quote the policy, we could not find a single company willing to issue the policy at a price that would make the deal work.

The Insurance Cost is Deducted from Your NOI, Reducing the Value of Your Property

The cost of insurance is an expense, which reduces your NOI & ultimately the actual value of your property. For example, if you’re using an 8% cap rate to value your deal and your insurance cost is $35,000/year HIGHER than you expected, or paid the prior year, that reduces your value by $437,500. If this happens again next year, and the year after that, you might be $1.3M less valuable than you projected. I don’t know about you, but I’m not excited by losing $1.3M in value…

KEY TAKEAWAY: If you’re buying a commercial property, ask for the “loss run history” for the property as part of your DD package. This shows all the claims made. If there are recent claims, you may have trouble finding insurance at all, and certainly not at reasonable rates.

ANOTHER KEY TAKEAWAY: ALWAYS shop your insurance very early in the contract cycle. Confirm your insurance cost assumptions before your DD expires. Your deal may not actually be a deal you should close on…