Show Summary

Robert Napolitano joins us and shares a powerful lesson on the difference between being a real estate investor vs. a real estate entrepreneur. We all got into this business for freedoms…both financial and lifestyle. Robert shares his thoughts on the importance of surrounding yourself with smart people. In part 2 of the show, he shares powerful knowledge on how deals aren’t ‘found’, but created, and how to think about ‘today money’ vs. ‘tomorrow money’. Great episode…don’t miss it!

Highlights of this show

  • Meet Robert Napolitano, real estate investor, mortgage expert, fund manager.
  • Learn as Robert talks about the importance of surrounding yourself with smart people.
  • Join the conversation on the balance between money, your mindset, the deal, and time.
  • In the Taking Action segment: learn Robert’s lessons on risk vs. reward, and how to think about ‘today money’ vs. ‘tomorrow money’.

Resources and Links from this show:

Listen to the Audio Version of this Episode

FlipNerd Show Transcript:

Mike: Hey, everyone. It’s Mike Hambright with FlipNerd.com. Thanks for joining us for this episode of the Expert Interview Show, where I interview leaders and entrepreneurs in the real estate space from across our industry to help you learn and grow and maybe teach you a new thing or two.
If you have not listened to the show before, welcome. I’m glad you’re here. Sit back and listen. This is going to be an awesome discussion here. If you are a member of FlipNerd already, welcome back, glad you’re here. If you’re not a member, please check out FlipNerd.com. You can setup a free account, actually, in about 15 seconds now. So, there are a lot of great benefits to being a member of FlipNerd.com.
This is episode number 298 with Robert Napolitano. Robert is the founder and CEO of Dream Capital, a full-service real estate fund management firm that buys and sells distressed real estate and mortgages, and we’re going to have an interesting conversation on Robert’s take and thoughts on the difference between a real estate investor and an entrepreneur and why if you’re not building up cash flowing assets, you’re kind of missing the point and the opportunity of being a real estate investor to be able to make money while you sleep. So this is going to be an interesting discussion
For those of you that know, this year so far we’ve actually split the show into two parts. We have part one, where we’re going to learn more about Robert and talk about the difference between an investor and an entrepreneur.
Part two is the taking action segment of the show. We’re going to talk specifically about some alternative ways to build up your assets. So, as a fund owner, Robert invests in a lot of things that are real estate related, including a lot of notes and things like that. So, we’re going to talk specifically about some alternative ways that you can build up cash flowing assets that you may have not considered.
So, let’s jump in. Robert, how are you today, my friend?

Robert: Thanks, Mike. I appreciate you having me here today.

Mike: Yeah. Great to see you. Why don’t we take a minute or two and just learn a little bit more about you and your background and how you got into this space so we can know a little bit about who we’re talking to here?

Robert: Sure. Thanks. I appreciate it. I’ve been a real estate investor for over 20 years. I used to own my own mortgage branch in New York and New Jersey, did a lot of funding. I’ve been working in distress debt since 2009.
I kind of saw, going in through the housing bubble, I kind of saw where things were going to blow up once I saw my pipeline, the products that were coming out and people that were going into some of these subprime loans and people going into these option arms. I saw a lot of the mixing and matching of people and suitability was getting thrown out the window and everybody was writing paper just for the sake of writing paper.

Mike: Yeah.

Robert: I kind of knew that we were in a bubble and I saw some not so nice things happening and coming down. I eventually got out of the mortgage banking business before everything blew up. I actually went to law school to become a paralegal because my vision of what I saw was there was going to be a massive foreclosure wave coming on the back end of the crisis.
I knew there was going to be a lot of legal wrangling, especially with institutional investors and insurers and things of that nature. We identify problems but we’re more focused on the solution. So, how do we get through the solution? So, I went to law school number one, to learn a lot of the legalese that attorneys talk about, how the legal system works and I wanted to bring my team in there to come and provide solutions inside of the legal system and do a lot of the work on it. It was a little bit of a different approach from going to law school.
What I found out as I was trying to get some attorneys together, it was very difficult. It was a lot of heavy lifting and we were really beating our heads up against the wall taking that sort of approach. What I ended up doing is still trying to make a difference and trying to do workouts instead of kick outs of people, trying to make a difference in the economy and in this real estate.
So, we decided to go with our distressed asset fund and we started to build a fund. We pooled money together. Instead of going to try and [inaudible 00:04:02] position and find the stuff, we decided, “Let’s just go buy the stuff.” We’ll be decision makers and we’ll do workouts. We will create the kind of good karma that we want to by helping people stay in their homes and trying to work into the economy and trying to get things moving through the economy as they need to be. So, we want to do our part that way. That’s the path we’ve taken and we’ve had a lot of success doing it.

Mike: Yeah. That’s great. I don’t know if this is going to help with a segue. I don’t want to steal your thunder here. I know we’re going to talk about your take on an investor versus an entrepreneur, somebody that’s kind of transactional focused and can never get out of that mode versus somebody that kind of has a vision and sees a way to truly build up a business.
But I want to talk a little bit about what you said up front, which was you kind of saw what was coming. I think a lot of real estate investors are very transactional-based. They don’t really see an opportunity that’s coming up. Sometimes it’s hard to see. If you were in the mortgage world and you saw what was going on, you kind of knew the shoe was going to drop somewhere. But I’ve learned so much from, especially on my show, I’ve had hundreds of really smart people that have been on the show. You learn a lot from people that have been through lots of different cycles.
So they kind of have a strategy to say, “Well, when the market goes down, here’s what I’m going to do,” because they did that the last two or three cycles. So, there’s a lot you can learn. We obviously encourage learning here for people to improve their families a lot. But maybe you could just share for a couple minutes about how investors can be a little more thoughtful in terms of predicting what’s going on based on what’s happened in the past or things they see now so they can less transactional. What do you think?

Robert: Sure. So let me just start by saying I agree with you 100% about learning and teaching. I’m in a position and I’ve been successful in what it is that I do, but not because of who I am and because I’m the smartest guy in the world because I’m certainly not. I’ve gotten to the position where I am because of the people and the relationships that I’ve developed. There are much smarter people out there than I am.
What I’ve learned to do — it took me a little while to do this well — is to constantly be a student and always keep my mind open to what other people say, what other people see and how they’re doing things in a different way. We’re going to talk today about, like say, the difference between an entrepreneur and an investor. I’m going to say this because I learned, not that I learned that concept, but I had someone really codify that concept for me, a gentleman named Jeff Watson, who’s an attorney out of Ohio, who’s actually the attorney for the National REIA.

Mike: Yeah.

Robert: Jeff and I are very friendly. We talk about a lot of stuff. He’s the one that really codified the idea my head. I had gone through it. I was always writing the mortgage loans and the next transaction, the next transaction. I felt you’re always going to chase the next deal. Once the deal is done . . . when I’m doing some training, I ask people what’s the best day in real estate, the day you buy a deal or the day you sell a deal? Most people say, “The day we sell. We make a lot of money.” I say, “That’s the worst day. The next day you’re poor. You’ve got to go find your next deal.”

Mike: Right.

Robert: That’s really the worst day. My money’s not at work anymore.

Mike: Right.

Robert: So, to get into that, I was like the hamster on the wheel over and over again. How do you get to the next level and make a passive income? Now you’ve got to start buying assets, assets that are going to pay you, assets that are going to outlive you. That’s what you want to do in the real estate business. Most people want to get in and get that financial freedom. They want to get freedom to what they want to do, recapture their time.
So, I had gone through the same thing, but when I heard Jeff talk about the difference between an entrepreneur and an investor, it really codified and solidified in my head, “Yes, that’s exactly what I had gone through. I see the differences because I was there. So, I give the credit to Jeff as one of the people that I certainly look up to as a friend and a colleague who’s much smarter than I am. But you always have to be a student and listen to other people.

Mike: Yeah. I think the one thing that’s constant in this business and really in life but probably more so in real estate is just change. Things always change. I talk about this a lot on the show. I’m in a really powerful Mastermind with some great people. You’ve got to really surround yourself with smart people that are open minded and willing to share everything they know. They don’t hold back. They can share their knowledge from things that they’ve experienced that are going to be different from what you’ve experienced.

Robert: Right. It’s funny because it’s all about people. I just did a training on due diligence. I go through different points of things. Really in any type of transaction, but I really cater it towards real estate and buying notes and stuff. The first thing that we talk about is the character, the character of the people you’re dealing with. It’s always what I do first. I’m a little bit of a contrarian investor as well.
So I come from a little bit of alternative mindset. So, I like throwing people off balance a little bit to see how they react and see how they do act. I do like to be free with my information. Let’s see what other people do with that information. There are some people that like to be close to the vest with that information and some people they won’t want to talk to you. That’s okay. You get to see who’s who and who you want to deal with.
There are plenty of good people out there that you can do this business with. You want to kind of get to feel who people are first. The first thing we talk about is the character of the person and the relationship you want to build. It all stands on trust. If you can build that trust, then you can have some good business and really build a good business with the right people.

Mike: Yeah. Well, let’s kind of dive into talking about what you see as the difference between an investor and an entrepreneur. I’ll kind of tee this up by saying too if you follow a lot of Facebook groups and stuff like that, there are a ton of people that really pride themselves on certain things, like rehabbing or wholesaling. And I think not to take anything away from those folks, but they’re very transactional minded to where it’s like you’ve essentially created a job for yourself. You’re never going to get out of it if that’s all you do. Let’s kind of dive into it.

Robert: Yeah. Exactly right. It’s being that hamster on the wheel. You’re only as good as your last deal. If we can do a fix and flip, that’s great. It’s a great business to be in. It’s similar to mine on the banking side. If I was writing loans and originating loans, it’s a great business to be in. You can do very well doing that. But that’s being an entrepreneur. That’s doing very well for yourself. That’s not being an investor. If you want to be an investor, then your assets are going to have to pay you, whether you get up in the morning to go to work or not.

Mike: Right.

Robert: The business has to run without you. If it can run without you, if you can take a trip and go off with your family and not going to work one day, that business is still going to run without you, now you’re an investor because you’ve built something that works independently. But if you can’t walk away from your business, you’re essentially right. You’ve developed a job for yourself.
If starts off with a mindset. When I do some of my training as well, I start off usually with this chat. I put a quadrant chart — I put a big plus sign on the board and I make four quadrants. I usually put in the four quadrants: money, mindset, deal and time. Those are the four elements you need to make money in real estate. You have money to do it. There are some that argue you can do deals without money. You can. There are certainly some creative ways you can do deals without money. Creative financing is certainly out there.
The mindset is of paramount importance. Having the deal, the right deal and then having the time to do it. I usually ask people what are the most important out of the four up there. Most people pick the money or the deal, sometimes mindset, but rarely do people pick time. For me, from our philosophy, I think time is the most valuable piece of that.

Mike: Yeah.

Robert: Tomorrow I can always acquire the deal. Tomorrow I can always acquire money or creative financing. Tomorrow I can always get my mindset and learn. But tomorrow I can’t get back any more time. So, to take it to the next level, there are things that you need to do to move yourself from being transactional, entrepreneur, to moving into being a passive investor to have your investments pay for your lifestyle so that you can get more time to do the things you really want to do.
That’s part of the reason people get into this business because they don’t like what they’re doing and they want to try to get more freedom to do the things they like. But if you don’t have the right path and the right plan to get to where you’re going, you’re still going to be on that wheel in the job. It’s just going to be a different job and maybe not such a fun job.

Mike: Yeah. A lot of these things are integrated. You talk about mindset. One of the not problems, I guess, the mindset that some people have is that there’s scarcity in the deal and there’s scarcity in the money and they forget about time, like you said, often until it’s too late and you never like lay on your deathbed . . . I haven’t been there yet.
But I actually think about that. In my dying moments, will I be wishing I had worked harder? I work pretty hard, but it’s always with the hope of building something to where life gets easier. That mindset sometimes I think a lot of people get hung up on, the mindset is that money and deals are scarce and therefore they don’t want to give up part of the deal. They don’t want to form partnerships. They don’t want to do things that would allow them to actually kind of grow the pie, if you will. Would you agree with that?

Robert: Absolutely. It’s funny you said that about lying on your deathbed because I come from a very similar philosophy in my mindset. My mindset is I often think about my death and my funeral and who’s going to be eulogizing me and what are they going to say about me. What’s my legacy going to be?
We have the opportunity every day to write our legacy by how we act today, take advantage of the time that we have now to write our legacy so that we can put the words in the mouth of whoever is going to eulogize us at the end of our life. We can write our own story. We have the opportunity to do that every day.

Mike: Yeah.

Robert: So everything that I do every day, it all goes to that mindset, “Am I doing this the right way? What are they going to say about me when I’m gone? What are my children going to say about me about when I was gone as well?” So, mindset is absolutely paramount to performance as well to moving on to doing what it is that you want.

Mike: I know we talked about this beforehand, so I want to bring it back up before the show in terms of building a business versus being transaction-oriented is not to be too morbid here, we’re talking about death so much . . .

Robert: But it’s important to address it, though. It is a reality. We all have one coming.

Mike: Unfortunately it is. Yeah. But it’s just this idea that, and it doesn’t necessarily need to be dead, but if you became disabled or anything, if you’re transactional, what is your family going to do? How are you going to feed your family? How are you going to pay for things if all of a sudden something happens to you?
I have a friend right now, a really successful real estate investor. He’s having some major problems with his back right now. It’s like if you can’t go do the things you can do before and you haven’t built up some assets, what are you going to do? What’s the insurance policy for your family and your legacy, right?

Robert: It’s scary, especially if you come from the mindset of we have to go to school, get an education then go out and get the J-O-B. Then we become a term I’ve learned from some of my mentors as well, we become wage slaves while working for the dollar.
Our mindset goes to that too. We may want to be entrepreneurs and open up our own business, our own fix and flip business or fix and hold business and our property management business, but we’re still a slave to the business at that point. We still have not gotten ourselves to the point where we need to take some more risk, build up our assets. It’s a scary thing to jump from that. I’ve done it.
There have been plenty of times I haven’t made money in deals because I’m investing my time for the back end. I’m investing time for the big get in the back end. But at the same time, I’ve got bills to pay. I’ve got children to feed. I have a wife that I need to take care of as well.
So there are these real world issues that come up that aren’t going to take a leap with you. You have to learn to get that balance. So, it does become very scary. But if it’s done the right way in a planned step by step way, then it actually can be done. But I’m not here sitting here saying it’s an easy thing to do. It absolutely is a scary thing to do, but unfortunately, if it were easy, then everybody would be doing it.

Mike: Yeah. I think it’s important for real estate investors, if you’re listening to this and you’re transactional based, there are people that have jobs that . . . I’m not advocating to do something you don’t like to do. But there are people that have jobs so that it can cover their costs so that they can go do something they love in their part-time.
I think the way real estate investors have to look at this is more of, “What do I have to do to be able to be able to make enough money to live on and enjoy all the things I want but also to be able to build up the business side of it?” which is the assets that we’re going to talk about here in a bit.

Robert: For me, the first thing it’s doing a self-assessment. What’s your lifestyle? What do you need to really survive and maintain the lifestyle and what are you willing to give up at this point. We have to know what a number is. Everybody has a certain number they have to make every month to pay bills, stay status quo in their lifestyle.
What is that number? We have to find what that number is and from that number, know if I look and divide it, there’s today money I have to make and there’s tomorrow money I have to make as well. I need to spend some of my time that I don’t get back every day, some of my time working on today money and some of my time working on tomorrow money, which may come down the road. You have both. I have both things going on in our fund and in our personal investments.
That’s part of why some people start getting involved in stuff with IRAs. That’s the tomorrow money. We do stuff inside of IRAs as well, but that’s stuff I can’t touch for today. That’s tomorrow money. That’s somewhere down the road. You’ve got to look at the two tracks. What am I doing for today money/tomorrow money? You have plans of how am I going to pay my bills for today and also tomorrow, you have to start with that mindset of those two individual tracks. What am I doing today? My time is spent on each of those tracks. That’s a starting point.

Mike: Yeah.

Robert: There are many steps to go from there. But that’s a starting point is getting the right mindset of looking at today money and tomorrow money.

Mike: Yeah, got to squirrel it away.

Robert: That’s right. And it’s a slow process, but it is a process, but a process that moves forward.

Mike: Yeah.

Robert: It’s a process that moves forward.

Mike: Okay, Robert. Let’s jump into the taking action segment of the show here. What’s been interesting to me and really a lot of this . . . I’ve bought hundreds of deals. I’ve always been a real estate investor. It’s always been single family. It’s been very focused. I know there’s commercial. I know there’s multi-family. I know there’s notes.
I know there’s a whole other world out there, but I’ve been so ingrained in doing what I do for so long that that’s one of the things I love most about this show, my own show, is it’s really opened my mind as to how many ways there are to make money in real estate. So, I’m excited to talk about that. Are you going to tell us how to take some action today?

Robert: Absolutely. We talked briefly. The first step for people that want to move from entrepreneur/transactional business to passive income is, number one, defining a couple of things — defining, doing the self-evaluation, but first defining your why. Why do it? Why get up in the morning and spend half my time or part of my time working on today money and then part of my time working on tomorrow money? Why do it?
You have to define your why. For me, I have two wonderful little children. One is six and one is two. They are the pride and joy of my life. I love being a father and I love taking time to spend with them, to play with them, to teach them so that they know that Daddy loves them very much as well. So, that’s what I try to take my time and the freedom it gives me because that’s what I enjoy doing.
I love traveling around with them and having them explore the world and teach them about the world, the good and the bad. It’s what I enjoy doing. How do I spend my time to get there? Okay. Half my time for today money, pay bills and then part of my time for tomorrow money so that they can have a bright future and have some freedom to enjoy their lives as well. So, that’s my why. First you have to define that.
Then you have to define what are those dollar amounts. Today money — what is the number you need today? That means taking an assessment and an inventory of what your bills are. Every dollar that comes out of your pocket, every nickel that comes out of your pocket every month, you should journal that. Take a journal, start writing that down, find out what that number is every month. Then you can start to work on in your mind okay, this is the number I need to make every month. Where can I find deals? How can I find an asset that will start paying for that or at least a part of that?
So, if it ends up being — let’s just pick a number — $10,000 a month. I can only find properties that will give me $1,000 a month, $500 a month, that’s fine. So, if I find a property that gives me $500 a month, then I have to find 20 properties before I’m going to have my monthly nut picked out. Okay? Twenty properties may take us a year or two years to do. It may not be quick enough for us to get that.
We might have to look for something else. Maybe that strategy of single family homes I’m finding multiple of single family homes might not work. Then maybe multi-family is the way to go. We are picking up a multi-family unit that may pick up $10,000 a month. How do we find those? You may not be able to do that on your own. There are plenty people in the business that may want to partner with you.

Mike: Sure.

Robert: One of the things that I’ve learned . . . Pete Fortunato is a big name in the business as well.

Mike: Yeah.

Robert: Pete talks about nine different ways to make money in real estate. He basically takes aspects of real estate and parses them out into different pieces. You can make money off of any one piece at any one time as opposed to the whole thing — whether it’s management, cash flow, growth, all sorts of things that Pete talks about.
So, when you look at that, you may not be able to, in the beginning, take on the whole piece. You can certainly partner up with people because there are people like me. I like to be a lazy investor. I don’t like to do a lot of work. But I like making money. So, we also have programs where we would partner with people if they were going to manage the property, if they were going to manage the notes, if they’re going to manage certain things, put their money up as well. We always welcome partnering up with people and putting their cash along with ours.
So, we’ve done that and there are those opportunities out there. So, we need to open up the mind and look at who are the relationships you’re going to cultivate over time. That takes some time as well. But it certainly can be done. That creates a different security that you have in life as opposed to the paycheck.

Mike: Absolutely.

Robert: That paycheck is a security. You’re coming from a wage slave to becoming an investor. You develop a different kind of security. That security is relationships. I would say starting, you do an inventory of what your reliabilities are on a personal level and then where do you want to be and how much do you want to grow it at what rate of return does it need to grow over time. I think that’s where people need to start.

Mike: Let’s talk about some specific investments. I know a number of note people now, I’m sure a lot of the same people that you know. I’m sure you know many more than I do. But the note side is really fascinating to me. One of the challenges, of course, with single family houses is that usually if you’re operating at the non-institutional level, you’re buying them one at a time. So, it’s a lot of friction to get one deal done.
In the note space, though, you can buy them in packages and there are a lot of things to do that. Can you talk about . . . I guess what I’m trying to aim at here is I know there are a lot of single family house investors that are listening to this show. I want to open up that world to notes. It’s not like they don’t know that notes exist, just like I used to be, but maybe we can kind of talk about how that is a realistic avenue to build some cash flowing wealth out there that’s not necessarily single family houses.

Robert: Sure. Absolutely. So, I come from the banking side and the note side of the business.

Mike: Yeah.

Robert: That’s certainly subject matter I’m an expert on. Let me start off with this. In general, whether it be investing in single family homes or any type of real estate or investing in the paper or investing in stock or in a bond or in somebody else’s business or investing a person or in an idea, in any kind of investing, what you need to look at is the risk. That is one of the biggest pieces that gets missed in all of this is how much risk is really involved.
Risk is directly associated to how much return we get on a deal. So, I always ask the question like this as well. Which dollar has more value — the dollar I give you or the dollar you steal from me? The dollar you steal from me has liability attached to it in the sense of a law suit. I may sue you and it may cost you attorney’s fees and other downside for me to get my dollar back. So, the dollar you got from me may cost you three dollars in the end as opposed to the dollar I gave to you is much cleaner because it doesn’t come with any liability.

Mike: Right. So, there’s always liability that comes along with these assets. You have to look at some downside risk and what is it really worth — the dollars that you’re making in a particular deal, how clean is it from risk and how safe is it? So, you always have to look at risk and how clean a deal is. That’s where the real value comes in. That’s how you get to build your net worth and your portfolio a lot faster because there’s really no downside loss risk on some of these things.
You can build a million-dollar portfolio and then if it’s not built the right way because it has $3 million worth of liability attached to it, it’s really worth nothing. It’s synthetic. It’s not worth it. It’s not sustainable. You really have to look at risk and downside risk. I don’t think that’s a topic that’s talked enough about in this industry as well. But risk is directly associated with how much growth you want to have. The more growth you want to have and more aggressive you want to be and the quicker you want to build your portfolio, that means you’re going to be taking on a lot more risk.
That may be okay. It depends on your appetite and your tolerance for risk and everybody’s individual situation. They have to decide for themselves how much risk they want to take. If you want to take less risk and be a little bit more secure, you’re on the other end of the spectrum there, that can be done as well. Your growth is going to be more timid at that point. You’ll still have growth, but not as big a growth, but you’ll be more secure and a little bit safer.
So, depending on where you go . . . let’s talk about this. We’re going to back into notes and real estate. I sometimes use this scenario. Let’s take a landlord that owns a four-unit complex at $1,000 a month and he’s got a banker and a mortgage on the property. He goes every month and gets $1,000 a unit, $4,000 a month and has to pay the banker $3,000 on the mortgage. Typical scenario. That’s good cash flow because you’re making $1,000 a month. That’s great.
I know there are other expenses. So, if a toilet breaks or if the roof needs to be replaced, who does that come out of? That comes out of the landlord’s pocket. Slip and fall lawsuits, that comes out of the landlord’s pocket. What happens if two of the units go vacant because two of the tenants left and you can only pick up $2,000 of rent that month? Guess what? The bank is still going to get his $3,000 a month.
So, we have two sides to this piece — what I call the equity side and the debt side. The debt side, it doesn’t own the property, but certainly controls the property because what happens if the equity side of that landlord doesn’t make payments to the bank? The bank takes the property away and then we’ll just go find another equity partner to sell it to and finance to and there will be another money partner and equity partner in the deal.

Mike: Right.

Robert: So, often we talk about buying real estate, owning real estate. That’s only the equity side of the equation. There’s this whole other world of debt. That’s what we talk about with mortgage notes. It’s still part of real estate. You may not necessarily own the real estate. You don’t own the real estate if you own the debt but you certainly tie up the real estate and control the real estate.
But with the notes, there’s a whole new world of risks that are involved as well. Don’t get me wrong, there’s a lot of money that can be made. I know a lot of people talk about how much money can be made, but not enough people talking about the downside risk of owning the debt as well, essentially becoming a bank. The banks in this country, the banking industry is the most regulated industry in this country, okay?
So, to think that we’re going to just go in, own paper and become a bank and not be regulated and not be watched, there are a lot of things that have to happen. I’m not saying that you can’t make money, but I just want to open up people’s eyes that there’s a lot that you have to look at as well.

Mike: Right.

Robert: So, buying notes can . . . there’s also a statement, Albert Einstein kind of said that interest is the eighth wonder of the world. Those who understand it and those that don’t . . .

Mike: Compound interest.

Robert: Right, the eighth wonder if the world. Those that understand it earn it and those that don’t pay it. I like earning it. That’s why we own paper as well and why we own real estate, because we’re getting the money in. Similarly, to rental income, when you own paper, you’re getting monthly payments in the form of interest. Except when you get those interest payments, you don’t have any of the downside risk of people calling you to fix the toilets in the middle of the night. You don’t have to repair the roof and you don’t have that liability of slip and fall and you don’t have the downside risk of vacancy.
No matter what, you’re going to get paid on a performing note. If you don’t get paid, then you go and get the property. If you’re buying these things the right way, you’re buying them with a lot of either at a discount or you’re buying them with a lot of equity in the property to secure your investment just in case the investment stops paying the cash flow you have an asset you can pick up and sell and make your money again anyway.
Depending on where you want to be in your portfolio, I’m a proponent of owning both. I like owning paper but I also own the real estate as well because upside/downside to each of them. They have different risk tolerance as well. So, I look at anything, especially in our funds. Our fund is designed that we can buy anything either real estate, either real estate itself or any debt instrument that’s backed by real estate.
What does that mean? It means that if it shows up on a title report as a lien on the property, that’s an instrument that we look to buy. We’re buying them at a discount and it gets us interest and title. There are those, and I kind of agree with the concept as well, that buy seconds. Buy second mortgages at a big discount. Why would you buy a second? Well, you can have taxes in front of you and first mortgage in front of you and then you buy a second. You’re all the way down third or fourth position in certain cases. Why would you want to be down so low?
There are certain people that look at that as an option, an option on a property. For very little money, you get an interest in title. Because you get an interest in title, you now have a seat at the big table. At some point, someone is going to have to call you to clear that title unless you get foreclosed upon. But there are ways that you can get around that and taking back the property and doing certain creative things with that anyway.
But let’s just say for arguments sake they want to do a short sale. They can’t clear title unless they give you a phone call. So, if I’m buying a second mortgage — we’ll make up numbers — for $500 and they want to do a short sale, I’ve ensured that at some point in the future I’m getting a phone call. When they want me to sign a piece of paper to release my lien and clear title, I’d be happy to do that, for a fee, more than $500.

Mike: Right.

Robert: So, that’s perfectly fine to do something like that. That’s just a different play certain people want to do. Options is another thing that could be done on properties. Options on title is another common thing depending on where you are in the country as well, very little money, lot of upside, controlling property as well.
We talked about before about finding assets to build your portfolio for tomorrow money, these are the kinds of things that are out there: options, seconds, homeowner association liens, tax liens. There are all sorts of these alternative investments that are debt that get tied to real estate that give you a very secure position with very little money in. There are people that will buy this stuff from you as well. They get traded. These things get traded all the time.

Mike: Yeah.

Robert: So, there are certainly ways to accelerate your net worth growth in a very concise, productive way, in a planned way with alternative investments if done the right way with the right plan.

Mike: Absolutely. What I wanted to introduce here is I know for single family investors, which I know a ton of — I’m one of — if you start to say . . . I kind of told you this story of somebody that I mentor and coach that just came into our system and they said, “I want to keep everything I buy as a rental.” I said, “Well, you’ve got to pay for your operations, pay for your sales people, you’ve got to pay for marketing costs.” You’ve got expenses. How else are you going to pay that unless you don’t keep some as a rental and you wholesale or rehab typically because we’re in the single family house space.
What I wanted to introduce in this conversation here — notes was just one example. I know you do a number of things — is the idea that if those that are listening feel like they have to sell most of what they buy to pay the bills and cover costs and eat and all those things and they might not be able to save as much as they want, there might be an alternative to saying, “I’m going to double my house volume so that I can keep half of them,” per se, to build up to that kind of tomorrow money that you talk about.
That could be notes. It could be other alternative things that might be easier and might have less friction, but if you’re not worried about, “I need to ring the register on those today to pay the bills,” and that’s where your tomorrow money comes from is some of these alternative investments and your today money is more of your transactional-type business, then that’s okay.

Robert: And we still do that as well. We still wholesale some stuff. There are deals that we get all the time across our desk because of relationships that we have that we may or may not want or we may want to keep liquidity. If I have a certain deal in the air, I’ll wholesale it to someone else who can make some money off of this. So, we’re always doing the transactional stuff as well to do that today money. I want to say this as well. Again, some of my training and some of the philosophy we came from is deals aren’t found, deals are created. It’s a people business.
When you’re dealing with people in the real estate, you’re dealing with, especially if you’re doing short sales and things of that nature, when you’re creating and structuring these deals . . . as I said before, I identify a lot of challenges out there. We come from the sense of providing the solutions. You can only provide a great solution only if you identify the problem and understand the problem clearly. Too often people get focused on the problem and can’t get past the problem to get to the solution.
Get to the solution by identifying what the problem is, understand what the challenges are and when you’re dealing with people and homes, here’s what I’ve found. In all distressed properties and people I deal with, whether it be on the notes side or buying properties themselves, what I’ve found is this — most people I deal with want two things and two things only. One is to find their happiness or peace of mind and that’s defined differently for everybody.

Mike: Right.

Robert: Unfortunately some people never find it and they’re distorted as to what they think their happiness is and they never find it. Number two is have more time to spend in that happiness. I was just with a potential purchase yesterday and I went to go visit with not the homeowner but the tenant who was a lease option tenant whose term was coming up and she didn’t have the money to pick up and buy the property at this point, and I gave a couple of strategies of what she could do with the homeowner that had passed on and now it’s an estate. So, she’s got to deal with the three heirs and the estate and all that stuff. So, it was a little bit more complicated. I gave her a couple of things that she wanted to do and what she could do in this.
She goes, “Will that get me to get my kids to college?” I said, “How long until they get to college?” “Another three years.” I said, “You may be able to do certain things with them and pull three years out of it depending on what their challenge is and they may want the money and what it is they’re trying to do,” but it’s all she wanted. Her piece of mind was to get her kids out of the school system.
Once the kids were off into college, then they could go and find something else for themselves. That was her peace of mind. So, the solution may not have been to purchase the property. It may have been to continue to lease or some other solution come out but maybe not necessarily to buy the property. But it’s understanding the challenges that people have and what their peace of mind is on all sides.

Mike: Yeah.

Robert: The seller has some other requirements as well. We may insert ourselves in the deal here where there may be some profit to extract out of the deal. We may satisfy the seller and we may become the owner and continue to do a lease option with them. We don’t know yet. But it’s an exploring in the conversations that you do this. You find out and identify what the challenges are to come up with the solution and deals are created.

Mike: Absolutely. We’ve had some discussions before on the idea of the topic of it’s not about the house, it’s about what do they really want. So, yeah, that’s great. Awesome.
Well, Robert, any kind of final words of wisdom you want to share? We’re kind of at the end of our time here. Then I want you to maybe share how folks can learn more about you or get in touch with you if they’re interested in potentially learning more about your fund or anything. But any kind of final words of wisdom that you want to share from this discussion?

Robert: Yeah. If it’s about taking action, done is better than perfect. I know in my business that staying stagnant is the worst thing that can be done. They say there’s a fine line between success and failure and that line is called execution. If you execute, you will be on your way to success. I want to say one other thing about failure as well. Failure is nothing more than the milestones and the measuring stick of success. We measure time in seconds, minutes, years, months. We measure distance in feet, miles, and success.
If you talk to anybody who you think have had success, most of the time they’re going to talk about their failures on the way and the bump in the road. Failure is nothing more than the measuring stick of our successes. Don’t be afraid to fail, embrace failure, learn what you can from your failure, but certainly don’t go down the path to try to avoid failure. It’s inevitable and it’s an inevitable bump in the road on the way to success. Don’t be afraid of it. Be prudent about it and embrace failure as well. Done is better than perfect.

Mike: Awesome. If folks want to learn more about you or your fund, where should they go?

Robert: They can hit us up on the website at DreamCapitalManagement.com. You can email us directly at Admin@DreamCapitalManagement.com.

Mike: Awesome. We’ll have links down below the video here for that.

Robert: Awesome.

Mike: Robert, thanks for sharing your wisdom with us and thanks for your time today.

Robert: Mike, I appreciate the time. It’s always a pleasure. Thank you.

Mike: Good to see you. Have a good day.
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