Secrets to Multifamily Investing with Ivan Barratt – EP 188

Justin Donald: What’s up, Ivan? Good to have you on the show.

Ivan Barratt: Justin, it’s good to be here, man.

Justin Donald: Well, this is exciting. I got a chance to meet, actually, in Florida, we were spending time at an event. It was a Wellspring event, and we were hanging out with Tim Tebow at this event, playing some pickleball. The guy, by the way, is incredibly good at pickleball. And your buddy, Scott Lingle, who’s another entrepreneur, he introduced us, and we connected. And you’re big in real estate. I’m big in real estate. I think you’re in Tiger 21. I’m in Tiger 21. And there were a bunch of synergies and it was like, hey, let’s talk about what we’re talking about right now, so everyone else can hear it. And so, here we are.

Ivan Barratt: Here we are, man. It’s good to see you. It’s good to be here. Gosh, it’s been a few months since that event. Time just keeps flying but…

Justin Donald: It does.

Ivan Barratt: Exciting we’re recording this instead of just doing it one on one.

Justin Donald: That’s right. Well, that’s how I feel. It’s like I love getting time with people, I love learning, I’m an eternal student. But a lot of what I like to learn, I think other people are probably interested in as well. So, if I can learn and let other people listen in, that seems like a lot of fun because I like doing that for other people. When they’re learning, I want to listen in on what they’re learning about.

Ivan Barratt: For sure. Book club and more.

Justin Donald: That’s right. So, tell me, how did you kind of get your start in real estate? You’ve done very well. You have a company that you’ve grown for 20 years. You’ve been in the real estate industry for 20-plus years. But how did you get started in real estate? I mean, was that nerve racking at first? Did you just jump right in? I’d be curious to know kind of like the humble beginnings and then how you scaled to where you are today.

Ivan Barratt: Definitely more of a fire, ready, aim kind of guy. Absolutely. Jumping right in. So, my first, my taste of real estate was mowing lawns for my father’s rental properties. He would wake up my brother and I at the butt crack of you know what. And he would have us mow lawns and literally, like, seven years old having to push a mower at his rental properties. And absolutely hated it.

But looking back on it in my teenage years, I thought, well, gosh, if I owned a bunch of these, I wouldn’t have to have a real job. And I think it was around, yes, 1996, Rich Dad comes out. I’m graduating high school, and my dad actually gives me this Rich Dad book he loved. He was an internal student or is an internal student, big time reader. He had all kinds of audiotapes in the car, all the old greats like Earl Nightingale. We used to listen to this stuff ad nauseam. And of course, his kids were like, “Dad, can we please just listen to some music?” But those things sort of took root.

So, read Rich Dad Poor Dad, immediately got hooked on the idea of having a big, what Robert would call, like a B class or B quadrant company and knew that real estate would be my vehicle. Early on, I thought, I wanted to be a developer. And how sexy would that be? And I maybe one day develop world-class resorts. However, getting out of college at IU, this is now fast forward to 2000, I’ve been studying…

Justin Donald: IU being Indiana, I just want to point that out, right?

Ivan Barratt: Thank you, yep. Indiana University studying real estate at one of the top undergrad schools in the country for real estate finance. Thought I was pretty hot, hot stuff, thought I knew a lot about real estate, and I got out. It’s dot-com, ready to small recession dot-com bust. I really didn’t know what to do. So, I started doing some odd jobs for some real estate guys. And through that, got my foot in the door with my first mentor, again, back to Robert Kiyosaki, I told the guy I’ll work for free. I just want to learn, work to learn instead of work to earn.

And by that, had a pretty strong knack for sales and had some sales jobs in college, in high school. And so, he put me in charge of selling condos and selling developed land to builders. And that went really, really well through 2003, 2004, 2005, 2006. Again, my ego is even bigger now, right? I’m selling condos, fastest selling deal in town. I’m selling land, all these builders in the number one suburb in Indianapolis. And I’m adding up all…

Justin Donald: And it’s easy, right? Everything’s easy right now. Like, easier than easy.

Ivan Barratt: So easy, so easy. You put the purchase agreement on the door and you come back and it’s inside. And I’ve got another developer now that I’m selling even more condos for. And 2007 looks a little shaky. And I’ve got all these units in my pipeline. And so, I’m just borrowing money against the couple real estate assets that I had to finance my lifestyle. And so, all of my commissions come in. Who wouldn’t, right?

Justin Donald: Who wouldn’t? A lot of people did that.

Ivan Barratt: Well, so 2007 looked pretty shaky but kept the train going. And then, of course, in 2008, it literally falls off a cliff. I went from selling a couple hundred lots and a couple hundred condos to zero.

Justin Donald: Wow.

Ivan Barratt: And at the time, my wife is my girlfriend. I’m trying to convince her I’m a good prospect and I find myself in 200 grand of debt, which seemed incredibly high at that stage in my late 20s. And I’ve got, like, negative five grand of cash flow every month. And she asked me, she says, “Hey, if I was negative 200,000 of net worth and negative five grand a month of cash flow, would you marry me?” And I mean, that was a lot of humble pie. Definitely hurt the confidence and very humbling is an easy word, but I mean, felt pretty, pretty crappy and really didn’t know, at least at that time how I was maybe going to get out of that. Somehow, I convinced her to stay with me. And we moved out of my big fancy condo that I bought during the heady days, and we squeezed back into my duplex. We moved from 2000 square feet to 750 square feet. The first three months we were there, her sister lived with us.

Justin Donald: Oh, my goodness’ sakes.

Ivan Barratt: And we rented out the condo because we couldn’t sell it. We were underwater. And I’ll never forget every month that nothing went wrong on the condo that we were renting, we only owed an additional $600. And those were just tough times. I had to get money in the door, right? And so, at night, I would drive 45 minutes to a town where I prayed no one would recognize me, and I would deliver Papa Johns just to get money in the door and to stay in real estate because I was convinced that I could somehow dig out of this. But my fiancée at the time said, “Hey, we got to get cash in the door.”

Justin Donald: By the way, for perspective, to those of you that are tuning in here, you’re not only $200,000 in debt, but you’re going $60,000 in debt per year, right? You said, you’re 5000 negative cash flow every single month. So, if you don’t do something drastically different, you’re going to be in a world of hurt. It’s not just where you’re in debt. It’s that your lifestyle, your expenses, everything is– it’s like the…

Ivan Barratt: Her dad comes to me, man, and he’s like, “Hey, have you considered bankruptcy?” And the only thing I still had was my credit score. My credit score was still pretty good because I’ve been managing to make all these payments up to this point. And I really didn’t want to do that. I had to protect that credit score, which would help me later. And God bless her, she stuck with me. She would help make the monthly payments. And then I just started doing whatever real estate deal I could get my hands on.

Before this, I was too big to do a residential deal. I was too educated to help somebody buy or sell a house or to manage property. I would do any deal I could get my hands on. And those commission checks would go to pay off those debts while she was helping to keep us afloat with her job. And so, my job is to just work us out of debt, start with the highest interest rate in debt, and work our way down. And that’s really where the soul searching really started beginning and it’s a long story, but finally figured out I’d have to do what I really didn’t want to do to get to do what I want to do later. And I started a property management company, dealing with other people’s tenants and toilets to get cash flow coming in the door and to start building a business.

Justin Donald: Yeah, well, I’m in that business. It’s not glamorous. It’s one of the worst businesses out there, even from a margin standpoint, depending on what actual skill set or technical job that you’re in or what your company specializes in, it can be incredibly lucrative, but it is hard to make money in a services business and a property management services business when you’re not also buying the land, buying the properties. So, I can empathize, I can relate. Luckily, we pick some niches that have done well.

But it’s funny you shared the story of the condo that you were in and then moving out of it. I was in a condo at the same time, and I moved out of it, and mine was for different reasons. I had an opportunity to take over more territory for a company that I was involved in and opened up a retail store. And so, I ended up moving and renting. As I wanted to sell it, I was already underwater, couldn’t sell it, rented it for years. It was negative cash flow every single, because I never bought it to be a rental. So, I tried to convert it into a rental, but I had an HOA and I had all this stuff. And this is when I lived in Chicago, so more expensive. It was actually in Lincoln Park. And it was a pain. I lost money every single month for years and years and years. And I finally, just to get the– like, it commandeered so much of my mental space. I just didn’t like that I was always thinking about it and I was always feeling like I was underwater, that I eventually sold it. And I took the loss. And it’s the only time I’ve ever sold something where I had to show up at closing. I think it was like $130,000. I literally showed up with $130,000 to get out from under this thing.

And if I had waited a few more years, I would have been fine. But to free up the mental bandwidth that I spent feeling like I had this losing property, I’m having a cash flow every single week, I’m trying to build a business. The business has cost a lot of money. The business in that season wasn’t profitable. Yeah, I was like, I got to shut this thing and I’m going to just take the loss and move on.

Ivan Barratt: Hard to put a price on mindset and your…

Justin Donald: That’s right. And by the way, it was the right move. It was 100% the right move. It was a loss on paper, but I was able to use that extra bandwidth to create a lot more in intellectual property, a lot more in actual other processes and systems. And I was able to focus completely on my business and create that. That business became profitable in a very short time frame from there. Yeah, so it was huge, but it’s crazy.

Ivan Barratt: Yeah, I’m pretty confident in saying as it did for me and I’m sure it did for you, going through that forever changed my DNA as an investor.

Justin Donald: 100%, without a doubt.

Ivan Barratt: I still tell young entrepreneurs today, next to finding my business partner, the yin to my yang, the peanut butter to my jelly sandwich, going through 2008 and having a front row seat to a market in a 100-year down cycle was a great, great gift from God because I received it, and it was hard and it was humbling, but I received it at an age where I was young enough, where it didn’t kill me, right? I saw guys that were 10 years ahead of me lose businesses, homes, marriages going through that turmoil because they were so far more out over their skis, spending every dollar they had, and then the machine stopped.

Justin Donald: That’s right. And you know what? I would say, people always find it crazy. They’re like, okay, so why did you get into real estate after that? I would have run the opposite direction. And it’s so funny because that wasn’t my thought at all. I mean, in retrospect, maybe I should have thought that way. It’s like my first job. My first job was selling newspaper subscriptions door to door. I was so bad at it. I had no sales many weeks into the job. It was 100% commission. And people today are like, well, why didn’t you quit? And I literally just said, like, the thought never crossed my mind. But I just never thought about quitting. I would figure it out at some point, and I did.

And it’s the same thing with real estate. The thought never crossed my mind that I wouldn’t get back into real estate. Like you, I read Rich Dad Poor Dad probably in ’97, so maybe a year after you. And I was like, “Well, nope, this is the way.” And so, when people are like, “Wait, you got into it?” And I said, “Yeah, I just realized, okay, I’m not going to go into a rental that I’m not actually planning to rent.” I’m not going to buy a home that I live in that’s actually a condo, and then rent it when the numbers don’t work. If I’m going to get into it, I need to get into the real estate asset class that I like the best. I got to run the numbers ahead of time. I’m not going to do a transition like I did. So, it’s a totally different equation.

And so, when I went into that next deal, it was like, okay, well here’s all the mistakes I made. I’m not doing those again. This time is going to work out because I’m not going to make those mistakes. And I was actually more confident than ever.

Ivan Barratt: Paid a little bit of tuition. What you just reminded me, Justin, because this happened when we met, so I’ll never forget being back in 2010. I’m like 29 maybe, whatever it was. I’m at a cocktail party with my parents, and somebody asked me, “Hey, what do you do?” And I said, “Well, I’m in real estate.” And in 2010, they’re like, patting me on the head, like, “Uh, oh, really? I’m sorry to hear that.”

Justin Donald: Sorry, buddy.

Ivan Barratt: And that hasn’t happened again until we were at that Wellspring event and somebody asked me, “What do you do?” I said, “I’m in multifamily.” They said, “Oh, ah, oh. Really?” And I’m like, “Oh, could it be this good of a buying opportunity again?” I mean, it’s been over 10 years since I heard that last.

Justin Donald: That’s right. Yeah, I mean, the world of cycles, if you can understand them, can make you very wealthy. And it’s not that what most people think where you’re living, it’s going to stay that bad or it’s going to get worse. But those of us that have been through it or those of us that have read enough history or have enough mentors that have been through it, where we can learn vicariously through them, we just know it’s cycles. It’s a season if we can wait it out. I mean, that’s why I like cash flow investing because I’m not forced to sell at any time. If this thing is cash flowing, then I have a time horizon as long as I’m smart about my debt and locking in long-term fix versus short-term bridge loans and floating rates and all that. As long as I’m smart about it and it cash flows, then I don’t have to sell, right? And so, it’s that where it’s like, you just want to, when you’re in it, de-risk it in as best a way that you can. And then when others are most fearful, that’s when you want to pay attention.

And I do think, and I’m curious to get your opinion, for me, personally, I’m pretty sure we’re going to continue to see distressed assets, so basically prime real estate for sale at a discount because all these bridge loans are going to run term, all these floating rates have adjusted, people are really in a world of hurt. We’ve seen some of it happen already, but we’re going to see more of it happen, I believe. I’m curious what you think.

Ivan Barratt: No, I couldn’t agree more. I know you’re a well-read guy. And I know Howard Marks, I think.

Justin Donald: He’s the best.

Ivan Barratt: You were saying, we have these times where people are rationally exuberant, but we also have these times where they’re irrationally pessimistic, right? Because they extrapolate what’s happening now, it’s going to happen forever. There’s definitely more pain to come. There are a lot of folks that entered this space and bought in white hot markets and improperly financed their capital stack or improperly structured it. And to steal a quote from you, they didn’t really think about de-risking the asset because multifamily is recession proof and it always goes up and it’s a can’t lose proposition when you and I know that it’s the hardest management, hardest asset class to manage on the planet and really takes a lot of execution and a lot of operations.

We now have, I think we’re approaching maybe 1,400 investors that have come alongside BAM and invest with us. Everything from a $50,000 check to, gosh, probably close to $20 million with some of my top investors. And we’re hearing a lot of folks complaining or commiserating with my team about allocations to other sponsors, unfortunately, that are going to be locked up for a while and hopefully, they’ll get their capital back. Some of those folks have already been told, “Hey, we gave the keys to the bank. Your equity is poof.”

And I think there’s more to come, especially in what I would call boom bust markets where the market got so high above the mean. The mean reversion is coming down the opposite direction in a meaningful way, and they just don’t have enough time to hold on. And I think a lot of folks were hoping that we’d have rate cuts a lot faster than we’re going to have. But fortunately for the U.S. of A., maybe unfortunate for some folks that bought at the wrong time with the wrong sort of approach, we’ve still got some really strong inflationary forces in the economy. Wages are rising. We’ve got a tight labor market. We’ve got reshoring of a lot of jobs. Geopolitically, the world is breaking up. We’re starting to think on how we green America. All those things are inflationary.

Justin Donald: Yeah, 100%. And by the way, something else that I’ll point out that, just to take things a step further, you’ve got a bunch of people that have invested, that not only is their money locked up, not only is this equity locked up, but there’s now capital calls where they’re being required to put more money in based on the agreement. And by the way, early on, people don’t anticipate this is going to happen. It’s still in the subscription docs how it all works, even though it, typically, for the last decade, hadn’t happened. But now people are having to come in with more money. If they don’t, their shares can be sold at a massive discount, right? So, they can actually get bought out whether they want to or not. In some of these sub docs, they can actually just get kicked out, right? They lose all their equity, just as if the bank took the keys. And then in some of these instances, they’re putting in more money and then the keys are being handed back. And so, it’s a tough situation.

I think what would be interesting is to have you, so you’ve lived in the world of multifamily for a long time. You know this space. I’d love to get granular with you and kind of break down. What are all the reasons why these multifamily– and by the way, it’s not just multifamily, but let’s talk specifically multifamily, because I think we’re going to see it a ton here, maybe more here than anywhere else. Obviously, commercial like office is getting hit hard, but it’s going to get hit differently than multifamily. And some of the deals, I mean, some of these multifamily deals are monstrous deals and hot markets. So, I’d love to hear from you. How is it that these syndicators, these sponsors are losing these deals, like, what is going wrong? So, we could get into bridge debt and term of loan. We can get into floating rates and what happens with the interest rates as they rise. You can get into covenants with the banks, right?

Ivan Barratt: There’s certainly a lot to unpack there with bridge loans. I think of a bridge loan or a fixed loan as a tool versus tool isn’t good or bad, Justin, it’s how it’s used, right? So, if I’m going to use floating rate debt, I better have rate caps in place and I better have cash on the sidelines in case my business plan doesn’t go according to plan. There’s also these other forces that are at work. So, in many parts of the country, you saw interest rates 2x, 3x, in some cases, 4x premiums.

So, in addition to interest rates and how that affected loans, you’ve got these other forces at play, especially in the Sunbelt, Florida, California, you’ve got insurance premiums rising dramatically. I talked to a lot of CEOs in my space, and ones in some of these hotter markets or markets that are more susceptible to climate change are seeing premiums double, triple, and in some cases, quadruple in the last 24 months. That absolutely kills NOI. In addition to that, you’ve seen municipalities chasing transactions and raising property taxes faster than anyone projected. And then in some of these markets, you’re seeing occupancy start to drop. So, you’ve got a lot of other forces at play, that occupancy being a supply issue in some of the hottest markets where you had lots of new construction.

And so, what the interest rates did is it really started to bring the tide out, right? We’ve heard people say it a thousand times. When the tide starts coming out, you see who’s swimming naked, but then these other issues really exacerbated it to where, even though rents are steadily rising, you’re not keeping up with expenses. And so, what you mentioned earlier with like loan covenants, if you get too far below your debt coverage, which you’ve got to have a certain amount of cash flow in excess of your mortgage payment every month.

Justin Donald: And usually, what, 1.25?

Ivan Barratt: 1.25 is the minimum. I think that’s probably set too low. We were feeling pretty lucky that we stayed conservative and kept our debt cover higher than that because it’s come in handy now. Bank loans are probably going to continue to be extend and pretend sort of format for most good borrowers who are still able to tread water. The banks have been told by the Fed, do not screw or try to drive down your best borrowers, help them to get through these times. Debt funds, it’s a tale of two cities. Some debt funds are in sort of that same mode as a bank. Hey, we don’t want the property. We’ll keep extending as long as we can.

And other debt funds are really showing their true colors, they’re loan to own. So, there’s a lot of volatility in the market. There’s a lot of uncertainty. And I think you and I can both agree there’s still some pain to come.

Justin Donald: That’s right.

Ivan Barratt: What I can do on a or as any fund manager can do with internal operations is instead of having, say, one asset that we bought together, we go out now, we buy a pool of assets, a portfolio of 1,200 to 1,500 apartments inside a fund, and maybe that’s five or six locations across a couple three different markets. So, what that allows is the higher performing assets can sort of help maintain the lower performing assets. And overall, the portfolio is still performing well.

The other side of that, as I mentioned earlier, is keeping a lot of cash in the business. I think what sponsor started doing was they were distributing everything above a very minimum reserve amount of cash. No other business that you or I would operate would necessarily do that. Most operating companies, most businesses keep more cash on hand for unforeseen issues, right? And somewhere along the way, we weren’t taught to treat multifamily like a business. It was more treated like an investment where you buy it. You hire a third-party management company who’s going to manage it like an owner and just watch the checks roll in. And now, reality is smack in a lot of people’s right in the face.

Justin Donald: That’s right. Yeah, 100%. And it’s really tricky. I mean, we just bought a premier asset that was distressed here in Austin, collateralized with, I would call it even better property than what is already like class A, just unbelievable multifamily. And we got it for pennies on the dollar. And it’s going to be an incredible deal, incredible opportunity for us. And there’s so much more of this to come.

Ivan Barratt: What kind of discounts are you seeing in Austin?

Justin Donald: So, this one, and I got to be careful that I don’t mention too much of it because we’re in the process of dotting the I’s and crossing the T’s, but this one, we came in late to the game as rescue capital. So, this is going to be significantly discounted.

Ivan Barratt: So, you guys will come in as rescue capital for the sponsor who sort of screwed it up.

Justin Donald: Yes.

Ivan Barratt: Will you leave the sponsor in place? Or will you bring in your own team to sort of take control and say, hey, we got it from here?

Justin Donald: Yeah, we can’t.

Ivan Barratt: What do you think happens to the original common equity on that deal? You think they ever see any sort of pennies on the dollar. Are they dead, they just don’t know it yet?

Justin Donald: I think they’re dead and they don’t know it yet. It’s a tricky situation. And this is a big name here in town, and I don’t want to say the name because I don’t want to drag anyone through the mud and this is not public yet. But our group has kind of come in at a very attractive, price, pennies on the dollar. And we’ll be able to take over the asset and we’ll…

Ivan Barratt: Are you doing those one at a time? Or did you grow a rescue fund?

Justin Donald: So, this is just a handful of other people with another group that we enjoy through the Lifestyle Investor Mastermind. And yeah, it’s…

Ivan Barratt: We’ve been raising our own preferred equity for a few years. We’re about to raise that in a big way through an evergreen vehicle. it’s a great tool. it’s a great tool. I don’t know if we’ll do the rescue capital thing because we typically want to manage every line on the P&L and we like the Steady Eddy of the Midwest.

Justin Donald: We’ve got another deal that we did a pref equity on. So, obviously, you move into the top position there and you do get full control at that point. Yeah, I mean, it’s good timing for that. There’s a lot of opportunity in this space. And I think what’s going to happen over the next one to three years, you’re going to see these terms that are expiring on the bridge loans. You’re going to see the further it goes on that these floating rates that didn’t have rate caps are just not going to be able– they can’t pencil anyway. They can’t refinance into something else. And they eventually are going to exhaust all the reserves to the point that they can’t do anything. I mean, they’re dead in the water. And a lot of them know it.

Some of the newer people don’t know it yet. I mean, the last 10 years, every syndicator under the sun was making money and it didn’t matter how much experience you had as a sponsor. You could be wet behind the ears, come out, have a killer deal. Now, you’re an expert. Everyone should invest with you. And this is where I always talk about, like, we’re actually building out a vetting deal’s course and due diligence right now that actually takes place next week here live in Austin. And then we’re going to put it out as a production, a masterclass. But one of the things that we talk about and I always talk about this is I was very conservative over the last 10 years. So, I missed out on a lot of what my friends considered great deals that they made good money on.

Ivan Barratt: Sure. They just went to the bottom right of the projection and looked at the return and they matched up with other stated returns and picked hands on, right?

Justin Donald: That’s right. And so, it’s interesting because, yeah, I missed out on those deals because my criteria was like, hey, I want long-term debt in place. I want fixed rates. Whatever the longest term we can get is, can we get 20? Can we get 30 years?

Ivan Barratt: Did you do any hot deals?

Justin Donald: I’d done some hot deals, oh, yeah. Oh, yeah. And to me, it’s harder to lose there. And so, now, come full cycle, even though they made money on a lot of these deals and I missed out on those returns, they’ve got so many deals that are in jeopardy right now. And I’ve got none in jeopardy because I stuck to my investment criteria. I knew what I would invest in and why I would, and what I wouldn’t invest in.

Ivan Barratt: If I could add two cents for your masterclass, I often get asked to look it up, somebody else’s offering to poke holes in it. And I always try to warn people, “Hey, I’m always a no when I’m looking at a deal, and I have to be convinced to be a yes.” That’s how I approach any real estate deal.

Justin Donald: So good.

Ivan Barratt: And I like to flip to the back and I look at team and track record first. And what I notice about a lot of these deals that are now going bust, I was looking at one in Phoenix, an LP sent me. He says, “Hey, should I throw more money at this?” I went right back to the team and I looked at six cosponsors, three pairs of two, and they were all very well educated outside of real estate, well-educated, well-meaning people. And their deal is vaporized. None of them had more than, I think, two years of experience in this sector.

Justin Donald: That’s dangerous. That’s dangerous. So, what’s…

Ivan Barratt: It’s a heck of a sale right now, though, man. I mean, what a time to buy. We’ve batten down the hatches on everything we own. We’ve told our investors whole periods are now normalizing because we’re averaging, gosh, three and a half year holds, which makes the IRR huge.

Justin Donald: It’s the heyday, yep.

Ivan Barratt: And glad we put some W’s on the board, but telling everybody now, like, “Guys, it’s going to get back to five to seven-year holds in real estate. And if you aren’t prepared to go five, seven, and oh, by the way, if seven years from now, it’s 2008 2.0., me and Justin aren’t selling. We’re buying.”

Justin Donald: Yep, that’s right.

Ivan Barratt: That’s the beauty of these assets if you structure the capital stack correctly.

Justin Donald: Yeah. So, what would you say if someone said, “Hey, Ivan, what are the three biggest keys to finding a great sponsor?” What would you say those three biggest keys are? And we’re actually doing a whole session on this. I think we’re going to be doing three hours of a full day, like 9 to 5 masterclass. And we’re going to build a course from it. So, I’m curious to hear, like, what do you look at is the most important things?

Ivan Barratt: The first approach I would really stress with somebody getting into this is the same way I would look at anything that I want to become more knowledgeable in, right? Education, peer-to-peer learning that’s been rocket fuel for my growth is being in different peer groups and evolving into new ones. Tiger’s my newest one. That’s been another level up where I get to be a little fish again in a big pond and that’s uncomfortable, but it’s where I’m going to learn more and gain more wisdom and coaching, right? Having somebody that I’m paying to keep me accountable, to help teach me and show me the way.

So, biggest part there is education. And I think the next thing I would say would be repetition. It was like going back in time and doing those small deals and even deals today. We look at 100 opportunities before we do one. So, if I’m going to do a private credit deal or I’m going to invest in a real estate deal or I’m going to look at oil and gas or any sort of private alternative, I’m going to look at dozens of offering memorandums by various sponsors so that I can start to get what I would call like a fingertip feel of what a good deal looks like, right? And I’m going to start to notice when things are missing that should be there. I’m going to start to sense those red flags just from the repetition of looking at so many. My partner, he’s been in this game, an incredible amount of time. He grew up in a real estate family. He’s a way better deal shark than I am. I can put a decent deal together, and I love looking at real estate, but he’s just got a better brain for it. And a lot of that is experience. He worked on a billion and a half in brokerage transactions before we ever part.

Justin Donald: Yeah, that’s important. Goodness.

Ivan Barratt: There’s no shortcuts, right? It’s Malcolm Gladwell. It’s 10,000 hours.

Justin Donald: Right. Which is equivalent to 10 years for those of you that are keeping track, 10 years. Make sure…

Ivan Barratt: If you’re only working 40 hours a week.

Justin Donald: Yeah, that’s right. But still, I think it’s…

Ivan Barratt: With a wife and kids now, I work less.

Justin Donald: Someone can shortcut it in terms of years if they’re really all in. But at the same point in time, if you’re investing in a sponsor, you want to know they have at least 10 years.

Ivan Barratt: Yeah. And when I was raising money early and people were taking a little more risk, I had the management company going, so I had some sort of compensate to offer. I’d been studying for real estate, for a while, but I didn’t try to go out and raise capital on social media or on platforms. I went to friends and family, and I used my network early on because I could get trust with those folks. They were betting on me more than betting on the deal. Yeah, I can’t stress enough if you’re trying to become a passive investor. You and I, we see this in Tiger all the time, right? You’ve made all this wealth in a concentrated way, and now, you got to be an investor. That’s not going to happen overnight. Don’t be too much of a hurry to deploy capital.

Justin Donald: That’s right. Take your time.

Ivan Barratt: Get educated.

Justin Donald: Yeah, 100%. And be careful. I mean, there’s so many influencers just now that are raising money online. They’re experts online. They’re so smart at what they do based on their immediate personality and the way…

Ivan Barratt: What a great way to be a thought leader. I’m just going to talk about it all day.

Justin Donald: That’s right. The way that they can build their profile. But most of these people make more money selling their products than they do actually doing the thing that they’re talking about. I mean, it drives me crazy seeing how much money a lot of these people are raising that have no experience or very little experience in the space, but because their social media following is so big, people look at that and they incorrectly say, oh, they must be an expert because there’s a million people following them, 5 million people following them. So, they know exactly what they’re doing. No, they don’t. They’re just good at getting eyeballs.

Ivan Barratt: How do you guys vet sponsors for your ecosystem?

Justin Donald: Yeah, we’ve got a deep dive that everyone goes through. So, we’ve got an internal team that analyzes them. We’ve got an external team that analyzes them that this is what they do for a living. A lot of the private equity firms use them. And then…

Ivan Barratt: Oh, like one of the due diligence houses that…

Justin Donald: Yep, a due diligence house.

Ivan Barratt: For RAs and…

Justin Donald: That’s right. And then we’ve got a family office that vets them. So, we have three different teams that set up different calls, have different diligence processes, have different data collection processes. So, in Lifestyle Investor this year, we have spent over $300,000 just on our due diligence process for sponsors. We do a full background check on everyone that is a sponsor, so every GP has to go through that. And yeah, it’s a deep dive. Our list of questions…

Ivan Barratt: Well, that’s your track record at stake now, right?

Justin Donald: That’s right, 100%. And luckily, we’ve had a great track record, knock on wood. No one’s perfect and no one’s going to bat a thousand, but I’m very pleased with our track record and with the performance overall.

Ivan Barratt: Our greatest asset is our track record, that’s for sure.

Justin Donald: That’s right. Well, this has been awesome, Ivan. Tell our audience where they can learn more about you and learn about the BAM Companies.

Ivan Barratt: Well, my name is here on the screen, so Google me, B-A-R-R-A-T-T, BAMCapital.com is easy enough to find.

Justin Donald: I love it. That’s awesome.

Ivan Barratt: Do your background check on me, please.

Justin Donald: I love it. I love it.

Ivan Barratt: I welcome it.

Justin Donald: I think that’s so good.

Ivan Barratt: Just don’t look at all my tenant reviews because owning a property management company is quite tough.

Justin Donald: You can’t win there. That’s impossible. I can vouch for that.

Ivan Barratt: Especially in the early days when we were doing stuff that we had to do to raise revenue, we were taking on some deals that were not exactly fun.

Justin Donald: Love it. Well, hey, this has been so much fun. I love ending every session with a question to our audience. So, to those of you watching, to those of you listening, my question is this, what’s one step you can take today to move towards financial freedom and to move towards living a life that you truly desire, one that’s on your terms? So, it’s not a life by default like most people live, but a life by design. And what’s one thing that you can grab from Ivan today that you can add to your toolbelt that can help you get to that financial freedom stage faster? Thanks for tuning in, and we’ll catch you next week.

Ivan Barratt: Thanks, man.