Travis Watts 0:00
When somebody first told me about syndications and what what that is, I was pretty skeptical. To be honest with you. I didn’t think that I don’t know. I just felt like, Okay, if you’re buying apartment communities, you’re a billionaire or you’re I don’t know, there’s got to be a catch. There’s got to be something right. And so or or these are real estate, people who have been in this industry for 10, 20, 30, 40, 50 years doing real estate, and this is kind of where they graduated to. That was, those were my first thoughts, right. So I could imagine there’s some folks thinking something along those lines. What I discovered is when I got into this space and started networking with folks, the majority of people who invest like I do in limited partnerships, as a passive investor, are simply highly paid business professionals, athletes, doctors, dentists, lawyers, attorneys, folks like this, right? They have a career, they have a profession, they make good money at it and rightfully so. They don’t want to take their eye off the ball.
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J Darrin Gross 1:22
Welcome to Commercial Real Estate Pro Networks CREPN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
Today my guest is Travis Watts. Travis is a full time passive investor. He’s been investing in real estate since 2009 in multifamily single family and vacation rentals. Travis is the director of Investor Relations at Ashcroft Capital. And Travis has invested in over 30 syndications. And in just a minute, we’re going to speak with Travis about passive investing in real estate. But first, a quick reminder, if you liked our show CREPN Radio, there are a couple of things you can do to help us out. You can subscribe, like and share. And as always, we encourage you to consider leaving a comment. We love to hear from our listeners. Also, if you want to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And always please consider subscribing. With that on Welcome my guest, Travis, welcome to CREPN Radio.
Travis Watts 2:52
Hey DarrIn, thanks so much.
J Darrin Gross 2:54
Well, I’m looking forward to our conversation today. But before we get started if you could take just a minute and share a little bit about your background.
Travis Watts 3:04
Sure. First thing I want to say is please do go to YouTube and check out our very attractive guest, as you see. So diligently said, Yeah, okay, so sure. My background, basically starts in single family. I got started in real estate the way a lot of folks do, and I bought a single family home. And from there, started kind of trying to scale that model. I did a lot of different things in the single family space. I did some fix and flips vacation rentals, some house hacking some buy and hold. And all the while I was working in oilfield job. So I was working 98 hours a week, 14 hour days, a lot of that was away from home out of state out of country. I worked in the Middle East. So it was crazy, crazy times. But what happened was the more properties I was acquired The more the light at the end of the tunnel was kind of closing in on me and I didn’t see this being a scalable model. I just felt like I’m gonna max myself out at a certain point and that certain point came in 2015 when I completely burned myself out and thought, okay, I love real estate I love you know, cash flow the tax advantages the upside like I get it, it’s tangible touch it, feel it, see it, I just love real estate but I do not love being in the business of real estate managing tenants trying to spend all my my days off finding properties trying to compete with everybody out there. So what I discovered is there is a way to be completely passive in the space and that would be through private placement, investing or syndications kind of layman’s terms. So in 2015, is when I started switching over to passive investing. And over the next several years, I had liquidated my entire single family portfolio I’d gone 100% On the syndication path, and today, I guess I call myself a full time passive investor with the irony that it’s not completely passive because you have to still network you still have to find deals, you still have to do your due diligence, right? So it’s not like I’m just sitting out on the beach. But anyway, it’s been revolutionary. I mean, for my wife and I, it allows us to travel allows us a lot of freedom of lifestyle. And so what I do nowadays is I try to help educate in the space of passive investing to show folks this is a possibility. This is a real thing. And, you know, everybody kind of has their their why or their what, you know, if you had enough money, if you had the financial independence, what would you do with your time and that’s kind of my big message is something I call time freedom. And that’s something that I believe passive investing can give, folks so that’s kind of my background in a nutshell.
J Darrin Gross 5:57
No, sounds like a full plate of investing experience. I started off with one and and how many units Did you grow to? At your peak?
Travis Watts 6:09
Yeah, that’s a good question. So because I was doing all these different models, I constantly had turnover, right? Because some were flips and like the homes that I would buy to rehab that I lived in, I would only do that for two years. And I would be selling them and then flipping them over. So I don’t know I probably got up to maybe like eight or so at any given time. I don’t know how many that I did in total, but But yeah, there was a lot A lot, a lot of work a lot of turnover, a lot of changes, but at the time through most of that period, I was just single with no kids so I thought why not, right?
J Darrin Gross 6:43
Right and were you self managing all of these properties?
Travis Watts 6:48
Yeah, so the first thing that happened when I started reaching out in desperation before I was breaking down, you know, how do I become passive? The first set of advice I got was, why don’t you just hire a Property Manager, right? that’ll solve all your problems. So at the end, I did have a property management company. But quite honestly, it didn’t make it any more passive. I had to manage them. They had to manage the tenants, I still had to make all the decisions. What do you want to do with this? What do you want to do with that? You know, the age back the roof, whatever. So it didn’t solve my problems, but I did try it.
J Darrin Gross 7:24
And were you investing locally or did you deploy a nationwide plan or how are you?
Travis Watts 7:30
Yeah, this was all out in Colorado. I grew up in Fort Collins, Colorado, about an hour outside Denver north and so I had properties all the way from Fort Collins into Denver. So that’s about a 60 mile radius, give or take, and that’s where everything was, and I started feeling also simultaneously. Despite the passive and the active stuff, I started feeling pretty uncomfortable, knowing how much of my net worth and equity I had and just single family in one small All market one small area which granted, Colorado was booming. I mean, it was a great market. I mean that certainly I attribute that to a lot of the success that I had. But I knew that wouldn’t last I knew there’s going to come a turning point. And I didn’t want to just stick it all in one market and wait for that to happen. So part of the beauty of the syndications is investing nationwide, which I do now I’ve got properties in probably, I don’t know, six, seven states. So that’s, that’s nice for diversification.
J Darrin Gross 8:31
Yeah, I think kind of diverse. diversification is key to any investment strategy. You know, if you put all your money on red or Bitcoin or whatever, and and turns out not to be the, you know, the opportunity you thought, you could end up with nothing, so clearly not a good way to go. So you started off, did you say it was 2015 did I get right?
Travis Watts 9:00
So is my transition year where I went from single family active to multifamily passive. Yeah.
J Darrin Gross 9:06
Okay, so so what was the year that you when did you start investing?
Travis Watts 9:11
2009 in September so we were kind of, I’m pretty near the bottom but we and I get you know, everybody says, Oh, you couldn’t have time that better Well, in hindsight Yes, but I remember specifically at that time talking to family, you know, should I buy a home that kind of stuff? A lot of folks are saying no, they’re saying Absolutely not. The economy’s in shambles, like this thing could go down further you might be purchasing something that loses 30% more of its value. Everyone was scared there was a ton of fear at least in my my bubble my network and but I took the plunge anyway because I was ready to get started. I had read years before this, Robert Kiyosaki Rich Dad Prophecy so not Rich Dad, Poor Dad, but Rich Dad Prophecy. All that book really talks me in high school, I think is when I read that ,was don’t be in the stock market. We’re gonna have this big stock market meltdown. That was only like, like advice to anybody, cuz readers have him know, he doesn’t really give advice. So, so I didn’t so I had some money saved up for college. It was actually in stocks. I pulled that out in about 2006 maybe. And I just sat in cash because I knew one day I wanted to do real estate, I didn’t know when and then here here we were 2009 it happened, so to speak. And the government was also giving out of $8,000 tax credit for first time homebuyers. So I’m sitting there running the numbers for myself thinking well wait a second, you know, looking at this house that sold for 165 now it’s 95. I got an $8,000 tax credit, and I got the money for the down payment. I’m like, screw it. You know, at the end of the day, I’ll house hack it. I’ll rent a spare bedroom. I did do that. That ended up paying my entire mortgage. I thought, you know everyone’s got their opinion, but the only one that matters is your own. That was my takeaway.
J Darrin Gross 11:06
No, there’s, there’s real wisdom in that. I think that it’s especially in challenging times, like right now. I’m more and more convinced that nobody knows what’s gonna happen.
Travis Watts 11:18
J Darrin Gross 11:19
Nobody’s we’ve not been here before. I think that everybody keeps trying to draw from past experience and paint a picture of this is where we’re going next. But there’s some compounding variables that I don’t think that everybody fully understands. Myself included. And, you know, I think the best thing you can do is assess. as best you can draw off informations from from various points, test your, your ideas and make sure you’re getting into something conservatively. So that and not risking more than you can lose, I guess, another good point. But But that aside, You know, it’s interesting your timing and the fact that you were able to recognize from a Kiyosaki book which I had not heard of Rich Dad Prophecies. I’ve gotta check that one out. But that you had the idea to get out of the stock market in 2006. I mean, that was still things running fast and up.
Travis Watts 12:22
J Darrin Gross 12:23
So whatever your spidey sense was that encouraged you to get out, I mean, that that sounds to me like you were, you were paying attention or had some sort of a solid reason for getting out and it certainly sounds like a paid paid well for us that you had the money to get into the real estate at the low time. I mean, that’s, you know, that. I also wanted to just touch on another thing you said, when you were asking friends, neighbors family about investing in 2009, and however, But he was saying, Oh my god, no, no, no, no, no. And how, how powerful? And how difficult was it for you to go against the feedback you were getting?
Travis Watts 13:13
Yeah, I think. So if we if we unwind a little further back in my life, I think there’s kind of a lot of this, trying to make a decision for myself, given my own, you know, interests and my own goals. And so I’ve kind of done that a lot in my life kind of so called going against the grain. So I didn’t make the mistake of asking about selling out of my stocks when I did right. Because had I asked that would have been absolutely not. That’s crazy. What do you think and right, we’re in the best bull market ever. But and we got to be frank here. There was some dumb luck to it, too, right? I mean, I’m attributing the fact that I read that book and I took that action, which I did, but who really knew like you said, the more you you study and learn, it’s like, who really knows Kiyosaki, by the way also called for the biggest meltdown ever in 2016. Did that happen? I mean, you know, so you might be right once, not twice. So he didn’t have the crystal ball and he didn’t give a specific deadline either. He just said, it’s coming, right? Well just scare the crap out of me as a teenager. I thought, well, if nothing else, I mean, what it can’t hurt too bad to be in cash. Like it’s not like I’m, I’m spending all my money, right? I’m just sitting on the sidelines. So it worked out. But anyway, my long response
J Darrin Gross 14:36
Well, no, I just I applaud your your action there because I think so often it’s the easiest thing to do is to sit on the sidelines and gather information and and analyze and assess and try and pick your spot and not act. The action is really the the difficult. I mean, that’s the test. Do you have Have the courage Do you have the the the willingness to test what you believe? Test what you you know, you know?
Travis Watts 15:08
Yeah, and yeah.
J Darrin Gross 15:09
And go forward. And you know, I believe and I would, I would love to hear what your thoughts are on real estate. But I would tend to think we’re similarly wired as far as the thought process is that real estate is it’s not I mean, while while the the the meltdown of the 2008 could be, I think probably more easily recognized if you put some hindsight just based on everything was in play. Historically, it’s been a pretty safe bet. As with respects to housing, primary need. It’s not something that you can replace on the internet. Yeah. You can’t go virtual. You can’t. I mean, you may have technology. I mean, we’re starting to see some things with COVID Yeah, effect Where people might live? Hmm, and why they might choose to live in a certain place. But But nonetheless, housing is just a, it’s a it’s a basic need. And yeah, as long as there’s inflation and rent increases, and and, you know valuations and interest rates as long as interest rates stay in a, a, you know, and I, it as long as interest rates stay competitive, and I don’t see how we can get out of this based on raising interest rates, because that affects so much of the consumers willingness to spend money, right. I think we’re, I think we’re locked in these low interest rates. Yeah, for a long time. But I’d love to hear anything you have any thoughts you have on just real estate, and then we’ll get more into the the passive side of things.
Travis Watts 16:54
Sure. You mentioned something earlier, which was spot on you know, like, it’s 2015 I didn’t just gamble and choose a shiny object and say, oh, multifamily, let’s try that out. Like Like a lot of folks do with Bitcoin. I think that’s what you mentioned earlier, right? And so everyone just wants to jump on the latest and the greatest and maybe this is the next big trend or whatever. But instead what I did is I knew my reasons for liking real estate. I already had a level of success there to an extent. And so what I did is I doubled down on the education aspect of real estate and I started looking at what happened in 2008 2009 2010 and multifamily what happened even before that, I started looking at a lot of data and default rates and you know, occupancy trends and all this kind of stuff. And then because here’s why I, I if I’m going to do all that work and all that education and really put everything I have into something more or less right. I want to make sure I can be in that Ideally for 10, 20, 30, maybe even 40 years, and not be losing my ass every 10 years, and starting over and trying to find next latest and greatest. So there’s a lot in what I invest in that there’s a lot backing, right? It’s not foolproof, it’s not recession proof. It’s not a guarantee. It’s none of those things, but value add properties that you’re improving and probably buying at a discount from day one. And the older sector but not too old. So like B class value add 1980s 1990s, early 2000s. I still really like that niche. It’s very affordable for most Americans, but you’re just above the subsidized housing and we’re not talking about section eight we’re talking about the rent is 1000 bucks a month, you know, so most families in America can afford that. And I feel like it’s always kind of a sweet spot. You’ve got that Folks that move down from the luxury a class into B, you’ve got people always improving their lives moving from C and D up to B. And a lot of people just staying put kind of in that so called, you know, middle class standard. And so I really like B class, you know, value add multifamily. So that that was my conclusion to the research that I conducted. And that’s that’s about 80% what I invest in, so.
J Darrin Gross 19:27
So when you you did your research, this is after you’ve already been in real estate, you’re looking on where to go,
Travis Watts 19:33
right when I was finally making that transition to pass it around. 2015 2015 was like books, podcasts, mentors research year. I went pretty crazy and overboard in 2015. So yeah, it was that year basically.
J Darrin Gross 19:48
Okay. And, and prior to that, you were you’re investing in single family doing some flips. You mentioned you had some vacation rentals, huh? And all of that. Can you sum up? The was there a frustration? Was it just the overwhelming you mentioned about the light at the end of the tunnel was getting dark? What What were the things that that were leading to that? Yeah. Which you saw?
Travis Watts 20:16
Yeah, it was all about my time. It was all about my time commitment. So I posted this this video the other day on I forget Instagram or LinkedIn. And it was this, comparing an example between what if you had a single family home that you self managed a rental property that gave you a 15% annualized return just to throw out a simple number, and then you have a syndication and multifamily that’s completely passive and hands off that that gives you a 10% return. On the surface, you’d go well, the single family is a better bet, right? That’s a better investment. Why wouldn’t I just get 15 instead of 10? But here’s the way I look at that. I see that as both of these Pay 10. But the single family home has a 5% Premium that you pay yourself in your time to manage it. So if it’s worth it to you, whatever that 5% equates to overall for the year say it’s, I don’t know, a couple thousand bucks is it worth a couple thousand bucks of your time to be the asset manager basically to go buy it and underwrite it and close it and sign the dotted line and to manage your tenants and to advertise into or whatever, hire property manager and deal with that whole fiasco. So it’s not that one’s right or wrong. It’s just realizing your time value and what that’s worth. And to me, I didn’t have the time. But my time was valued high on my days off because I spent almost all of my life at work in the oil industry. So I really, really valued those days off and when I had to spend them, driving neighborhoods or putting in 20 offers and getting nothing back, that kind of stuff. It was just so discouraging It was my biggest pain point is I felt like I was wasting my life away. So for me, that’s what it was. And that’s what I speak a lot to is kind of the time value and to factor that into your investing.
J Darrin Gross 22:15
No, that’s that’s a point that I think a lot of people don’t recognize. I know myself when I first got in, I was basically happy that the rent added up to the mortgage insurance and taxes had no idea that there was additional expenses coming, you know, like repairs or vacancies or turns are all that fun stuff. So now, that’s, that’s all good. So you made the decision to get into or to get out of the single family and to get into the passive investment. And one of the things that most people are aware of or think about with investing is the ability to To do an exchange, as far as I know, when you go from something you own to something you’re you’re participating in as a passive investor, the the 1031 exchange is not an option available to you, is that true?
Travis Watts 23:16
So, from my understanding, which clearly not a 1031 expert here, but it can be possible, it needs to be a light, kind, you know property and there’s different third party groups that can kind of walk you through the ins and outs of that if you’re interested. I didn’t do 1031’s going from single family to multifamily. And the reason is what I discovered after talking to several people that were doing syndication investing is, number one, it’s common when you’re 1031ing into a new syndication with a new group, there’s often a really high threshold that you have to hit it might be a million dollar minimum five million minimum, everyone’s got kind of a threshold there. So a that could be a barrier for you to that group often won’t offer a 1031 option on the back end of that deal to go into their next deal. So then you might kind of be left hanging again, several years down the road. Now you got to figure it out on your own again and switch to another group, where you have to pay those costs, you have to figure out the logistics behind it, yada, yada, and quite frankly, there there aren’t nearly as many deals in this private placement space as there are single family homes that you could potentially purchase as an investment property. by a longshot. My fear personally, is that I would do one 1031 then another than maybe another now let’s say I’m in my 40s 50s Well, now it’s not going to work anymore. For whatever reason, there’s no deals that I like or the markets changed or something happened. Now I might be stuck with owing $200 grand in taxes. So I never wanted that that unexpected explosion to pop up later in life. And so I’ve never done a 1031 myself, but not to bash it. I know plenty that have my dad has and it’s all great, but for me not a strategy that I do.
J Darrin Gross 25:18
Well, I think too, for somebody that was in a relatively short amount of time, I mean, from 09 to 15, roughly six years. Yeah. You haven’t eaten up a lot of depreciation. Right? I think it it’s something where if if you’ve held a property for 20 plus years, it becomes kind of more of a Yeah, something you’re you’re more attuned to or more you know, sensitive to
Travis Watts 25:44
Yeah. It’s one of those things that I feel like once you get on that, that that treadmill don’t get off. You know, right right I on that treadmill.
J Darrin Gross 25:54
Travis Watts 25:55
That’s the strategy.
J Darrin Gross 25:55
Exactly. Because if you if you maintain The flexibility where you pay the tax, you can port your money, wherever you choose, whether it be into another syndication a stock or, you know, whatever, you’ve got maximum flexibility because you paid the tax. So, and that’s something I think that there’s a, there was a point it took me a while to fully understand or recognize the why because I had always been kind of had kind of a long term view of real estate, as opposed to the value add kind of thing where you you get in and prove it and prove the value and you make your profit on the sale.
Travis Watts 26:11
J Darrin Gross 26:15
So it’s just, I think it’s just a it’s a line that people need to recognize the difference. And, and that’s, that’s about the some of that. Yeah. So, okay, so you, you you make the decision you get into, I mean, you’ve made the decision that multifamily is the space you want to be in, so you’re no longer driving for dollars. No longer spending all these hours making all these offers, you know, getting no deals kind of being frustrated. How How did you underwrite the deal sponsor that you selected to invest with?
Travis Watts 27:19
Yeah, that’s a excellent question. And quite frankly, I had it backwards when I first got started in syndications. And I put way too much emphasis on the deal itself, the Proforma, the projected returns, the the, the what ifs, the possibilities, the dreams, and I did not put near enough emphasis on the sponsorship team, the general partnership, and at the end of the day, obviously what I’ve what I’ve learned here over the past few years, is it’s it’s everything about the team. It’s everything about the execution of the business plan. It’s that team’s track record experience and capability executing what they say they’re gonna do. So how do you how do you know? Well, you’ve got to ask some questions, you’ve got to look at some data, you’ve got to check out their past performance. I mean, there’s things that you have to do proactively. So the the hierarchy that I give it is the team and sponsor the market, believe it or not, I say a second. The deal is last. And and I’ll give an example that I that Hi, that hierarchy, My belief is two out of three should do pretty well for you. Overall, I worked with a sponsor that was quite frankly, just no good and in one deal, and they did everything wrong. They made every mistake you could make, but they bought a great deal, a great property in a great location and a diversified job market and a growing time in the market. I mean, the market was just stellar, right. And so the deal in the market were in place, but the sponsorship team was just horrid, but we ended up crashing profitable and just about hitting our projected return, believe it or not, and that was incredible because I was so scared, I thought these people are gonna run this into the ground and it just and it didn’t. So they’re all important. But at the end of the day, I’d rather work with a very experienced competent group doing just a mediocre deal because they’re going to make it happen at least I’ve got a little more certainty around that. So you want to start with your criteria to answer your question more specifically, I had to write down my criteria I like value add the class multifamily and these particular states you know, whatever I like, monthly distributions monthly reporting. I like you know, great communication, good transparency, like whatever. I had a big list. And and I still do, but I don’t know what it was back then. But, and then I went seeking groups doing that, you know, and so yeah, that’s how I initially got affiliated with Joe Fairless and with Ashcroft was a friend of a friend introduced me. And it was just after I wrote down all of my criteria, and it turns out, they do 100% of what I’m looking to do. And so it was just that alignment, and it’s been a great partnership. So that’s most important. You just want to get along with these, these folks trust them, and know that, that they can do it, that they can do what they say they’re gonna do.
J Darrin Gross 30:26
No, I think there’s there’s a ton of value in what you just shared there because I think that investing by nature lends itself to returns, the expectation of returns, and more is better, right? But I think one of the things that’s often overlooked is the risk to get more and not fully understood. You know, specifically I think and cap rates Just as a, an easy example, I think that most people would look for a higher cap return. Not understanding that that cap rate pretty well predicts your ability to exit the investment. If you have a really high cap rate, okay, who’s who’s coming in behind you to buy that? Yeah. All right. Whereas if it’s a it’s a very low cap rate, that says that there’s a lot of competition and a lot of people want that property. Yeah. And that market that you’re in, so I think that there’s, there is kind of that you know, I guess it’s just more of an education, more of a full understanding of, of what the numbers represent, what your goal is, and how achievable is that goal. So that you can, you can hit the number and, and you know, still have your principal now. Put your principal at risk, right?
Travis Watts 32:01
Yeah. Number one for me that preservation of capital. So,
J Darrin Gross 32:05
Yeah, it’s it’s something that I think when you have nothing I guess there’s also the flip side that if you have nothing, all this doesn’t doesn’t matter, but if you’ve if you’ve accumulated something, it becomes much more of a concern. And, you know, it sounds like I mean, clearly you’ve you’ve whether you say it was luck in 2006, you got out he had some money, you know, you put that to work for you in real estate, you grew that you got frustrated. You got that out, and now you’re putting it in, in picking these passive deals. I’m assuming that you’ve, you’ve done well, I mean, even when, you know, you talked about the one operator that you were invested with that in sound like they, they were good at what they did, but they got lucky on market and a property. Everything’s gone up for you. Fair enough. I mean,
Travis Watts 32:59
With the exception Here’s one thing I’ll point out, I did at one point, take my eye off the ball, so to speak. And I, you know, I didn’t, I never want to have 100% of my portfolio in one asset class or with one group or in one investment or anything like that. So I allocate 20% of my overall portfolio to experimenting. I’ve done some self storage, some ATM machine investing some first lien notes, you know, some distressed debt funds. I have a lot of stuff in there, and it’s hit and miss, but I’ll give you a story of where I really kind of screwed myself. I, I had every reason to be doing this multifamily stuff. I’ve done my homework done my research. Well, I’m in part of I’m in a lot of investment groups, but I’m in a pretty big one out in Colorado, and there was a presenter, they’re doing this new fund of distressed debt. And a lot of people were investing with them and they didn’t have a huge track record, but I kind of let all my criteria fall to the side and go well, I’ll give it a shot. Put in way too much. And about a year and a half in one of their partners in this fund. That was not the people I did my due diligence on it was someone out on the East Coast doing their own little thing, but they were part of this fund ended up being a fraud. And so we all lost like 35% initially right off the bat of our total investment, and then now it’s trickled into be probably closer to 50%. So I lost a lot of money, you know, and that’s the Bitcoin example. And it scares me to death when people reach out to me on social media and say, do you want to I’m a Bitcoin trader, do you want to buy my program or whatever? And I asked him, What kind of returns are you getting? And they’re like, Oh, 300% a week, you know, it’s, you got to understand your risk profile and you got to understand reality. So that was my hard lesson learned. So.
J Darrin Gross 34:52
Well. Your, your lesson clearly cemented kind of what we’ve already talked about is Your priority priority one is the sponsor. Right? There’s right if there’s if there’s no credibility from the sponsor, right. The rest of it is really up to, you know, the shifting sands or the blowing winds. And, you know, I think, you know, sadly, I say, sadly, I think part of life is learning from experience. I know, my parents used to always say, Well, I could have told you, you know, and, and, you know, I, a lot of the lessons that I’ve learned that are so indelible are based on mistakes I’ve made. Yeah. So I think it’s, it’s a, it’s good to note that mistakes are going to happen. And even in some of these these best, most vetted cases, there are no guarantees correct. And even in this market, we’re in where we’ve already talked about, nobody really knows how this could play out. There will be lessons that are learned from this, this experience. That we can carry forward and apply to the next one, but the next one will be different than this one. So it’s it’s a constant trying, you know, get the information you know, make assumptions based on educated guesses based on experience and, and others and that shift to constant. So, it sounds to me like you’re a fairly would it be fair to say that you don’t want to be a control freak, but you’d like control?
Travis Watts 36:35
Actually, I would say a little bit of the opposite because I had no problem relinquishing control to do these passive deals. And I realized that what I was doing actively when I had full control, wasn’t that great and there was people all around me doing it better. So I would say that for the for the folks that really love to have control and they have to make decisions. And they have to you know where that the syndication space may not be a great option or you want to limit your exposure there, because you really are at the discretion of other people to make decisions on your behalf. So I don’t have a problem with finding a trustworthy individual that I personally believe in and trust and saying, You clearly can do this better than I can, here’s some money. You know, and that’s kind of my approach with it is I don’t think I can do any better personally, nor do I really want to, and so it’s a good match for me. So So now I would kind of say the other way with that.
J Darrin Gross 37:38
Well, in maybe I misstated that I guess what I was picking up on was the aggravation level that you were having in the beginning. And and then even you mentioned some anxiety about the the one investor that that was not good at anything. And now that that, you know, I can see like, Oh my god, oh my god. Yeah, yeah. Okay guys fine. So, but no, I think, to the, to the flip side of that the fact that you you are willing to turn your, you know, invest with others. And even, you know, the ones where you’ve had some some experiences or you know, some lessons learned. You know, you have your criteria and and you define that. And I guess my question is, when when you define that? How did you go about gathering the information sorting that what were you relying on? or How did you, how did you? Were you reading books?
Travis Watts 38:40
I’ll share with you something and for your listeners that I’ve done for a long time. It’s just kind of my own little strategy or philosophy here. So I don’t like to listen to any one source and then say, that’s the way it is. I agree. 100% I’m done listening. I’m done learning. That’s how it is. I like to answer I’ll read a book, say real estate book and it says something about real estate always do this. Okay, cool. I’ll take a note of that. I’ll read another real estate book. And if I happen to see commonalities, ah, two people say, absolutely do this, okay, there’s, there’s probably something to it. And I keep reading, but I’m an avid reader. I’m an avid educator. So, you know, after I get to 2, 3, 4, or 5 sources that are all kind of agreeing, like, here’s the general consensus, we all kind of think this. Then I implement that into what I believe or what I think and so the same goes for anything. So before COVID happened, I was going around nationwide to conferences, big multifamily and real estate networking events. And I’m talking with hundreds of probably thousands of investors. And something I did initially to well not initially right after initially, to start finding who I wanted to invest with, is asking people, who do you invest with? What is your experience been? And as I started hearing certain names of certain groups pop up over and over and over, and I started picking up who are the key players here who’s really in the space. And that’s who I I ended up investing with, and in most cases, so. So anyway, that’s kind of how I approached it is finding multiple sources to say basically the same thing.
J Darrin Gross 40:27
Well, it makes sense. You know, you do educate yourself, you get reinforcement to, you know, what’s that old saying? If you, you hear hoofs, don’t think zebras. First I mean, there’s just kind of that the you get the information, you keep getting confirmation. You know, you can try and go all the other ways. But if, if all the tried and true is, you know, had in this one direction And it’s proven or the experience has been mostly positive, it’d be hard to argue otherwise. So Travis, let me ask you so your experience you basically you were active, you made the decision to go passive. Who, who do you think? Or I guess if somebody listening, yeah, is currently trying to do it on their own. And they are reaching the frustrations. What are some, some frustrations that you would encourage them to look for? At and compare that to what your experience has been on the passive side?
Travis Watts 41:48
Sure, sure. And I guess I’ll start answering that with with just this realization that happened that was totally unsuspected from, from my standpoint, when somebody first told me about syndications and what what that is. I was pretty skeptical. To be honest with you. I didn’t think that I don’t know. I just felt like, Okay, if you’re buying apartment communities, you’re a billionaire or you’re I don’t know, there’s got to be a cast. There’s got to be something right. And so or these are real estate, people who have been in this industry for 10, 20, 30, 40, 50 years doing real estate, and this is kind of where they graduated to that that was those were my first thoughts, right. I could imagine there’s some folks thinking something along those lines. What I discovered is when I got into the space and started networking with folks, the majority of people who invest like I do in limited partnerships, as a passive investor, are simply highly paid business professionals, athletes, doctors, dentists, lawyers, attorneys, folks like this, right? They have a career, they have a profession, they make good money at it, and rightfully so. They don’t want Take their eye off the ball, right, they want to keep doing what they do for money. And then they need a place to park some capital, maybe they don’t want to put 100% of their, their capital into their 401k or into the stock market. So this gives an alternative to that. So, so that’s one thing. The other thing is in and so those are the folks that love their careers and want to keep doing them and just need a place to park capital. The other side of the coin is more like myself, who’s out there doing everything on my own, being active, grinding it out working a career that I hated, working a lot of hours, basically, I just wanted to leave that job. That was one of my biggest motivators. And when I realized that, you know, first of all, I’ve always been an avid saver. I was raised by two very frugal parents, right. So I’ve always had this like crazy over the top savings rate, you know, 50% Plus in my income kind of stuff. And so I was parking all of that into real estate in one day I sat down this is the first time I guess I’d actually sat down and calculated more or less my network. I thought, okay, if I, but I did in a weird way. I said, if I sold everything if I sold all my single family homes, if I sold the house I lived in, if I got rid of all this crap, I paid all the tax and the penalties and all this, what would I actually have leftover, right? I was like my real raw networth. I said, Okay, if I took that number, and I put it to work passively, with like a conservative cash flow amount, that would be my projection number. What would that amount to? Well, what I discovered was, it was enough for me to leave that job. And there couldn’t have been a bigger motivator at the time. And so that’s really what prompted me initially to pull the switch. And it wasn’t until later that I really started discovering this this time freedom concept in this. You know, the first thing I did is went to I went to worked for a brokerage firm. So I wanted to learn stocks, bonds and mutual funds. And it was just literally self interest. I could care less what my salary was I wanted to learn that was something I actually just wanted to do. And I ended up not liking it. So I went to go work for syndication groups, because as you know, I mean, that’s where I was transitioning into that world. And I thought, what better education than the work from the inside of this, and then be investing in it. So that’s kind of how it evolved. And I thought, this is cool. I have an ability to pivot careers, I have the ability to work part time or full time I have the ability to move. And that’s the thing for people this has nothing to do with me. By the way, I’m painting this picture to say that passive income when your passive income exceeds your living expenses, that gives you this type of freedom to make these different means or go to church more, be more charitable, spend more time with your family, traveled the world, whatever it is for you. Everyone has their wives we talked about earlier, but Yeah, that’s that’s the purpose. That’s the bigger picture here is that it doesn’t make much difference for most people to have 200 bucks a month passive income, that’s not necessarily going to be life changing for most people, but when you have 5000 a month or 6000 a month now it starts to be a little bit of a game changer, you can make a lot more but you know, positive changes in your life in different areas.
J Darrin Gross 46:24
No, I think that’s that’s a good way to kind of summarize the passive income, you know, that’s the goal is to to have more than your expenses add up to. So that’s good. Hey, Travis, if we could, I’d like to shift gears here for a second? Yeah, as I mentioned before, by day, I’m an insurance broker, and as such, we do risk management with our clients. We typically consider a couple of different strategies. First, we look and see can we avoid the risk? If that’s not an option, we’ll see. If we can minimize the risk, and when neither of those are an option, we look to see if we can transfer the risk. And that’s what an insurance policy is. And I like to ask my guests if they can take a look at their space, and how they work with their clients, and consider what they or explain what they consider to be the BIGGEST RISK. Sure. And for clarity, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Travis Watts, what is the BIGGEST RISK?
Travis Watts 47:39
I would say the BIGGEST RISK in passive investing to me is partnering up with the wrong team. It can be disastrous, as we’ve talked about, but, you know, if you can’t execute a business plan, specifically if we’re not talking about value, add real estate. So say we’re talking about new development new construction, it can be a very bad scene. So I would say you’re aligning yourself with the right folks picking the right partners and doing your due diligence up front to mitigate those risks. And in the deal itself, you’re looking for a sponsor or or yourself if you’re doing your own deals to be as conservative as you possibly can be. You mentioned earlier on the call cap rates, you know, on real estate. So if you’re buying something at a five cap, you should be and you’re hoping to sell it in five years, you’d like to see a higher cap rate down the road, right? Maybe you project a sell at a six cap, you’re just being conservative in case the market softens in case COVID ends up being a, b, c or d. You’re using your best judgment to mitigate risk that way. So those are kind of the to two part question. Two part answer.
J Darrin Gross 48:57
Oh, that’s that’s good stuff. Travis, I can’t say thanks enough for taking the time to talk today. But before we wrap up, where can listeners go if they would like to learn more connect with you?
Travis Watts 49:15
Sure some that we didn’t talk about in as it pertains to that. I spend my weeks on these 15 minute, completely free no sales pitch q&a calls because I do a lot of videos and blogs and podcasting, a lot of folks have questions as it pertains to them specifically. So if you want to sign up for a free 15 minute call with me, literally free, no obligation, or I have a downloadable guide. It’s called Understanding Real Estate Private Placements. It’s about a 20 page downloadable guide. Both these are free and you can get them at AshcroftCapital.com/connectwithTravis and whether you just want the call or or the guide or both. That’s where you can go additionally, I’m on Instagram, LinkedIn, Bigger Pockets, Facebook, all these things, the the symbols @passiveinvestortips. And so I push a lot of content out there too and you know, everything’s free and just a resource to help others so feel free to connect if I can help in any way. anybody listening.
J Darrin Gross 50:23
Awesome. Travis, like said, I’ve enjoyed it. Hope we can do it again sometime soon. And stay well.
Travis Watts 50:34
Thank you for having me, Darrin. I really appreciate it.
J Darrin Gross 50:36
All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks CREPN Radio.
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