Journey to Multifamily Millions

The Wealth Building Combo of Equity and Cashflow with Tim Lyons, Ep 73

December 07, 2023 Tim Season 1 Episode 73
Journey to Multifamily Millions
The Wealth Building Combo of Equity and Cashflow with Tim Lyons, Ep 73
Show Notes Transcript

Today's guest is Tim Lyons, co-founder and Managing Partner of Cityside Capital. He's also a Registered Representative of Phase One Financial Services in NYC, holding Series 82 and 63 licenses. Tim, an 18-year FDNY veteran, sheds light on Cityside Capital's operations, specializing in multifamily, self-storage, and industrial assets. 

In this episode,  He provides a detailed peek into how his company operates. From diligent analysis before onboarding potential investors and commercial real estate operators, to specializing in asset classes such as multifamily properties, self-storage, and industrial triple net leases; 

 As a powerful blend of hands-on experience and professional expertise, Tim shares in-depth knowledge about setting up LLCs, dealing with securities fraud, establishing funds of funds, raising capital, and much more. The conversation reflects Tim's passion for real estate and his firm belief in equity and cash flow.

Episode Topics

[01:20] Meet our guest, Tim Lyons
[02:15] Tim Lyons Shares His Background and Journey
[05:31] The Shift to Real Estate and First Investment Experience
[17:50] Understanding the Value of Time and Prioritizing Tasks
[24:08] The Importance of Material Participation
[30:10] Understanding the Suitability Rule in Investment
[39:17] The Future of Asset Classes in City-Side Capital
[41:02]  What is one red flag every investor should look out for?
[41:31]   What is a myth about the real estate business?
[42:57]   Connecting to Tim

Notable Quotes

  • "I went down this personal growth and development path, and it came down to one word, Tim, and that was equity, actually two words, equity, and cashflow." - Tim Lyons
  • "I was addicted to the tax benefits and the cash flow and having real estate pay me in five ways, I really wanted to get into it more, I just didn't want to be the guy to be the landlord anymore." - Tim Lyons
  • "I wanted a three-family or a duplex or a quad because that was able to qualify for traditional financing 30-year fixed mortgages. I wanted more than one unit because I felt like if one or two units were vacant, I could still have some kind of cash flow coming in." - Tim Lyons
  • "It's not about just being a landlord; you become the property manager, a whole new level of involvement." - Tim Little
  • "People need food, clothing, and a place to live. We believe in multifamily; it's a structural deficit of affordable housing."- Tim Lyons

Connect with  Tim Lyons 

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Ep 73 - Tim Lyons (audio)

[00:00:00] Tim Lyons: Did the prices matchup? did the timeline match up, all these things to make sure that we're checking a lot of boxes for our passive investors, right? We're trying to protect them by doing all the hard work and asking all the hard questions upfront that they may necessarily not have the time or the know-how to do, for themselves. and then, we talk to them about their investor communications. what's your cadence? What do you include in your reports? Here's what we expect. Can you send us some, previous reports, all stuff like that? So that when we do onboard them we know that we have done our part in looking at them. 

 [00:01:12] Tim Little: Hello everyone. And welcome to the journey to multifamily millions. I'm your host founder and CEO of ZANA Investments, Tim Little. And on today's show, we have with us Tim Lyons. Tim is the co-founder and managing partner of Cityside Capital along with his brother, Greg. He is a registered representative of Phase One Financial Services, a broker-dealer based in New York City. Tim holds the series 82 and 63 licenses and is focused on raising capital for multifamily. Self-storage and industrial assets that provide great risk-adjusted returns tax advantages passive income and equity upside Tim is also an 18-year veteran of the New York City Fire Department and currently serves as a lieutenant in the borough of Queens Tim, Welcome to the show

[00:01:59] Tim Lyons: Tim, thank you so much for having me as a guest here. I'm happy to be here.

[00:02:03] Tim Little: Yeah, and it is great to have you first of all, thank you for your service as a first responder I know you guys don't always get the shout-outs like we in the military do so I wanted to make sure that I Extended that right up front. I gave everyone a high-level overview of your background But on this show, we'd really like to get into the details of how you got started on your journey So please take us back to the beginning and tell us how you got to where you are today.

[00:02:27] Tim Lyons: I will do Tim, but first I just wanted to jump in. I wanted to thank you and your brothers and sisters for your service, because as you can see in the background, I, am a Patriot, I love this country and I really love and support all of our military, members and, former members, and I have family members who have done the same. thank you, my brother.

[00:02:45] Tim Little: All right. Thanks

[00:02:47] Tim Lyons: Alright, how did I get started? Man, I was a firefighter and an ER nurse, right? And, because a lot of firefighters, work 24-hour shifts, and a lot of guys have second careers, right? A lot of guys do handyman work, like plumbing, HVAC, roofing, and siding. Windows, construction, and I happen to be allergic to a hammer. I didn't grow up knowing how to use tools, even though I'm a firefighter. I should probably know how to use a couple of them and I do. but when, like, when it comes time to do the construction stuff, that just wasn't for me. So I bounced around, I did some risk management, kind of corporate-level jobs as I got per diem, with an insurance company. That was cool. but not long-term. And, finally, I started working with, When I started, I worked with a whole bunch of nurses, and there were maybe four of them in my firehouse. And they had nice cars, and the wives stayed home, and they always had work, and they were happy. And I said, you know what? I was pre-med, Tim, in college for about 15 minutes. I had an interest, I was an EMT in college. I said, so why not, go to nursing school? That's what I did. And whatever, I got a job in a hospital, I worked, in neurosurgery, I worked, briefly in orthopedics, and then I worked in the emergency room, and I found my passion.  I went from, 24 hours in the firehouse to, 12 hours at a time in a level one trauma center, and I was fulfilled, right? I had two great jobs, I had work when I wanted it. and I just come from the scarcity money mindset, Tim. I didn't grow up with money. my parents were divorced when I was three. It was, if we talked about money, Tim, it wasn't a good opportunity to talk about, it wasn't a good conversation about money, put it that way. So to me, getting paid every two weeks was the way. putting money into my 457 and, my 403B. That was the way. getting a pension after 20 years of service. That was the way, too. buying a house, trying to pay it off as quickly as possible. Don't take on debt. this is probably sounding familiar, right? to a lot of the people out there. but what I started to notice was that I worked two jobs, 80, 90, and sometimes 100-hour weeks. And in the meantime, my wife and I had three little girls who are now 12, nine, and four, which wasn't conducive to family life, to being a good husband, to being a good father, to enjoying, the fruits of my labor. so I went down this personal growth and development. And path and it came down to one word, Tim, and that was equity, actually two words, equity, and cashflow. I thought I had cashflow from my W2 jobs, but I realized that there's something called passive income or passive cashflow, and I needed that And equity the two ways I distilled to get equity, Tim, was through real estate, number one, or, and, or, starting my own business. And I just felt like starting my own business wasn't going to be what I was looking for. I was looking to save hours, not really contribute a whole lot more, and risk, and I didn't know what I was doing, and failing forward,, It wasn't like I had, endless funds to lose in a business endeavor. So real estate became the way, around the same time, there's a book right over your right shoulder called Rich Dad, Poor Dad by Robert Kiyosaki. many of the listeners probably heard of it. I read that in two days on a family vacation in July of 19. I couldn't put it down. I had a beer in one hand. I had the book in the other. Then I was building sandcastles for about 10 minutes. I went right back to the book. I couldn't get rid of it. And, it changed my life. another sounds, like a pretty big statement, but it reframed money, it reframed, investing and what it means, assets and liabilities, and, you know what, Tim, two months later, I'm sorry, four months later was November of 19. I bought my first three-family property. it was an hour and a half away from my home because, in New York City and the greater New York City area, it can be hard to cashflow. I'm happy to jump into that first, that first one, but that was really the pathway that I had to get into real estate.

[00:06:21] Tim Little: Yeah. And so there's a lot to unpack there and I'm seeing and hearing a lot of similarities, with my own journey. It sounds like you were born in New York and probably stayed there for pretty much your whole life based on your accent. I was born in Jersey and, live between there and Connecticut because like you, my parents got divorced when I was like two. so back and forth between the two, divorce is never good for finances. First of all, spoiler alert. yeah, faced a lot of those, same money challenges and just the mindset, right? My dad was a TV repairman. and so all he wanted for me was, please just go to college, get a better job than I have, that, that whole piece and I'm glad you were able to. Escape that scarcity mindset, but it takes a long time, right? It takes exposure to different things, different ways of thinking, and then you're like, oh, okay. So I agree that not all things are possible, once you shift your mindset, then you can focus on different things and really accomplish different things, and going on to some of the other things that you talked about, don't have any shame about not being a handyman. I'm not either. I can change my own car battery. That was my big accomplishment for this past weekend. So I earned my man card as far as I'm concerned but otherwise a lot of times I'll just, I'll pay for the service, right? it's not worth my time, especially when I screw it up and it'll take twice as long to fix. Cool. going into, how you got into real estate itself and, rich dad, poor dad, that's not an unusual story, right? Cause it makes this paradigm shift with a lot of people. They're like, Oh, I've been doing this wrong, right? or I've been thinking about it wrong. And just like you, that's when I feel like I first understood assets versus liabilities and decided I needed to do something about it because I didn't have enough of those assets. that I certainly should and you talked about entrepreneurism and starting a new business. And I think you highlight an important point about the risk associated with that, right? Like not to dissuade anyone from starting their own business, but there's a huge amount of risk. Depending on what type of business it is, a huge amount of capital. Upfront as well that if things go wrong that capital is gone Whereas with investments that's usually not the case. Can you invest in a stock that goes to zero? Sure, can you invest in a crypto that goes to zero? Sure, but with real estate that is very rarely the case So talk to me about that, that first deal, did you have to put 25 percent down on it because it was an investment property and was that a single-family home, or was that a small multi? Talk a little bit more

[00:09:07] Tim Lyons: Yeah, so it was a small multi. It was a three, three-family house. it ended up being in New Haven, Connecticut, in, an area called Westville., We bought it for 276, and when I say we it's me and a partner because when I talk about scarcity mindset I really mean what I say. I didn't want to do it by myself. I was nervous. I was scared you know, I just wanted a partner there with me. I wanted a three-family or a duplex or a quad because that was able to qualify for traditional financing 30-year fixed mortgages I wanted more than one unit because I felt like if One or two units were vacant I could still have some kind of cash flow coming in So for all those reasons, that's why we settled on the triplex. And, it turned out that, we needed two units, to pay for everything, And that third unit was really the cashflow. we've worked 276, the taxes were about 6, 000 and, at the time, this is November 19, we were nervous about buying it in our own names, right? It was a friend of mine. It wasn't like me and my wife or anything like that. So it was a friend of mine. So I said, why don't we do an LLC? And you learn a lot by doing this, right? It's a lot of experiential learning. we didn't need an LLC really. there's, you go on bigger pockets or you just Google, do I need an LLC to buy real estate? you're going to find a billion articles going both ways. but we ended up. Doing that. So we set up an LLC and then it turns out that you can't qualify for traditional 30-year fixed mortgage, rates, right? You're now you're into the commercial realm because you're investing through a business entity so anyway, we ended up getting a, 10 year, 10-year note with the 20-year amortization, at four and a half percent at the time, which was a, like a full a hundred basis points more than, regular mortgages we're going for, and we put 25 percent down. with the 25 percent down, we split everything 50-50, and then we put a new roof, where we paid to have a new roof put on and, new siding. And then Craig and I, my partner, we actually broke out the tools and we renovated the first-floor unit. We painted, and we replaced cabinetry hardware. we fixed the little holes in the wall. We, actually... Went out of our comfort zone and put the LVP flooring in, the, life proof, LVP flooring in two of the bedrooms. we, it took us about a month probably, which is a really long time to do to get a turn going, we did it and, we started cash flowing right, right then and there. And we did a little bit on our taxes. We had some cash flow coming in, and we had proof of concept, but what I realized was that I hated it. I hated being a landlord, right? It was a three-hour round trip. It was phone calls nonstop. I had three single moms with kids in the units. And they needed help with light bulbs. And, the windows are buzzing. Or there's a giraffe coming in my living room window. And, I, there, we got a call one night, there were two bats in the back stairwell. Can you come to get them out? And I'm like, Oh my God, three hours round trip to get some bats out of the real estate, and I didn't want to, I was cheap, right? So I don't want to pay for a third-party property manager, but I also want the experience. I wanted to know if I liked it or not. And while I was addicted to the tax benefits and the cash flow and having, real estate pay me in five ways, I really wanted to get into it more, I just didn't want to be the guy to be the landlord anymore.

[00:12:09] Tim Little: Yeah. And I think so many people discover that after they've done it. I was no different. mine just took a little longer cause I did do that third-party property management on my first property, which was, just a duplex. but that's because it was like three hours away. So it just, was not feasible, right? to be my own property manager. So I sucked up that 10%. that the property manager was taken off the top and ultimately, I don't know how much it was worth it from a cashflow perspective because they were taking their 10%, and you have one eviction or something big breakdown and you could wipe out a year's worth of profit cashflow wise now in terms of value. the value of the property went up enough that it still made it, a good deal for me in the long run. but, people need to think about that stuff. And then, on my second property, I ran into the same thing that you did. Cause, when I started going down the BiggerPockets rabbit hole, I was like, Alright, I'm gonna do everything like I'm a business. let me get my LLC and, I focused for weeks on the name and the logo and all this stuff that does not matter. because it's going to be a pass-through entity anyways, and then that's when I also found out that I was getting like a commercial loan and I was like, wait, like this isn't a commercial, property. this is only three units when I moved into my, moved up to my triplex and it was like, yeah, but it's an LLC. And I was like, but no, these rates are higher. I don't want this, it's. This is what it is, and I think this like little things like that, that you just learn because no one tells you it's, I don't know, I feel like it's not one of those things that I read in a book, maybe it is somewhere, but I felt stupid afterward, but I was like, shit, I've already, we're already here at the table now, right? so might as well just go through. and so on that property, It was, 20 minutes away. So I was like, yeah, I'm going to save that 10 percent on a property manager. And so it's not about just being a landlord because you are the property manager at that point, which is a whole nother level of involvement. And even though I try to play it off whenever I went over to the property to fix things and be like, Oh, I'm just the. The property manager, they knew I was the landlord and they're like, yeah, we know you own the house, and as you said, just stuff comes up all the time, especially if you're at, different, tiers of renters, like some just require more than others, right? and mine were in that, fit into that mold, right? So I had a couple get arrested. I had a bee infestation in a, in, the bedroom and I'm like, what, I can't make this stuff up. they just call me up and say there's bees flying around in their living room. And bees had literally in the windowsill had made a nest. And so then I had to call like a beekeeper out to cut out, the entire portion. And of course, my tenant's biggest concern was the safety of the bees. They wanted to make sure that it got done humanely. And I was like, you can't sleep in your bedroom. That probably shouldn't be your largest concern, but anyway. The whole point is, like, stuff like this comes up all the time at all hours. And I was working full-time as well. And so it was sucking up all my weekends. And so you go to that, time, cost, benefit analysis. Is this worth it? Is this additional time that I'm spending both after work and on weekends? It's really worth that 10 percent that I would be paying to a property manager. And is there a better way? And so that's where I found myself. And it sounds like you found yourself in a similar situation.

[00:15:53] Tim Lyons: 100 percent and, to be clear, I think people, there's a great book called a millionaire fast lane by MJ DeMarco and, he talks about there's a lot of hard yards that have to be put in before you can enjoy the, the fruits of your labor, like about, if you want to have a portfolio of 10 properties or you want to hit your monthly cashflow number, but people want that immediately. And then they want to go on easy street and there's really no big event. Tim, right? You just did a beautiful job of laying out the bees and the issues that can come up and renter problems. And there's a lot of hard yards that have to be put in before we can have some of these benefits, right? So when you do have to do the time, versus cost analysis, That has to factor into it, right? This is a process. This is a journey. you're going to stack wins on top of wins. and hopefully, you can compress timeframes by listening to podcasts like this, joining a mentorship group, or going to meetups. there are so many ways to compress those timeframes, which is what I did. so that you can start to, take back your life and own your time and do some of those things. So I love the way you frame that.

[00:16:56] Tim Little: Yeah. And I think a lot of it, it comes down to knowing what your own priorities are, right? if you're a single guy, you're in college, whatever, maybe you got all the time in the world to go over and handle things like that. and maybe your time, that, that time isn't as valuable to you as someone. Say who, has three daughters and wants to make the most of that very short time that they have with those daughters I joke while my kids still think I'm cool That's the time that I want to prioritize and we're still there my daughters I'm a girl dad, too mine are only five and eight and I want to spend as much time with them while they think I'm still cool as I possibly can and you know I have to take that into consideration in terms of My priorities, so that's inevitably going to make my time more valuable than say someone who has a whole lot of time on their hands, right?

[00:17:50] Tim Lyons: yeah. And, I had a coach, just, maybe two years ago, point out to me, what's the value of your time, Tim? And at the time I was like, I don't know. I make 50 bucks an hour as a nurse, I don't know, 55, 60. And, he's trying 300 or 500 or even a thousand. And I was like, what do you mean? And when he took me through this exercise. I was blown away, right? I see your book behind you. Who not how right? asking, who can do this better than I can in a, more squared-away fashion and I can probably pay for it and it'd be awesome. Then I can go do my high-value tasks of talking to investors, touring properties, and raising capital for deals. those are The equity and revenue drivers of my business. So should I be, cutting down podcasts and making reels, or should I be talking to investors? but also the value at home, we only get 18 years technically, Before our kids, a doesn't think we're cool, and Tim and B maybe leaving the nest. and like you, I want to maximize that time. And to me, that time is, Invaluable. and there's a struggle, right? As an investor, as, a human being, as a dad, how much time can I, and should I be spending with these folks? And, how do I make that happen? Honestly, that's really was my part of my motivation to do what I'm doing today I needed to make a change. I was getting crushed in my W2. I was losing hours. I was. I was tired after coming home from a 24, or even a 12-hour shift at the hospital, I'd get home at night and I was crushed, and the last thing I wanted to do was get on my hands and knees and start playing, Barbies, or, whatever the case might be, and to me, Tim, that was not living, which is really, when they, when you read any one on one real estate book, they'll talk about your why, your quote unquote why you want to do this. and then they'll take you to step two, which is your goal. so I just saved you a couple of hours reading some on one book about real estate. so once you have that down, like in, that's why we're here today.

[00:19:35] Tim Little: Yeah. And I think that's something that a lot of folks who are, getting into real estate and they're trying to scale and build, like if they do still have that scarcity mindset to your earlier point, that's where they can run into that brick wall because they're like, Oh, that's a lot of money to spend on, coaching or that's a lot of money to spend on that virtual assistant to do this work for them. And if you can't, even though you know you could write down on paper and recognize the fact that you need those folks to be doing those things so that you could focus on those, 1000-an-hour tasks, it's a little bit harder if you still have that scarcity mindset to break through that and just throw the money down. But once you do. Then you start to see the value and they're like, you're like, Oh man, that just saved me this much time. Now I can focus that time on this, like you said, getting investors, having those phone calls, meeting with potential partners, whatever the case may be. Those things that only you can do, your virtual assistant.

[00:20:36] Tim Lyons: exactly it. And, that's part and parcel of why we've been able to scale the way we have.

[00:20:41] Tim Little: Yeah, and we're going to get into that, but first I wanted to clear up some stuff that we talked about at the front of the show in your bio. we used a lot of, fancy terms. So for the sake of the listeners, can you please explain what a registered representative is, and then we can get into those, the licenses, the series 65, and so forth?

[00:21:02] Tim Lyons: Yeah. when people run out of their own money to, buy real estate, they tend to learn how to read a book like raising capital for Real Estate, which is on Tim's top shelf there, to raise money from. Friends and family at first, and then, beyond friends and family, strangers,  and how to talk to them and how to raise capital and do bigger deals and support them in their, investing journey. but there are a lot of rules and regulations that happen. To surround how to raise capital properly and legally and without fraud. And, when I basically learned about that, I realized that there are really two ways for me personally to raise capital and that was to do my own deals, and with my brother, Greg, who is my partner. but I was in New York, he's in Virginia and we wanted to invest in Texas and Florida and the Carolinas and Georgia and Tennessee, and Arizona. and we weren't going to be moving there. the next best thing was to, cultivate our ecosystem, and teach them about what we're doing. but we had to be licensed to do that. Because you can't raise money for other people and just get paid, based on how much money you bring to the deal. that's securities fraud and you can go to jail. and we didn't want to do that, right? So that's the reason why we became what's called a registered representative of a broker-dealer. A broker-dealer is nothing more than a company that buys and sells securities on behalf of themselves or their investors, right? broker-dealers could be like Fidelity Vanguard or Goldman Sachs or, JPMorgan Chase. they sell stocks and bonds and ETFs and, futures and, Puts and calls, whatever, those are broker-dealers, but they do it on the equities and the like Wall Street side of the equation. We are working with a broker-dealer that only does what's called a private placement investment, which is in commercial real estate for us. So we only focus, my broker-dealer only focuses on multifamily self-storage assets and industrial triple net lease assets across the United States.

[00:23:31] Tim Little: Okay. And so I think that helps. And just to give people, like a, a counter to that in terms of as it relates to what, myself, for example, I'm, a sponsor syndicator, whatever. Operator, whatever word you want to use. and yep. And so we buy the deals and we operate them. we also raise capital for it, but we have a material role in the deal, right? We're in it for the long haul. We're going to the meetings with the property managers. We're making legal and business decisions associated with that deal. What you're talking about is exclusively raising money. For those same deals, but not having material participation in it or decision making. Is that

[00:24:20] Tim Lyons: Those are the keywords material participation, right? If you have materially participated in the running of that asset. so let's break it down as an example. Say, Tim, you come to me and you say, Tim, I have a hundred units in Florida and I would like you to raise capital for me, right? I heard you can raise money and I want to pay you to raise capital. Cool. I couldn't bring Tim 10 million dollars and say, you know what, there's a formula here. Why don't you give me 5 percent of the capital I bring to you and then I want 10 percent on the back end? and then I never go to an asset management call. I never tore the property. I don't do due diligence I don't have any votes on what color paint we're going to do the, granite can of tops that we're going to buy, or the three bids on the roofing, the roof materials that we need to do. I don't have anything to do with it. I just move on to the next deal. that's considered securities fraud. and both Tim and I would be liable, right? Him for paying me and me for being involved by bringing capital, and raising money the wrong way. Now, as a broker-dealer, I can do that same deal, right? If we do our due diligence on Tim and Zana investments, and we onboard them onto our platform, and we have an agreed upon, contract, and we say, oh, you have a deal? Let us do our due diligence on the deal. And if we, feel strongly, just like you do, then yes, we will raise 10 million, and here are the terms. Because we have our licenses, and we work with a broker dealer, That's all above board. That's how we make our money. That's how you get your equity. That's how we serve our investors and everything's good. I hope that helps.

[00:25:45] Tim Little: No, it, it does. And, because we've had like fund managers on the show before. Can you talk about maybe the differences between a fund and what you're doing?

[00:25:58] Tim Lyons: Cool. So anybody can start a fund of funds, right? I'm sure people have heard that a fund of funds or, an SPV, which is the term it's called a special purpose vehicle. So to do that, you want to say you had the capacity to raise 20 million from your friends, family, coworkers, and your ecosystem, right? You could send up, set up a reg D. 506 B or 506 C fund, or even a reggae offering up to 20 million. and you could, now, raise 20 million. and you can go to, operators like Tim, or other operators out there and say, look, I know you're offering a 7 percent pref and an 80-20 split to your investors. If I'm able to work with you and bring capital to your deal and one big check, not, a hundred or 300, 50, 000 investments. I'm going to bring one check to your deal. but instead of a 7 percent pref, we would like to negotiate an 8 percent pref for our investors. And instead of you offering 80, 20 to my investors, I'd like you to offer 75, 25, or even 70, 30 and now as a fund-to-fund manager, you would have an accounting firm. keeping track of all this and you could charge the fund. If you're in charge of the fund, you can charge the fund and asset management fee, a disposition fee, and an acquisition fee, right? So you can make your money, by running the fund, Or, and, or you could also keep that, instead of a 7 percent prep, like you were offering. And now we negotiate an eight, you could keep that 1 percent Delta. instead of an 80 20 split that you were offering, and we negotiated a 70 30. there's a 10, 10 point difference there. Maybe you could keep some of that for yourself as well. So that's how a fund of funds works. It's totally legal. it's how people make money. It's how Wall Street does it. It's how private equity firms do it. I don't know if you ever heard of the term two and 20, right? 2%. a yearly fee for being involved in a private, with a private equity fund, and then a 20%, take on the backend, right? So there's all these ways of structuring a fund of funds and they're legal and they are definitely a way that a lot of people raise capital and serve their investors to get into bigger deals.

[00:28:01] Tim Little: Yeah. And is there any advantage or disadvantage between, starting a fund versus, someone going out and getting their licenses so that they can, do what you do?

[00:28:13] Tim Lyons: yes, so if you have the capacity, the ability to raise at least, I would say at least 10 million, and people are okay, maybe not getting a distribution right away, right? They under, they know I can trust you, they understand the model, they understand the asset classes, the whole thing. I, yeah, you can easily raise 10 million and then start to negotiate during that period, while you're simultaneously raising capital, you're also talking with those operators, you already have them in your stable, ready to go, but negotiating those terms, right? So you can go to the operators and say, look, I can bring you X amount of money, a million dollars a deal, whatever but these are the terms that I would like to have my investors have, right? so as long as you can match those two, two things up. and it's, profitable for you, then yes, I would say do that if you're just starting out raising capital. I don't know that I'd raise a fund of funds, because it's going to cost you probably 20 grand to get started between, the law firm that needs to set up your PPM and subscription documents. Your portal is probably going to be four to six, four to 10, 000, depending on what portal you have. Then you're going to have another 10, 000 a year, probably, or more for the accounting firm to audit your stuff and to send out K ones at the end of the year. So there's going to be significant upfront costs, right? You can wrap that into the funds, and asset management fee, but there are significant costs to get set up correctly. So if you can't raise and you don't have that firepower, in the beginning, and also if you don't have the operators that you already have, an agreement with, that's going to be really hard and that might, you That might set you back quite a bit.

[00:29:39] Tim Little: Yeah, no, I think that's some good insight on just the, I don't want to say challenges, but considerations. between the, yeah, the two different routes. so say I'm someone who's thinking about investing and I know you, I think you're a stand-up guy. Talk to me about how you explain the services that, you provide, as part of your, I'll just call it due diligence on, deals and, sponsors and everything else.

[00:30:10] Tim Lyons: So we have to, abide by the ASEC rule called, suitability, right? So we need to make sure that our operators, we have, we call them issuers, right? If you are issuing stock in a company, you're the issuer. but the operators, the people who run the multi-family or self-storage deals that we work with, they're called, operators, syndicators, issuers, all synonymous terms. We gotta make sure that we do our due diligence to make sure they're suitable. Issuer for our platform. So we look at their track record, their history. We look at their deals. We walk their deals. we talked to their property management companies. We'll talk to the onsite staff. we also have a third-party due diligence firm called, crowd check. That'll look at their LLC formation. Are they, set up and are they in good standing? Did they own the properties that they said they owned in their glossy, sexy deal deck that they send out to everybody with the palm trees and the pools and the weight room and everything that we see, did they own those deals? Did they sell them to the price matchup? did the timeline match up, all these things to make sure that we're actually checking a lot of boxes for our passive investors, right? We're trying to protect them by doing all the hard work and asking all the hard questions upfront that they may necessarily not have the time or the know-how. To do, for themselves. and then, we talk to them about their investor communications. what's your cadence? What do you include in your reports? Here's what we expect. Can you send us some, previous reports, all stuff like that? So that when we do onboard them. we know that we have done our part, looking at them. are they good operator? Do they talk to investors on a timely, cadence and with substantive reports? And, are they open to calls and webinars and, all stuff like that, obviously we haven't even gotten to what asset class are they in. What market are they in? Do we want to be in that market? Why do they like that market? Why do we like that market? all stuff like that. So then when we do bring them on. Now they're onboarded and they're ready to go, right? So now when they bring a deal to us, they say, Hey, we have a deal under a contract here is the, most updated rent roll here is the last 12 months of the P and L statements. And here's our underwriting. For the deal, why we think it's going to be a great deal, why it works. And then we have an, in-house underwriting team that'll go to work looking at their assumptions and looking at their deal, is there underwriting tight? Is it within industry standards? Are they forecast like during COVID? when say Phoenix is getting 20 percent annual rent bumps, are they underwriting 20 percent annual rent bumps? Or are we down to two or 3%, maybe even 0 percent year one? We love to see that. we have a series of checks and balances so that when we decide to do a deal, we know that, we've checked a lot of those boxes beforehand before we go out to our investors and, Try to raise money on the flip side, Tim. We also do the same thing for suitability for investors. We need to make sure that they, as a limited partner or a passive investor, are accredited or not accredited. If you're accredited, there are three, basically three, sometimes five, boxes to check, right? It's either an income, for personal income for you and your spouse, a net worth requirement, or there are some licenses that you can have.  Or there's also an entity structure that you can have to, qualify for an accredited investor. If you're not accredited, we got to talk about, a couple of things like, what's your kind of, what's your, current financial situation. What have you invested in? do you understand the asset class? Do you need extra help? figuring some of that stuff out. we do all that in the background and the benefit for the operators is look, you could always use more money. And they can all raise millions of dollars by themselves, but if they're doing the velocity of deals or, maybe their, their, strong point is running deals and acquisition, and it's not so much investor relations, so that's where we can support an operator on the other side.

[00:33:45] Tim Little: Yeah, that's interesting. I would have just assumed that only accredited investors would be able to invest with you. But from what you're saying, that's not the case. But it sounds like the, and I'll use air quotes, sophisticated investors are the word that the SEC uses, can also invest with you, but you have to follow the same guidelines that say, I would have to follow, which is that, let's call it a substantive relationship, having known them a certain time understand their financial situation, etc.

[00:34:14] Tim Lyons: That's why, yeah, that's why we have, leads and funnels and social media and, talking on stages and going to meetups, because, to tell people what we do and then to develop relationships going forward. but yes, we do actually, we do a majority of 506B, deals. The reason is that you can have an unlimited amount of accredited investors, as and up to 35 non-accredited folks. but those non-accredited folks, those spots go really quick, right? They just go really quickly. They're sought after. There's a limited number of 'em. but there's just a lot of, there's, a step or two. Less friction when raising capital than doing a five OC deal with accredited investors only. and for example, one of them is having them sign and have, have signed an accredited investor form, that has to be signed by their CPA or their financial advisor, or their attorney, sometimes have to be notarized, there's just like a lot of steps that can cause friction when raising, capital. which is why we just like to do the five or six big deals, but we do both.

[00:35:09] Tim Little: Nice. Okay. you were talking about different types of assets. talk to me about what types of assets you guys, primarily invest in. and, just moving forward, let's look into our crystal balls next two to five years. do you think that's going to change? Are you shifting towards, other assets, over the course of the next few years?

[00:35:30] Tim Lyons: So right now we, we've done 25 deals and the majority of them are multifamily across the Sunbelt and Midwest. And we believe in the investing thesis behind multifamily. We think people need food, clothing, and a place to live. It turns out people like to go to bed at night with a roof over their heads and they like to be in safe, clean, affordable housing. so, we believe in that. we believe that there's a structural deficit of, affordable housing, and when I say affordable, I don't mean like strictly section eight. I'm talking about middle-class folks who are just looking for a two or three-bedroom apartment with, laundry, in there. And that's clean, safe, affordable, and affordable is key, right? Because it's just not out there when builders are building today, they're building class a product with sexy pools, palm trees, and state-of-the-art gyms. and people that we're looking to serve are probably, below that. that's why we believe in multifamily. We and we're not going to stop, as far as I, as far as I know. So that's one asset class that we really number two is, self-storage. Self-storage is getting beaten up in the press lately. because, we're heading into a recession and, people are clamping down on their pocketbooks. And I think also, the biggest thing is that people. thought self-storage was sexy in the last five or seven years. And they started building it like crazy. so some markets are getting beat up a little bit because there's an oversupply. but it turns out that, as a consumption, society, we like to buy a ton of stuff and we'd never like to get rid of it, right? we don't want to get rid of mom's or grandma's, heirlooms. And we want to just, we don't want it in our basements. We put it in storage and we get hit. For, I don't know, 49 a month and it's on a debit card. We don't notice it. And it just cruises along. and you know what, honestly, with systems and processes, we can, only have maybe one full-time person on it and, we can hit them on the debit card and there's no cash being changed. And if somebody doesn't pay their rent and they get evicted, you know what, we pay somebody to go in there. Cut the lock, donate everything, and then broom sweep it, and put a new lock on. And now we have another, open unit, to rent out. we really like self-storage, especially in the Southeast where there's boat storage opportunity, climate climate-controlled opportunity. cause 75 percent of the self-storage assets in America are owned by mom and pops. With not a lot of systems, sometimes, they haven't raised the rents in 10 years, but they're also getting tired and they want an exit plan. we look for, our strategy is a value strategy where we can find a mom-and-pop, and we can implement systems and processes. but there's also a big enough, footprint on the property to add maybe 10 or 20, 000 square feet of new boxes, maybe some boat storage, RV storage, depending on where we are, and some climate-controlled stuff. And that could be our value add. so we like self-storage for those reasons. and thirdly, industrial triple net lease, which is the newer asset class for city-side capital. it's a cashflow play because of a lot of the deals that we're doing. I'm sure you heard of just in time, at Amazon, way of just in time, shipping, but there's been an incredible push to, restore or onshore some of our supply chains and manufacturing lines, and also, some of our productivity for manufacturing people need these big shells of, space to do that, Whether they're making, I dunno, airplane doors or the styrofoam that goes in between your car door or, little metal pieces for rifles. there are so many manufacturing places out there that need these types of spaces. so we're basically, what we're doing is industrial triple net lease, which means that they take care of the taxes, insurance, and the upkeep. which is great as a landlord, especially for me, Tim, because I don't like to get my hands dirty. we'll do a. Say a 2010 or 20-year lease with them on an agreed-upon rent bumps of say two to 3 percent per year, sometimes in, index to inflation. and it's just a really, cool asset class.And, I really think that we're ahead of the game. We're still buying right now at like between six and eight caps. And, we're positively levered on the, on those, which is a nice change from being negatively levered on some of our earlier value add deals. those are the three asset classes. We're really not trying to have shiny object syndrome. There's a lot of noise in the space right now about build to rent, communities and while I see value in that, I'm just not willing at this point to be a pioneer. I like, the fact that multifamily has been around for eons. I liked the fact that self-storage is an established asset class as is, industrial. so that's where we're staying for right now.

[00:39:37] Tim Little: Yeah, and that all makes a lot of sense. I think the overall point to take away for listeners is that there are a ton of assets out there. When it comes to commercial real estate, despite so many folks using the word Cree or commercial real estate, just so generically, there, there are a ton of asset classes underneath that, I would argue the darling is still multifamily, but there's a lot of other great asset classes.  You brought up some great points when it comes to self-storage. they've been saying for a while now that we're going into a recession. Pardon my skepticism, and then, as you said, we are a consumer-based society, people don't like getting rid of their stuff, and if they do need to cut back, which, may in fact happen, it's usually, okay, I'll go out to dinner one last night a week, or, maybe I won't buy that thing from Amazon, It's very rarely, like you said, liquidating grandma's stuff from the storage space because one, that's a lot of work, right? That's a lot of work they have to do, and they'd probably rather pay that 50, 100 a month and just forget about it rather than do the work required to get rid of all that stuff. some really good points there, but... We're coming up against the clock. So we are going to transition to the turbo round. All right. I'm going to ask you three questions that I ask every guest that I have on the show. And I just ask you for some quick, honest answers. So the first one, what is one red flag? Every investor should look out for.

[00:41:06] Tim Lyons: when an operator is raising money they say there's only three spots left. and they said that incessant emails, that you only have three hours left to invest or something like that. To me, that's a sign of, desperation. if you want to say that you're filling up quickly, that's fine. if that's in fact the truth, but, when they're putting pressure on you to invest and that's a sign that, I don't know that I would stay away from,

[00:41:27] Tim Little: Yeah, that, that artificial urgency.

[00:41:29] Tim Lyons: All right. What is a myth about this business that you would like to set straight? that passive investing is all sunshine and butterflies, right? I think we're, I think we're, the term passive investing or passive income gets thrown around quite a lot on, YouTube or social media, but listen, there's a risk out there, right? And you gotta do your homework. You gotta be educated. You gotta ask questions. it's not always easy, right? There are deals that I'm a part of as a limited partner that are not paying distributions right now. it is what it is. The interest rate environment changes on a dime. and we just have to build balance sheets I'm okay with that, but I understand it, so it's not all sunshine and butterflies. So just do your homework, get educated, ask a ton of questions, and align yourself with the right operators.

[00:42:09] Tim Little: Yeah, I couldn't agree more not everything is going to go to plan, but I think the measure of a good operator is how they adjust to that and you just better make sure that they're communicating with you, right? If bad news does not get better with time, as we all know. All right. Final question. What does success look like to you?

[00:42:29] Tim Lyons: success to me is being able to do what I want to do when I want to do it with whom I want to do it, and live life on my terms. and that's what I'm working towards.

[00:42:38] Tim Little: Awesome. Yeah, I couldn't agree more. hey, Tim, this has been awesome. I really like all the insights that you brought in a little different. Perspective right with your position Please tell our listeners how they can get ahold of you And if there's anything else that you'd like to share with them,

[00:42:56] Tim Lyons: Cool. yeah, you can just head over to our website, Tim. I'm sorry. That's my email address,, but our website is I'm on all the socials and, you could also check out our podcast called the Passive Income Brothers Podcast. anywhere that you can get podcasts. And, yeah, I'm open, I'm always open for a phone call. I'm always open for any, email exchange, even if you don't want to work with us and you just want, a second opinion about something, because really it's all about, relationships in this business. And, I think everything, if you have an abundance mindset, everything comes back to you, Tim, Right?

[00:43:28] Tim Little: yeah, I couldn't agree more again, hey Tim, we'll have all that information in the show notes for our listeners Thanks again for coming on and I look forward to continuing to see you do big things on your journey to multifamily millions

[00:43:41] Tim Lyons: Love it. Thank you so much.