Jason Hartman hosts his mother to go through headlines on real estate and RV ratios. In the interview segment of the show, Jason welcomes Salvatore Buscemi, Managing Director of Dandrew Partners New York. Buschemi discusses why he believes the real estate market is about to crash. We hear his thoughts on dealing with inexperienced real estate investors and crowdfunding.
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This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com.
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Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason is hand picked to help you today in the present, and propel you into the future. Enjoy.
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Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:15
Today our guest will be Salvatore Buscemi who is going to talk about making the yield about fund scams, hard money lending, uncovered. Just some interesting stuff that I think you’ll enjoy for the intro portion of the show today. We have got my mom on the phone. My mom is back. Mom, welcome. I think this is maybe the fourth time you’ve been on the show. Maybe the fifth even I don’t know. How are you?
Joyce 1:41
I am fine. Jason. I don’t want to get overexposed here on your show.
Jason Hartman 1:47
Yes, yes. You got to keep up your mystery, right. Your Mystique. He you know as we were talking about what to talk about during this intro for a few minutes before, first of all the big announcement today. That you are coming. You are joining us for the Memphis property tour. And you’re going to join us for dinner at Graceland that Elvis Presley’s Graceland right.
Joyce 2:12
Definitely. I can’t wait to do that. I mean, I really did like Elvis when I was a teenager.
Jason Hartman 2:17
Elvis changed everything. Now I’m curious. Did you like the Beatles when you were? Well, let me see you were a teenager. Yeah, you would have been a teenager and Beatles time. Well, you know, the Beatles are forever. But did you like the Beatles who were really just Elvis?
Joyce 2:31
I liked Elvis much better.
Jason Hartman 2:33
Yeah. How come?
Joyce 2:34
I guess you like the things that that occurred to you when you’re a teenager better than when you get into your 20s. And I was maybe 21 or 22 when the Beatles came to America. So I just liked Elvis about that.
Jason Hartman 2:50
Interesting, interesting that you’d have to even qualify that statement and say when the Beatles came to America, because because nowadays if a musician publishes something. It’s worldwide instantly, you know,
Joyce 3:03
that was that that was a terrifically big deal when they came, they were on The Ed Sullivan Show. And I mean, it was an amazing thing.
Jason Hartman 3:10
Oh, really? Interesting. Interesting. Interesting. Well, anyway, so I’m glad you’re joining us for the Memphis property tour. And folks, if you have not yet registered, it’s only a couple of weeks away, go to Jason Hartman, calm. And by the way, one of the things, our venture Alliance members, you know, my new mastermind group Mom, I haven’t really talked too much about this, if at all, maybe, but my new mastermind group, the venture Alliance, the tagline for it is your financial friends. It’s possibly the only mastermind group dedicated to doing real estate deals together to avoid the pitfalls and the scams that come with investing in funds. I want to basically help people form a bunch of friendships where they can do deals together. And that’s the primary thing Focus adventure Alliance.
Salvatore Buscemi 4:01
That would be fantastic. Yeah, yeah.
Jason Hartman 4:03
No, it’s, it’s gonna be great. I’m super excited about it. And venture Alliance members don’t even know this is one of their perks, they get to come to all of our property tours, and are creating wealth seminars and our annual meet the Masters events for free. So, you know, Neil, Elizabeth, Chris,
Joyce 4:24
so they can meet a lot more potential partners.
Jason Hartman 4:27
That’s true, they can do that. But you know, the forum won’t be where they really like talking about it during those events as much. But anyway, those are all free for them. So venture Alliance members, of course, just let us know if you want to come. We will get you free tickets for those events. But Gosh, what, what did we want to talk about today? So you’ve been reading some interesting books Mom, you finished heavy dense book recently, the demographic cliff. James Rickards, you’ve been reading I don’t know which one. He is our Gosh, I guess I’ve been Yeah, I love that book. James Rickards is really interesting. And I want to get him on the show. Of course, Harry dent spent on the show maybe four times. And the President of this company was also on the show, Rodney Johnson, and he was just as interesting really, as Harry because, I don’t know, just a different take on Harry’s philosophy.
Joyce 5:20
I think Harry dent is just off in the years. You know, he doesn’t his his predictions aren’t following what is happening. You know, he thinks that there there should be a big crash in and it should have been a big crash into 2014 or in early 2015. Well, it hasn’t happened.
Jason Hartman 5:43
Well, crash. Wait, you gotta define crash though. Is he talking about real estate or stock market
Joyce 5:47
A crash in the stock market and in everywhere,
Jason Hartman 5:50
Harry dent has been like famously wrong and famously right about a few things but he might be off in the years for sure. You know, I started studying his stuff. Back in 1995. And I remember he predicted that, you know, the stock market was really going to start to have problems in like 2009 to 2012. As the retiring baby boomers would pull their money out. He predicted the same thing for the real estate market. And in the demographic cliffs book he’s not bullish on real estate by any means either. Is he?
Joyce 6:24
No, not at all. But it seems it’s like in California real estate is really doing very, very well.
Jason Hartman 6:31
Well, doing well needs to be properly defined.
Joyce 6:37
The prices are going up. I have realtors that send me you know what’s happening in real estate in West LA, where I have properties to seem to sell houses that I can recognize, you know, just on the one street over from Calvin Avenue. I mean, one of them. That was odd If it was ugly as sin to sell for a million and a half dollars,
Jason Hartman 7:05
Here’s the problem. And this is the debate that we will have for eternity, I think. That million dollar house only rents for about 4000 maybe 40 $200 a month and that doesn’t work.
Joyce 7:20
I agree.
Jason Hartman 7:21
You. Wait, listeners. Did you just hear that my mother agreed with me on the air. I’m so glad I got that.
Joyce 7:34
That’s a no that’s a no brainer.
Jason Hartman 7:36
I’m so glad I got that on tape. This is awesome. Oh my gosh. So you know, here’s the funny thing about it is that like, look at if these cyclical markets like pretty much the whole state of California, just every expensive market in the US is a cyclical market. Okay. And every expensive market really on planet earth so far as i can can, you know, so far as I can see, I mean, it’s a pretty big world. So I may have missed some in there. But you know, all the major sort of World Class cities that are really expensive. All of those markets, if you can time them, right? You’re gonna make a fortune, okay? Because you don’t need to invest for cash flow if you’re investing in these cyclical markets, and you can accurately predict appreciation and depreciation problem is, I just don’t know anybody I’ve never met anybody heard of any expert that can really do that in any reliable way.
Joyce 8:36
But don’t you remember when you had I can’t remember what the meeting was. But I think the guy’s name was Joel. And he really had it just knocked about worth of analysing prices. We’re going to go in Los Angeles.
Jason Hartman 8:54
That was one of my very first seminars. And that was, I believe, and it was my My first seminar in general, but was my first seminar with my current philosophy all say, okay, and that was about 11 years ago. In fact, I remember I’m pretty sure it was right around, possibly I should look up, see if it was a Saturday because I know it was a Saturday, March 12 of 2004. I’m gonna guess. Or it was .
Joyce 9:23
I remember we were all having lunch and he had these statistics with him. And we all should have listened to him.
Jason Hartman 9:31
We did. I listened to him.
Joyce 9:32
Well, I didn’t I kept my property.
Jason Hartman 9:34
So here’s the thing I want the listeners to understand that, first of all, is that the over time the cyclical markets actually underperform the linear markets, which is almost counterintuitive, because the linear inexpensive markets, if you look at it over the course, and of course you can pick whatever time frames you want and make them make the statistics kind of look the way you want, I completely understand that that’s what everybody does. So you have to just look over longer periods and adjust for crashes and booms and stuff like that. Okay. But generally speaking, the linear markets will slightly outperform the cyclical markets, which is amazing. No one would think that. And the reason no one would think that is because, you know, in the linear market where prices are going up at maybe 5% annually, you know, that’s nothing to write home about. It’s nothing that exciting. And then cyclical market where you might have a year where they’ll go up 20 30% or, you know, 15%, or, or maybe even in a crazy bubble, like we saw in Phoenix in 2004 2005, where we saw 50, literally 50% appreciation in a year. I mean, that’s just me. Oh, yeah, that’s just insanity. And I reported on that on the show, when it was happening and at my seminars, Depending on which timeframe you looked in Phoenix back then during the absolute crazy boom, it was either a 49% increase or a 55% increase. And what I mean by that, let me just clarify is if you looked at a calendar year, or if you looked at a trailing 12 months and based on which quarter, you know, you trail those 12 months for that number, it was psychotic. No wonder it crashed, obviously. So, the thing, the point I want listeners to take home is that in the cyclical market that has the big peaks, and the wonderful peaks, and then the awful, terrible lows where the market just crashes, you give so much back in the crash, it’s that it’s that concept that you’ve got to remember listeners, is that you know, it’s easier to take in a stock metaphor, okay. And compared to a stock because you have a stock that is $100 And it loses half its value and goes to 50. You lost 50% of your value. But in order to get back the money you lost, you have to gain 100%. Right, right. Yeah. So so you give, you have to gain so much more than a percentage basis to make up for losses in those cyclical markets, those rollercoaster ride markets, all those expensive markets, South Florida, California, you know, the Pacific Northwest, the Northeast, all the expensive places that over time, you do better in the linear markets, and that most people won’t believe because they will think well, I never hear anything about Memphis on the news. You know, nothing impressive happens there. But here’s the reality. It’s the tortoise and the hare. So number one, you don’t have to make up those big losses. But number two, all long in the linear model. market like Memphis, you’re getting such good cash flow.
And I’ll just give you a great example. One of our clients, a very wonderful lady, her name is Joan. Okay. she emailed me just yesterday, we were trading emails. And she said that she inherited a house in Riverside. The value of the property was about $625,000. And she asked, you know, Jason, do you know a property manager there? Now she lives in Southern California. Okay, so she’s already probably got that Southern California mindset. Well, apparently, so I mean, you’d be the judge with what I’m going to tell you. And she says, Do you know a property manager? And before I answered the question, I wrote back to her in the email, and I said, How much is the property worth? And she wrote back and she said, Well, it looks like it’s worth about 625. And I said, Okay, so I bet that property will rent for somewhere between 28 and 30. 30 $300 a month. And I don’t even have to know the address, I don’t have to know anything about the property. I just know it because that ratio is always true. It just holds true. Okay? Now maybe, you know, I’ll be off a little bit, but that’s somewhere in that range is what it’s going to rent for. And so I basically went through the explanation and a few emails back and forth in saying, look, you know, if you were to sell that property, and you could earn about $6,000 per month, so you’re basically if you rent that house, you’re gonna make it very hard to sell if you rent it. So really consider this decision carefully. You’re going to be losing about $36,000 per year. And she says, What do you mean, how am I going to lose $36,000 a year, the property is free and clear. There’s no mortgage. And I said, and I and I thought, No, I feel like I’m talking to my mother again. Right. Oh, my gosh, this is this must be my punishment for something that I have to keep. Keep repeating the same conversation over and over again, right? What do you think, mom?
Joyce 15:20
Well, the thing of it is, is that you know, you have to deal with a lot more. And it just is so much nicer to have a $4,000 check deposited into your bank account.
Jason Hartman 15:34
Well, first of all, it’s nice checks. Hang on. Hang on you completely your logical mother here. listeners, Don’t you like it? you tune into my show and you just get to listen to my mother and I laughing
Joyce 15:53
and I’m waiting for your explanation.
Jason Hartman 15:55
Okay. All right. All right. Well, thank you for humoring me here, but But yeah, that’s not a $4,000 check on that $625,000 house it’s going to be about
Joyce 16:06
No, no, I was to get a one of my properties.
Jason Hartman 16:09
Okay. You were thinking about your $850,000 property on killed in West LA. Okay. Which listeners just noticed that the ratio happens to be about the same, right? You get 4000 for an $850,000 house, or you get 3300, maybe as low as 2800 for a $625,000 house, because it’s all about the ratio. It’s the ratio ratio holds around the world. It is amazing to me 74 countries I visited and this the ratio just holds up everywhere you go. It seems like it’s it’s an amazing thing.
Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday.
Jason Hartman 16:59
So You know, it’s going to be a $39,000 of less revenue. And yes, you don’t have as many managers or tenants or properties to deal with I do agree with you. But when one of the six $100,000 properties goes vacant, you only lose $1,000 per month. Whereas when you’re one $600,000 property goes vacant, you lose all $3,000 per month, it’s your you have 100% vacancy rate, right? So you’re not diversified. And you can diversify geographically too. So with $600,000, buying six properties, I would buy those in two or three different cities, and I think you’ll be much better off. So anyway, that it will be the continuing discussion that we can have in Memphis as well, mom. How do you like to at
Joyce 17:56
Well at least I’ll get to look at some a lot less expensive houses. Nothing,
Jason Hartman 18:01
That’s for sure. That’s for sure. So, and you’ve, you’ve come around a little bit, I gotta say, I appreciate that because, you know, you’ve purchased some properties outside of the Socialist Republic of California in the last several years. So that’s good. Good news. Hey, you know what we didn’t what we should have talked about is my recent trip to Necker Island and meeting Sir Richard Branson again, for the second time hanging out with him. Got some good pictures of the whole affair. It was really fun. But we don’t have time mom. So you now now you have to come back on the show. So we can talk about that. Talk about currency wars.
Joyce 18:38
You know, I, I told you when I was when you were there, I read in Fortune Magazine, a very good article about Richard Branson. And his, you know, taking, you know, flights into space. And Paul Allen, you know, one of the founders of Microsoft.nAnyway, he funded Some of that, and I think it was like $28 million, or something like that
Jason Hartman 19:07
To virgin Virgin Galactic. Yeah.
Joyce 19:08
Or if he, someone asked him if he was going to go into space, if he said no, I’ve learned to be afraid.
Jason Hartman 19:17
Yeah, well, I think that’s probably wise. I wouldn’t, I don’t want to go on the first flight. I will wait till it gets cheaper, safer and longer because, you know, those spaceflights like my friend bought a ticket, and he paid $250,000 for that ticket. And, you know, the plan is that it’s only going to go up into space for just a couple of quick minutes. Yeah, you’re just gonna get to float around for a couple of minutes and come down for a quarter million dollars. And, you know, I mean, if I’m going to go into space, I want to do at least one full orbit around the Earth. I mean, that would be just awesome to go completely around, you know,
Joyce 19:58
they it’s, I mean, I hope that We get to be able to fly in space and everything. And I really approve of all of the technology and all of the research and all of the the people trying to develop that. But I’m staying on the ground for I think. I would not want to go
Jason Hartman 20:20
Don’t worry. I’m not trying to talk you into it. I’m not even talking myself into it.
Joyce 20:24
Good. I’m glad to hear that, Jason.
Jason Hartman 20:27
Well, good. Well, hey, let’s get to our interview. We’ve got a good guest you’re going to enjoy this interview, you’re going to hear about how the insiders and these various funds and stuff buy their shares at lower prices. And, and it’s such a such a scam. We’ve been selling a lot of you know, we noticed that happens. We’re going to call this the tour effect. Every time we announce a property tour. It’s like all our clients run over there and buy in that market before the tour. So our local market specialists have to save properties for the people who attend the tour and they always do that for us. But do check out the properties at Jason Hartman calm in the property section, register for the upcoming tour. You’ll get to meet my wonderful mom and hear about her investments and so forth. And it’s just going to be a great tour and dinner at Graceland a private dinner just for our group at the world famous Graceland in Memphis. So it’s going to be a lot of fun. You can register at Jason Hartman comm venture Alliance members, if you want to come just email me directly, and we will get you your free ticket. And we’ll look forward to seeing you there. Mom, thanks for coming on and doing the intro portion of the show with me and I look forward to seeing you soon and let’s get to today’s guest here we go.
It’s my pleasure to welcome Salvatore Buscemi to the show. He is managing director of Dan drew partners and co founder and CFO of a waste fractionalized real estate equity. He’s author of making the yield real estate hard money lending uncovered sell welcome. How are you?
Salvatore Buscemi 22:00
Thank you very much for having me. I’m very happy to be here. Thank you
Jason Hartman 22:02
Give our listeners a sense of geography. Where are you located?
Salvatore Buscemi 22:05
Right now? I’m in New York City.
Jason Hartman 22:06
And is that where you’re based?
Salvatore Buscemi 22:07
Yeah, we’re based in New York, we also have the Oasis fund is based actually out in Las Vegas.
Jason Hartman 22:12
So hard money lending uncovered. It sounds like is there a scandal there hard money lending, uncovered?
Salvatore Buscemi 22:20
It is, you know, it’s the, you know, back during the past, you know, housing boom that we had, there were a lot of people who were getting involved into deals or they were pulling money to, to invest in what we call private loans. And what happened was, is that a lot of these people did not know who they were dealing with. And as a result, they wanted losing a lot of money because essentially, they were lending money to people who they didn’t know who didn’t have an alignment of interest with them. And also, lastly, they didn’t really know the person who was borrowing the money, the operator actually had any experience. And so we’re starting to see this happen again, in certain other parts of the industry. You and I spoke about crap. funding. And you we people have a strong interest right now people are very, they’re desperate for yield.
Jason Hartman 23:06
It’s sort of the hot new thing. You know, I’m sure there will be many problems in the world of crowdfunding, many lawsuits many frauds Get ready, and they’re coming.
Salvatore Buscemi 23:16
I, you know, it’s, you know, I’d love to discuss this. And really what’s happening is, is that you can take someone $1,000 $2,000 from someone and really place that capital meaningfully
Jason Hartman 23:27
before we go into the crowdfunding thing. And I really do want to dive into that. Let’s just finish on the hard money lending issue. So you talked about that the housing the last housing boom and bust. Were you talking about people who were making direct loans or pooling money into a fund that was making? Well, which one
Salvatore Buscemi 23:46
that’s different? These are people who are making direct loans, so they would have a brother in law who was a mortgage broker, if you’re in Southern California, or you know, in the southwest and the reason why we have the Oasis fund out there, everybody was a mortgage broker and then people are saying Hey, you know what? I have a few bucks, why don’t I give you $100,000? And it’s asymmetric. So the broker is going to be great. I’m going to take my five points off the top. And if anything goes wrong with the loan, it’s not my problem. So, you know, a lot of these people were brokers who thought that they were becoming money managers. There is a lot of interest in this because yields are low, right? rates of return are very low. So this was attractive where people were getting a quote, guaranteed coupon each month of 12 to 15%. The problem is, is that that only works if you’re lending to a qualified operator or borrower right and operator meaning Now usually this borrower was who they were someone who was flipping houses.
Jason Hartman 24:41
In the best case scenario, yes, at worst, they were owner occupants facing foreclosure, which opened a whole new other set of you know, a whole other Pandora’s box of problem. Okay, so these mortgage brokers were out there saying to people, hey, look, you know, I’ve got all these borrowers that I can’t get a conventional Fannie Mae Freddie Mac. Type agency loan for but you know, would you be interested in loaning them money? And they would just say that to a regular person, right, just to just an individual that they knew a friend or family member, maybe, or a client, and then they would loan someone in pre foreclosure hard money to get out of foreclosure on what are these usually those were usually second trustee. There were even third position mortgages, which is even scarier, but yes, you’re dead on with that. That is correct. So what kind of rates were they promising? They were promising. 15 they were, they were as high as 15. They would go as high as the law would allow them to, you know, usury laws. But so a lot of these do I mean, they were just lending at the peak of the market. They were, you know, not enough equity. What was the problem here or the, the if they were a home flipper, when you say operator, that’s probably what you meant. And they were a home flipper and they got, you know, caught with their pants down so to speak, right?
Salvatore Buscemi 25:56
Here’s what happened when subprimes the When the subprime loan machine stopped issuing loans, that’s where the House of Cards fell, because there was no exit strategy for these investors or private lenders to get out. And that’s what caused the problems. Phoenix Las Vegas, it was very hot markets, people who were marginal buyers were getting 125% loan to value using a sublime a subprime loan. However, when those loans dried up, guess what people were holding the bag, and that’s what caused prices to drop. You can’t give someone 125% loan to value in a hot market not expect something bad to happen. And that’s what happened to a lot of these hard money lenders is that oftentimes, the the appraisals were inflated so that it would justify more money, meaning more fees into the pocket of the mortgage broker. Does that make sense? Yeah, yeah. Okay. Okay. So certainly, you know, many people have been burned but these were direct loans. They want funds right? They were it’s interesting you bring that up. The reason why we have the delay is fun out in Las Vegas is because that was a triage fund that we set up to buy out hard money funds facing receivership, fraud, all sorts of other issues. Okay, so these are these are fun. So you set up a fund to buy other funds. Yes, facing distress. That’s correct. And this is the mess that we saw. It is terrible. You know, there people were that, you know, you as the private lender, some of them were direct loans. Some of them were through a fund, the refund structure, a typical LP or LLC structure. And what happened was, is that sometimes you would be told that they’re lending on a single family home, but now they’re doing development deals. And, you know, that person doesn’t really have the experience to be doing a development deal. And these loans would be made outside of the core brokers, you know, area of expertise is what he specializes in, in the in the sub asset category for real estate. Right, right.
Jason Hartman 27:55
Yeah. Okay. All right. So, so that’s what happened, you know, I’m just not a fan of funds. Because the you know, these fund managers, they can just do whatever they want, like, you know, there one day they say they’re gonna do you know, lending on single family homes, then they’re suddenly doing a development deal as you described.
Salvatore Buscemi 28:14
It’s terrible. It’s, and that’s the novice, I mean, institutionally in New York. And people who I grew up with on Wall Street at Goldman Sachs, they’re very good fund managers, but you have to be careful of the people who tell you that they’ll do anything and give them what we call 100% discretion, when you’re giving them a blank check, and they can do anything they want. That’s where the problems come in. And a lot of these fund managers are come in, and they were, you know, promising all sorts of returns and fees, but they just didn’t have the dexterity or the experience to do that. And so you wind up, you know, these guys feel as though that they can take the risk. They want to be a next Donald Trump swinging for the fences, and that’s where all the problems happen.
Jason Hartman 28:52
It’s easy to swing for the fences when you have someone else’s money with which to do it. And you know, worse yet worse than everything you mentioned is A lot of times the fund managers are just crooks. They’re just greedy crooks, you know, they’re just basically ripping people off. It is true. But even worse than that, and I’m starting, and I’m sorry to go back to the crowdfunding, but you’re starting to see this happen is that
Salvatore Buscemi 29:12
real estate Oilers, a wealth creation tool relies on the fact that it’s very inefficient, right? And it’s inefficient because it has a human element to it. And if that human element cannot perform, that asset is going to not perform correctly. And so now you’re starting to see people who want to get into real estate, they see that there’s a lot of money out there. People don’t trust the stock market. They don’t understand it, but they also need coupons. They need monthly cash flow coming in. And so they’re going to real estate fund managers who really have no experience whatsoever in the space just because someone worked for 10 years at PepsiCo doesn’t necessarily mean it’s a real estate entrepreneur. You know, they’ve always had top cover from the parent, they probably have no real estate experience. They’ve never had to manage a p&l and worship, they’ve never had to lay in a pool of their own sweat. And so that’s why it’s so powerful. And that when you do qualify these one managers, and there’s there’s many of them that are very, very, they’re very adept and very sophisticated. If you have to look at their track record, have they done this before? Or are they a computer software engineer who says, Hey, this is a great time to get into buying apartments right now? Yeah, right.
Jason Hartman 30:18
So unbelievable.
Salvatore Buscemi 30:20
Yeah, I know. That’s what you’re talking about them. They’re not just crushing it. They’re not all recruits. They’re inexperienced. And they prey upon their friends like, Hey, he’s a good guy. He’s a, I’ve known him for a while. He’s great. I go to church with him, I’m in the coladas club with him or something. But that doesn’t, you know, people are investing in a person, they’re not investing in the deal because the investors don’t know anything about how to value a deal or what it looks like. And a lot of times these syndicators would go out there, and they would just bid up because they were making fees, but they would just bid up the asset and that’s where a lot of them came into problems because they were overpaying for stuff that they didn’t know what they were doing. I’ll give you a quick example where there is a are fun, we had to bail out a team of you’re not gonna believe this plastic surgeons from Southern California who bought an apartment complex in Texas, and they bought it at a one cap. They overpaid for it because the broker told him that pretty soon, you know, Texas is Texas, you know, apartments are going fast and they’re going to be priced the same as in they are in California, of course, location, location location, is really what dictates, you know, supply and demand and pricing of this housing stuff. And they will end up overpaying because they got hoodwinked by someone who did not have an alignment of interest with them, someone who was going to make a fee on the sale, not necessarily be there and be a good manager and that’s what happens is that people just don’t understand what they’re buying and then they miss manage it and then they fire the they, they fire the management company. So now the Indians are in charge of the reservation. There’s no chiefs around and that’s really where you see the distress, it all comes down to the human component to it. Which is why I love real estate because somebody’s always screwing up.
Jason Hartman 32:04
Yeah. Right. And that’s what that is what’s great about real estate and why I love it, too. It’s an imperfect market. And that imperfection is what breeds opportunity. And yeah, no question about it. So, you know, one of the things I say is that I have this 10 commandments of successful investing. And commandment number three is thou shalt maintain control. Because when you when you when you’re not a direct investor, when you don’t maintain control, you leave yourself susceptible to three major problems. Number one, you might be investing with a crook. Number two, you might be investing with an idiot. And number three, assuming they’re honest and competent, they take a huge management fee off the top for managing the deal. So you made the comparison which was a good one, you know about the people on wall street who could be good fund managers that Goldman Sachs etc. And you
Salvatore Buscemi 32:52
know, they may be good but they take such
Jason Hartman 32:54
huge management fees off the top of the deal, you know, it’s it’s there any way to win here with the funds.
Salvatore Buscemi 33:02
You know, it’s you have to read the docs, you know, you have to know but
Jason Hartman 33:06
even if you read the docs, they don’t have to follow the docs, right?
Salvatore Buscemi 33:09
Well, they do they do one things go problematic. They all go back. I mean, the operating agreement is really a prenuptial agreement. That’s really what it is. I like that. Yeah. It nobody reads it until the divorce happens, or something blows up. But you know, not everybody in these funds pay what I call rack rate. There’s a lot of people in these in these limited partnerships, for example, and they are you know, but that you know, they’re alert is is that they’re able to get you into deals and invest alongside qualified people and other sophisticated investors who you would never be able to invest with. Anyway. Wait,
Jason Hartman 33:41
explain the rat race rack racing. You didn’t you didn’t really explain what you meant there.
Salvatore Buscemi 33:44
So you know, think about it. You’re flying from Phoenix to New York. The guy next to you bought his ticket on Orbitz for 280 bucks, you paid 580 bucks. And the person you know in the aisle in front of you paid 900 bucks. He bought it yesterday. All these investors so Sometimes don’t pay the sick, they don’t pay the same fees. And their incentives are different. And that’s the secret that nobody really knows. And these management and these fun in these funds is that not just because the doctor the terms are, what they’re offering isn’t necessarily what is going to happen. And that’s negotiable.
Jason Hartman 34:16
So in other words, just I want to make sure you really, people really get what you’re saying there. So if a fund comes to you and says, Hey, you know, I’ve got this LLC we’ve set up and you know, we’re, you know, we’re taking on investors to do this deal, whatever the deal is, okay? You know, they do that and they say the minimum to invest is $25,000 or $50,000. And, and that’ll buy you one share, okay? But you know, and then they pull out a list or they drop the name, you know, hey, I’ve got so and so and so and so has also invested and suddenly, you know, there’s that social proof element so you think, Oh, well, if you know, so and so is in this must be a good deal. Here’s my money, right? But what you don’t hear is that so and so that name that they just dropped on you, that person maybe got a free share, or they just got their share for half price? Because Because what they did is that, you know, that wealthy guy in town that everybody knows, you know, they just wanted to get his name on board. That’s basically like a celebrity endorsement, if you will, you know, maybe it’s a small local celebrity, but it’s someone you know, and respect, right?
Salvatore Buscemi 35:28
Well, let’s put it let’s put it a different way. If Warren Buffett, if Warren Buffett invested in your fund, but you weren’t going to make any money off of his investment as a fund manager, would you take his money? Yeah, because that would be great for my brand, right? Absolutely. Because you’d be screaming down the street that Warren Buffett’s in your fund, and now everybody’s got a dog pile into it. So you’re absolutely correct there. Absolutely. Okay. So so that’s the rack rate issue. Any anything more you want to elaborate on that? That’s very interesting. I’d like to hit on the experience and I’m very scared today. What I’m seeing with crowdfunding is that people have You know, embellished resumes or something a guy who’s doing knocking 10 putting together houses does not have experience to manage an asset of multifamily asset overseas the operator should always be local to the asset always or the unless it’s some sophisticated huge management team like a like a Goldman Sachs or something like that. But you know, if you’re dealing with these mom and pop retail, you know, the the rehabbers, the retail investors, the retail guys we call them non institutional. I would be very scared. They say I got a great apartment complex. It’s 90% occupied and it’s in Columbus, Ohio, but we’re in Phoenix, Arizona say that’s a problem because that’s a very difficult problem to manage. That’s very important, right?
Jason Hartman 36:43
Yeah. Yeah, I agree. I agree. And especially when they’re doing you know, intricate rehab, I mean, almost every apartment deal every multifamily deal includes rehabbing the units, increasing rents as the as the unit’s turn. I just did one myself. I just closed on apartment complex that I went in on with a client of ours, you know, 125 units owned it for like three and a half years rehabbed. But see there, we had a general manager and my partner and I now say, you know, we never want to do a deal with a general manager again like that, because they were just double, you know, at least we thought of course, we had arguments about it, but we just felt they were like double dipping everywhere you looked,
Salvatore Buscemi 37:25
you know, yeah, they were but here’s the other thing too. Is that do they know what they’re doing? You know, when you and you bring a great point on, they didn’t
Jason Hartman 37:31
then they learned a lot on our dime. So we gave them an education,
Salvatore Buscemi 37:34
you became the research
Jason Hartman 37:36
partner, the RMB. Yeah, right.
Salvatore Buscemi 37:38
Yeah. So so this is funny. So you know, we see these deals all the time. And I’ll ask them, you know, what’s the what are the sources and uses for and then say sources, danger uses by apartment, okay, but what kind of repairs are you going to be doing? There’s real value added repairs, and then there’s repairs that don’t add any value. Everybody who moves into apartment automatically assumes that they’re going to have a light bulb in a toilet seat, right? That’s not value at it that is maintenance that general maintenance. But what they don’t expect is Navy to have like a part time concierge in the lobby, or a newly paved parking lot or two and a half horsepower Whirlpool, whirlpool tubs and the bathrooms. That’s real value added that’s attractive to the tenant. So when you talk to these guys, they’re too busy dealing with like the muck, they don’t know where to start first. And sometimes, you know, a lot of these value added deals will blow up because they didn’t know what they were doing. They were doing things that were more maintenance rather than value added. And by the time they get to the value added stuff. They’re already out of their slush fund, right?
Jason Hartman 38:39
Yeah, absolutely. Okay.
Salvatore Buscemi 38:40
What else? I’d be very worried of crowdfunding. I if we can talk about this now. Okay. Okay.
Jason Hartman 38:47
So now make the distinction though. We talked, we started with the hard money lending. And we do and then we sort of went into like we talked a little bit about direct hard money lending. Then we went into funds and how you actually skewed funds, and also, you know, funds to just buy deals, or LLCs. You know, I don’t know, it’s sort of all one in the same really, you know, it’s kind of like, yeah, I mean, make make the distinction for the listener if you would, as to what if there’s any difference there? And then why is crowdfunding different?
Salvatore Buscemi 39:20
You know, it’s basically the same kind of legal vehicle, you know, the structure is not different. It is. But the problem is, is that you’ve the crowdfunding today in real estate is you know, what we were talking about with these funds where minimum investment $50,000 you have to be accredited. Okay, whatever that means accredited today that, you know, that definition changes got a little tougher after Bernie Madoff. But, you know, now all of a sudden, because of the JOBS Act, people now can get in who maybe aren’t accredited, and so you don’t know if they’re dealing with their last thousand dollars or not. So they don’t have the sophistication. So now you’re dealing with investors for a little of $1,000 can get into this multiple Deal. If you’ve done any sort of partnership whatsoever, you know that just the paper the deal and do the accounting costs about $1,000. And investors do that. So how does that money actually going to be used to provide value for you as an investment? That’s number one. Number two is anyone with that kind of small money generally does not is not sophisticated. And that means that the fund managers who are now taking are now trying to crowdsource or crowdfund a lot of these real estate, real estate deals to buy, or dealing with a less sophisticated investor who doesn’t understand it and probably thinks that they can just redeem their shares, you know, their thousand dollar investment for face value $1,000 any given whim. And so that’s going to put a foot that’s going to challenge the entire partnership because now this fund managers getting calls from this guy’s annulus chasing attorney say I want my thousand dollars back, and he’s not doing what he should be doing, which is operating the asset managing the investment. That’s where I see a lot of problems come in people with short money. They always have, you know, they don’t they don’t bring any value to the deal. They actually take value from the deal. Does that make sense?
Jason Hartman 41:08
Just a reminder, you’re listening to flashback Friday, our new episodes are published every Monday and every Wednesday. People with short money you said
Salvatore Buscemi 41:18
yes. Tomorrow it’s a term people who don’t have a lot of money people with small balance investors like this micro balance investors, that those are the people who, who you do not want to be partners with an investment. Okay? Like if you’re the bigger investor or if you’re any investor, you know, maybe you’re a crowdfunding investor that put in $1,000. Also,
Jason Hartman 41:39
I mean, I can’t imagine that it cost $1,000 per investor, like, say someone’s raising $300,000 to invest in a deal. Can they take on 300 investors at 1000 bucks each do you mean? Well, that’s way too many. Yeah, well, no, no, no, I know. That’s a lot to manage and investors relation problem. Relations problem, which is what I want to ask you about. But I don’t even know if it’s legal under the crowdfunding laws to have that many, you know, they just changed again. And now I haven’t. I’m not totally up to date on the new, the new change because now you can do non accredited investors
Salvatore Buscemi 42:13
correct. So and that makes it even worse now so you know when you’re in it for me when I’ve done this when we’ve had at one time in one anyone deal we’ve had 32 LPs limited partners or investors, you have to do the K ones and everything it would take, you know, it cost money to do that.
Jason Hartman 42:30
Yeah, there’s a lot of accounting and compliance.
Salvatore Buscemi 42:32
I agree. Oh, absolutely. But that that is, you know, that at the smaller investment increments, it doesn’t make sense to do that. So you don’t want to be partners with the small investors. You’re saying, and what do you consider small I mean, if you know, a lot of these crowdfunding sites will say, well, you got to put in $5,000 per person, that’s, that’s still too small. I would say 50,000 if you’re investing alongside others, People who don’t have the same financial strength as you, that’s the problem. That’s going to be a problem. And you know, one of the things that our investors who again are a little more sophisticated will say, you know, for one of our latest offerings is that we don’t want anyone coming in for less than $250,000. Otherwise, I’m in violation of the operating agreement. And I can get sued for that. So you know, the Smart Money knows how to pull the strings, because they don’t want me having the burden. With dealing with so many investors, it could become a nightmare, like you said before. And that’s the problem. When you’re dealing with sophisticated investors, they know that it’s real estate, you can’t sell it. And they’re also not buying a lottery ticket to which I think, unfortunately, a lot of these crowd investors do is that they just go out there and they start, you know, dreaming that you know that that is more like a shark tank episode, that they’re going to hit the lottery and it’s not a steady Eddy, coupon clipping type of investment. Yeah,
Jason Hartman 43:56
and I agree with you, I think some of these funds and some With the people taking advantage of all of these crowdfunding laws, they’re basically like a version of the modern casino, you know, where they’re just gonna take money. They’re just gonna be ripping off small investors, you know, people, it’s, it’s so desperate you go to these casinos and I mean, I can’t believe this crap is legal they’re just destroying people’s lives. It’s so sad, you know, all these poor people sitting there at slot machines, a lot of them elderly you know, I mean I just you know this is just disgusting what these companies are allowed to do you know it really
Salvatore Buscemi 44:34
is well I mean you can thank the Fed reserve for this because they’re actually who had the zero rate interest rate policy reserve nerp negative interest rate policy banks in Australia now we’re going to be charging you money to hope for the Germany and Germany. It happened in Germany already an interest rate. Yeah. So people are desperate. People are dead and that’s the drive the you know, the Fed is desperate to have people take risk.
Jason Hartman 44:57
I’m glad you said that. And recognize And let me just elaborate on that and you can you can finish my thought here for the listeners. But what what he’s saying listeners is that because of this environment because we have these, you know, greedy, disgusting central banking scams, okay? What they’ve done is they’ve created this no yield environment and older people specifically, you know, they get burned the most because they’re the people who did the right thing they saved money all their life, they were prudent they didn’t you know, they delayed gratification, and then they retire they’ve got a few bucks, and they think they can just live off their money by putting it in a really conservative bond, or you know, a savings account or a CD and they can ladder those CDs and, and, you know, they can live decently. Now, granted, that’s not a very good investment plan, obviously, but you know, this is what a lot of the world planned on, and because there’s no yield out there to get from these really safe things. All these people have been pushed into the risk of Rena, at least shouldn’t be taking risk.
Salvatore Buscemi 46:02
You know? So is that what you meant to say? Absolutely. 100% you hit the nail on the head? Yes. No, you did. And you know what i being a money manager.
Jason Hartman 46:13
Being the cynical guy that I am, I think you’re an honest guy. I like what you say.
Salvatore Buscemi 46:18
No, but I look at everything cynically and that’s how you as an investor, you can’t you know, look at everything through rose colored glasses, you have to see what the risk is and structured away, but this money managers view is that rates will not increase anytime soon. Probably not in your lifetime lifetime. Jason Right. Yeah.
Jason Hartman 46:34
Wow. So you think we are just in a low rate environment for
Salvatore Buscemi 46:38
for the duration huh? Exactly. Cuz there’s no catalyst for race to drive for rates to go up.
Jason Hartman 46:44
Come on You kidding with all the with all this debt we have? You don’t think inflation is gonna come? You know, wow.
Salvatore Buscemi 46:51
I could be wrong, but it’s not just my view, but a lot of people. And if you see how these bonds trade and everything, they have the same view as well. The problem is that people keep buying treasuries and as long as they can, because there’s an implied safety of the United States and you have all this money just going into treasuries, because there’s no real place for it to go, America is still a great place for rich people to invest politically stable, all of that. But, you know, when you start seeing the yields, I mean, the two year drop below, you know, a two, you know, you know, to handle at one point, I mean, this is just really ridiculous. And so, that is what’s happening. And I think, the market mechanism, as you know, it doesn’t exist anymore. For price discovery, everything is manipulated. And everything is really a function of someone governing the markets, not the markets governing themselves. That makes sense,
Jason Hartman 47:42
right and in in See that’s what happened during the last crisis. You we we couldn’t have and we, I would argue that we still don’t have price discovery, because everything you know, when you’ve got all this, everybody’s trying to make predictions, but you can’t make predictions. In an era of massive intervention by governments and central banks, they completely screw up the market. And it’s just very hard to predict anything, you know, the I don’t think the economy itself is really, you know, like incredibly hard to predict the business cycle, things like that. But when you get all this intervention
Salvatore Buscemi 48:21
predictor thing, you know, you can’t and that’s the problem and you know, and now, you know, different capital sources have different needs, you know, my apartment in my apartment was so I we sold my condo in New York, I wanted to buy a new one. The guy who bought it when someone from Brazil didn’t speak a lick of English, he just showed up with a briefcase literally full of cash. And he offered all over asking price because for him, he’s using real estate as a wealth protection vehicle. He doesn’t care. He doesn’t care if he over pays or not. He’s hiding money. And that’s a whole other conversation we can have. I’m glad that’s happening though. Because that does show you that much of the world. As many stuff as America is still looks at America is what’s called the Brinks truck. You know, it’s the it’s the safe place to put your money. Because, you know, we do, to some extent have rule of law, you know, except when it comes to government and lobbyists and central banks they don’t pick up on Wall Street doesn’t obey the law either, because they basically own the government. See, I’m pretty cynical too. Yeah. And that’s it. That’s the mindset you need to have today to be a successful investor. And that’s what people don’t understand.
Jason Hartman 49:28
Okay, so what else about crowdfunding? Other thoughts on that?
Salvatore Buscemi 49:32
I think I think it’s, I think we’ll see what happens with it. But I think when people you know, you gotta check the bios of these people. What, you know, the first thing I always ask is, Sony’s looking for money for me. We’re discretionary. Right? We’re not a bank. So we don’t make people we don’t care about their credit, we care about the asset. And that’s what that’s what a you know, a discretionary capital provider does. You know, you want to buy a retail center you have experience, and you know, you can show a bio on a deal sheet of stuff you’ve done, it’s almost certain that you’re going to get a loan from us. But if you don’t have any experience, you’re not going to get a loan from us because you know, we are not in the, in the in the business of teaching you and becoming the research and development for you to learn how to piece together a retail deal or a value added multifamily deal. So I would look if any, there are some I’m sure there’s some good crowdfunding things that are working but the two things I would check is what’s the minimum investment how many of those investors are in on that floor that threshold you know, the smaller money that’s what you want to move away from? Because that means that the operators desperate and you know, because no the Smart Money is tearing him down but the stupid money which is always a unfortunately then sophisticated money with the with the less dollars the shorter money that we talked about before he’s opening the floodgates for the masses to come in and that’s where the problem is, but the smart the smart money will be glad to be in on that deal, as long as they don’t pay the rack rate that the stupid money is paying. So again, like You said and that was so well put that you know, they’re using this this smart money as a it’s a head fake, you know, because it makes you think that oh well this deal has been vetted all the smart people are in it. So I’m gonna go into
Jason Hartman 51:13
I mean, look at Bernie Madoff did that for decades. He made a career out of that. And you know what blows my mind though is hey, look, and I gotta I’m gonna call you out for a second here, you know, feel free to debate me. But you’re saying check the guy’s resumes right? You got to be kidding
Salvatore Buscemi 51:30
me though. Because
Jason Hartman 51:32
look at the resumes of Bernie Madoff. Bernie Madoff was president of NASDAQ. I mean, he was networked in every country club in all the highest level circles. But wait, there’s more. Look at john Corazon. He was frickin Governor of New Jersey.
Salvatore Buscemi 51:50
Okay. My ex boss too. I know.
Jason Hartman 51:53
Yeah. And he ripped a bunch of people off and nothing’s gonna happen to him probably right.
Salvatore Buscemi 51:57
Yeah, they’re invisible. You’re right. But I think that When you’re talking about john collars on, you’re talking about like these bond trading funds use hedge real hedge funds. I know that word is abused today. And what he did was he took a lot of risk with other people’s money that was supposed to be segregated. You’re right with the experience. You’re absolutely right. But I think you’re gonna see a lot of fraud because people are just so desperate pensioners and savers need need to put money they need to return. They’re desperate for yield. That’s why I named the book making the yield is for someone who wants to get into this business and learn to make direct loans. This is your, you know, your your gateway drug to do that. And to do that efficiently, and it’s basically off of all my years experience, seeing everything that’s gone bad, but you know, there are some people and that’s just the way the money management industry is but the SEC, though, is not in a hurry to prosecute a lot of these people. I think they’re underfunded. I don’t think they have the sophistication. You know, they’re just not going to be chasing after a lot of people I think I think they choose their fights. And they choose them kit, you know, the lowest hanging fruit. When you see the more sophisticated frauds, sort of like the john Corazon, you know, he’s still free. He’s still out there, you know, he got a hand flat maybe. But, you know, nothing really is going to happen to that guy because well, he’s very politically correct collect connected to, which is something that, you know, we forgot to mention.
Jason Hartman 53:21
Oh, yeah, no, of course I mean, you know, it’s all political. I mean, all of this stuff gets political. And that’s the problem. The little guy doesn’t have any political power. So he’s gonna get nailed with a big guy. It’s like too big to fail. You know, if you rip a lot of people off and you do it on a really big scale, or if you have connections in some way, you’re probably you know, here’s a good chance you’re going to get a pass. Okay? So you can go out and commit your frauds with impunity, you know, or your indiscretions. And another thing that just blows my mind is the way that like these funds, they’re all set up in Delaware. You know, in Delaware, you know, for its share. I mean, it hasn’t Good business practices and business friendly. That’s why all the businesses are there. Right. And there are other business havens, too. But one of the things in Delaware that you can do is you can contract away your fiduciary obligation. So you can just say, Hey, you know, I don’t know you anything as an investor, you know, I mean, that doesn’t seem right to me. Yeah. I mean, you’re, you’re more sophisticated than the rest of the guys, but you’re hitting the nail on the head. Exactly. And that’s usually what happened. I learned that because there’s this company in Phoenix called caliber. And, you know, they’re they got a bunch of funds out there now. And we’ve done some deals with them didn’t have very good experiences at all. The first thing he says is, oh, well, you know, we put them in Delaware because then you know, we don’t have to be liable. Oh, wonderful. You know, I’m really gonna rush to invest with you guys again. I mean,
Salvatore Buscemi 54:48
that’s not blazingly honest they brag about this stuff. It blows my mind. You know, I think really what we’re reaching I think right now the Golden Age, for if People really do want to pool money to invest in real estate, this is the time to do it. This is the Golden Age. for that. Well, I, I kind
Jason Hartman 55:07
of thought you were just saying it wasn’t. Isn’t that the crux of this conversation? Okay.
Salvatore Buscemi 55:12
No, it is. No it it is if you do it correctly, if you do it correctly, if you’re pulling thousand dollar $500 chunks from smaller investors, that’s not going to work. But as far as people like you, the more sophisticated guys and you have a good track record, you have good ethics, you’re going to be very successful. And we’re seeing that happen right now people, people are buying apartment complexes, these little robots are popping up all over the place. And they’re just people who, you know, they don’t have to go to the bank anymore. They’d rather go, you know, to the guy down the street who has a self directed IRA with 500,000. You know, to fund those deals. That’s where you’re starting to see it right now is that it’s taking on more and really what people want and the alert of this is that people want more intimate money management, you know, people who invest with you know, you they have yourself Number they see the acid, they can kick it, they can, you know, touch it, feel it, spit on it. But conversely, and you got to put yourself in the mind of the investor. Now, the saver the pensioner, who’s a loser, not morally or ethically, but they’re just losing money. We haven’t even talked about inflation with that, but they’re just losing money by sitting having a sit in the bank. They’re like, well, I’m going to invest with this guy, rather than put it into Martha Stewart on the media. If I buy 200 shares of Martha Stewart guess what happens if she does something stupid, again, insider trading goes to jail, that stock will drop probably 50%. But they have no control over the investment. And that’s what people really want today is that they want control over the investment. Good luck calling Martha on her cell phone and asking her why your 200 shares dropped 50% there’s not a chance in hell, you’re going to get her on the phone. But what people’s main attraction to is I want something that I can see, touch feel and understand I don’t understand the stock market for
Jason Hartman 56:55
my part and unless I agree with you, and that is good that it’s more intimate and it’s good. Getting closer to the investor and the man, they can really talk to the management and that’s, that’s good. That’s an improvement for sure. But for my part, you know, I say for most people just buy some single family homes and rent them out and you’ll feel make money and that’s your retirement. I mean, you know, that may be really your big wealth creator, you know, you can move up, you can move up and buy your own apartment building or buy it with a partner, rather than, you know, having some fun managers. It’s given the profits off the
Salvatore Buscemi 57:27
top of the deal. Oh, no, absolutely. But there’s, you know, there are people who think that there’s an alert and I’m one of them and I can’t you know, I, you know, I don’t want to cut my nose off to spite my face. But you know, I’m wearing two hats here. And, you know, the point is, is I’ve seen some funds that are very well managed, I’ve seen some that are not there was a company in Phoenix, I can’t remember but they, they blew up because they overpaid for everything, and then the banks called the loans do. You know? So
Jason Hartman 57:52
see, that’s the thing you know, when it’s, what I’d like to see is the fund manager having a lot of their own money in the deal, but you
Salvatore Buscemi 57:59
always have to do That if you always have to ask, and that’s what it comes down to the alignment of interest. And in the institutional world, it goes like this. Well, if I get hurt, I want to make sure you get hurt, too. And then that’s really what it is. And so, you know, I’ve been in some tenuous conversations and some institutions, here in New York with, you know, people are noticing, okay, what are you putting in? I’m putting in a fresh one, you know, fresh million or something, you know? And where’s that money coming from? Is it coming from you? Or is it coming from your brother in law? Or from people who you don’t know? And when and not all equity is the same? And, you know, people sometimes will say, Oh, well, it’s my money. Is it really your money? Or is it your mother in law’s money? That could be considered your money because you never want to lose your mother and lots of money. But if it’s being pulled from people who you have no idea who they are, you have absolutely no alignment of interest with your investors. And that makes it so that you can walk away. That’s the hard questions that you have to ask. And that’s what investors don’t ask is that they never ask the hard questions, but you’re absolutely right. You got to have this the proverbial skin in the game, because they want to know that you have your feet to the fire. And that’s how grown up deals are done. Now, it’s not bad to raise money and syndicate money for bigger deals like that. But, you know, again, putting on my investor hat, this is what I would want to see is okay, I’m gonna invest in this guy. So what he got into it and Where’s it coming from? But But here’s the thing, I just want to point this out, because so you brought this up before when you talked about the rack rate issue, right? A lot of these guys, they’re in the deal and what what the investors, it’s so hard to sort through and really understand the capital structure on these deals and the alignments of interest because, you know, they’re in the deal. But you know, they don’t pay the rack rate. Oh, yeah. I mean, that’s a whole other story. I mean, the syndication sometimes, you know, that blew up and this is what we you know, we would fund these you know, we provide to triage financing for this is not all, not all equity is the same. So, somebody remember one time some guy came to me and he had a deal. I’m like, so where are you? The capital structure. Where are you in the cafe? Well, I’m common, but I’m treated like preferred. No, no, no, no, that’s not how it works. That’s not how it works. There’s remedies for different parts of the capital structure. And, you know, this guy saying, Well, you know, that they, you know, they treat me like preferred, but I’m common. I said, No, that’s like the girlfriend saying at our rich boyfriend’s funeral, when they’re reading the will that she deserves to get the millions of dollars and not the wife sitting next to her because he called me his wife here, something that’s totally different. And that’s why people you know, we I actually wrote a book on this, that I’m finishing up, but it’s important to know where you are in the capital structure. What are your rights and remedies? And people don’t ask that question. They don’t. Sometimes they don’t even know what they’re getting. Sometimes there’s a they have what, you know, I’ve seen investors offer what’s called a cash flow certificate. I don’t, that means nothing to me, because there’s no there’s no recourse and no remedies. But you hit the nail on the head right there. Yeah, yeah,
Jason Hartman 1:00:57
good stuff. So this is really really informative. And you know, in this world in which you operate every day and you see all this stuff, I want to just thank you for sharing this with our listeners, because there are just so many scams and, you know, they some of them don’t rise to the level of being a true scam. They’re just, you know, people who have their hand in the cookie jar, they’re acid aggregators, and they make money by sitting on assets. That’s what they do. They make money on sitting on assets, that’s what they do, and they make money because, you know, they got the management deal over here and they got the rehabber, you know, the contractor company over here, and, you know, they’re like triple dipping, and although they all have these, you know, they’re referring the business to themself, it’s self referential, you know, so once they get control of that money in control of that deal, they say, hey, well, you know, my contracting company will just rehab the apartment building and then my management company will manage it, but all the investors got to pay for management on site to that’s what we found this caliber company doing when confronted with it. They just Just made kind of excuses, you know, sort of says that’s the way it is tough, you know?
Salvatore Buscemi 1:02:04
Yeah. And that and you know, because the educated investor, they’re like, oh, cool, he’s fully integrated, you know, oh, this is great. He can take care of everything. Not so fast. Not so fast. You’re absolutely right. Always read the fee agreements, too. And if anybody’s thinking about getting into these things, what are the fee agreements, there should be a 1% flat rate in most real estate deals, that’s, that’s acceptable, that’s fine. And the reason for that is because, you know, the investors want to make sure that you’re keeping the lights on, they don’t want you to have to go outside of investing in managing their money to make money to keep the lights on, you know, anything more, I’ve seen as high as 5% 10%. Why? Why? Why, you know, I don’t and that just shouts inexperienced to me. You know, they show their true colors. Yeah,
Jason Hartman 1:02:47
wow, just five and 10% versus 1%. That’s, you know, realize that that’s not a four or a 9% increase. That’s a 500 or 1000. And the percent increase. It’s a multiple of five or 10 times.
Salvatore Buscemi 1:03:06
It’s insanity. But people pay it because they’re desperate. They’re desperate, they’re
Jason Hartman 1:03:10
desperate, and they’re busy, and they don’t have the skills or the ability to evaluate all these things, you know. So it says it’s a sad story, it goes back to that casino analogy. And I agree with pretty much everything you’ve shared with us today. So give out your website. Yeah.
Salvatore Buscemi 1:03:26
For people who are listening on this, we’re giving away we have 20 books that we’re going to give away for free print copies of the book, and they can go to making the yield calm, and there’s a little video there and I talked a little bit that you can go to making the yield calm, and be one of the first 20 will ship the book out. All we ask is a couple of bucks for shipping and handling. I think it’s like three bucks or four bucks or something like that. But there’s also a lot of other cool stuff on there too, like infographics and you know how these fun should work and all sorts of other things that will really open your eyes as to whether or not you’re you know, whether You’re being played or not, you know, sort of like that old adage of the, if you’re playing poker and you can’t tell who the fool is at the table, it’s probably, you know, it’s, you know this to get people smart, we call it intellectual capital. And you know, that’s the sexy term in the industry and Wall Street will say, you know, this guy had the intellectual capital to do to pull this deal off. That’s really what it comes down to. But if you go to making the yield, calm first 20 get a copy of the book.
Jason Hartman 1:04:28
Okay, so so get a free book at making the yield.com. And Salvatore , thank you so much for joining us today. This was very enlightening. So my pleasure anytime I really enjoyed this. Thank you.
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