Take control of your financial future with Patrick Grimes as we chat about his journey from active to passive investor, the strategies that helped him succeed, and how you can do the same. So if you want to earn long-term passive income, this episode is one you won’t want to miss.

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How to rebuild your real estate business from financial setbacks
Differences between active and passive investing
A tax-deferred way to build your real estate business
Strategies to diversify your investments across different markets
The value of continuous learning in real estate investing


How Multifamily Syndications Can Protect Your Assets Better Than Single-Family Homes https://www.forbes.com/sites/forbesbusinesscouncil/2022/06/03/
The Millionaire Fastlane by MJ DeMarco https://amzn.to/3vV1OQa
How Multifamily Syndications Beat Single Family For Accelerating Retirement
The smart investors guide to Passive Investing https://investonmainstreet.com/passive-investor-guide/

To get a copy of Persistence, Pivots, and Game Changers for FREE, go to https://investonmainstreet.com/book and use the code “Passive Income Brothers”. If you want to invest on Invest on Main Street and set up a call with Patrick Grimes, go to https://investonmainstreet.com/contact.

Patrick is the founding CEO of Invest on Main Street, a private equity firm with a mission to enhance busy professionals’ quality of life by providing tax-shielded and inflation-hedged passive investments.  He has over fifteen years of experience in active real estate investment, purchasing distressed assets, renovating, and stabilizing for long-term cash flow. His company’s $500M+ portfolio includes 4000+ units in multifamily apartment communities in emerging markets across Texas and the southeastern United States.  Patrick co-authored an Amazon #1 best-selling book, Persistence, Pivots, and Game Changers, and writes articles on investing and commercial real estate for Forbes and Inman author. 


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Full Transcript
Patrick Grimes  00:01
There’s other ways of investing these large multifamily deals. And that’s if you’re bringing in funds from the sale of another rental property through what is actually the most powerful wealth building tool available to Americans, which is the 1031 exchange. Welcome
Greg Lyons  00:16
to the passive income brothers podcast.
Tim Lyons  00:18
Here we take the fear out of real estate investing using real life stories of everyday successful investors. Let’s go. Welcome to another episode of the passive income brothers podcast. My name is Tim Lyons and today I’m joined by none other than my brother Greg, how you doing today, buddy? Jim
Greg Lyons  00:32
doing fantastic and really excited about our guests today. Someone that has seen the ups and downs of real estate. But when they were down, they didn’t take their ball and go home. Right? They kind of doubled down and stuck with it. So excited to talk to Patrick today.
And true glutton for punishment. Love that.
Tim Lyons  00:49
Yeah. So I mean, listen, we are recording this the day after Christmas. And there’s so much to talk about, right, we’re closing out 2022 We’re looking forward to 2023. So there’s a lot I want to cover. So we got to get started. But what I love about Patrick’s story, and this is what I want everybody to take home, get the notebook out, get your pen and pencils out, because this is going to be a lot of notes to be taken. And you probably gonna have to listen to the show more than once to get all the gold that he’s going to deliver today. So without further ado, welcome to the show, Patrick Grimes. How’re you doing today?
Patrick Grimes  01:21
I’m great. It’s day after Christmas. We had a great one. We have a newborn. So a whole new life has been breathed into our family as well as a lot of tiredness. Oh,
Tim Lyons  01:31
without a doubt. Yeah. 100%. So yeah, I mean, I have three little girls. And it was allowed to say the least yesterday, we did FaceTime with Greg. And I’m Greg. I’m sure you guys could hear it. So
Greg Lyons  01:43
I have teenagers. So nice and easy. Everyone slept normal amount, all that sort of stuff. So I’m in a lot better shape than you two. And you could tell on YouTube. If you’re tuning in.
Tim Lyons  01:53
Oh, God, Greg, what his looks again. All right. I want you. You have a tremendous story. I’ve heard it on so many podcasts, and so happy that we have the opportunity to have you on our show now. So once you bring the listeners a little bit through your backstory, right, your professional kind of story, how you found real estate, what you got into, and maybe some of the issues you ran into early on. Sure.
Patrick Grimes  02:14
Yeah. So I am a mechanical engineer by trade. And when I got out of college, I started at an automation firm doing machine design automation and robotics. And I loved it had a great time doing it. The owner of the company told me early on, hey, you can’t put all your eggs in this basket. It’s while it’s cognitively rewarding and a lot of fun. We’re doing all kinds of cool stuff with satellites, solar cells, Evie, vehicles, rocket, all kinds of stuff, you’re gonna have a great time, but you need to invest in real estate that will really provide you the security you need, as much as you can, and as soon as you can. And it only expressed regret for having not done it himself. So that led me down the path of looking for the highest returning deals I could find. And I found it brain development and planning to get land and then develop on it. Halfway through 2008 910 happened and I lost it all.
Greg Lyons  03:12
Never, never, ever a good start to a podcast, right? I jumped in and I lost it all. But the interesting part about that is you had it sounds like a great mentor, your first boss that said, Yeah, work as hard as possible, but invest in real estate, right? You can’t put your eggs in one basket. I love hearing that. And Tim The other thing I like about having Patrick on and him being a mechanical engineer into robotics and those sorts of things. I’m gonna say I’m not into those things. But thank God we have real estate in common right now. Or else this would go nowhere, absolutely nowhere. But Patrick it back in 2008. I was in the condo development business. So I feel your pain. And it’s one of those things where you kind of weave your way through real estate because there’s so many different ways to make money in real estate. And while condos I thought was the perfect thing for us. Something changes, the market shifts and condos weren’t the right thing. You hopping into land development. What did you learn through that process of 2008?
Patrick Grimes  04:15
Well, what I didn’t know at the time was that there was a difference between speculating and investing. I was all about the hare, I didn’t care about the tortoise, I wanted to double and triple my money every one to two years. And so I didn’t really consider risks young and ambitious so much. I looked at track records. But I didn’t assess the asset class. And so at the time, I actually didn’t even know what a fully recourse loan man with signing on a loan in your own name. What that meant at the time. I was like, Oh, this is how it’s done. Everybody was like, This is how you do it. And all single family residential, this is how you do it. Right. Everybody owns their own home, signing on it, they’re buying the property in their own name, signing up loans in their own name. Why don’t I do that with some land and with a team of people that have done well as well. Turns out, I didn’t buy for cashflow. I didn’t buy it in a recession resilient market. And I wrote it down and then went definitely upside down. Everybody else went bankrupt, I struggled through pain because I did have a high income earning job, I was able to make the payments until I hired a lawyer to find the lender, which had bought and sold my notes so many times three times, it’s hard to even find them. And they went and take the de Loup I learned with that just means take the property. And so I had to do debt forgiveness. And then I had to pay taxes to the government on that, that the bank forgave. And my credit was just raked over the coals. And I didn’t realize I didn’t know that the level of risks and I write for Forbes now. And if you go to invest on Main Street, sorry, Forbes, Patrick Grimes asset protection, I’ve got articles now where I try and kind of peel back the layers of the veil, that of how it can be done in a risk averse way. But how a majority of people are not, to me, I think real estate’s still a good asset class. But in any kind of investment, you can do it in a way that highly risky. So now I found ways to buy in much lower risk areas, looking at data that suggests different markets that have come back quickly and have built in insulation for market volatility through better employers, diversified employers, and structuring deals in a way that will survive even when those recessions happen, cash flow through and be more patient and find the investors that are more patient to and there’s a lot of aggregated layer lessons to your question there. Gray.
Tim Lyons  06:34
You’re not kidding. And I’m taking almost a full page of notes before we even get into the first 10 minutes here. So I want to peel back some of that on you. Because a couple of things that really stood out to me when you’ve been talking is you were young, you had a good salary, you loved what you did, right. And so many of these videos on YouTube or podcasts will be like, build your passive income streams and leave your W two job. And Greg and I are always very passionate about this. And you don’t have to leave your W two job. You definitely need to build your passive income streams if you love what you do, because you imagine having the option of just doing what you love to do and not having to worry about the bills. Or if you get hurt How you going to pay the bills, or if you want to take a vacation or you want to go on a sabbatical for a month, right? That’s what we’re talking about. That’s the freedom that’s the optionality that we’re trying to convey to sometimes the listeners. So that’s one thing, I loved what you said number two, you said you were young, right, you want to double and triple your money quickly, right. And the speculating versus investing. And I think we still find that today. Right. I think we’re about to be on the other side of that. Because this is the end of December 2022. We have a recession looming. We’re already in one. There was a misallocation of resources. I’ll FTX and crypto and all these other things and Spax, right, because people are always looking for that speculation that doubling tripling of your capital in a quick manner, where it’s really about education. It’s really about diving into the data, right? And I’m sure as an engineer, you can appreciate that, right. And there’s a book that we always reference the Millionaire Fastlane by MJ DeMarco, and he talks about the event versus the process. So what I really want to dive into now is that process what was that process? Like? It sounds like the process before you lost? Well, before you took a loss in the last column on real estate was that maybe you didn’t have enough data? If you didn’t have enough education? Maybe you didn’t have enough mentors? Maybe you didn’t have enough coaching. But the process now how has that changed since you had that first out? Well,
Patrick Grimes  08:33
it’s dramatically changed. And so I when I kind of came crawling out of 2012, I’d say, and finally paid off the debts, I went back into my tech career that a master’s engineering an MBA, and I went way back knee deep. To your point I was back into something I love. I didn’t think that I was going to stop doing that. Obviously, I didn’t trust in real estate enough to pretend like that would ever be my real exit. So I was going for it. And to your point, I loved what I was doing so but I needed that voice in my head, I needed that passive income stream, right, I needed that long term wealth building, not work until I died. And I was on the work until I die plan. I mean, at the very least. So the process for me was coming to Jesus here. Okay, I’m gonna get back into this. Right? How do I do it? And how do I do it where I feel comfortable. And I’m not going to be freaking out when I watched the news. And it was about the in the tortoise. It was about structuring things with high down payments, not no money down and making sure that I’m getting in the right kind of debt structures and in the right markets and areas where as you can see on the go to friend you can see that just slow growth of Houston for example. And then in 2009 intendant leveled off then you saw some slow growth again, and that’s because of the Diversified employment because it was an in growth market at the time. And then the employment was in areas, specific employers that have built in insulation for market volatility, like health care and logistics, and education and finance and those kinds of markets, I found some of those markets. In fact, they started at that point, buying single family homes not trying to buy land and speculate and build up again, I bought for cash flow, or it’s just an existing asset and a great market, but it’s the ugly one in the area. And I can see very clearly, nearby comparables which provide a measurable improvement to reach a known valuation. And that to me was very calculated. And so I can calculate markets and resilience. And I can see fluctuations in data, I could find assets where you can clearly see a step wise business plan, not a dramatic get rich, rich tomorrow, but a very stepwise and so then I can see, okay, I can pull my money out and reinvest pulling money out reinvest. But now back to your point in Timothy, the challenge with that was, I actually love my engineering job, then want to stop, but my single family thing was working great, right. But there was no time for anything else. I was trading all my family, friends and hobbies to build this trading time today for tomorrow conversation. And the reality is, is that if you read my articles on accelerating retirement in Forbes, single family versus multi the do it yourself single family versus, we go into that, you can actually get there almost faster and a lower risk profile, and definitely in a safer way, just purely being passive. I knew I had to get out on a single family. And then I met my wife who basically made the decision, my mind was like, Okay, I’m done and single family because I’m gonna move like my wife, sorry, that came across Brooklyn, but I can’t do my high tech career, and do single. And then that’s when I made the big Hey, she was there. And Starbucks for my very last closing, when I was there with the notary, I said, this is not new anymore. We got married, and then I traded up to larger assets and multi and that was that process. But to your point, it was not, I was creating a financial institution. At that point, I was creating a whole nother job at that point, because I wanted to, I really wanted to scale this, but I could partner. And that’s really where I made that big mental shift to take this to a next level. Most investors can do the same thing just passively. Time
Greg Lyons  12:31
is our most valuable asset. And you don’t realize it until you start making these shifts and getting married or having a child like you just had really find out how important our time is. And Tim, you know, we’ve talked about this so many times about the real estate being a get rich, slow scheme. I don’t want that to change here. What I like to have a couple of exits where we recycle our money in one to two years great, but on a slow and steady wins the race, in our opinion. And we invest in similar assets, as you do in multifamily, with the value add component where we’re going to force the appreciation, make the asset more valuable, or have some cash flow and all that stuff is great. But when you look at it, and I think a lot of w two high net worth people say what are the pros and cons of active versus passive investing? Because like you were finding your way into active investing, whether it’s single family syndications, you were going to be active come hell or high water, right land, no doubt, right. But a lot of people like I just don’t have time for that. So if you could kind of dive into the pros and cons of active versus passive investing.
Patrick Grimes  13:43
Yeah, I just am the personality that wants to get in things and figure it out. And even my engineer was the Masters systems engineering, coming from machine design, I was just going to be that active guy cuz I would drive a sponsor crazy with so many questions, because I’m so inquisitive. And I want to learn it all. That I mean, in the passive mode that just didn’t really jive. But for most people that have great high income, if you try and go and do yourself, well, you’re probably going to buy in market center nearby you because you want that control. I have a lot of doctors and lawyers CXOs high that want control and they want to see it and they want to. I’ve heard people say I want to be able to live in it and like they’re treating their investments as a hobby. And if you sit down and think to yourself, Well if I was going to really take this financial security for myself, seriously, and I wanted to create an investment portfolio that was a business like how I judge my financial planner, on whether or not they’re successful, that I don’t have any emotional ties to what they’re buying. But why do I have emotional ties in the control over my real estate holdings which are nearby me and I’m signing on in my own name, I have control to buy. But what does that give me that it’s giving? Well, it’s giving me I now can’t buy in the back As markets in the country, right, because they’re too far also I don’t have experience in those markets, I don’t have any relationships even get the best deals are these other guys are coming along with decades long relationships, they’re gonna get deals before they’re gonna be bought and sold before I even knew it was a deal, right. And I don’t have the ability to do the larger assets, which are low risk, large multifamily, or oil and gas, which we’ll talk about in a minute, these diversifying investments, because I just I don’t have the skill set, I don’t have the time. But also, because I’m buying these smaller assets, I’m going to have to sign on it in my own name, which means it’s on my credit, and I’m going to have to, which means people can find it. So it’s not asset protected, I’m going to get a loan, which means they can come after me. And I’m going to cross collateralized. And that’s what happened to me. So the single family gurus are not telling you, Hey, by the way, every time you do a single family deal, not only could you maybe make a quick 20 or 30 grand in the flip, by trading all your time away from your family, friends and hobbies. But you also could lose everything else that you’ve made. Because it’s not asset protected. And that’s why I make a big deal and my Forbes articles about talking about it, because then you’re talking to a guy who cross collateralized. When you sign in your own name. That’s what that is, it’s either a combination of, you got a rental property, somebody trips and falls good or frivolous after they read the billboard, they get a frivolous attorney, and then they come searching you, well, that person is going to do a search to see all the assets you own, because you bought them in your own name, they’re gonna see how long you’ve held them to see what the equity is that you have, are going to add up your net worth and decide whether or not it’s worth their time to sue pro bono. And this has happened to people that I know, right, so now maybe you get them in an LLC, but you begin real estate, you can’t do low down payments, and you have bad interest rates because the banks won’t lend to LLCs. Or maybe you’ve secretly put in an LLC and you’re playing games. Well, the reality is you’re just, you’re risking a lot, right, and you’re trading all your time. It’s very expensive of your time to do that. Meanwhile, if you have a great job, and they’re all cross collateralized, but meanwhile, you have a great time, you have a great job and you’re making great income, you can start placing investments, with other active sponsors through these private placements, get all the benefits of direct real estate ownership, for all the benefits of great diversified energy portfolio, right oil and gas ownership, but with very limited risk, because not only are exotic in one basket nearby, but you have you can invest in the growth markets, each one is a private placement, nobody can search and figure out where they are how much you have, they’re completely protected in that way. Also, each in their own LLC, if you didn’t sign on the loan, they’re not in your name. So you have no financial risk, other than your invested capital, which by the way, we get back to you very quickly anyways. So they’re protected from each other. They’re not cross collateralized, you’re protected from them. And if you use the right entities, like Wyoming or Delaware, and Nevada, then they’re protected from you. Even if you get drunk and get into an accident, something happens. And then the judge comes and says, Hey, and list all your assets. If you have them all in one of these dates, they can’t force you to even sell them. And that kind of asset protection allows for legacy wealth building, right. And that kind of asset protection allows you to take all the advantages with the tax and the appreciation. But diversify it, protect it from each other. You ferment it from you, and then 1031 exchange and then enjoy your life. And that is the argument for passive investing coming from a guy who’s lost at all trying to be an actor. And I didn’t learn my lesson first. So anyways,
Tim Lyons  18:51
well, Pat, I mean, I think that’s a great topic. And we can certainly do a whole podcast on asset protection, because it’s not something that you know, people talk about, or think about, especially when they’re getting started, right when people get started. They’re already focused on the deal. Greg, and I’ve already talked on other podcasts, but the deal is like the fourth or the fifth thing you should worry about right? Is the education. It’s building a team, it’s doing your market analysis, your asset class, and then maybe the deal right the deal, but people a lot of times they’ll start scouring the MLS or scouring LoopNet looking for deals. And that’s really not the first step. And when you’re excited to be an active investor, you’ve already made the decision to be at a real estate investor and like you want to get that deal. You want to tell people you’re investing in real estate asset protection is not one of those things that we kind of harp on. And it’s kind of scary and it’s in legal terms, right? And I know I shut down sometimes if I don’t understand the legal ease, I’m like, holy cow. What are these guys talking about? Right? Just tell me exactly what I did there. So, but it’s really so powerful when you’re trying to grow and expand your wealth and have a pathway towards where you want to be in life asset protection is so important. So I highly recommend, there’s a couple of books out there is one by Garrett Sutton was one of the rich dad advisors about LLCs, and charging orders and all these asset protection. So really good stuff. That’s what I kind of started with when I was on my journey. So, but I just wanted to stack on top of one thing, active investing, especially on the bigger quote, unquote, safer assets of multifamily or bigger commercial assets. There’s a high barrier to entry. Nobody really likes to talk about it, right? You go to a conference, you go get a guru class or something, and you too can own a 300 unit. apartment building, I’m gonna show you how right it’s it’s as simple as submitting an LOI doing some due diligence and talking to investors, and you can raise millions of dollars and do it yourself. Well, I got news for you, it doesn’t work like that. It’s there’s a lot of work. There’s a lot of team buildings, a lot of relationships, it’s a lot of partnerships. It’s a lot of work, right. And if you are a mechanical engineer, like Pat, you love what you do, that can really eat into your 168 hours. So we all have each and every week. So this is my challenge to the listeners is really getting clear on what it is that you want. If you love what you do. Perfect, stay loving what you do, and figure out ways to partner with guys like Pat Grimes, and invest on Main street.com and read his Forbes articles and look at his website, see who he’s working with see what market season, because that’s the way in our opinion, to build wealth. And that’s what Greg and I do. I mean, Greg and I total, we solve their own problem. We had capital, we needed to place it and we didn’t want to do it in Wall Street. Right? It doesn’t make sense to us. We don’t understand it. There’s not a lot of control. And it’s funny. You never heard of anybody that saved their way to wealth, right? Some of the wealthiest folks out there, have they ever just saved their way to wealth? I don’t think so. But with that being said, Pat, there are a lot of strategies on building wealth in the passive space, right? So even if you are active, and you do have a bunch of single family homes and you’re a beaten down landlord, people aren’t paying you you’re chasing them, you’re fixing toilets at 2am. The proverbial toilet fixer, right? There’s a really powerful way to convert those single family rentals via 1031 Exchange. Can you tell the listeners a little bit about how powerful that is and ways that they can use the 1031 exchange to get into other deals?
Patrick Grimes  22:18
Yeah, so I happen to know a little bit about this topic because the act of building a single family portfolio and then trading it up to larger multifamily and becoming a syndicator I happen to have been in both worlds where syndication is really a securities offering and you’re issuing securities which provides a lot of protections for the passive investors limited partners. But there’s other ways of investing into these deals and of these large multifamily deals. And that’s if you’re bringing in funds from the sale of another rental property through what is actually the most powerful wealth building tool available to Americans which is the 1031 exchange and what that means is if you go sell for example your rental your Airbnb whatever it is, and then you just sell it you collect the funds yourself you’re on the hook for capital gains tax is pretty expensive. And the IRS says well you know what if we need to incentivize investors in this country because we’re relying on them to house America we’re also relying on them to feed and energize America we’re not a China right so we’ve got to make it easy for them and people like the Donald Trump’s of the world are caring for and multi million dollars in tax losses. What how does that how does that even work? Never pay taxes? Well, for example, when I sell a single family home, I can take the equity and I can put it what they call an Accommodator intermediary. So it just goes did I don’t take it goes directly to them, and then I can point at an investment. For example, you can say, hey, Patrick, I have this money, I’m selling a property I want to trade that into your investment. So it’s gonna kind of boomerang around me and it’s gonna go directly in but it’s gonna go in your investment my name and I’m not going to pay any depreciation recapture and in capital gains is just going to go directly over. I’m gonna say no problem. As long as it’s a typically we like a million which means sometimes more than one single family home some deals we can do 500,000 And you gotta let us know. But we’ll set up a specific structure. So you go directly from your property in hours and you keep that like kind exchange that st you go on title. We’ll set all that up, we got an A in fact, if you go to invest on Main street.com/ 1031 I have an entire guide on this topic and any webinars on this topic. And Forbes Patrick 1031 I got a whole Forbes article on this. Very few people know not only can you can 31 Exchange hear away your tenants toilets and trash and single family landlording higher risk profile investments in probably not advantageous markets. You can trade out of those than a fully managed deals where we area managers and regional managers are what are you going to do? Like there’s no job for you less than a kickback like you’re a passive investor And watch us buy the best deals, you never would have known in the best markets that you wouldn’t be able to operate in, drive the rents up and then refinance out your capital. And then you can trade for with us if you want to the next year, you don’t have to trade wherever you want. This is an incredible way to take your existing investments and get a higher return on equity, and move much faster. Oh,
Tim Lyons  25:24
my God, Pat, I just want to like give you a hug through the microphone. This has been powerful. This has been such a powerful way for Greg and I to grow cityside capital this year, I mean, we placed millions of dollars with 1031 funds into deals this year. So these if you didn’t understand what Pat just said, I highly, highly recommend just pull the car over, hit rewind, get your favorite note taking app or if you’d like me and Greg old school marble notebooks, and start scribbling down these notes. Because you’re gonna want to understand how this process works. Because we’ve had people this year alone who had several million dollars in family properties that were passed down through the generations, and they’re just tired. They don’t want to deal involved anymore. They just want to live their lives. And they are very skeptical at first, like, how does this work? How come? I never heard this before? How can my financial advisor never told me how to do this? And what is it mainstream? Is it on the news every night in commercials? No, it’s not it should be but it’s not. So that’s why working with a professional like Pat and like us, right? I mean, this is the way to do it. So I just want to tell, you know, the listeners, Pat, that this is this has been done. And we didn’t invent it, right. I mean, it’s in the tax code 1031 Exchange, I mean, it is so so powerful. So if you’re a beaten down landlord, you got 750 or million dollars in 1031 equity to be placed. I mean, hop on a call with people like that, because it is powerful. So just wanted to stack on top of that, Pat, because that was an amazing little mini masterclass on how to get out of the active investing space into the passive space. And just so my compliance guy is satisfied. Look, at the end of the day, Greg, and I know about this, Pat knows about it. But you have to do your own education, you have to get your own tax advice. This is by no means tax advice. So that’s out of the way, right, Greg? Oh,
Greg Lyons  27:17
absolutely. Absolutely. Yeah. And the really interesting thing that we do with real estate, is we diversify our portfolios, right? We never tell people to put all their money into a real estate syndication, never tell them put all their money into XYZ. I think a lot of people have been trained that way to put you know, job 401 K and hope for the best, right. But a diversified portfolio is really important, some equity exposure, some real estate exposure. And the interesting thing that Patrick and his team are doing is they have a little exposure into energy. Specifically, he has an oil and gas fund that has $200 million portfolio 135 natural gas, and oil wells. And I’m going to be the first to tell you I know nothing about this. So Patrick, we are so happy to have you on, tell our listeners a little bit about the oil and gas energy portfolio that you have, and what it’s all about. Sure,
Patrick Grimes  28:13
yeah, it’s great that we’re talking the same language on this. And I appreciate that reference back to it’s just not the a lot of these things are just not well known. And financial advisors are certainly not going to educate you because it’s they can’t get paid for them. So it’ll definitely trade food off their table that feeds their family. And so you’ve got to seek these wealth building strategies out. And part of what I talk about in my passive investor guide on my website, invest on matru.com. And then you’ll see that passive investor guide is diversification. Greg was talking about, don’t put all your eggs in one basket. Well, I’m a real estate guy. And we have over 500 million portfolio and what I consider to be the lowest risk asset class, workforce housing, existing construction 20 to 50 years old in the growth markets, landlord friendly tax me, we’ve got it figured out and we’re rinse and repeat, right? But you know, my investors are just getting deeper and deeper down the real estate vertical. And I hear words like diversification, meaning there, they think they’re diversified, because when they’re, maybe they’re in a 401 K and IRA, maybe a Roth, maybe they’re in the stock market day trading, and then they’re diversified because they’re in real estate. And then they think, Well, that’s good enough and well, but I’m diversified in real estate. I’ve got a mobile home park investment as multifamily Airbnb, self storage, all these things. But you know what? That is not diversified, that is one vertical. And you’re talking to a guy who lost everything in that vertical now you can be safely invested in that one vertical, right where your lower risk returns, but they still have cycles. And today, the conversation about oil and gas is more relevant now than it ever has been. Why? Because interest rates are going up and middle of a correction in real estate. Cash Flows are going down. Valuations are waning. While our multifamily deals are safe, because of breakeven occupancies, they’re cash flowing at really low incomes. And we have reserves on the sidelines, and they’re in great markets that are resilient. We’re gonna ride this out. But where are people investing where things are growing, where it’s an essential need, just like housing and food, where the IRS says, Hey, we need to incentivize people to house feed and energize America. Well, we’re also those old school investments that are the tried and true long term deals that, again, the Donald Trump’s of the world have been doing. And we’re looking at real estate, and we’re looking at energy. And so typically, and that was a long lead up to energy. But it’s about the non correlated asset. It’s about which means it’s a debt free fund, we’re raising quarter million dollars, and there’s no debt, meaning that interest rates don’t even matter. And right now, macro economically and politically, you see pressures that are creating growth and energy, not contractions, like we see in real estate, OPEC just dialed back 2 million barrels a day Russia just pulled out or Europe’s pulling out a Russian natural gas, the Western world’s supply of natural gas is constrained. Even more. So as we move forward into this next year when they actually do this, right. And us, for the first time became the biggest exporter of natural gas in the world. That’s incredible. This is an amazing time, the IRS stimulates the production domestically of natural gas and oil by providing tax advantages, even better than real estate. In fact, if you most of our investors, and this is not tax or financial or legal advice, as he was saying, but most of our investors, if they invest 100 grand, sometimes they see a 20 to $30,000 return on that right away with their taxes. The government says I’m not going to charge you taxes on income you made and you invested in energy that comes out of their ordinary income, not just real estate, passive income, like it doesn’t multifamily. So you start out with like this massive return just for the investment. But it’s still got to be something that produces. And so our strategy and my family flexible royalties. And so I’ve have some exposure to this over time, I don’t recommend anybody get started in oil and gas on there is like no your own. This is a much more risky business and you it is a volatile market. So you have to structure these very carefully. And you have to work with people that have been doing it for decades or generationally, like I am, and specifically we’re doing diversified funds. So a lot of people have known somebody that lost it all and an oil and gas deal. Well, that’s because they were wild catting likely, they were going out in the middle of nowhere and drilling a well and losing it all. The only person that made it made any money was the operator because they got their drilling costs, right. And they can find somebody else willing to slide the big stack on green 24 and spin the wheel because they’re looking for skyrocket returns like Jed Clampett and Beverly Hillbillies style, right? No joke. I mean, there’s always somebody willing to do 100x Multiple for a high gamble, but then they’re soured when they lose it all. We’re not doing that. You got to think multifamily old school multifamily guys approach to oil and gas drilling, right, very much more risk averse. We’re diversified across many colored markets, or we call them basins that just like in real estate, when we use landlord friendly and legislative friendly little places that allow us to evict and grow rents, and permit, we’re drilling in basins where to drill friendly permit from right, like in real estate when we buy a building, right and then we value and the units will renovate the units and you get greater cash flow and you get a greater value of the building. We’re not going to just buy one well, and then hope that we get oil and gas we’re gonna buy the lease of land that has known reserves and we’re going to do that in multiple states in one fund and diversify in multiple places. Then we’re going to value add by drilling wells and all these leases. We’re not just going to drill for oil we’re going to drill for gas too because that’s lower risk now we got two different products that’s like having a mixed use real estate project that’s part multifamily assisted living or retail office but doing that across many good markets growth markets in ladder land asserts its diversification of product with oil and gas, and we do it at scale. So like we do in multifamily hundreds of units Well, we’re doing dozens of wells in all these locations, which if one’s a miss, just like in a multifamily deal how we have electric issue or we have a fire flood and one unit we lose the cashflow, the washes out the economics you didn’t even see it on the investor report. And in diversified portfolio like we have. We’ve had a dry hole we’ve had a drill bit get stuck a mile deep. It was one blip on the investor report. Then in fact the heck nomics there’s lower risk ways to do these. And calculated ways by diversified energy funds that allow you to take these tax advantages, and completely diversify into a market where things are going up.
Tim Lyons  35:14
I’m ready to invest in oil and gas, I’m ready to go. Here’s what I think a lot of investors get stuck on. And I’m in the multifamily space, I’ve been evaluating private placement agreements, operations for a couple of years now. I’ve been talking to Greg about oil and gas deals, and we can’t pull the trigger. We don’t understand it. We don’t know the guys, we don’t know the companies. We don’t know. The folks who do this, right. So like, we’re just a little bit gun shy. But when we hear folks like we’ve gotten to know you, they’re doing the thing. They know, the operators, they know the due diligence that’s required. They know the reports, there’s geological studies, probably butchering this a little bit. But like, they can see where the oil is on the ground, right. And now they have a pretty good idea. And now they know what they’re kind of doing. I love how there’s diversification in asset classes, but your passive, you got your time back, you’re putting your capital to work. There’s tax breaks and tax advantages. So there’s all these things to consider about passive investing. And what I really want to highlight and I don’t know that we have time to do it today, but is you probably have capital on the sidelines, whether it’s cash or in a 401k, from an old job, right. And what we talked about on the show all the time, Pat, and I’ve heard you talk about on other shows, is unlocking that 401k. Right, you can do a qualified rollover into what’s called a self directed IRA or a solo 401 k or a similar type vehicle. And you can start investing those funds in these types of offerings in private placements, oil and gas, note investing, mobile, home parks, multifamily self stores, and on and on and on, right, but now you’re in charge. So all these different ways to get started, especially powerful for people who think they don’t have enough cash capital to invest in real estate. So highly recommend hopping on a call with somebody like Pat or with us. We’re always willing to chat to you got to just figure out what’s available to you. Pat, I need to have you back on bro. Because we’re coming up on time here. And I have so many more questions I need to ask you. But we have to jump into our final three questions. Are you ready?
Patrick Grimes  37:20
I’m ready. Absolutely. And by the way, I have a Forbes article on how to use your qualified retirement plan to invest in syndications. And if they didn’t patch me, and you were talking the same language, I just had to make sure that I pointed that out one more. Yeah. Dude,
Tim Lyons  37:37
if you don’t think I’m going to Patrick Grimes plus Forbes when we’re done with this show, you’re crazy. And I highly recommend you guys do it, too. So here we go. First question, Pat, I’m sure you’ve talked to a lot of investors, when somebody tells you that investing in real estate, or oil and gas is risky. What do you tell them?
Greg Lyons  37:56
Patrick Grimes  37:57
so what I think is much riskier than investing in real estate as being only in your qualified plan, right? Only in your 401 K your IRA Much, much riskier. Why? Because we see a lot more volatility and those of you doing real estate, real estate, it’s a whole lot less volatile than those if you do it the right way, not like I did it calculating cash flowing toward us, right. What about energy? Well, that’s kind of scary. As you said, Tim, you don’t know a lot about it. Well, that is going to be the case. Like I said, you read my passive investor guide means you need to be a non correlated assets, it means that the middle classes at 8% of their wealth and alternative assets, high income earners are in 25, ultra wealthier and 50%. Do you think those guys know through and through everything and all the assets they invest in? No, they don’t. Right? They bet on investments where they have, they’re able to make calculated decisions to diversify. And what that means that you’re going to need to step into something without knowing it all. And it’s tough. If you’re a high income earner, a CFO, a doctor, you’re used to being the expert in whatever it is you do. And you’re trying to control your real estate by being the expert in something that you’re not in, it’s taken away from your family. And now you’re not going to invest in another asset class and another and another, that will actually provide you a low risk portfolio, not for the journey and search for the lowest risk asset class. You’d probably be an annuity if that was the case, but you’re only guaranteed to lose it all. When you die. You’re seeking a lower risk portfolio through diversification and you’ve got to learn you got to work on those investing muscles, how to invest and make a step without knowing everything.
Greg Lyons  39:41
It’s a great analogy working on your investing muscle. It’s a lot of the know like and trust as well, right? When you find someone by listening to podcasts, reading articles, those sort of things that you identify with. You think they know what they’re talking about. They’re ready to go to asset class, dive in and talk with these people see what kind of do deals are doing, do educate yourself on what’s going on. It’s just so very important because as you pointed out middle class at 8% of their net worth in different syndications and alternative investments, but the people that are really doing it have a lot more exposure, and you really can’t save your way to wealth that we talked about earlier. Speaking of which, Our second question comes from Robert Kiyosaki. And he said that savers are losers and debtors are winners. What does that mean to you? Well,
Patrick Grimes  40:30
first of all, Robert Kiyosaki, I’m a big fan. And that purple book is what destroyed my life. For the better, right? rocked my world. And ever since, in fact, in my energy fund, I have a video of him talking about oil and gas because it’s so powerful. He’s definitely one of my when he’s talking about is being the person that’s collecting the interest, right being the person that’s has the equity position, and buying assets, things that cashflow you want to buy, like I didn’t do, I bought land and then didn’t cashflow. And I bought something that wasn’t appreciated was gambling. And he’s talking about being and getting in the Cashflow Quadrant, right replacing your income with by getting cash flowing assets instead of liabilities. And to me that is the path that I’m on. And the reason why I’m invested in deals that cashflow on day one, not only on the multifamily, but also on the oil and gas in this next quarter, we have a diversified, preferred equity pays 12 and a half percent in real estate on day one told me everything current like this kind of grand, you’re worth 1000 a month, like that, to me is exactly in alignment with the kind of investments you need to make to be successful.
Tim Lyons  41:45
Well that I would have told you, you were crazy had I not been educated and been in the space for a couple of years now. Because I never knew that those types of funds were out there and they were available and they are accessible. And I highly recommend like people that you just have to let them your guard. Right, you have to just know that there’s other people doing incredible things out there that aren’t just these big investing brokerage houses that we always hear and see on TV and mainstream media. There’s a lot going on out there. So do your homework. All right. Our final question, Pat, are you ready? California. So this is perfect for you because you have several high level degrees, right. And so this comes from Jim Rohn, one of our de facto mentors, and he says, a formal education can make you a living and a self education can make you a fortune. Pat, take it away.
Patrick Grimes  42:33
It’s absolutely true. And I’ll tell you what, I’ve worked with some of the sharpest people I’ve ever met, I met in high tech, not in real estate, not in private equity. Those guys that are doing satellites with Lockheed, I was blown away every time I talked to them when I was working on stuff with SpaceX and Tesla when I was doing ablation catheters for Johnson and Johnson that go through your veins, and then ablate part of the inside of your heart. I did projects with Intuitive Surgical robots with 3d goggles and like it just, it’s insane. These robots doing surgery. And these guys are some of the most brilliant people I know. But they can’t get themselves to invest in a way where they can actually retire earlier. They can’t get themselves in a way where the way through retirement, their equity will grow while their cash flow grows, and the leaves something to their heirs. They’re all on a work until you die or work until you have to. They’re going to spend it all and you’re going to dwindle your children’s inheritance down to nothing until you pass and hope that you don’t outspend it before you pass it become a burden. And that’s the mindset of these very intellectual people. How did I get out of that? Well, I did self education. I read books, I listened to webinars. I even read every morning when I go on a run around this leg with my puppy. I’m listening to podcasts, I’m listening to self help. And when I told my wife I was trading from single to multifamily. I took her to a dozen different boot camps downloaded 10s of guides and I nights and weekends learning it with pencil and paper and that self help and self education has been hundreds of 1000s of dollars. But I’ve made millions. You can’t say that for the 20 grand new spin or 30 or 40 grand new spin on your undergraduate degree. Are you making millions on that right now?
Tim Lyons  44:30
Dude, I love that. And listen, I’m Tim the fireman Tim the ER nurse like and if I can do it, believe me. You can do it. Right. So it was an I think this was a great, great show. I really hope people got some value out of it. If you are thinking that this show hit you. I highly recommend go back, rewind the show. Take out the notebook share the show with somebody that you think can get value from it because it is pretty powerful. Pat, I know that you have had the opportunity to be involved in Book and I’d love for you to kind of shout that out and then tell people also how they can find out more information about what you working on and find out more information about your company. Absolutely.
Patrick Grimes  45:09
So I did, I wrote a book with I did a chapter in a book with some pals here. In fact, I’m on the cover with some with actual hair on my head. And if you’re watching the video, as you can see, I don’t have any hair in my Well, I’ve had a baby now for 10 days and it all fell out, getting my wife shaved it off during my COVID cuts and it stuck or it didn’t stick around. And so, but yeah, persistence, it’s in game changers, turning challenges and opportunities. This tells my own story, it tells a lot of people there’s a handful of guys, there’s Phil Collins, lead guitarist Def Leppard. His story is crazy, right? There’s NFL NBA players, Russell, great for the real estate guys have some really cool people in this book, a lot of great stories, it did make an Amazon number one bestseller. I’m giving it away for free on my website to people that are interested where I can contribute not entirely at random, but we need a promo code for your listeners that go to invest on Main street.com/book. That’s invest on Main, and then Street, all spelled out.com/book. And you type your information in there. And what’s your promo code,
Tim Lyons  46:24
the promo code is going to be the passive income brothers, passive
Patrick Grimes  46:28
income brothers put that in the promo code, I sign him. And we have somebody that ships them out to you in hardcopy free, happy to contribute to your journey. If you have any interest in any of the stuff we talked about today, invest on Main street.com/contact gives you access to be able to set up a call with me and probably get a call in advance of that for my team as well. And pay I’ll look forward to contributing however I can do your journey.
Tim Lyons  46:53
Dude, I love that. So definitely reach out to Pat get a free copy of that book, that we’re gonna have to have you back on buddy.
I hope we can make a lot I love to be back on.
Tim Lyons  47:02
I’m just getting started and we got to end already. So listen, thank you so much. Congratulations on the birth of your 10 day old child. And I hope that 2023 is a rockstar year for you. That’s going to do it for this episode of the passive income brothers podcast. We look forward to serving you again next week. Thank you for listening to another episode of the passive income brothers podcast. We would be grateful for your support of our podcast by giving our show a five star rating and review and subscribing to our show on your favorite podcast platform. Don’t forget to take inspired action after listening to this show so that you can start building out your passive income streams. Finally, head on over to cityside cap.com to connect with us and find out more information about how to get started passively investing in real estate