ASTON INCORPORATED
The Entrepreneurs Pursuit of Personal Expansion, Tactical Success, Limitless Mindset, Manifesting the Impossible and making Legacy Impact on Humanity.
ASTON INCORPORATED
Episode 8- Navigating the Realms of Real Estate: Syndication vs. Fund Investing
Embark on a journey through the world of real estate investment with Dallin and me as we peel back the layers of syndication and fund structures, revealing how anyone can take a slice of the property pie. We swap tales from the trenches, mine peppered with the highs and lows of syndication, while Dallin charts his ascent from financial uncertainty to commanding investment funds. Our candid conversation promises to arm you with the wisdom to navigate the legalities of LLCs and the fortitude to embrace both the stumbles and strides of your investment odyssey.
Tune in for a deep dive into the gravity of shared values and the delicate balance within investment partnerships that can shape your success. I'll lay bare the scars from litigation battles, underscoring the paramount importance of aligning with partners who share your vision and integrity. We'll dissect the nuances of the investor-dealmaker relationship, and I'll champion the belief that true transformation in real estate comes not from deep pockets alone, but from the alchemy of monetary resources and value-driven partnerships.
Our episode culminates with a strategic comparison of the structured elegance of investment funds against the communal spirit of syndications. As we explore the meticulous organization of funds like Invictus Real Estate Fund 1 LP, we shed light on the transparency and security benefits for investors, and the tactical considerations for launching a fund. Through our shared experiences, we extend an invitation to all aspiring investors to consider the transformative potential of real estate, whether through the immediacy of syndication or the enduring growth offered by funds. Join us for this revelatory expedition into the heart of real estate investment.
Welcome back to the show. It's Aston Incorporated. I'm Wayne Aston, your host. This is my co-host, Dallin Aston. Welcome back, guys. Today we've got an exciting episode. We're gonna be covering the difference between syndications and a fund. So we're gonna start with some definitions for you guys, because this is hardcore real estate 101. This is an educational episode. Here Dallin's got a little bit of experience on both sides of this. I've got a lot of experience on both sides. I'm gonna kick it off with the fact that I believe a syndication is a more common. It's definitely a more common way to structure a deal.
Speaker 1:So for those of you brand new to real estate, what is a syndication? A syndication, generally speaking, is a group of one or more entities or people that come together to do something. Okay, so you can have corporate syndications, where people, companies join, venture into a syndicate to accomplish a certain goal. And so, in real estate, when I'm talking about a syndication, what we're talking about here is we're talking about let's boil it down to the basics we're gonna go buy a house and flip it. That means I'm the sponsor. I typically, if I have my own cash, then I'm gonna be my own equity partner, but I'm gonna go get a hard money, loan or bridge capital to take the property down and renovate it.
Speaker 1:But for those of us who are getting into the game and you don't have a quarter million dollars in the bank, you can go bring an investor to the table and syndicate the deal, which is what I did, and you've done that successfully. So we're gonna get into some of the nuts and bolts of structure and how that worked for you, because I think, as we kick this whole show off, guys, we want you to understand that money is not the barrier for you to not get involved. If that's your excuse for not getting involved, then go home. Now you have to be able to figure out how to get resourceful and how to put a deal together and create so much value that you make the deal happen even if you don't have money in the bank. So that's part of this is the inspirational value that anyone can do this with a little bit of perspective on how.
Speaker 2:Would you agree with that, dallin? Well, absolutely Well. I mean, if I'm any example, I went from literally having negative dollars on my bank account. I was driving Uber just to pay rent. I was delivering food in my 2000 little car right, it was 100,000 miles on it just to go eat right, and I managed to raise 760 grand.
Speaker 1:That's none. Of that was my money.
Speaker 2:So that's important to a little perspective there.
Speaker 1:So let's talk a little bit about structure. You guys, I mean I could go as an individual and I could go borrow money from the bank in my name and that would be a personal loan and any gain that I would have on anything that I go do with that. If I buy a house and I renovate it and I flip it and I do that in my name, I'm gonna get taxed on that capital gain one way. But if I go set up a company let's say in Utah I'm setting up a limited liability company. That's my favorite structure. It's easy to set up. If you have an attorney in the accountant, they can certainly help you set that up. But a limited liability company is a basic structure that I mean that's your business. That's like what's the name of yours? Elevate travel destinations, that's right. Yeah, llc, yep, okay. So it's an LLC as an example. So, okay, down, set up his LLC Elevate travel destinations.
Speaker 1:I have I've probably set up more than 50 LLCs in 27 years. Most of them are buried at the bottom of the ocean. Okay, so that's the other cool thing, guys. I mean you're gonna set up an LLC and if you're successful and you can scale it successfully, it can live longer than you do, but statistically speaking, most businesses fail in the first five years. So there's a lot of LLCs. When you go to register and choose your name and get an LLC set up, that company that's just a vehicle that kind of establishes your ability to go and transact business in, and if you have a business failure then that LLC basically gets unwound or dissolved or it ends up just going, like I said, at the bottom of the ocean. And so anybody who's been in the entrepreneur game for a decade or more is gonna have multiple entities that they started, that they thought would be great and they ended up not working out for one reason or another.
Speaker 2:Well, I personally even have probably seven, okay, okay good case and point. Good case and point, and mine's been a much shorter journey than yours or some other people that have been around the block.
Speaker 1:But even then.
Speaker 2:I have quite a few that I've started that haven't worked out and some that have, and the majority of them have not. Yeah yeah, but I mean, I think the point here is it's trial and error here, right, and there's a lot of them, that's right that's right guys.
Speaker 1:So one of the real pros of syndicating with a company like this, this particular structure, is that you could go to your uncle or someone in your family that knows and trusts you and you could say hey, I've got this, I have this opportunity, I'm gonna buy this house, this is how much it's gonna cost to renovate, and we're gonna flip it. And I'm just using that as a basic example. That cause everyone can understand. You watch flipping Vegas or some of these TV shows. That's a very basic real estate investment kind of beginner strategy. So to syndicate, that means you're gonna go and you're gonna involve an outside person or entity to become a partner, and literally that's what's happening when you syndicate. You're bringing on a new partner, and so that could be structured a lot of different ways, but it really is project level and it really it has to do with the direct membership interest of the LLC. So a true syndication means Okay, I set up XYZ LLC and I bring my new investor in. He's going to bring a hundred grand in and I'm going to give him 30% of that LLC. So now we have an operating agreement for the LLC and the operating agreement it's a 48 page document that's going to spell out our relationship and how we're going to do that deal. If we're going to do more than one deal, it's going to spell that out. If it's just isolated to that one flip, then that's what it is. But typically every company is going to have an operating agreement that spells the rules out for me and you, if you're my investor, and so we're all clear. We're on the same page legally speaking. This is good, because when you bring your investors in, they're probably going to have their own attorneys and their own accountants review the operating agreement. That's in bolts of everything.
Speaker 1:It's not uncommon for a more experienced investor to want to have a controlling interest in an LLC. So you guys, when you're setting this stuff up, if you're coming from nothing, it's not uncommon to have go to an investor and approach them for a hundred grand, 250 grand, and have them want to own 80% of your company at first and you can structure an operating agreement so that they own the majority until there's a certain hurdle point Maybe that's the sale of the property successfully and you're moving into the next one in the cap table or the capitalization table or the schedule of the membership. Interest will shift and you can kind of earn your way into owning the majority interest of your own company if you can negotiate that with your investors. Over the years I've had companies where I have given away the majority interest. Nowadays I do everything I can to make sure that I maintain the controlling interest, and this just comes with some serious battle-tested experiences and deals that have gone sideways and why it would have been better for me to have a controlling interest. If I'd have had a controlling interest I could have avoided litigation and a lot of problems.
Speaker 1:When you're syndicating guys, a point I want to drive home is that you've got to really know your investor. Dellen and I have covered we've just scratched the tip of the iceberg of who do I have to become to be a successful business operator? That's the core question for you guys thinking about the entrepreneur leap off the cliff. We're going to jump. There's no net, it's all on me. We're going to make it work or we're not.
Speaker 1:And so character and values and so much of that comes into play here and unfortunately and I'll speak from experience when I've allowed investors to come into my deals at a company or project level inside of a syndication and we're not aligned with character and with values. If there's a misalignment of integrity, for example, that's always a huge one One partner driven by money, another partner driven by the relationship, and that's like oil and water the money and the relationship side of it. We've covered that in past episodes. But specifically speaking to syndications, when you get into decision making and you have a partner in your LLC that has voting rights because they own direct membership interest, it means that you're bound by the operating agreement and they do have the right to vote and they do have a right to influence how the deal goes. Which is why, if you bring someone in just because they bring in the money, but their values are totally misaligned, you could be in for a very difficult time, and most often in my experience has been litigation.
Speaker 1:I don't know what it is. I've been like a magnet over 27 years of attracting these greedy the money guys that all they care about is the money and they. You know you're making great money and then people want to stab you in the back. So you know it takes a lot of emotional bandwidth to partner with people and have it go bad and then do it again, and then do it again so you get more focused. Like me, at 27 years in, I am so picky about who I'll partner with. I mean I have to. Well, number one there's these very specific principles, integrity being the first one, but it gets a lot deeper than that. I've cultivated such a relationship driven focus in my businesses and selecting partners that I have to really connect with you on a human level and know that we're aligned and we have the same outward focuses and the same goals and ambitions. Before I'll allow anyone into a voting priority inside of a company that I establish.
Speaker 2:Yeah, that's interesting. It almost sounds to me and I'd like to ask about this but it almost sounds to me like you're taking this traditional view of hey, you know, the institutional finance guys or the investors are the ones with the cash, then why should I? So, if I'm the investor, well, why should I work with you? You're kind of flipping it. You're kind of, in a sense, ran about way, saying to the investors of the finance you're saying to the money well, why should I work with you? Yeah, right, yeah. And in the words of Warren Claff, you're flipping the script.
Speaker 1:Yeah.
Speaker 2:Right, Because really and if I'm understanding what you're saying here correctly and I personally have my own views about this but the money is everywhere right, and so the second you become held hostage to the money is the second where things don't necessarily go right. Yeah, that's kind of what I'm hearing. Would you agree with that, that's?
Speaker 1:absolutely right, dallin. I mean when you're starting and you don't have a credit profile and you don't have a big balance sheet with you know $10 million in the bank and you don't have real estate assets. When they ask for your schedule of real estate owned and you don't own any real estate, it's very easy for banks will do this a lot, but investors do it all the time. They'll want to leverage this against you.
Speaker 2:Yeah.
Speaker 1:They'll want to take these negatives about you, and they'll want to discount my value as the sponsor or the dealmaker, the person who created the opportunity, from scratch. And so it's traditionally been a fact that, in fact, there's this cliche saying he who has the gold holds the purse strings. I think that's complete bullshit.
Speaker 1:He who holds the gold, holds the purse strings. That may be how older generations have operated and old banks have operated, but, like you say, money is a commodity. Money is not the prize, money is not the value. In fact, if you have a vault with $10 million of cash in it, it's worth nothing. It's paper stacked in a closet. It's not until you deploy capital into something that has value that the money expands and that's where the value's at.
Speaker 1:So I'm trying to create a shift in everyone listening's mind here that you are the prize. You are that one human on earth that has a unique value proposition and you bring something that no one on earth can buy. Okay, now I'll use a. Really I just had an epiphany, a really interesting example of this. So when we were doing the project in Moab 2015, we bought the land. It took two years to get the approvals and get the financing and get things rolling down. There's was a very, very slow, arduous start to that project, and this is before Moab. Really, it was kind of a sleepy town in 2015. It really didn't wake up until a few years after we bought the land. We were cranking, we finally get all the plans approved, we get fully vested, we record our final plot. That's the land plan for the resort and the city approves it and that's recorded in the title company and that was in 2018.
Speaker 1:In 2019, what happens is the city decides hey, we're going to pass a prohibition over the entire county. There will be no more approvals of any project with a nightly rental component to it. So if you wanted to go build a new hotel or condos, or even a new campground in Moab, that's no longer possible. So, case in point If you have a billion dollars in the bank and you fly your fancy jet to Moab today, it doesn't matter. You can't go by land and develop a resort or a hotel, because it's not permitted, right?
Speaker 1:Wow, See the value, the value is in what we created, and it's a casual production machine. Now that it's prohibited, it's even more valuable. Yeah. So the city inadvertently kind of helped with valuation on that.
Speaker 1:So that's a key kind of example of just because you have a billion dollars doesn't mean I mean, it means you can do stuff Right. What would be awesome is if you have a billion dollars and you have the mindset that aligns with me. Man, that's a powerful combo now, because I don't have a billion dollars, but I have projects that could deploy a billion dollars Right. So you have. If you have a good deal maker and a good execution specialist let's call that the expert investor and you have capital and you combine those that can make for a powerful syndication. Yeah, you following that, yep, absolutely. And if you're lucky enough to have that big investor that is aligned with you and I've had a few it's a magical thing because you can do incredible things and you are aligned and neither side is greedy and you kind of both view the value proposition fairly Right.
Speaker 2:One. I'd even say that, with the way that I did mine, mine was a syndication. I brought in partners, but from the beginning I'd say the expectations or how the relationship was pretty solidly built. I love them dearly and I've known them for a while and they were not the first people that I presented this with. I would call lenders Everyone in the internet I could find a joint Facebook groups and I tried to find these people. And then the story of this I think I've told in the past, but they ended up reaching out to me and saying, hey, can we fund this? And the rest is history.
Speaker 2:But we had a very good relationship and we were pretty in line with, hey, this is the vision here. And they both were kind of like hey, you know, down here the one with the grand picture here, we want to support that and lift that because we see the vision, we see the deal so awesome, we see that you can do this and you're uniquely situated to be able to do this. And that allowed me to maintain control, because I was coming from a position of value. I was telling a story that was compelling enough and focused enough on the relationship that they saw it and were able to buy in, and so I think it's powerful in what you're saying in the sense that, and probably inspiring too for a lot of people, in the sense that man, look, you don't have to give control to the money. And another thing, too, that I think is really powerful is you never should be desperate for that money because the money will take advantage of you all day, every day, It'll be like yeah we have the money.
Speaker 2:You're the only, we're the only reason you're able to do this, which is false, that's not true, that's right, and if my story is any indication of that, I hope it's inspiring, motivating enough to say look, you do not need to allow the money to control you, you don't need to allow it to dictate your value or your ability to execute a deal. So that's powerful.
Speaker 1:That's a great perspective and for the listeners out there, I want to underscore something down was touching on and that's the mentality of his relationship with his partners inside of a syndication. That's a very similar mentality to what we're going to be talking about here when we transition into the fund structure We've talked we've touched on this in past episodes there's an obligation as a steward of capital. When I create a deal and I create all of that value and I'm the execution man. If it's not me operating it, the money's not going to operate it. They depend on me to successfully operate it and provide a hurdle rate. So having an outward focus, really being concerned, really being focused on my investors as my number one priority that's critical.
Speaker 1:That in either structure so young bucks coming into the game if you're focused on the money and the returns, you're going to have a hard time syndicating an investor and letting them having them, let you keep control. If it's all about a return, you're not going to have any answers of them saying, well, what makes you so special that you should have any percent control. You won't answer that if it's all about a return, if it's bigger than that, and they can tell that you're a steward. The way that you've been able to present this correctly with your investors is they trust you. They are confident you can execute it. They're confident you have specialized inside kind of insight into the operational acumen of how to make that business operate successfully that they don't necessarily have. So there's an appropriate alignment and acknowledging your value to that value proposition, guys.
Speaker 2:Well, they have no doubt in their mind at least I hope they have no doubt in their mind that I'm putting them first. That's my goal is to make sure that they're taken care of and treated correctly. Everything is working how it should. That's my role, because if that all is working, then there's a greater relationship of trust, love is there, and then that's going to open up opportunity for later. That's my genuine belief.
Speaker 1:Well, you're talking about the playing the long game.
Speaker 2:Yeah.
Speaker 1:I mean that truly is like guys. When we talk about the money driven people, it's a short game. There's a short sided let's get a deal done and bounce. There's no stewardship for your investors. You're focused on making your 50 grand on that flip and you're gone and everyone's out. That's very short sided man. So when you get focused on the long game, it's relationship cultivation. So there's a natural distinction when we talk about the spectrum of the people money driven and the people relationship driven.
Speaker 1:If you're playing a long game. It's relationship driven, because if you take care of them and you're an excellent steward and you execute the plan well, you make them money. Sometimes you can surprise them and make them more. You can pay them off early, like you're doing with this deal. You come up with these creative ways to make it even more valuable, more lucrative to your investors along the way, and that cultivates the building of that relationship. They want to do more and they want to do more. That's the goal, guys, is the long game of relationship building. So let's shift gears to a fun structure, shall we? You ready to do that? Yeah, absolutely so. Hopefully.
Speaker 2:that was a yeah, if I may, just what's in your simplest of terms, what's the biggest difference?
Speaker 1:The big and that's a great question man. So maybe this could lead to the conversation. Yeah, yeah, guys. So the biggest difference is collateral. Okay, it's collateralization In a syndication, bringing my partners in. They own part of the company and therefore they own part of the real estate. They're secured by real estate. In a fund model, there is no collateralization of the real estate. They're purchasing securities as an issuer. So when I create a fund, I'm issuing securities that are not collateralized by a piece of real estate in a traditional sense.
Speaker 1:So for some investors who kind of lack experience in being involved in a fund, that could be potentially scarier, because everyone understands the word collateral. They understand the word security. Now, security is defined a few ways. We've talked about security for entrepreneurs. We have no security. But in real estate you do want security. But in a fund the focus really shifts off the project level focus and it shifts onto the operator who is the team behind the fund. And it's kind of like the best analogy I could use is Elon Musk. We love Elon. If Elon Musk opened a fund for I don't know his new electric trucks and you had a chance as an investor to put $100,000 into it and you could make a 30% annual return. Would you care what they were building? If it was Elon Musk behind it, he could be building a spaceship.
Speaker 1:We don't even care what Elon's building, because his track record is so good and his team is so strong. We know we can trust. Well, we know that the odds are, the probability of success is high because the operator is so great. Okay, and that's different when you're talking about a syndication.
Speaker 2:So to your point then it and I was going to ask okay, well, is it viewed as more risky than? But it sounds to me it's a different. You know, it's the perspective. Yeah, it's like, well, maybe touching that right?
Speaker 1:Yeah, that's a sweet question. Yeah, I haven't even contemplated that. But analyzing risk, okay, if I'm syndicating and I'm new to flipping and I have no track record, so I'm kind of learning as we go. But my investor has securities collateralized on the property. All that means is, if I fail to execute my plan, he can take the property, take it, yeah, and then he's got to go sell it.
Speaker 2:But there's exposure there still.
Speaker 1:He still has to go dispose of the assets. It's not like this failsafe, like you automatically are getting your money back as an investor. Okay, yeah.
Speaker 2:Okay, so, but then as a fund.
Speaker 1:I'm an investor going in and I'm putting you know 5, 10, 50 million in because of the operators I mean the business, the project levels that we deploy into project level investments have to make sense. We have to believe in what they're doing, but mostly we know the probability they can execute the plan because of a track record and what they've been known to be good at is high. So that's my security Interesting Right. All investing involves risk and exposure. You go risk Right. You go invest in a stock market today. You're probably going to lose. I've invested in a stock market many times. All of that. I've lost more than I care to admit. Okay, if you're going to go invest in cryptocurrency, I think that's fantastic. Right now, I haven't had the balls to do that just yet, but.
Speaker 1:I have some really great pathways right now to get into a fund that indexes over multiple currencies, for example, to me, that's a fund. It's a fund. I would rather go invest in a fund that has operators with a track history that know what they're doing inside of crypto than me going to buy. Bitcoin myself and getting my head cut off because I don't know what I'm doing.
Speaker 2:So that's a great example inside the crypto space. That's a perfect example, and I think exactly what we're talking about here. If you put it in that perspective, it's almost less risky for an investor. Absolutely, absolutely. Yes, that's super.
Speaker 1:The team is more important because now you're talking about all the things that are so important on the relationship side of the spectrum. It's the character, the integrity, the track record, the experience, the deal selection, the due diligence process. How do they analyze a deal? How do they choose which market to go into? All of those questions can be answered pretty easily with a fund Most of the time. With the syndication, you don't have as much of that detail.
Speaker 2:You can. You can, I mean I syndicated.
Speaker 1:Sage Creek and it was project level. Project level details to the investors, but on the fund side of it it's a different animal.
Speaker 2:Yeah, so a fund, just so that everyone's clear. And then I'm clear, you're sitting here with it's not project level investment, it's you're investing in a fund that does X. Yes, and then the execution of the fund is then project level, but the investor side of things is not project level.
Speaker 1:That's right.
Speaker 2:That's why there's no collateral.
Speaker 1:Yeah, yeah, yeah. And when we get into the mechanics of a fund. So why do I love a fund model? I love a fund for the flexibility. As an operator, I'd love to be able to raise capital with a mission. So I have a goal, a target I want to hit with the funds, with the dollars we're going to raise and deploy, and it has to be into a certain asset class. So let's talk about Invictus Sovereign.
Speaker 1:So Invictus Sovereign is my call of my flagship. That's my management company and it currently manages three private offerings. All three of them are classified as Regd506C funds. So these are, these are SEC registration exempt, private funds or private placements, and so, with these particular structures I'm focused on, there's three types of investors that can go into a private offering. You have a non-accredited investor, that's average Joe. You have an accredited investor that could be anyone with a net worth of $1 million, not including their personal home, and then you have a qualified purchaser. Qualified purchaser has to have net worth in excess of $5 million and there's some other qualifying factors. But a qualified purchaser is a person or entity who's very experienced in this type of investment in a private placements space. They've probably invested in a hedge fund. They could have invested in a crypto fund. They're diversified in a portfolio, so the investors that I'm allowing into the three funds that Invictus Sovereign manages are only qualified purchasers.
Speaker 1:Okay, in the past, in 2006, 2008, I had experience with five other funds that I raised and managed and we had non-accredited investors as well as accredited investors, mixed results and mixed exposures. With all of that Unfortunately for us myself and partners going into the. We did. We raised those funds heading right into the 2008 apocalypse event, okay, and so the result was ugly for us.
Speaker 1:We ended up having all the businesses fail, losing all the capital, and the non-accredited investors were friends and family and they were people that came in with low dollar amounts and limited perspective and they really, really had a struggle with the losses. The accredited investors, the more experienced ones, were like, well, this really sucks, but 500-some-odd banks went out of business. Merrill Lynch just went out of business. I mean, what could you have done differently to avoid the total loss? And there was perspective and understanding with my more experienced investors. That was. It just led me 15 years later to be that's the only investors I can really relate to and deal with right now, as my qualified purchasers and the projects have a lot to do with it. If you're raising a fund to do something like elevate travel destinations, you probably want at least accredited investors.
Speaker 1:You might even take non-accredited investors. It just depends. But with big projects like what I'm doing, all four of my projects are minimum. My smallest project is $149 million project costs. So the minimum to get into one of the funds is $5 million. It's a different class of investor completely. I'm really focused on institutional investors and funds that can invest in other funds. So if there are funds out there, who are making soft commitments to come into an environmental impact fund, who want to support what we're doing with American spec ESG, for example.
Speaker 1:So, we've got the three funds. We have Invictus Real Estate Fund 1. That is a fund set up to basically finance OPEX and the equity gaps project level of the resort properties we're developing.
Speaker 2:So it can build real estate.
Speaker 1:The next fund is Invictus Environmental Impact Fund 1. That one can also fund OPEX. It can fund R&D, research and development. It can fund equipment fabrication. It can fund the alternative technologies to be developed and built to produce something cool, so something that has an environmental impact. So, for example, with American spec ESG we can produce, we can convert municipal solid waste or construction waste into alternative superior lumber products. So I can take a truckload of garbage and convert it into lumber. So right now it's railroad ties is the leading product and we have plans to be doing dimensional lumber for construction. And then the third fund is Invictus Modular Manufacturing, fund 1. And that speaks for itself. So that's to finance OPEX equity gap on a project level, build facilities that will manufacture modular housing. So American spec Modular is the company that the fund is supporting on the equity side. So that's the high level on the funds that I currently have and kind of why we've taken that approach.
Speaker 2:And it's interesting too, because all that stuff you just talked about, how difficult would it be to syndicate to do all that?
Speaker 1:It would be impossible. So, yeah, I think it would be impossible because you know, to go back to, you know, sage Creek at Moab, when we syndicated that we were just syndicating $8 million onto a $44 million capital stack, so I had basically had, you know, $40 something million of debt and all I need was $8 million of equity.
Speaker 1:But it was like seven or eight different investors. So getting all of those investors to come and get their funds into escrow at the same time to you know the close, it was very challenging With a fund. When I talk about flexibility, we get the soft commitments, we get the investors that are excited, and then we make capital calls. Yeah, when we make the capital calls, they have a certain timeframe. It's usually like a couple days to wire their money in. They've already committed, they've already signed all the documentation, they're in queue for a capital call, they wire their money into the fund and the fund administrators deploy the capital.
Speaker 1:Now one thing that I love down is that back in 2006, 2008, this is like pre-Bernie made off. It was like the Wild West there were no. No, like the SEC regulatory body is a very serious thing not to be trifled with. When I talked about going through the investigations of the SEC, it was because we lost a lot of investor money and they wanted it. They wanted to find out and they'd go and investigate as if you're guilty first. So they're coming in and they're taking laptops and they're you know it's hardcore. And then, as you become clear, then they kind of release everything and luckily we had all of our ducks in a row.
Speaker 1:But one thing that didn't exist back then was third-party supporting entities of a fund. When we talk about exposure or security, when investors talking about putting their dollars into a fund, what can we do as a team to show the strength of a team? What we've been able to do is it starts with an amazing legal team. We have SEDIS and Goldberg out of New York City, for example, and we have Mangum and Associates, also out of New York City, two very experienced SEC law firms to structure the funds to start. But then we have third-party administrators. Nav consulting does ours, so they manage $180 billion.
Speaker 1:They are third-party managers of 2,500 different funds. They professionally do that. So they provide all of the reporting, all of the investor distributions audits. If investors want audits, they have investor portal that your investors can log into and in real time get the data. I'm not having to interface with all my investors any more than my investors want to interface with me personally. They can go to that third part to England and have consulting. We have ACA Global out there, who's handling ESG advisory services, cybersecurity, security of their accounts, and we have Prime Corporate Services, who handle fund-related tax matters. So we have this amazing team of providers that support our in-house team of partners within Invictus, sovereign and the family of funds. So when you look at this machine, it's not just a guy out there raising money for a fund and then you're having to trust Wayne. Yeah, no, like it's highly sophisticated.
Speaker 1:Highly sophisticated, I mean yeah.
Speaker 2:You're talking about something that is so. Again, it's the team. Yeah Right, it's the team that you're investing in, not necessarily the deal, and I feel like that is super powerful.
Speaker 2:Yeah, it gives the team a lot of power, but it also gives the investor a lot of power, absolutely yeah. So pros and cons right. I mean syndications are great for a lot of reasons. Yeah, a fund is a fund, not kind of a syndication. I mean it's kind of a syndication of investors pooling this money together, but it's not in the sense that they're not become you know the collateral is the different part. Yeah.
Speaker 1:Well, the nature of a fund. That's a great question. The nature of a fund is exactly that. Investors are pooling dollars into what's called a limited partnership. That's, instead of an LLC, it's an LP. Right, so Invictus Real Estate Fund 1 LP. That's an entity and the investors own basically 80% of that. Invictus Sovereign owns only 20% of that fund, right, right. So the investors get the lion's share of the dollars that the fund produces.
Speaker 2:Yeah, yeah.
Speaker 1:And you know the Invictus Sovereign charges a 1% management fee. So it's nothing, it's just it's Pending for staff is paying for these third party things and to keep the lights on and manage the fund appropriately, yeah.
Speaker 2:And is there a preferred return? So I saw there's a lot that goes into this.
Speaker 1:Yeah, yeah, this is the tip and you can structure syndications with preferred returns and equity waterfalls and all of that. But in a fund that's typical. All three of our funds have a 7% preferred return. That means dollars that get earned by the fund when we deploy capital with the fund. That fund generates revenue and the first money off the top of those revenues, 7% of that, goes to the investors. Okay, and then there's a split. There's an 80-20 split on carried interest, which is all gross earnings.
Speaker 1:You know SANS, fees, management and preferred returns that go out in dividends, and it could be done quarterly or annually. And so you know, depending on the type of the fund, you'll have different distribution schedules. But I really feel like it's way more secure because you have so much more insight. You have access to data, real-time data, auditable data, and if I want to actually become a public entity which I don't have any ambition to do or if I wanted to sell a fund or sell my company, being fully auditable with a team like this with all of the data is way more important. On a syndication, you know you're syndicating with a developer or a sponsor and they may provide some accounting.
Speaker 2:They may provide some reporting. They don't have to do any of that.
Speaker 1:Right. So your access to information in my mind in a fund is way more organized. In a syndication that's a little more Wild West, depending on who the sponsor is.
Speaker 2:So why is knowing all this stuff, the difference between the two, even knowing about the two, so important for listeners?
Speaker 1:Well, there's two points of value. I mean, I think any new investor is thinking about getting into real estate investing they're going to need to get clear about do I want to start my own fund and hire the people to do that? What's that going to take? What's that going?
Speaker 2:to take.
Speaker 1:How does that all come together? How do I build a team? How do I find all these people, these specialized people, or do I want to syndicate? But then also for our listeners, who are very well healed institutional folks just wanting to get to know us, it's important to understand our mentality about how we build a fund, how we underwrite our projects, how we deploy capital. There's real processes and real protocols Absolutely Next level organization on the fund versus the syndication yeah, which for me, at my stage in my career 27 years in, with almost a billion dollars of development, construction and motion to me it's much more valuable to be able to have big, secure entities and high net worth individuals be able to look at that fund and I mean they understand that environment and so it's easier to make a decision to go. So this is for all levels of listeners. We're just trying to help create value of contrast here and how you're going to potentially start your real estate business or how you're going to take your business to the next level if you're more sophisticated real estate investor.
Speaker 2:Well, an interesting perspective too, having experience with a syndication and then transitioning into the fund model. It's like I'm appreciative of the experience syndicating a deal, absolutely, it's almost required.
Speaker 1:You should all. It should be almost a requirement that you syndicate a few deals. So you know what that is before you go try to start a fund. I think that's very valuable. As a fund manager, you need to know the inner workings of the syndication and how that operates in order to really be a good fund manager when you get on the fund level.
Speaker 2:Okay, yeah, yeah, that's very important and also gives you a kind of a path. Okay, I want to start a fund. What do I need to do then? Okay, then I start syndicating, then I start meeting the people that are going to be helpful and building the team, then you start making any introductions, then you start having the opportunity to, I think, grow into what a fund would be.
Speaker 1:Yeah. So on the subject of funds, have you decided to start a fund? If you grow up with the name, and what is that looking like?
Speaker 2:Yeah, I've been thinking a lot about it and I think it's the only path to move forward. Agree, and so. Yeah, I mean there's a lot to come in regards to what that's going to look like and how I'm going to do it, but the decision has been made. Yeah, nice, I've committed to. That's the only way to step forward for me in the business, I think.
Speaker 1:Man, if I could have come to that realization at age 24, I can't even imagine how big of a consortium I'd have right now. I mean, I raised my first fund when I was 32 and then we had the Apocalypse event and I just have been out of the fund game until now. I've just been syndicating for the last 15 years and it's become time and I'm very excited to be back on the fund status here with Invictus Sovereign.
Speaker 2:But yeah well listen to. Another thing, too, is we talk about syndicating and then going into funds. My experience with syndication is not as extensive as a lot of people. For example, you've been syndicating for 15 years. I've syndicated over the past year and I've done really well with that specific deal, those specific partners, those specific investors and we're crushing it. We're getting ready to do some really great stuff with it, but I have such an awesome team and some connections here I feel confident going into a fund model after just this and again, this is going to look different for everyone.
Speaker 2:Some people might say, oh, I need to syndicate 10 times before I start a fund. But for me personally, the model that I have, the team that I have and just the direction we're moving forward, I feel not only super confident but I also feel like I'm obligated to go in the fund route for this specific initiative. And there's a lot of reasons I could dive into that, but I mean again, I guess the point I'm trying to make is it's going to look different for everyone, and for me it looks different because of the way I've done things, the way people that I've connected with and all this stuff.
Speaker 1:This is going to be fun to unpack the process, man, as you go down the path of raising your first fund. That's very exciting. Well, guys, I think that's about a wrap here. We've covered pretty extensive here syndication versus fund. Thanks for tuning in with us today and stay tuned.