How to Build Your Own Syndication Fund

Intro:

What's up, everybody? And welcome back to another episode of Loop It In, the DoorLoop podcast, where we pick the brains of experts in property management, real estate, and investing. Tech, we cover it. Marketing, that too. So whether you want actionable tips, or the insider scoop from top performers in their industries, this is one show you won't want to miss. Be sure to subscribe so you won't miss out on any future episode.

David:

Hey, everyone. This is Dave Bitton, co-founder and CMO here at DoorLoop. I'm going to jump in and be the host for today's podcast, as our guest today is one of my closest friends that I've known for over 20 years now, and is just an overall incredibly talented guy with an amazing story that I'm excited to share with you all. Irving is a third generation real estate investor and developer. He's originally from Caracas, Venezuela, and he holds bachelor's degrees in accounting and finance from the University of Central Florida, and a Master's of Science and Accounting from the Wayne Huizenga School of Business here in South Florida. And in 2013, Irving co-founded Dragonfly Investments, a real estate company that acquires commercial, residential, and industrial assets. They're actually now getting into affordable and workforce housing as well, and they have acquired over 200 residential and multi-family properties, and over 5 million square feet of retail and 250,000 square feet of industrial.

And of course, full disclosure here, myself and some other co-founders in DoorLoop also personally invest in his company, Dragonfly Investments, for over five years now, and we are extremely happy. But besides that, first off, Irving, welcome to the DoorLoop podcast.

Irving:

Thank you for having me, David.

David:

It's a pleasure, man. Of course. And of course we need to start off and mention that you are one of DoorLoop's first ever investors, and have also generally just been our sounding board for any new ideas, especially when it comes to accounting. So first off, thank you for all the knowledge and wisdom you've given us over all the years.

Irving:

It's been a great ride and a pleasure, honestly.

David:

So please explain to everyone a little bit about yourself, where you grew up, and how you got started in this industry.

Irving:

Sure. Hello, everybody. I was born and raised in Caracas, Venezuela. My family moved us in 2000, and through studying and all that. What's really funny about what I do now is that my parents always told me, "You got to do real estate. You got to the real estate like the rest of your family." And I said, "No, I'm not going to do real estate. I'm going to do tech or something else." I just don't like being do what to do. Long story short, the economy crashes, I'm doing my master's in accounting and...

David:

So this in '08?

Irving:

'07, '08. We explore real estate prior to that, just because my mother, my father tried to get me involved into the family businesses, but we didn't understand what was happening. 2003, four, five, things don't make sense, we run the other way. The economy crashes. I buy my first property in Orlando, which was townhouse, and then slowly started acquiring more properties in Orlando and leasing them to students. One became two, two became four, and next thing I knew we were at 20.

I took a break. I had another opportunity that came across, but the money really was in real estate, and the passion started growing. I started learning how to do foreclosures, and started acquiring properties at the courthouses Miami-Dade. Before going online there was only about 70 people actively buying foreclosures, and we were seeing 100 to 200 cases a day.

David:

Wow.

Irving:

Move forward today, you might see five cases actually go maybe ten cases, I haven't been paying attention, and a lot more people, and the competition went from 70 people to 3,000 day one I'm sure now if you go online there's maybe 40, 50,000 registered.

David:

Wow. It's a lot harder to find those great foreclosure deals today.

Irving:

Yeah, definitely. The early success of my career comes from having the right mentors around me, and wanting to learn, make money, but being at the right place at the right time. You have to always count when you're lucky and admit that later on in the success.

David:

Let me actually stop you there for a second. Just going back in time, you said that you acquired your first property in Orlando. How did you learn how to buy that first property? Did you have a mentor? Did you have a partner? Or just figure it out yourself?

Irving:

No, no. So last year of undergrad, there was a couple of developments being built in the Orlando area by the university. And I went up to my parents and said, "Guys, you guys are paying a fortune for rent for myself. Why don't I look for a property that has three or four bedrooms, and I lease out the other bedrooms, and then we'll have an asset that's going to appreciate, basically I can live for free?" Took a little convincing. I ended up buying the first property I think two months before the economy crash.

David:

Wow. Oh, boy.

Irving:

But we were the best price in the neighborhood. It's called Walden Chase. I think within two months we went from $210,000, which was a three bedroom townhouse, to $95,000 in value. So you have to...

David:

Not the best first investment or time to invest.

Irving:

No, but this is part of having good mentors and knowing how to look at things. You can start crying about it and hiding I'm never doing this again, or what's the learning experience, or what's the opportunity? Okay, we just overpaid for one and we're losing a lot of money, but on the flip side, my neighbor was in bankruptcy, my other neighbor was trying to short sell. So I told my parents, "You always wanted me to get into real estate. Help me get some loans, put some money together and I'll repay the loans plus..." At this time I didn't know what a fair return was, or I really didn't know much to be completely honest with you.

But we start getting loans, and started buying the property in the neighborhood, and then expanding to other properties. And you got to a point where you bundle them and then you go to a bank and say, "What do I do?" Oh, give me a loan for the portfolio. Lots of mistakes.

David:

Right. Take me through the journey after foreclosures. I'm assuming... I don't believe you had a partner in the early days, but then you brought one on later on and started Dragonfly. What was that whole story there?

Irving:

Dragonfly. It's one of our mutual friends, as you know, Jason Morjain. Met him through mutual friends. We became, I guess friendlier once we moved to Miami, we've known each other, obviously we played sports together, but Jason was at Beacon. I always thought he was a beast. He's a acquired half a billion or a billion dollars' worth of office buildings for the company. He was also in charge of developing multi-family and single family positions. When we started speaking about it, we had all lot of synergies, except I was doing my own thing, and he was working for Beacon. And just talk and talk and talk, and it led to you, why don't we just do something together? Let's start...

David:

Just to pause you there, why were you looking to do something with someone else? It seems like you were already off to the races, you were already growing your own portfolio, you knew what you were doing. Why even look to bring in a partner now and start something new?

Irving:

I guess at the time, one, I think working with friends is something exciting. And sure, you're doing great, but it is a little work. I looked up to Jay because he had the experience, And I love learning. So the key is structuring a partnership that... It's like a prenup before you get married. We make sure that, if everything goes well, you don't have to look at the document, but if it goes bad, at least we can dissolve and go on with our lives. And that's what we did. We hired attorneys, we put a partnership agreement together, and we figure out, right now this is what I know how to do. I know how to flip properties and I know how to buy foreclosures. You've done at a much larger scale with the company that you're in, and we created the first fund, I believe that was called Sanctuary One, and that fund acquired a lot of properties in the Orlando area. And from there obviously we started learning how to acquire more property, and really pay attention to the future.

David:

So it seems like both of you had similar but also different levels of expertise in different areas, and you merged all the knowledge together to start something even bigger and better together. Is that correct?

Irving:

That is correct. And one more thing is, we're very different in personalities, I love history and I love symbols, and the yin-yang, that's what I call us. We're very opposite, but we know how to make it work really well, and that leads I think to the success of the company. We don't always think alike, but we know how to have conversations and push each others to viewpoints and take risks, that he might not do it if I wasn't there, and vice versa.

David:

So you've been at this with a partner for over 10 years now. You mentioned that obviously there are a lot of benefits to having partners. You can grow faster together as a team. And you mentioned starting off the partnership, going through some good legal agreements, and hiring good attorneys to make sure that, if something does go bad, at least you can dissolve amicably with your friendship hopefully still intact. Now 10 years later, looking back, what one or two pieces of advice would you give to other people looking to partner with someone else or going through a partnership with someone else? Is there anything big? Is it communication, trust, anything else that you could think of?

Irving:

I think this is a relationship, it's a business relationship, and before business it's friends. The first thing is that point of view where even a like DoorLoop by founders, you really need to understand how to separate business and personal life. And we, I think, excel at doing that. We could be at the office, I could get frustrated at times, I'm sure Jason gets frustrated at times, but the moment that we turn the lights off at the office, we know how to detach from working, go have fun or throw a party, or just be with the kids and family. So sure, there's up and downs in any partnership, there's disagreements, and it's about learning to trust, learning to respect. I think the most essential part of any partnership is sharing the same moral values. I think it's the foundation of any relationship, is that you think alike, and you know who you're in bed with, that you have no doubts that that person's going to do right by you no matter what, and is going to support you, and he's not going to... At the first instance that they have, they're going to stab you in the back.

So that one for me, that was crucial. I think for Jason as well, we saw how we were with the families, we knew each other for a while, and we spoke to friends about the reputations. And then it's accepting that you're going to make a lot of mistakes together, and it's not whose fault it was, it's what are we learning from this, and what can we do better so we don't make the same mistake? So communication is crucial to the success of the company, and there's many other things along the way that you continue to build on.

David:

So let me ask you, most of our listeners tuning in are either landlords like yourself, owners-investors that own their own properties, manage their own properties, rented them out, renovated them, flipped them, whatever the case is, or they are property managers, they have their own property management company, managing it for other owners. And you were in that before you started Dragonfly Investments and building your own syndication and fund, and getting other investors. Do you recommend landlords and property managers today to look into building their own syndication and fund? And before we even get into that, explain what is a syndication, what is a fund, what exactly do you guys do?

Irving:

Sure. I think before you do anything, it doesn't matter the industry, we'll get to that down the road on this podcast, business is business. The first thing that anybody look to grow business, understand numbers, understand your accounting. And if you don't understand numbers because that's not the part of your brain that works great, make sure you have a good accountant and a good lawyer right behind you. Because at the end of the day, that's what's going to drive the business.

Having said that, the first business that we put together was a fund. What is a fund? It's where you combine several investors into one entity that's going to... It could be an open-ended fund, or closed-end, basically meaning it could have an expiration date, no expiration date, or say that we're going to raise $5 million with the ability to continue to raise capital. So there's a lot of different type of funds and structures. They are typically fee based. So you will have a fee based fund that would have acquisition fees, asset manager fees, and share of their promote, or performance based, with no fees, but a big chunk at the end.

David:

So just to pause you there, just to dumb it down and simplify it for some people. So basically you are looking at a project to acquire, let's say it's a commercial shopping center, it costs $10 million. You go to the bank, you get 40% from the bank, $4 million from the bank, but then you need to raise $6 million more. You don't have that money yourself, or you don't want to use your money, you want to use OPM, other people's money. So now you start going to friends, family, other network people, and you raise the other $6 million from a handful of investors, maybe three, maybe 30. And you might have minimums like $50,000 minimum. And then you tell the investors, there's an expiration date of five years, which means, correct me if I'm wrong, we are planning to sell this project in five years and generate this IRR and this return within five years. Is that right?

Irving:

Yeah, that's correct. So it's projections, and I always caution people to be conservative with their projections. So the first fund was called Sanctuary One, it was strictly to acquire residential properties in the courthouses or bankruptcies though the banks, renovate and flip. A couple challenges with the fund. First of all, when you don't have the reputation, raising capital... The first part, we wanted to do $1.5 million but it took us about three and a half months. A lot of presentations, a lot of convincing. These were two young guys, and what do you guys know about funds, real estate, accounting, legal, et cetera, et cetera.

The second thing that we realize, and that was the first and last fund that we ever did, is we had a lot of investors, and we bought a lot of property. The problem is, when you have so many investors, they don't focus so much on the end, or the numbers, which is... The numbers were phenomenal back in the day. I tell you, there were properties that were making 40%, 50%, 100% return.

David:

Wow.

Irving:

They were interesting times in the economy. People were still trying to figure out what was going on. So during the chaos, very few people were really took advantage of what was happening. But you might buy properties, and then likes four of them, not one. He says, "Why did you buy this one?" And the next guy likes them all, the next guy doesn't like any of them. And you're trying to explain to them, it's at end of day up at the average. We are going to hit targets. And that was the fund.

David:

So it sounds like what you're saying is, dealing with each individual investor, with their own problems, their own issues, their own annoyances, is probably the most annoying part of this fund.

Irving:

I wouldn't say annoying, it's just part of doing basic specialty funds. Dealing with investors means dealing with emotions. So I always encourage people to really sit down and talk to the investors to make sure that they're a good fit for both sides. I'm a strong believer that, if you have a great deal, there's a lot of money out there, and you will find it. But you also want a peace of mind. You want to be able to do your business, and that's why people are giving you money. They're trusting you and your ability to perform. You don't want somebody calling you every five minutes, why are you oing this and questioning your abilities, they're going to give you the money.

So from Sanctuary One we started...

David:

So let's just backtrack again to my original question. So right now, for the people listening, if they're a landlord or property manager, would you even recommend looking into starting a company like Dragonfly, a fund, a syndication deal?

Irving:

Sure.

David:

Pros and cons of doing it?

Irving:

I'll get to that. I think starting a fund or starting a company is exciting. It's not for everybody. I think you need to have thick skin. You're not showing up at 9:00 in the morning and at 5:00 PM you're out. You own your business, you're married to the business, and you are working 24/7, especially first three years. Before you get into it, do a lot of research, speak to people in the industry, ask them about their mistakes. That's going to expedite your growth, and it's going to expedite your success. Learning people's mistakes.

I can tell you one of my early on mistakes was maybe being a little too proud, and not asking for advice on a special acquisition. And all I had to do is just do one phone call, and that person would've told me why this house that we bought from an estate was never going to work. We thought we were getting a steal. And to this day, I show you the numbers, everybody's going to say it's a steal. It's one of the only I think two losses in 10 years that we've had. We've had a pretty good track record. But that could have been avoided by just saying, "I'm going to ask, because I don't know, or I'm hesitant about it"

But I think everybody should... If you have the ability to start something, and you've already had some track record, certainly educate yourself, get the right legal team to help you with the structure. I don't think matters how much money you make, it's mainly matters you get to keep. And understanding taxes is extremely important, as you know, as a successful businessman. So definitely go for it, but be conscious at the beginning.

David:

Okay. So obviously step one is finding a deal. Is that the first step in this?

Irving:

Not always. having a vision, what industry or what you're trying to accomplish. Typically funds or companies are driven by a specific either... For example, DoorLoop. DoorLoop is a property management software. That's all you guys do. You're not into cars. Real estate is the same. You know? When people hear real estate, they hear property or brokerage, but real estate you have debt side and equity side. And then of the equity side, industrial, and you have a lot of segments. So you've first got to choose what direction you want, and really that's where understanding the economy, where things are headed to the future, will help you create a successful company.

So once you find a path, then how I'm going to hit those numbers or those properties, how I'm going to identify them. I'm going to start calling brokers, I'm going to start sending...

David:

That's my next question. How do you find those deals, and how'd you learn how to find those deals?

Irving:

Hustle. When you're young, you're knocking on doors, you're following every... One of the best advice I ever got was from an ex-mentor before he passed away, and he gave me great advice. You want to know where the money is? Go to a tax accountant or go to a lawyer. They do estate planning. They got to tell you who has money and what their appetite is.

David:

I love it.

Irving:

So it was very useful. I started calling some people that I knew. I said, "I need money. This is what I'm doing, I'm crushing it, but just nobody's trusting me. Nobody is believing me because they're saying you're too young, you're going to lose it." But my response was, I'm hungry, I'm determined, and I know how to defer gratification.

David:

And they also want to see skin in the game, I'm assuming. I know that in a lot of deals, you and your partner are in many of the deals, your family, your close friends. So I think if they see that, it adds a lot more trust.

Irving:

Yeah, that goes without saying. You can do a deal and have skin in the game, and if you have skin in the game you have peace that you're getting from day one, investors going to be hesitant to participate, because that's not real skin in the game. Finding the deals at the beginning was all online, going to the courthouse records, find out... Really learning about the foreclosures, which is an intricate... There's a lot of moving parts when it comes to foreclosures. It wasn't as easy. A lot of people lost all their money when they went online and they didn't know what they were buying. They thought they were buying product they end up buying something else.So we were just knocking on doors, and once you have a reputation, a broker tells another broker, "This guy has money. Just bring him deals. He closes quick, he has a great team. And he will shake your hand and he'll get it done."

David:

So what I'm hearing is, foreclosures online, brokers, relationships. How about public facing websites like Zillow or LoopNet?

Irving:

Yeah. At the beginning, for what we were doing, we were searching the web for different real estate websites, where it was Zillow, Trulia, and the counties. The counties provide the data. You really want to know everything about where you live, everything's public information in this country. So it was hours and hours of scouring where you what to buy, and obviously once you get any reputation then banks are calling you directly and they're offering you properties. Brokers are starting to drive to focus on this. So it gets to a point where it reverse, you don't have to look for them, they bring them to you.

David:

Right. Got it. Now you have to start actually fielding deals and filtering them out, basically, which is what you want to get to eventually. Does it help to have a realtor's license?

Irving:

Absolutely. We grew...

David:

Why? Because you have access to MLS, you don't need to pay fees, you can do it all yourself?

Irving:

Access to good sales force, number one.

David:

Like what?

Irving:

Brokerage your own deals, which helps a lot. There are tax benefits of being in the industry, when you file your tax returns from within the industry. And lastly we grew the... Once we stopped flipping properties, we changedand said, nobody's really buying to keep and rent at the time. So we started building a portfolio, and it got quite large at that point. So you can self-manage, but the moment you want to take on other people's properties, you need to have a property management license. And by being a broker, that gives you the ability to manage. So there are definitely benefits, and if not, just studying and learning more skills, I think is tremendous value. So it's quite simple to get your license, and I think there's a lot of benefits if you actually pay attention to what you're reading and learn about it.

David:

Okay. Is there a number one most important part of your business? Is it your internal team, the diligence, financing, banks, investors? Is there one piece of the puzzle that's super important you cannot mess up on? I know it's probably everything, but is there one that you should really focus hard on?

Irving:

Yeah, underwriting.

David:

What does that mean exactly?

Irving:

Underwriting is where you take a deal, and you have this beautiful presentations, some firms will give you 50 pages. Get to the numbers. See the numbers if they work are you making your money from day one, the cash flow in? Cash flow means that day one, the property's giving a return on investment. Or we have to do all this work, and in five years we may sell and make a fortune. That's not like future appreciation. But the key is really understanding what you're getting into.

We like to see returns on day one. We don't like to say, in five years we're going to make X amount, because there is economic risk, political risk, environmental risk, and there's just too many things out of your control. So we want to see things today. Now and then we do go into projects that are a little longer term, but then you hedge the risk. I think underwriting is the most essential part that's going to tell you whether you have a good deal or not. And after that, like I said, legal team, banking... You need great banking relationships, especially in real estate to grow. I think the rule of real estate is to buy with other peoples money. What that means is, the more you leverage, and obviously it has to be healthy leverage, we'll get to that, that's the better the property, the better your return, which means that it's less money out of your pocket and getting maximums in your profit.

David:

Now for someone listening in, you're hearing all these words underwriting and leverage and this, and you don't know what it means. So it sounds to me like the best way for it, if you are interested in doing this, is to work for another company that already does this, and just learn the ropes from them. Is that right?

Irving:

Absolutely. It's either that or having mentors. And mentors come in many forms. I think that if you are persistent, somebody will say, "You know what? I'll teach you. Come listen to the conversations." And ask. Don't be shy. Most people don't ask. And of course I try to mentor one person per year, just because I was fortunate enough to have great people in my life that expedited my growth, not only in business but personal, and I think giving back is very important. So ask the questions. When you hear the word underwriting, you don't know what it is, "I don't know what underwriting is." Nobody's going to eat you alive. We're actually going to say, this person is interested in learning. So always ask. Real estate is a field that has a lot of terminology. Today I'm still learning, and it's been 10 years, and it's exciting. I don't think the learning will ever stop. So just start from scratch whether working from a company, and make sure that company has a boss that's really going to be there for you, not just going to utilize buy if you're going to get anything out of it.

David:

To me, I feel like if you're not doing the due diligence and getting the mentorship for your first deal, if that first deal fails and crashes, is it fair to say that you're pretty much just done in the industry, your reputation is gone from day one?

Irving:

That's a little harsh. It could be accurate. I would tell people, money comes and goes. Your reputation, you have one, and if you damage it, it's like gaining weight. I can gain weight in one week, in a month, but to lose it, it's going to have to be a long time and more effort. So you want to maintain it. You want to maintain a good reputation, make sure you're not known as a liar, you want to make sure that you're a hardworking individual. So you got to be very careful, especially the beginning.

But I can tell you today, Jason and I are very cautious, and over the past 16, 18 months, we haven't really acquired properties. Our investors are asking, what is going on? And we just don't want to force a deal. We believe that patience has got to pay off, and our reputation is more important than doing a bad deal.

David:

So it sounds like also what you're saying is that trust is the most important thing in communication. So if there is a deal going sour, or if it does go sour, the most important part is that you own up to it, you be transparent, you communicate thoroughly, you let everyone know what's going on, and you just be open with everyone, so you can continue maintaining that reputation, and don't try to hide anything obviously.

Irving:

Correct. It's not easy, by the way. When things start going wrong, people tend to... I'm going to get out of this, and what you do is just dig yourself in a bigger hole. Instead of from day one, approaching your investors who might be very well connected, or might have gone through this already, and giving you the answer from day one, while by the time you've told them, it was too late. So something you learn, communication is key with your investors. Don't be afraid to tell them what's happening from day one.

David:

Right. Let me ask you though, are you only as good as your last investment? So if you've done 10 investments, but your tenth one went bad, is that going to destroy you? Or only maybe a few investors might leave after that?

Irving:

It depends. I think it's investor specific. Like I say, you have to choose your investors. You want educated investors, because they know what they're getting into. And if the property went under or you had a sinkhole, sinkhole's a big one with property, nobody does this type of studies prior to acquiring a property. They'll understand. If you defraud them, if you start stealing from the company, you lost your investors. So it's not that simple. I can tell you one thing. Investors get their money, they're happy. They never send you a message saying, "Congratulations, we're very appreciative." Some do, very little. But the moment something goes wrong, they're all ready to pounce. So you have got thick skin, you have to not stress and understand that it's their livelihood, it's their money that they're trusting you with. When things go right, it's expected. You promised something, so you delivered based on what do you really know how to do. They're not going to give you a medal for doing what you know how to do what you promised. But they get mad when you lose their money.

David:

It reminds me of the movie The Big Short, with Michael Burry, where all the investors were killing him and suing him, and then he made them like a 400% return or something astronomical. And it sounds very similar. So for people listening that are doing it themselves, they're in control, they don't need to report to anyone, they don't have investors, they're comfortable making their 8% to 12%, whatever they're making, is it worth it financially doing a syndication like this? How are they making money? Are they making more than 8%? I know you mentioned prefs and preferred returns and all that fun stuff. So can they make more doing this, versus doing it themselves?

Irving:

It depends on the size of the deal. I'm a strong believer, if you have the money and it's a small deal, take it care of that yourself. There's no need to bring extra capital. The larger deals require syndications. Syndication is when you're bringing in outside capital, whether it's another firm to participate with you, or just investors really. When you are what's called the GP, the general partner, the general partner is the one that puts everything together from A through Z, where the one's that are working , or investors are called LPs, limited partners, give you money, and they just expect the reports and the returns. Syndication can also be a co-GP, bring in another firm. The deals for Dragonfly are getting much larger. To date we haven't really syndicated, but I think that's going to start happening as we go into construction, and we are in touch with some groups that diversifies your internal risk, also puts more eyes on the deal, which will help you avoid mistakes.

So you do make more money where you syndicate, because now you have some sort of fee, it's call the promote, which is what the GP is making for the work done. It's not for everybody, but you do make more money, because you're putting your skin in the game and then you're getting a piece of everybody else's percentage, whether it's going to be through fees, or whether it's going to be at the end of the exit.

David:

So it sounds almost like a hedge fund where they take 20% of the profits they get you. Is it something like that, like anything over an 8% return they start making a cut of that?

Irving:

There's so many structures. Obviously every industry has your cookie cutter because people don't want to be creative, and they say this is the standard, we're going to go with this. We're not your typical firm. We like to think outside the box. And it's deal specific, depending of the dealer, you have to figure out what is the risk the investor's taking, what the return they're making, and go backwards. You first have to make everybody around you happy, and once you figure out the formula that's going to make everybody happy, then you think about yourself, and am I good with this? Whether its for one year or five years, is the return investment in my time adequate?

David:

Right. So it sounds like the bigger the deal, the more the upside, and you can make a lot more money than just doing it yourself, because now you're investing in multi-million dollar deals potentially, and you can get a fee as soon as you lock the deal done, get the mortgage, get the loan, whatever, you can make money by charging management fees, you can make money on the upside when you sell the deal and you exit, you get a percentage of the profit. There are so many ways that you can make money. But generally yes, if the deal goes well, everything's successful, you could make a lot more than just doing it yourself, because the pie is bigger, essentially.

Irving:

Correct. But remember, when things go wrong, you have to put up with it., and the grass is always greener where you water it.

David:

I love that.

Irving:

Yeah. Just make sure to keep your grass green, Don't look at the ground on the other side, just make sure you water your grass every day, and you're hedging your risk and understanding the way you do it every time. That's why we don't work forced deals. We want to make sure run successful deals. We're young enough. I'm going to use another word. It's called compounding. Compounding is small grains of sand that could one day to have a beach. So we are patient. We are doing small things at a time and building, building, building, and it's turned into a great portfolio.

David:

Now let me ask you, this is always something that I never like doing, I never like getting into business with friends or family. I know for you it's almost the opposite. I know on almost all the deals there's friends and family joining. So what's your take on that? Because to me, if something goes wrong, it's really hard separating personal from business.

Irving:

Yeah. I can tell you, you have to start somewhere, and typically the people that are going to trust you the most, or at least back you even if it's going to be the family. Got to be careful not to lose any money with the family. That's one key to the success. We started things to support from the different family members, and organically you grow and say, let me just bring my friends, and keep it in-house, because these are people that trust me, and I can communicate properly with. It is only years down the road that we'll start going outside of friends and family.

And there's this different dynamics on both groups, but got to know which family members you can bring on board, or which family members we just can't do business with, and you explain it to them. This is business. I just don't think we are oil and vinegar. We're not going to mix, and it's better that we just keep the relationship that we have. So it's tough. It's tough because then you have 75% of family said yes, whether you're bringing on board the rest of the family's then allowed in, and it does cause conflict. But once again, it's business. You have to separate your emotions. You have to be able to...

David:

It's tough. Yeah. It's tough. But in the early days when you're starting out, you don't have a line of investors looking to invest, so you're obviously going to go to your friends and family. So obviously rule number one is, don't lose money. Rule number two, don't forget rule number one. But you mentioned that one or two deals in your lifetime lost money. What happens after that? Do your friends and family just hate you after that? What do you think?

Irving:

No. So the first deal that lost money was part of the bond, certainly they were not happy to hear what happened. It really was... That's the example with the sinkhole, which has traumatized us internally.

David:

Oh, wow. It's like a black swan event.

Irving:

It is, but it's not. If you look at the map, in central... Actually in Florida, period, there's a lot of sinkholes. And you've seen them in Disney, and you see them throughout the country, but I think the investors understood that we're still making a lot of money for them, and we still sold the property at a huge discount to a company that remediates, which means that they fix this type of issues. But sure, they paid 20 cents on the dollar, I think it was. We lost money in the transaction. It wasn't a big deal.

David:

But overall, you're making the money. So overall, it's still good.

Irving:

Yeah

David:

That's the beauty of doing multiple deals. If one fails, okay, you have nine more that succeeded, overall you're doing great.

Irving:

And that's why, when I meet a new investor or family or friend that wants to invest, I take my time and I tell them, be transparent with me. Tell me what do you have, what are your assets? What are your responsibilities? Do you have a family? You don't have a family, then let's create it, let's diversify your portfolio. At the end of the day, if you treat this like a stock market, you're well diversified, and you have a couple losers, a couple good ones and winners, you're going to average a good return. And that's what has transpired. Most of our investors have really gone through everything in the exact amounts, and even if one is kind of under-performing, the rest are doing great, and we've still got to get out. We know when to cut our losses. I think that's one of the biggest rules of business. Know when to cut your losses, be a big boy, move on.

David:

And also the opposite of that, learning... How do you know when it's time to sell? If you have a great opportunity, do you sell, or do you keep holding?

Irving:

It's funny you ask that question. That was a dilemma last year.

David:

Okay. COVID.

Irving:

No, last year wasn't in COVID, we were getting out of COVID, but the Miami market or Florida market was...

David:

Exploded.

Irving:

Interest rates were so low, they have pushed the prices really high, and people will understand how that relationship between interest rates and price got right and if I have to borrow money at 10%, I can't buy something that's making me 2% any more, or 4%, because I'm losing money on the transaction. Last year we restructured. Sometimes selling is not... Not that it's not an option, but it's not the wise option any more. And I say that because we work really hard to identify good deals. Jason is the one that told me this line how long does it take to identify a project, a while. The underwriting and the closing, which is the investors, the legal, stabilizing the asset, and then when you sell, you got to pay taxes, and then you got to have the cash. And then what you do with the cash? You got to do it all over again. So keep the properties, a massive portfolio. Sure, there's always a time to get out, and we decided to get out of the multi-family, single family portfolio over the past 24 months, we believe it was the right decision, and right away we...

David:

You got out because the prices were so high, it was such a great time to exit.

Irving:

Yeah. It was a lot of factors that played a role into this issue. Deffered maintenance which means that the properties were getting older, and we had a lot of the AC units, and these are student housing that we had a little bit, low income, to the roofs, the ACs, the water heaters, we saw that we were going to have to write large checks, and people were paying way over reconstruction costs, which means that they're paying more than what it cost to rebuild it. So it was a good time. We said, you know what? It is taking a lot of time from the company, having all these small properties. Let's liquidate, let's put that money to the bigger projects. And we don't take the money out, it's just all about compounding, putting it to work again, and do the same thing. When something is low or high, or refinance business proceeds and putting them into new projects.

David:

Got it. Okay. Now moving on, after you acquire the deal, you have the investors, you acquire the deal, now you're running it, managing it. Do you do everything yourself in-house? Do you manage it yourself? Do you hire a property management company? What do you do?

Irving:

Deal specific. There are deals that don't require much. They're triple net leases, which means that tenant pretty much pay for everything and doing everything, all you're doing is just collecting money. There are deals that are labor intensive, and lease negotiations or construction. We don't have employees really. We have three people at the office, Jason, Julie, and myself.

David:

Very lean.

Irving:

We all have our roles, and we outsource for example is, on the retail centers, there is a day-to-day management company. But when it comes to the big decisions, the lease negotiations or leases or insurance disputes or legal or refinances, we do it all in-house.

David:

Okay. Got it. And even going back a step further now, just looking at some of my notes that I forgot to ask you, so when you were just getting started on your first deal, how did you find that first bank and convince them to loan you money?

Irving:

Find a bank during the post collapse of 2007, eight, it's not easy. Jason ended up with a client who was a lender in California, and that was our first lender. We ended up doing a CMBS loan.

David:

What does that mean?

Irving:

It's a commercial tax security. Basically it's a loan that gets sold in the secondary market. So it's a loan that's going to then be resold in pool with other loans, and they typically get serviced by a national company, like in this instance I think it was PNC was the serviceing agent. Servicing is when you have a mortgage, and somebody has to contact the borrower and collect the payments and send the letters, and make sure that they're paying the property taxes, et cetera, et cetera. Good or bad. We cashed out 100% of what we had put in the properties. That was a beautiful part about that era. You can't replicate how fun it was to buy so much real estate, and the bank says, "Here's pretty much all your money back, again and come back to us."

But you learn that debt came with a lot of restrictions. We were pretty much married to them in a way, because we have a huge prepayment penalty, and it was a step-down ladder from 10% from year one, and then year two, 9%. So you want to sell the portfolio, it was going to cost a lot of money. So I always tell people, there's a lot of different types of debt. Really understand what you're getting into and what are the routes.

After the first bank, things started getting a little easier. You still have to present the banks with the information about the project, but what they really want to know is who you are and what your personal financial statements look like. And a personal financial statement is pretty much your assets, your liabilities, everything that you have, all your bank accounts, do you own jewelry, do you have a car, self-employed, all your assets, stocks. So the bank really takes an interest of who you are. And once you start building that reputation, and the economy starts getting a little bit more fluid, the bank situation became easier. I could tell you, at the beginning it was a little bit of a struggle.

David:

Okay. Now I know, after you do a few deals with the banks, you start having these great relationships, you can call upon them, and it's like a very good friendship, almost. So you mentioned before that it was a while until you started inviting or allowing investors outside of friends or family. When did you decide to make that change and why?

Irving:

To this day, we still apply the same mentality. Before we bring friends and family, we put our money to work, make sure that it is a deal that we know how to execute. For example, the affordable housing, we've been studying and meeting with governmental agencies and local developers for about now 12 to 16 months, I would say. We feel confident that we know what we're doing. Even then, we're still bringing a partner to help with everything, until we really feel comfortable that we might not need partners, or we could just do it ourselves. So the deals have always been like that. We know how to flip properties, we can put a fund for the properties. Before starting inviting investors such as yourself to the commercial portfolio, we were acquiring some properties on our own with some groups that now we have formed a good alliance with. So you're ready once you know what you're doing, and you feel confident that it's going to turn out... It's not, I just jumped in and I'm going to raise the capital and pray for the best.

David:

Right. Okay. Got it. And then we got the last two questions, then we're wrapping it up here. So what is the most important part dealing with investors? Is it communication? Anything else?

Irving:

They just want their money.

David:

They want consistent distributions, basically.

Irving:

Yes. It depends. Obviously you can have the younger people, older people, they all have different appetites. It's communication. It's them feeling that they're family, that they can call you at any time, and you're going to take your time and treat your $25,000 investor the same as your $2 million investor. I think that's been the success of Dragonfly in a way. Sure, we've performed well, but the only reason we've gotten to where we are is because we have great investors that continue to trust and the trust was mutual. We gain their trust and they gain our trust. There has been proper reporting. If they had a doubt, just call it right way.

David:

Right. I remember that's one of the things that made me so attracted to you guys when I was looking for a place to invest, diversify my money. I was talking to a few different funds, and when I asked... And I was still new, I didn't know anything. So I asked you, I think it was like 15 questions I put in an email, and you called me, you walked me through every single question. It must have been an hour phone call. I must have taken three pages of notes. I'm like, wow, you educated me so much. I did the same thing with another fund. I sent to them like eight questions. They were like, "Are you in? We need the money." I sent them the questions. An hour later, "Sorry, we're oversold now. We don't want your money any more." I was too annoyed. I guess they don't want my money. They want, I guess, I don't know, what you call stupid money. They don't want people asking questions. So that was big.

Irving:

That's the thing. When you start poking holes... And I encourage people to really take a look at the presentations, and always go and it's going to work. Because if it's going to work, you're going to be happy. Try to find what's wrong. Always start with, what are going to be their challenges? And ask those questions. We do pride on calling the investors, especially the new investors. We had an investor from two years ago, big time investor, young couple that made a lot of money, and I think it was three to four months where we did not allow him to actually invest in absolutely any investments with us. We sent emails, you got to learn all these different issues the deals, ask the questions, and when we feel you're ready and you're acclimated, because you are now educated, more than welcome to participate.

And we're still going to cap it. We're not going to let you just come in with whatever amounts. Start small, understand how things work, and that's what we like to do. I think we're educators in a way. We have passion for what we do, and we love helping people. The amount of times you and other friends say, "What do you think of this investment?" I'm going to be objective. I'm going to tell you, I would ask all these questions. And if a firm answers them correctly, and you're satisfied to cooperate and they're telling you a billion excuses, maybe this investment's not for you, or we're oversubscribed, you ask the right questions. And nothing wrong with not participating.

David:

Yep. Totally agree. So I think that is it. Is there anything else that I am forgetting to ask that you wanted to cover or mention? Any final words of wisdom?

Irving:

No, just advice. If you're going to do it yourself, you're going to be investing, have patience, choose the right investments, try to be disciplined, always find the investment that has good fundamentals, and then just continue. If things don't go right, don't give up. Just work hard and you will ultimately succeed. We're in a great country that gives opportunities to whoever works their ass off. So having said that it was a pleasure. Thank you for the opportunities, my first podcast ever, so hopefully the first of many.

David:

Awesome. Yeah. It was fun. So if anyone wants to follow you online or contact you, do they go to your website? LinkedIn? What's the best way?

Irving:

You can add me on LinkedIn. The website has our email addresses, I'm pretty sure. You can always reach out. I'm more than happy to help if we can. And if not, we're sure to guide you to somebody that can.

David:

Awesome. And for everyone listening, the website is dragonflyri.com. What does the RI stand for?

Irving:

Real estate investments.

David:

Love it. So dragonflyri.com, and we're going to put Irving's information, bio, LinkedIn, everything in the description of the podcast. If you have any questions for him, he'll be more than happy to help out and get in touch. I know that from personal experience also. And once again, for everyone listening to the podcast, you can go to doorloop.com/podcast to find more upcoming podcasts or listen to existing podcasts, or even suggest and recommend a future podcast.

So with that being said, Irving, thank you so much again for the time. I really appreciate it.

Irving:

Thank you, man. Take care.

David:

Take care.

Thanks for listening all the way to the end. Don't forget to give us a good rating on whatever platform you're tuning in from, and we'll be back soon with another new episode. We hope to see you there. And until next time, this has been Loop It In.

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