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Legacy Wealth Episode 4 | Relationship-based Lending & Joint Venture Partnerships with Fadi Boumitri
Attorney Fadi Boumitri tried his hand at everything, from single-family homes to rehabbing and flipping to rentals and cash flow positives. Things changed, though, in 2013 when he invested in his first apartment building—it was eight units and it cost $30,000, plus another $50,000 in rehab work.
That first year, Fadi generated $27,000 in net income from the building, a staggering 33% ROI.
The deal, he explains, wouldn’t have passed the attorney sniff test but, still, he moved forward. As he unpacks in this episode, liability is always outweighed by benefits—put your boots on the ground, march forward and clean up the paperwork mess layer. While you’ll always do baseline due diligence, being an entrepreneur is all about taking smart, mitigated risk—because, at the end of the day, that’s where the reward lies.
Another source for rewards? Relationships. In this episode, Fadi talks about tapping your inner circle—the people who know you and trust you—to generate capital for your real estate investing. The reality? In the beginning, you’re a no-name—and no one is calling a no-name to fund their deals. Your friends and family, though, know what you’re capable of and, with the right positioning, will be happy to throw money in your direction.
What You’ll Learn:
At the end of the day, business is a relationship game—here, 1 + 1 = 3, as you’ll hear over and over in this powerful podcast. There’s always an abundance of wealth and always an opportunity to sync with partners, friends, family and investors to take your business to the next level—and beyond. Know those strategies and you’ll be well-positioned for success.
Fadi: 00:00 So I shouldn’t start by telling you how much I don’t like Dolmar, Francis and Brian now.
Tim: 00:05 Don’t say that out loud!
Tim: 00:20 Alright everybody…Tim Bratz here with the Legacy Wealth Show podcast. Excited to be coming you guys today, got my good buddy and business partner Fadi Boumitri here out of Cleveland, Ohio and we’re going to be talking to you guys a little bit about–actually a lot–about different relationships attracting A players into your business.
Tim: 00:40 Kind of a mindset shift of what took both of us from being small business owners and solo entrepreneurs, joining forces and building a big business out of it with hundreds of millions of dollars in assets in our portfolio. And we’ll hit a billion dollars over the next 24 to 36 months in assets and property and we will launch a big fund. We talked to you guys but that whole, you know, transition and how we’ve grown and how that snowball effect really kicks in. So Fadi Boumitri…appreciate you being here, brother.
Fadi: 01:13 My pleasure man. Always a pleasure to be around.
Tim: 01:15 Cool. So let’s talk a little bit about I guess how we met, just high level. Fadi and I actually went to high school together; he’s a older than me.
Tim: 01:25 We played basketball together, we knew each other in high school. We were kind of buddies but not like tight friends, and then knew each other in college and had some mutual friends and saw each other at college little bit and then I moved out to New York City and then Charleston, South Carolina. He got his law degree here in Cleveland and when I came back from South Carolina, after I got engaged and married to my wife, I was deploying, starting up a real estate investment company here in 2000. At the end of 2012, beginning of 2013, I contacted Fadi and I knew he was an attorney, a business attorney. I ended up reaching out to him and asked him to be our business attorney. Anything I missed there?
Fadi: 02:04 No, just as soon as law school ended I hung up my own shingle, started working on my own. I came from a family of entrepreneurs so I always wanted to do the same thing, wanted to be out on my own and that’s when Tim came around. I had been a few years into my practice and he gave me a call and said that he was looking for a few things. I was happy to put some of those together and then basically every year we grew and our business together grew and I got to see from the inside everything that you were doing and it was always kind of fun to watch as you grew bigger and expanded into different assets and even more so how things went well and how some things didn’t go as well and how you reacted to those things and what we were able to do in various situations. But essentially the relationship really became what it is today based on what six years of being your attorney and various different things.
Tim: 03:05 Knowing the inside and out and you still want to be my attorneys or partner up on some stuff! So, that means a lot. One, appreciate you and all that that we’ve been through together and I think you bring up some really good points. Maybe we should dive into some of that stuff because a lot of people see kind of where you are today.
Fadi: 03:19 They don’t see where you came from and all the…the grind, the getting kicked in the nuts, you know all that that comes with getting to where you are. I mean I’ve been in real estate, bought my first house 10 years ago this month and been bad at real estate for probably 6, 7, 8 years. I got pretty good at it the past couple years. But you got to go through a lot of that in order to get to this place that you’re at now. Right?
Tim: 03:47 So I saw early on, 2012, 2013…the beginning of 2013 when I bought my first apartment building, actually. So I was doing a little bit of everything; I was buying single family houses to flip, like higher end stuff at the $300,000 price point and lower end stuff, $100,000 houses. Again, I’m in Cleveland, Ohio. So that’s kind of the market here. And then, we were looking at some single family rentals in the ‘hood. This is 2012, 2013 where we were buying single houses for 10 or 20 thousand dollars that were already rented for 6, 7 hundred bucks a month. And then I fell into an apartment building; I found an eight unit apartment building for $30,000 put another 50 into it, all into this thing for 80 grand and $10,000 a unit, all in, a renovated building and it’s kicking off about $27,000 a year in net income.
Tim: 04:44 So, a 33% return on my investment on that thing. And meanwhile Fadi is doing a lot of our legal work. So he’s handling evictions, right. You are handling business docs that were being drafted. Anything else that we needed. Leases, all that kind of stuff, so he knows this stuff inside and out from a business documents standpoint and understands although he is an attorney, he’s more of an entrepreneur who just found himself in an attorney role. And so I always knew that he was very entrepreneurial. That’s why we got along really, really well because he could see it, not just from the standpoint of what do you do in this situation. Can you do it or can you not do it. It’s how can you make this happen and maintain legalities and do it the right way. Anything you want to talk about on that?
Fadi: 05:32 Yes, I’m sure.
Fadi: 05:34 I can go all day on that, how many times I’ve had people come to me and tell me that you know I’m not like the other attorneys they’ve talked to because most of them just tell them, no they can’t do this and no, they can’t do that and the reality is there’s a lot of things that you can’t do from a legal standpoint, but what a lot of attorneys will shy away from telling you is that you know there are risks and reward and sometimes you have to take those risks even though you know, hey you know what, from a legal liability…not a legal I should say…but a liability standpoint, that’s a high liability proposition.
Fadi: 06:08 And an attorney as the person who’s supposed to reduce your liability will tell you not to do that.
Fadi: 06:14 As a business person myself, I’ll tell you that the liability is outweighed by the potential benefit. And what you’re going to see as a return from that. And so, you know sometimes it makes sense to put your boots to the ground first and then clean up the documents later. Now of course, I’ve also been on the other side of that too, many times, where people decided they were going to start a business and not put any documentation together at all and eventually that ends up with an attorney trying to clean it up and it’s always much more expensive that way. But you know, there is something to be said for the weighing the pros and cons of making the business decision versus making the smart legal or liability decision. And I think that’s where you and I kind of always got along is we’re willing to have a long, one hour conversation as opposed to a simple yes or no on how can we make it happen.
Tim: 07:03 The resourcefulness is always something I look for in partners and employees and people I joint venture with. Don’t tell me that I can’t do something. Tell me how I can do it and stay within the bounds; obviously want to keep everything legal, moral, ethical and never ever push any of those risks. But at the same time, there’s ways to get around things or there’s ways to figure it out, you know. And like Fadi said, sometimes, you know, it might not be a major risk or major liability. Yeah maybe something…but the benefits far outweigh the potential risks. And I’m not saying, you know, push the boundaries of not doing something legally. It’s just like do you need the documentation perfectly executed, every little T crossed and I dotted before you actually start taking action on your business. Now sometimes, you don’t necessarily have to do that if someone wants to sign a big deal and you can move forward and doesn’t have to be all dialed in. Sometimes it’s a smokin’ opportunity, a smokin’ apartment building for instance, and the attorney may say, hey I need this thing executed right now today. And the attorney can’t get to it until tomorrow. Sometimes it makes sense. You’ve got to juggle the pros and the cons on that stuff.
Fadi: 08:20 Again you’re taking a legal risk there and what I said before…when I say legal, I don’t mean he’s going out to try to kill somebody or he’s stealing or anything of that sort. What I mean is have you put together the documents to do this in the right legal way? Have you done it in a way that limits your liability? And sometimes even though you haven’t, you have to take the risks and you have to take the chances because the pros outweigh the cons and you can’t wait on some other people. I always tried to make sure I got documents back to my clients as quickly as possible and I prided myself on being available at times when other attorneys weren’t. But the reality is sometimes you can’t wait on somebody else for something and you’ve got to get something done now.
Fadi: 09:02 You’ve got to make sure that you’re at least doing your baseline due diligence. You shouldn’t go out and make deals with people you’ve never met before, people that you already know have a tendency not to do things in a proper way…no, of course not. But you know I’ve had people come to me and say, hey me and my wife are starting to invest and we’re thinking about doing X, Y and Z and we went to an attorney and he wanted to put together this elaborate plan for us for $15-$20 thousand dollars and my question for them is how much have you invested so far? Their answer is nothing. And I go, well why would you spend 15 or 20 thousand dollars to do something you haven’t even started doing? You don’t even know if once you jump in you’re gonna want to stay in this thing. You’ve got to get your feet wet a little bit. You’ve got to do things in a responsible and smart way but also don’t shy away from the risk. As an entrepreneur, if you’re not taking at least some risk then you’re not going to get any reward from it either.
Tim: 09:55 I love that. So I have a couple of things I really want to make sure that we hit on, which is a little bit more about how we started partnering on deals together. I think that’s really important to talk about that. And then also Fadi has invested in projects with us. He’s obviously our in-house legal, now in-house attorney now and has partnered on all our projects today and helps raise money for our deals. And then also–he does a bit of everything. We’re launching to fund so we’ll be talking about a little bit about that too. So let’s fast forward though. So you had mentioned something regarding partnerships and we’re coming to you telling you about how good of a partnership we have today. He had actually mentioned something about a bad partnership that broke up. So when I came back to Ohio, I partnered up with a couple of guys who could put up the money. I did the work and then we just kept on reinvesting all the profits.
Tim: 10:56 And there were a couple of moving parts on it…for different reasons and different alignment of visions of long term goals and who thought who was carrying what weigh…they could tell you a story, I could tell you a story…it’s probably somewhere in the middle of what it actually is.
Tim: 11:15 And so I’m not going to tell you that, you know, my side of the story…for whatever reason, it didn’t work out. And it was a very, very difficult, very stressful time in my life to the point where they thought they should be overcompensated. I thought I should be overcompensated or more compensated and we ended up both lawyering up. And I contacted Fadi as our business attorney said, “Hey dude what do I do in this situation?”
Tim: 11:41 And Fadi said…
Fadi: 11:52 Well first, you know, obviously each side had to get their own attorney because I was representing the LLC and said no. I had the I had the ethical obligation to say no and so Tim went and hired his attorney, and his partners hired their attorneys, and I was on basically every call, you know, from the from the company’s perspective trying to make sure that they knew what was going on with the company and thankfully there was a strong long operating agreement in place that kind of spelled everything out. And you guys were able to clean things up, but more important than anything, this is one of the reasons why Tim and I got along so well because throughout this entire extremely stressful process, Tim, instead of being vindictive or instead of trying to be petty and try to hurt people or anything of that sort, I watched him for a matter of a few weeks clean up what some people take years to clean up because he was willing to take things to a higher level and think about things in a much better regard as far as long term visions. And you know, his business acumen came out so great in this dire time when he was able to put his personal desires of hey I want to be able to do this…
Fadi: 12:58 …Or wanting to hurt them even worse. He never once said, hey how do I hurt them. It was more, so how do I get back to making money and let them get back to making money. If they want to do these things, they can go do them on their own.
Fadi: 13:10 And if I want to do these things, I can go do them on my own. That 30,000′ view of his own life is kind of what drew me to be his business partner because most people can’t get themselves out of the weeds to really think about what’s the smart way to approach this as opposed to what’s the right thing right now, what can I do to hurt them so they back down. And let’s be honest; the majority of the time when you’re talking about entrepreneurs you’re talking about Alphas and you’re talking about people who when they get bit want to bite back in a bigger way and Tim was able to take that step back and say, you know what I’m not looking to bite them; that doesn’t do me any good. What I want is to find a way for them to be happy.
Fadi: 13:53 And for me to be happy, and for both of us to be able to shake hands and walk away respecting each other as business people and just move on with our lives. And it was really eye opening. I think at that point I had been your attorney for four, five or six years and just watching that really opened my eyes to it because I’ve seen a lot of partnerships that don’t end that well and people don’t think about it that clearly and it really puts into perspective the kind of person that you are or you were in that time and it made me realize the kind of people that I wanted to be involved with. A couple of years after that, not too long after that, we started doing some deals together and the deals got progressively larger, whether it was lending money or partnering up on various deals.
Fadi: 14:39 It just progressively got bigger and bigger, because I already had six years of comfort knowing that I had seen all of your operations from the inside. And more importantly, more than anything else, knowing how you react when your back is up against the wall and you’re dealing with a divorce between partners and seeing what where your mind was, rather than being down in the dumps and how do I hurt people. Seeing what that was really gave me the kind of the comfortability…the comfort to say, you know this is somebody that I would I would trust with some of my money or with my family’s money or with partnership. We’ve done a couple of very different deals and whether it’s real estate and some business deals…you know, that comfort is all from experience. It’s actually one of the things that you taught me is relationships.
Fadi: 15:34 I went out to the people that I know already and I built the relationship over years and years without ever knowing I wanted anything from these people, whether they be family members or people I’ve known my whole life or even clients. And when I went back and told them, hey I’m partnering with Tim and we’re doing various things in the real estate realm. I almost had money thrown at me because these people I had built my reputation and my relationship with these people for a number of years and never asked for anything and I never offered any more than what was there.
Tim: 16:11 I like I like where this is going so I want to talk. I want to come back to those relationships and raising money for deals from your existing network because of those relationships that you have. Before we dive into that, I think this is an important piece that we’re talking about, of good partnerships and bad partnerships. As an attorney, you know better than anybody you know how to set the stage and that you cannot predict what’s going to happen in the future. I think that’s probably what happened in my situation. Life happens, business happen…you know, when you lose money, I’d say we lost money but we had short cash flow, those type of things we had a bunch of money with a 10-31 and some cash flow issues before redeploying the money, and so that came up with some issues. And so when you when you’re not making money, you see how somebody really comes out right.
Tim: 17:03 God forbid you make money…people can get really ugly, right? And so for us, I think where I went wrong is–you know everybody looks at it as a business, they think everything’s all going to be glamorous, amazing and they don’t realize, even for better or worse, I’m not even trying to be malicious. but life happens. Like you could have kids, you could have a relative get sick, maybe you don’t want to light the world on fire and build this monumental business anymore, maybe you get sick, and you take a step back and say, hey I just want to spend time with my family and that’s okay. But how is the business set up to make sure that you’re not adversely affecting your business partners or anything in that regard. And so for me, I think we got to a point where life happened; life was happening for them, life was happening for me and I think the biggest issue that we made or that I made was that we got married with everything that we did across all businesses, other ones different than our partnership.
Tim: 18:04 We’re partnered up on a per deal basis, kind of like as a profit share based on how well the company does overall. So if something happens to me, if something happens to Fadi, no problem I can keep on growing my business, he can keep on growing his business. It doesn’t adversely affect all of our other businesses or everything we do together. Yeah, we are partnered on but it doesn’t it doesn’t stop us from doing other things; we choose to be in business together versus being forced to be in business together. You know I think that’s a that’s an important piece that we’ve been able to kind of dial in over time.
Fadi: 18:38 A couple of things from that. Number One is everybody thinks everything is going to go great, but make sure you have your paperwork together because most companies are going to end up in a situation at some point where the partners don’t agree. It’s just reality. Whether it’s because you guys didn’t have aligned visions from the beginning or whether it’s because your visions have grown apart over time, it doesn’t matter. At some point, there’s going to be hard questions that need to be answered. And so, Number One, you’re operating agreements, your joint venture agreements…your documentation needs to be there. But Number Two, this isn’t just a partnership issue. It could be an employee; issue exactly the same principles apply and that is you need to set expectations early on. You need to make sure everybody’s on the same page, whether it’s training or an employment agreement, whether it’s a partnership agreement an operating agreement, whether it’s a conversation that’s memorialized…just saying here’s what I expect from you, here’s what you expect from me.
Fadi: 19:35 How do we move forward and keep those expectations in mind? And the reality is, at some point, those expectations are going to change as the business grows. My place in the business may grow. My place in the business may shrink depending on what direction the business takes, but you’ve got to be prepared for all of those things. You know, I’ve been fortunate and unfortunate enough to be a part of many, many different business break ups. As I said, I didn’t have to personally be involved in but as an attorney I was involved in and I’ve seen brothers and sisters, siblings that get into arguments; I’ve seen cousins that get into arguments, I’ve seen…you know, the bottom line is everybody thinks things are going to be great initially and then things start to really pile on. Everybody thinks that what they’re bringing to the table is the most important part. But eventually, you know, sometimes your portion shrinks or your portion increases and then somebody feels like it’s unfair and you’ve got to have expectations set in order to avoid that happening from the beginning.
Tim: 20:41 Expectation is everything in every relationship, whether it’s with your spouse, with your kids, with your business partners, with your tenants, with your business partner or your joint venture partners or your employees. Doesn’t matter who; expectation setting is everything. And setting very clear expectations of who’s responsible for what and then putting metrics in place to measure those expectations and be able to account for and keep people held accountable also. So all important stuff. So let’s fast forward. All right…so I go through the business break up, I start doing business on my own. Liquidate all those properties that I’ve had with those partners and ended up getting into the turnkey space, I was flipping some houses and trying to keep the lights on that way. Meanwhile, I’m investing in some apartment buildings out of state with some other business partners and helping sponsor some of those loans, raise money, do some things like that. You’re still our attorney, you helped us start up the management company. All sorts of different things, and so eventually it came to a spot where I was actually buying this office and you came in as a private investor on this office, right? It was $250 grand, I think , $250 grand Fadi initially lent me in order to buy the office and kind of get some construction stuff rolling. And then, I had a good relationship, and paid them all.
Tim: 22:07 And like, you know, I paid you off, or the majority of it initially, and then a little bit of it went a little bit long, and then we rolled it into another deal and then we rolled that into another deal the other…
Fadi: 22:48 And we’ve done numerous deals at this point even before I became part of every deal. We had done numerous deals together and, you know based on what I had seen, his performance with other people, based on the legal work I had done, based on some of the settlement payments that I had sent out on his behalf…some of the times, we had conversations about, like “Hey Tim where why are you paying these people a full year in advance for all the interest?” And you’re like, “Well I want to make sure they understand that I’m taking care of them.” And these are all the reasons why I got more involved. And then, when you and I started talking about partnership, these are all the things that are filling the back of my head and these are all the things I’m thinking about as Tim is asking me to take all that entrepreneurial spirit that’s inside of me and take that 8,9, 10 years of building my business and kind of put that to the side so we can grow something together. One of his famous lines is one that he used on me a few years back when we started talking about this, and he goes you know I would rather have 25 percent of a watermelon than 100 percent of a grape.
Fadi: 23:20 And I go, am I that grape in this situation?
Fadi: 23:22 And he did say that. He helped me realize that, you know, my law firm, as much as it provided what I needed it to provide and it created the relationships that that I needed to grow to where I am today. It was a great mentality, I was thinking about keeping 100 percent of something small for myself. And in reality, I was capable of being so much more by partnering up with Tim and with others. You know, he helped me realize that there are other people that I could be partnering up with and I have. And it’s been an absolute life changing experience for me. Just getting to know the fact that I could rely on other people if you set those expectations the right way.
Tim: 24:02 What do you think was the catalyst in the mindset shift? Do you think it was the mastermind?
Fadi: 24:07 One hundred percent. There’s no doubt in my mind that two years ago, basically right around now two years ago to about the date, my entire life changed because of going to what Tim called a mastermind and I kind of blanked and had no idea what he was talking about and then I said “A bunch of guys sitting in a circle master doing what?
Fadi: 24:28 So Tim convinced me; believe it or not, you’re going to love it.
Fadi: 24:33 He convinced me, a cheap attorney, to pay money to come to an event, that cost thousands of dollars where I just talked to other people about my problems.
Fadi: 24:45 And I said it doesn’t exactly sound like my thing but he also paired it up with a cab suite during the playoffs and so I said you know, what’s the worst case scenario I go with this, I have some fun and so I came to my first mastermind and literally it was a mind blowing experience. I have changed basically everything about my life financially. Based on that first mastermind and then a few months later when he invited me to my second mastermind, I had changed almost nothing but decided I was going to.
Fadi: 25:17 And when I went into that room and sat across from….
Tim: 25:21 However, you did raise $700,000 dollars for a deal 30 days after coming out to the first mastermind.
Fadi: 25:25 So that’s part of it…
Tim: 25:27 Wheels were turning….
Fadi: 25:29 It’s part of the, hey I’m setting things in motion but I haven’t done it yet.
Fadi: 25:33 And then, there was accountability in that second mastermind. Out of the 15 people that were there, three of them had been in the prior mastermind before and they asked questions about, hey have you done this have you changed that. And the bottom line answer was I hadn’t changed as much as I should have. So after that second mastermind and the accountability, and once again reaffirming everything that I heard and everything I learned in that first mastermind, I decided I was going to make big leaps and I mean legitimately. I’m 100 times better off now than I was back then, not just from a financial perspective, even though that’s true too, but from a lifestyle perspective. I’m working just as hard as I ever was, but I’m so much happier with that work because I’ve got a team of people around me that are constantly getting things done outside of me.
Fadi: 26:22 We are able to grow a much larger pie together because we have a few key people doing what they’re good at and various places instead of me doing everything across the board. I used to laugh and tell people that I was…I had a terrible boss, my secretary was shit, nobody ever listens to me. And people would laugh and go, “Don’t you work for yourself?” And I’d go, “Yeah. My boss is a dick. My secretary is me. So she’s terrible at her job. I’m terrible at my job.” Nothing is getting done the right way because I’m relying on myself to do everything and that was really the mastermind. It was the mindset shift from those masterminds which allowed me to really grow my personal pie whether it’s financially or whether it’s just the business aspect of my life. And, believe it or not, that very quickly translates over to the personal life too.
Tim: 27:15 Big time! So I see Fadi go through the transformation and I realize that he’s an entrepreneur stuck at attorney’s, you know, business, right but he’s got an awesome skill set, fantastic skills that actually counterbalance what my skill set is. My skill set is more, you know…the marketing, the sales, the interactions and all that. Fadi is a hugely personable guy and really good at that too. He’s also really, really good at the details, really good at making sure all the T’s are crossed I’s are dotted. I’m a “Hey, let’s just rock and roll” and move forward person. I’m a “jump and then figure out how to fly on the way down” kind of guy. And so we’re really good at balancing each other out on the business side of that. So I see Fadi going through this mental transformation, we start doing more deals together and start investing in more projects together and it gets to a point where you know there’s a six figure, multiple six figure talent and I’m at a place in my business a couple of years ago where we’re doing well but we’re not to a place where we can hire somebody on for multiple six figures.
Tim: 28:25 So, I’m thinking what is he looking for. He’s sitting through enough masterminds and he understands business as a family. A lot of entrepreneurs, they understand that legacy wealth right that that earning residual income earning passive income and not necessarily just the transactional income that attorneys get paid. And so Fadi, I realized he’s looking for that. He’s got a couple other businesses that he’s got his hands in and but really has no real estate and his whole life ahead of him as well too. And so I’m thinking how can we partner up, how can we joint venture where I don’t have to get married to him. He doesn’t get married to me. And at the same time, it solves his issues of creating that legacy wealth and of getting equity into projects. It solves my issues of not having it take on an employee for six big multiple six figures.
Tim: 29:24 And so I thought, hey what if we just joint venture on deals. And we started joint venturing. So Fadi earns a base salary, just like everybody else in my company does. And then he gets equity in all of the projects that we do. So it’s a way that I can pay him a salary that was enough to make him feel good and see money from Day One and then understand the long term mentality of having equity in deals where all of a sudden he gets a percentage of the refinance proceeds, he gets a percentage of the cash flow. It’s percentage of all the ongoing profits and equity that grows in the properties as the principal amount is paid down and as the property appreciates over time. And so it’s been a massive win for you, a massive win for me because I’m able to attract A-caliber talent without having a stroke a big check right now.
Tim: 30:13 Now it does cost me a lot of equity, a significant amount of equity; he’s increased his equity by seven figures since he’s been working with us. He’s increased his net worth by seven figures since he’s been working with us. But it allows me to stay in my genius zone, it allows him to stay in his genius zone and me giving up seven figures in equity and projects allows me to create multiple seven figures because now I could do more deals, we can do more deals together and be involved in more stuff together. So, one of the things I tell people is that wealth is not a finite amount; there’s not a finite amount of wealth. Wealth is like sunshine. There is plenty of sunshine for Fadi to get sunshine, for me to get sunshine. Him getting more sunshine doesn’t take any sunshine away from me and I think wealth is the exact same way. The more wealth he gets…there’s plenty.
Tim: 30:58 He’s not taking any wealth away from me and we can actually make more wealth together…one plus one equals three in this in this scenario. So it’s powerful stuff and that’s been a major mindset shift for all of us and because of us being able to focus. I’m happier because I’m not doing all the things that I was doing, like reviewing legal documents which is not my genius zone. My highest and best use of my time is doing podcasts, is sharing on social media, promoting others, helping other people get inspired to go build legacy wealth themselves by buying apartment buildings and maybe we can do some more deals together. They can actively invest with us, they could passively invest with us; somehow we can start doing more stuff together and again, rising tide lifts all boats kind of thing. So it’s been really, really impactful that we’ve been able to figure that whole piece out and do it again. We’re joint venture partners because he can still do other deals if he wants, I can still go out and do other deals if I want but I don’t want to. Why would I want to do that? This is like it’s too good of a relationship. It’s working out way too well to go outside of that.
Fadi: 32:08 If it’s broken, don’t fix it. We keep seeing what we’re able to do together and know there’s no reason to go out and…listen I’m not saying he doesn’t do things outside of what we do and I don’t do things outside of what we do but there’s just so much going on with what we’re doing together. Every day it gets bigger and it gets better and sometimes we look at each other and we wonder how it’s working out so well and you know we got to thank God every day for what is going on in our lives. But it’s also because we trusted in each other; it’s because we trusted in the team that Tim has built even outside of me. He’s got a number of people that work for him that are just absolute studs doing what they’ve got to do every day, day in and day out, and it’s that kind of team, it’s that kind of mentality, it’s that…you know, if he talks about sunshine and not taking sunshine away from each other, it’s actually quite the opposite. It’s almost like we’re bringing mirrors into a small room and letting a little bit of sunshine in those mirrors are brightening the entire room because of the fact that, you know, they’re just bouncing off of each other and creating more and more light.
Tim: 33:12 Instead of adding, it multiplies.
Fadi: 33:12 Really…I mean it tremendously multiplies. The one plus one equals three is kind of an understatement because as you add in one it doesn’t go to three, it goes to five and then it goes to 15 and before you know it, you’ve created a giant off of the shoulders of a couple people who…each one has their specialty. They have their tasks, the things they’re good at. But because you’ve put the right group of people together to do those tasks, they complement each other enough to really just create 100 instead of one plus one equals two.
Tim: 33:45 It’s called the abundant mindset, not the scarcity mindset–abundance mindset. There’s plenty to go around for everybody. So speaking of, we’re moving into the next business venture that we’re starting together which is we’re launching a 506(C), which is a general solicitation, credit investors only type of investment fund that we’ll be raising money for different investment deals, partly building deals, some bridge financing, bridge gap financing, gap lending, all that kind of stuff. So a lot of good stuff going on there. Working with two other groups of partners that are involved in that with us too. And maybe you can talk a little bit about the relationships going back to what you initially talked about, of those relationships that you currently or already had at then when you talked to them about you investing in real estate, you partnering up with us and start doing some deals together, people started throwing money at you. What did that relationship-based business and lending all look like? What did these people…because you already had a lot of credibility built up with them. They were already interested in investing with you and kind of going to the next level, right?
Fadi: 34:59 Absolutely. So the first big deal that Tim and I did together, and I say big from my perspective, you know we had done a number of deals together but in the $100K, $200K, $250K I think there was a $300 in there somewhere. But Tim came to me and said that he had a deal that was coming up and they needed to close pretty quickly. I believe it was five days or less that we needed…
Tim: 35:24 Always, dude…always!
Fadi: 35:24 Always! He had five days, I believe, to raise something like $700,000 on a deal and….
Tim: 35:31 …I did not worry about it.
Fadi: 35:32 I remember very specifically it was Memorial Day weekend, two years ago if I’m not mistaken. I get off the phone with Tim on Friday night and Tim’s always working–it doesn’t matter if it’s 1 o’clock or 3 o’clock in the morning. So he gives me a call…I want to say it was 8 or 9 p.m. and I was at some function and he’s telling me about all this and how, you know, based on the last two masterminds, he really thinks that this is something that I should get involved in because I do have people that trust me and I do have people that want to partner with me and so I said you know what. I’ll give it a shot, we’ll see how it goes. I think I could get at least $300,000 and so I got off the phone with him and somebody asked me what was that about; they overheard a couple words of what I said. It was a close relative of mine and I said you know this is what’s going on and they’re like well you know, count me in for like $100,000.
Fadi: 36:25 And as soon as we’re talking about it, somebody else butts into the conversation and then two more people, and I’m sitting there with a group of five people and five people committed $100,000 each and there I was with $500,000 of the $700,000 and before I went home that night, I had $200,000 more. And it just it worked that quickly because I had already built the reputation, number one as an attorney, of doing my due diligence and of putting together the paperwork, and so they were going to rely on me to put the paperwork together. Number two, I told them exactly what we talked about earlier which is I’ve known Tim for a lot a long time but, even more importantly, I’ve been doing his legal paperwork for six years. I’ve seen what he does in all types of scenarios. I’ve seen what he does with his back against the wall. I’ve seen how he treats his investors. Now based on my credibility with them and Tim’s credibility with me, they were willing to partner with us and we all got together and we put together an investment package and we bought a piece of property in Pennsylvania that we eventually sold in an auction for significantly more money than we bought it for. And you know we’ve still got a couple lots of pure profit left in that thing and you know at some point, when we want it to.
Tim: 37:43 The investment made great returns, everything went great. I mean went a little longer than we wanted it to, but….
Fadi: 37:46 I actually just got a call last week from one of the investors saying, “Hey I was so happy with everything that happened in Pennsylvania. You guys have anything else going on?” And they’re coming into our next deal in….
Tim: 37:58 And that’s the thing. Like even if things get extended, which they always do in real estate, we’ve got multiple deals right now where you know the acquisition is getting delayed, all this other stuff and things hit the fan. It’s how do you deal with those things and are you communicating with your team, are you communicating with your investors, and then just letting them know what’s going on. So they don’t want to be left in the dark…it’s all about communicating. And one thing I want to go back to that you mentioned is when Fadi is raising money for deals, there are two things you need in order to raise money from somebody, private money for a real estate deal. One is trust. They need to be able to trust you. And two is respect. And so Fadi’s contacts, they trusted him because he’s been their attorney for so long but they don’t necessarily…they respect him in that regard but they don’t necessarily respect him in the regard of investing in multi-family or commercial assets.
Tim: 38:54 Although he has a little bit of a business acumen from that regard, but it’s not his full time business. So it would be like, you know, going to the shoe maker and asking him to go and invest in gems or something like that, right. It’s not…it’s not cohesive, or congruent. So what he did was he said, “Hey I know Tim, I trust him, you guys trust me. I trust Tim. Tim knows this stuff. Tim’s been investing in real estate. I’ve seen how Tim interacts.” And he edified, he built credibility in me as the expert and because they trusted him, then they respected me, but they don’t trust me, they don’t know who the hell I am. So even though they see me on a Facebook ad or in Commercial Empire on front of a stage or something like that, they don’t trust me; they respect me for what I’ve done in business.
Tim: 39:45 They don’t trust me until we built a relationship, but they trusted him. So do you see how we were able to merge both of those things? Because he had the trust and I had the respect, we were able to do business together and his contacts were willing to invest in one of my projects because it completed the full circle and we were all able to make some really, really good money together. So it’s a really important piece that I don’t want you guys to miss out on. In order to raise capital in order to raise money for deals, you need trust and you need respect in order to really accomplish what you want to accomplish.
Fadi: 40:24 And you know going back to what I was saying before as far as the credibility and the respect I had, whether they were relatives or whether they were clients of mine from the past or whatever it is, I had always conducted myself in a way to protect everybody. And Tim, I’ll give you a lot of credit for doing the same thing. I always put the interests of the people I’m working with ahead of my own and putting the investors interests ahead of our own is kind of where we’ve gotten ourselves to where we are now because people know anybody that’s done a deal with us knows that they will be taken care of. And that’s the most important thing for these people you’re talking about. For some of these people, that might be play money. You know it’s a couple bucks to them because they’ve got a ton, but for most people this is going to be their life savings.
Fadi: 41:10 This is going to be what they have left of the business they sold, or of their parents’ house when they sold their parents’ house. This is all they have to build their legacy wealth from. And so for you to take it from them, you better be giving it back to them or you’re all lose all credibility with them. And more importantly, they’re going to have nothing left. And when people have nothing left is when you get into big trouble. So when you take care of those needs first and you take that little bit of legacy wealth they have and you expand it for them, there’s such a respect and a thankfulness that you get out of it, that people are just so appreciative of the fact that you are changing not just their futures, but potentially their children’s futures or their grandchildren’s futures. And as you build more and more for these people and for their families, that respect absolutely grows more and more but so does the, you know, the appreciation for what you’re doing for them.
Tim: 42:11 The stewardship of other people’s capital is a massive responsibility. Massive. And what I’ve come to notice is that when you go to somebody and you ask to raise private capital from them, they’re looking for three things. One is what’s the asset; what am I investing in? It’s important but it’s not that important, actually, not when you think about the other two. Two is the return; is the reward worth the risk? Is it is it worth me investing in this thing and is the amount of money that I’ll receive worth the potential risk of losing money? That’s important. Number three is the most important and it’s really the credibility of the borrower. Does this borrower have the fortitude to repay me my money? Do they have the character to make sure that I’m going to get my money back?
Tim: 43:07 I think one thing that we’ve done really, really well is conveying that message to our investors. I’ve spun the entire traditional syndication world on its head because I don’t take acquisition fees, I don’t take asset management fees. I don’t get paid until the investors get all of their money back and that’s how we’ve structured all of our deals. And when you’re in the boat rowing in the same direction with your investors and you let them know that your goals and your visions are 100 percent aligned with theirs, that they’re getting paid regardless of me getting paid, that means I’m taking care of them and I don’t get paid until they get all their money back. So they not only made a great return but then they keep equity in perpetuity. And then finally at that time of the refinance, that’s where my equity kicks in.
Tim: 43:56 That’s where I start earning returns, the refi proceeds, and the cash flow and all those other things. But our goals are aligned, our visions are aligned. What we want to do together…that makes a lot of sense. So I’ve been able to convey that character of “I will do the right thing. I’ll make sure that you get paid first and I’ll get paid secondarily”, and because of that, it breeds a lot of loyalty. There’s a lot of people who I really respect and really appreciate that. And when somebody else dangles a carrot in front of their eyes or pays a couple percentage points more of interest they say no, Fadi’s my guy…no, Tim’s my guy. I want to invest with them because I’m already comfortable because we’re partners, because we’ve already done deals together and I already have that comfortability with them. So, it’s powerful stuff man.
Fadi: 44:39 So when you’re raising money from people, if it’s your first time raising money, it becomes pretty evident quickly that 100 percent of the reason they’re lending you that money is based on your relationship with them. You knew them in the past. Nobody’s calling you out of nowhere saying, “Hey I’ve never heard of you, and you’ve never met me, and I have no idea what you’re doing but I want to give you money.” They have to know your story. They have to know who you are. They have to have a comfort level with you. They have to have—you know, there has to be a relationship there so you start with relationships. The next step from there is you’ve raised money from people you have relationships with. Now you’re raising money with people from people you have credibility with. They’ve seen what you’ve done in the past.
Fadi: 45:27 They’ve seen the returns that you’ve given them. They see that you’re dedicated to getting their money back and to getting them returns and so you’ve elevated yourself from just a relationship to a credibility. And then from there, that’s where you elevate yourself to large institutional. You’ve built credibility now. You’ve built a background and a portfolio, so it starts with relationship and it ends with credibility. Once you’ve built that credibility, that’s where you’re going to end up getting into the bigger dollar amounts, getting into the more, the larger deals in the larger dollar amounts. Because until you get to the point where it’s not just “I know you and I like you” but I also I have a comfort with you and now I see what you’ve done in the past. You’ve laid the track and you’ve shown that background in that track record, but you’re not really going to be able to raise the dollar amounts for gigantic deals.
Fadi: 46:23 And it makes perfect sense, right? Nobody comes to a novice and says here’s one hundred million dollars. They come to a novice and they might trust you enough based on prior relationship to say here’s 50 or here’s one hundred thousand dollars but not here’s one hundred percent of my net worth. But when you get up to, hey I’ve shown five years, 10 years 15 years, of track record, of course people are going to trust you more and they should never give you one hundred percent of their net worth because they want to keep their eggs into separate baskets and diversify. But at least you’re going to get a significant portion of that and you might be the person who helps them diversify and that’s kind of what we’re doing with our fund instead of having our investors who have been gracious enough to be part of one, two, three, four deals some of them significantly more deals than that.
Fadi: 47:12 We’re now giving them a chance to be part of every deal moving forward, to diversify across a portfolio of potentially hundreds of different deals. And that’s just the natural progression of going from we had a relationship and we did one deal together to now we have a real substantive understanding of what it is that we do, what it is that you want and we can build something great together and that’s kind of where we’re going with the fund.
Tim: 47:53 That’s how we structure the entire–that’s how we do our deals, by getting feedback from our investors and understanding that they want predictable returns and some of the equity in perpetuity. They also want diversified across multiple projects versus just one project. And so that’s why we’ve done this because we’ve listened to our investors and they’ve communicated this with us we asked them and we’re asking them what they want as opposed to somebody else and here’s what I got; you either want it or you don’t want it. We’ve built that relationship.
Fadi: 48:11 So that’s actually we’ve changed a lot of what we’ve done over the years based on that feedback. So we want to be able to, you know, tax defer some of this stuff. Well, we sat down with our CPAs and Tim spent thousands and thousands of dollars on getting a structure together that would allow our high income, high net worth to people to make this money with us but not to be paying, you know, 40, 50,60 percent in taxes on every dollar they make but instead finding tax advantages to the way that we’re structuring things, or as far as depreciation. You know, how many people reached out and said hey I want to be able to start depreciating assets and I want to start to make money through equity instead of just promissory notes where we all started off. When you hire the right people and when you bring in smart enough people to put together a structure that works for your people based on their own feedback, that’s where you start to succeed.
Fadi: 49:11 That’s where you start to see people say yes, that’s exactly what I was looking for. I can’t believe you guys are finally putting together exactly what I want. And, the best way to think about it from my perspective is what would I want? And that’s kind of where Tim…that’s where Tim and I have grown together as I came in first as a private lender to him and then eventually when we started partnering together it was because we found the way to do something that I would partner on. And I have. Every single deal we’ve done since I came on board. I’ve had my money and family money involved in every single one of them because I truly believe that we went out and you especially went out and created a product that I I buy into and that I believe in and that I would want my own money invested into.
Tim: 49:56 Absolutely.
Fadi: 49:56 And that’s kind of one of the more important things that I want to bring out is it’s not just about the relationship. It’s about giving these people what they want and putting yourself in their shoes. What would you want and how would you want to be treated? And if you end up in a situation where you think, hey I wouldn’t do this if I was them then why would they? You’re ending up in a situation where you have to make a con artist out of yourself to get what you want and that’s never the situation you want to be in.
Tim: 50:25 It seems like such common sense, right, that you would ask your investors, that you would think about this stuff but a lot of people just don’t do it. They take the path of least resistance, like water—you know it just floats downhill, that kind of a thing and they just don’t ask themselves those questions, like “How do I make it better?” They don’t pay for A-class talent. I think there’s been a couple of themes in this conversation. One, making sure that you set good expectations both with your employees and your lenders and your partners and everybody else that you do business with. That’s been a big one to us. Two is, everything, you know, starts with relationships especially if you get started in business and as you continue to grow your business. Like, my credibility is what I what I protect more than anything else, and my character, my reputation because that is something that you cannot pay for.
Tim: 51:18 And you can ruin it in an instance. You got to make sure you’re on point with all that stuff at all times. You’re always doing the right thing and always performing and making sure that you’re putting other people’s needs and other people’s goals and other people’s benefit in front of your own. So that’s a big deal. And you know, common sense is not that common. They aren’t paying for professionals. Make sure you’re surround yourself with A-players. A lot of people don’t want to write that check but we’ve written that check many, many times. I’ve spent tens of thousands of dollars just in consultations with attorneys, with CPAs, with tax strategists, with different other masterminds, and getting feedback from other investors and fund managers and all this stuff in order to structure this thing the way that we’ve structured it. And I would put it toe to toe against anything else that we have out there so I’m going to shamelessly plug our fund, but would love for you guys to take a look at it and talk with us about it.
Tim: 52:20 If there’s anything that we can do, we’re happy to answer any sort of questions and stuff but this guy runs the entire fund. He knows this stuff inside and out. We’re partnered with a couple other folks who have run residential funds for a very long time. Technically, each one of our deals has its own security. So we’ve been doing this on an individual basis for a long time and now we’re looking to really scale it up on a big, big level. So we have some ambitions of raising $50 million in the next six months. And I have no qualms about us not being able to do that. So I know we’d be able to do it and probably launch in what, May?
Fadi: 52:58 I would say so.
Tim: 53:00 So hopefully you guys got a ton of value out of this today. Fadi, I appreciate you being here, brother. Always fun chatting with you. Talking shop, talking business and I’m excited for what’s next, man.
Fadi: 53:08 My pleasure. Always excited. Every day, it just gets better and better. So make sure you’re always working towards something big.
Tim: 53:16 Love it! So I hope you guys got a ton of value. Love you guys. Be your best. We’ll see on the next Legacy Wealth Podcast!