GI104: Verified Real Estate Syndication Investing with Lance Pederson

Lance Pederson is the founder and managing partner of VeriVest; an end-to-end real estate investment platform designed to bring transparency and trust to middle-market investing.

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Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Lance Pederson. Lance is the founder and managing partner of VeriVest; an end-to-end real estate investment platform designed to bring transparency and trust to middle-market investing. So thank you so much for being on the show!

Lance:
Thanks for having me Charles. I appreciate it.

Charles:
So what was your background prior to starting your current business?

Lance:
Yeah, so my, my background I’ve really been an entrepreneur pretty much my whole life. I mean, my parents were business owners and, you know, I didn’t really know anything different. So I had moved from North Dakota out to Oregon when I was 20. I worked for someone else for short period of time realized that that didn’t work for me. So I started started my own business. So it was an it services company for small to medium-sized businesses. So we basically were like their virtual it department and grew that from nothing to just over 5 million in revenue and sold it, you know, seven years later. So that was sort of what I was doing before I got into this, you know, the, the real estate investing side of things.

Charles:
Awesome. So tell us about your company very fast, what you guys do and why you started it. Sure. So very vest is

Lance:
Really an accidental business. My business partner and I are that our business for, we were commercial hard money lenders and in the Pacific Northwest and we in, in 2011, w we, we decided to sort of pivot the business and become, you know, more private equity, real estate investors. So rather than, you know, kind of up and down coming off the global financial crisis, you know, it was just harder to find loans that we were willing to do. And so we decided, Hey, you know, markets go up and markets go down. We’d much rather sort of, you know, invest into things that are favorable given where the market’s at, right, lending’s fine. And we, we still do some lending to this day, but so we ended up opening up an open-ended fund that had a much broader mandate, so we could invest in funds, syndications, we could do loans, we could do whatever. Well, what ended up happening was that we learned pretty quick that the reporting quality was pretty low for most of the guys we were investing with which, which presented a problem at our fund level, because if we couldn’t get good financials from them, you know, it would really be difficult for us to, to kind of report out to our investors. And we also had an advisory practice at the time where we helped real estate entrepreneurs, architect, pooled investment vehicles, which was sort of for us a bit of a due diligence exercise. We get to know people, help them structure and learn about their business, and then maybe we’d invest with them well, between those two things, we realized that, Hey, once we got to the other end of it, they didn’t have the capacity or capability to administer the funds on their own. The reporting was no good. So we basically took an internal department that was doing our fund administration and accounting and made it an external facing division. So we started offering that as a service to our, to our clients sort of as a means to an end. Well, it, it turned out that that was a huge need in the market and really took off in, along with sort of our investing business as well. So we spun it out as its own company in 2017. And we rebranded it to VeriVest here in 2020. So it’s been, so we’ve really been at it now for, you know, eight, eight years, I guess with, with this the VeriVest business.

Charles:
Yeah. That’s very interesting. That’s a, it’s definitely a unique business model. And I, I’ve definitely seen the problem with, with us, with syndications and with some of our strategic partners that we work with. It’s just very difficult sometimes to just updating information and everything that goes along with it, like really simple stuff is very difficult if you don’t have the correct backend for it. And so it’s, it’s kind of imperative in today’s day and age to have that for your investors. And especially if you’re working with more, I guess you would consider how you guys work with a fund, more of an institutional investor where you might require more reporting than your mom and pop investor. Right. That’s investing $50,000 into a a syndication.

Lance:
Yeah, definitely. Yeah, exactly. The more sophisticated investors are then their requirements, you know, are greater and, and yeah, hence why we had to kind of solve the problem for ourselves. But but yeah, there’s a lot of insight. I think for me, that’s, I I’ve grown and developed a passion for this, what I just call like removing friction, you know, I just, I just feel like all of it could be better than it is. And so that’s where, you know, I’m always just trying to make it, so how can, how can we more efficiently capitalize, you know, high quality deal flow, right? Like how do we just make all these things easier and less costly and efficient because the end of the day, you know, you’ve got, especially in sort of what I call the middle market real estate space, it’s predominantly highly fragmented on both sides, right? So the deal sponsors, you know, there’s hundreds of thousands of, you know, there’s just, there’s all over the place, right. I mean, and then on the other, the most appropriate investor really is more of your high net worth, maybe small private equity, real estate shops, meaning it’s not, they’re not institutional investors, right? And so you have high fragmentation on both sides of the market. And you know, that, that’s what makes it a challenge is that that, you know, to get a deal done, I mean, a $10 million equity raise for a deal is a, is a big deal for like a syndicator, but that’s like a, that’s a rounding error. That’s a tiny deal for an institutional investor. I mean, it’s untouchable. They can’t, they can’t do $10 million deals, you know, they just don’t. So I think that for me, that’s really where I spend most of my effort and energy is just trying to solve some of those problems and friction along the way. Hence why we’ve really made bare vests more of this and end to end know solution now where, you know, we, we, we take those highly fragmented investors on the one side, you know, provide a place for them to discover deal sponsors. Whether they’re developers of their, you know, commercial real estate operators or their lenders or whatever, they might be help them be discovered, you know, validate and verify the information that those operators you know, are providing and then, and then handle a bunch of those back-office administration things all the way through to we launched the PAX practice last year. So just trying to make it to where it’s, it’s really an end to end ecosystem is is what I spend most of my days working on.

Charles:
Nice. Well, you, you mentioned the reporting, which we know is a huge issue. What other issues are you finding? I’ve heard another normal thing I hear is communication between GPS and LPs. What trust issues are normally found between investors and sponsors, because I know you went through in your, you know, that’s one of your parts of your plan.

Lance:
Yeah. Yeah. I think one of the pieces of friction right. Is, is the, you know, who, who can you trust? Right? And so, you know, part of the due diligence process, right, is ultimately, Hey, great, you’ve got this, you’ve tied up this, you know, 300 unit multi-family deal. But if I don’t, if I’ve never heard of you before, or, you know, in your, this deals in a different state than I’m in or whatever the case may be, you know, step one is figuring out like what you’re all about. So what, so, because we’ve been doing this, one of the things we learned was that the whole upfront due diligence process is sort of a pain for everybody, even for, you know, more of your private equity real estate funds. The issue is that you’ve got all these guys banging on your door, asking to, you know, to do programmatic capital arrangements and fund my deals. And, you know, but the, the process, you have to go through the due diligence process, the cost and the time, and all those things is, is difficult, right? You need to run background checks, you need to verify the track record. You know, you need to get to know these guys understand their deals. And so what ends up happening is that it’s easier just to say no, right? I mean, you see it big time in the, you know, and people always complain about why investment advisors allocate more capital to the real estate sector, but it, the reputation risk is too high, right? So if I’m managing some, you know, a bunch of investors money and you come to me with your, your new multifamily, you know, value add real estate fund and asking to, you know, to recommend my investors invest in this deal. It’s like, Hey, you guys seem like you’re legit. But I mean, if I invest in you and it turns out to be some Ponzi scheme, or you guys end up, you know, just, you don’t know how to execute and whatever. I mean, then it looks bad on me. If I, if I put my client’s money in Google or Facebook or something like that, and something happens and it goes down, it’s like, Hey, I’m just, I mean, a bunch of people lost money, right? Like they’re not gonna hold it against me. And I think for your more just accredited investor, I mean, they, they don’t have the time or the wherewithal or the inclination to really do what they want to do. And I think that with, on the Vera vest side, part of us in the rebrand, that was a big piece of it is that I kept getting these phone calls from investors that had invested in our clients saying, Hey, I’ve invested in with X, Y, and Z, and that are clients of yours. Can you just send me your client list? Because I really like the idea of having some independent third party doing all the administration. And I mean, the first time it happened, I was kind of like, that’s a really odd request. I mean, I understand what you’re, what you’re saying. And then like week and a half later, it happened again. Then two weeks after that it happened again. And I’m like, I see what’s going on. They’ve kind of ran through the crowdfunding stuff. And they realized, like, there’s not much not many options for real estate crowdfunding. And they’re trying to find more people that have got deals. And so I dug a little deeper and I’m like, okay, so what’s your process? Like, what are you looking for and how do you do it? And, and one of the things that kept popping up was they’re like, man, I wish I could run like a background check. You know, it was one of the big ones. Like, it just be great build. They’re like, it’s kind of awkward, right. Because I hear, I am only gonna invest like 50 grand or a hundred grand, and I’m asking them to run a background check. It’s kind of weird. And then they’re like, you know, the other thing that’s really hard for me is that they give me these track records that look all pretty, and they’ve done all these great things, but they’re like, I have no idea if they’re just making this crap up or not. Like, I just, I don’t know what to believe. So therefore, I just assumed that, you know, like it’s just, it’s just odd. Right? So when I started to put it all together, I’m like, oh my gosh, like we’re in a perfect position. We’re already sort of this independent party in the equation. We could just run a background check on, on the sponsors upfront, and then annually, we could verify their track record, you know, and do it once and then just have it done. So instead of like every investor having to try to reinvent the wheel, which is time-wasting on the sponsor side, as well as the investor side, if they even could even get that done, we’ll just do it, put it on their public profile. And then basically, you know, you’ve got a living track record from a sponsor standpoint. And then it also had the benefit of sort of giving the assurance to the end user investors, the passive investors that, that they needed. Right. They can sleep well at night and then adding the sort of ongoing oversight, what we call monitoring that sort of sealed the deal. It’s like, okay, the assurance of you’re not invested in a Ponzi scheme because someone that knows what they’re doing is watching closely as to all the money goes in the deal, whether it’s a syndication or a fund, you know, they’re not crux and, you know, whatever they’ve claims they’ve made are legit that sort of checks those boxes. I think that high-level due diligence.

Charles:
So yeah, the background check, I can definitely see how that could be a, a gray area. That was one reason I got my real estate license. I’ve never used it in Florida per se, but it shows you you’ve been checked out by state, federal and back in, you know, FBI and a lot of stuff. And it’s just because you’re supposed to do it. It’s like if you read any vetting of syndication ebook, right. Or any type of paperwork, it’s the first thing you’re supposed to do is check backgrounds. And like you said, $50,000, someone might not be, might not be inclined to ask for that. Right. Whereas you have a larger investors that it’s a normal thing that they ask for. So, but it’s interesting when you say about people losing money, because I have a financial advisor friend and he would tell me that he’d have new clients that come in and you know guys that have gone through graduate school and everything like this and professionals. And he would say that it’s kind of weird and eerie. How many times they’ve lost money investing with friends. And I’m like the same thing, like the country club or the country club they’re investing in. Someone says, I want to buy an apartment building or something else. And they’ve gotten burned on those deals and whether it was a Ponzi scheme or whether it was just terrible management. It’s just, it’s a, a lot of people no matter what your education level have been burnt on it. And even if there was really the sponsor’s first goal wasn’t to take their money, it probably just was mismanaged on it. But it’s one of those things where you can’t really verify that and people get, you know, they get really scarred from that. And they’re like, you know what, I, I just want to stay with stuff that we can verify.

Lance:
Yeah, yeah, exactly. I mean, that’s just that it’s like, you know, mismanagement often leads to sort of misappropriation of funds. Right. So when a deal’s burning down, you know, I think that’s just, that’d be opaque nature of what’s going on. Then I also think too, is that the fact that there is no public accountability, right? So yeah, you do the country club deal that guy’s like, okay, I had 15 investors in this deal. He’s like, I’ll just stop going to that club. You know what I mean? Like, it’s like, there’s a bunch of other victims. I mean, it sounds weird, but it’s kind of how it goes, right? Like, and then, you know, victims of these deals of just investing in something that’s completely imploded. It’s not like those guys, there’s the shame that comes along with it. Right. Of like, am I going to go run around and sort of talk about how I made this stupid investment and that I lost a bunch of money on probably not. And then that other, guy’s just going to avoid you and you’ll go at each other. And it was a bad experience. Whereas I think what we’re doing right, is that I call it transparency, but it’s also it’s accountability, right? Because if you decide to undergo the background, check, get, you know, become verified member of our network and hang the shingle and basically make the public proclamation that, Hey, we do things above board and we’re willing to be transparent, which means shared the good result and the bad results. Right. Because once you do it and that, I feel like it’s a forcing function. When you wake up in the morning, you say this, deal’s not going the way that I want it to go. It’s not just those 15 investors in the deal. You now you’re going to have to own that. Right? Like, that’s going to go on your track record or you’re going to disappear off the platform. And people are like, why’d you why’d, you decide to do it. And then you bolted and you’re not up there anymore. Right. And I think that it just it’s, maybe you felt that too, when you get some of these, these more professional destinations, but I know when I became a registered rep you know, passed my series seven and 63, and you know, the day after I pass the test, just things felt different. Like I felt like there was this, it just, everything you do is sort of like, you gotta be more careful because now I don’t want to get my hand slapped by FINRA or, or whatever the case may be. It’s like, you really got to think harder about what you’re doing. And I think it’s a good thing. And so it’s just being publicly accountable to stuff and you see it, like, if you tell, if I go tell ever, you know, everyone on LinkedIn or Facebook, that I’m going to go lose 15 pounds or something, you know, and it’s like, it’s like, now they’re going to hold me accountable. Like I’ve got to do it. And so I just think that the industry needs that. And first of all, there’s a lot of people out there running around that are sort of making claims that are they’re fabricating claims. I mean, they’re, they’re claiming to have done things they never did. And I think there’s a lot of people out there that are skimming or, you know, kind of misappropriating funds. It might not be huge Bernie Madoff, Ponzi schemes, but it might be sort of like, yeah, we’re kind of just, you know, we’re, you know, we’re just sort of moving money from here to there and take it a little more than we’re supposed to be taking. And no, one’s no, one’s the wiser because they don’t know what they’re looking for.

Charles:
Yeah, definitely. And there’s like, there’s always sec sec investigations going on with people in you know, in the real estate syndication, boldly family, whatever it might be. And you hear about it here and there of how they got under it. You know what I mean, what happened, what they’re doing. And I don’t think, I mean, there’s still, you know, I see them still doing deals and stuff like this, and it’s you know, some of their investors probably don’t even know that they’re looking at and if it’s good, I mean, if it’s something that they are able to rise above or something that’s going to bury ’em you don’t really something that the, your investors should be aware of, but what do you suggest for passive investors to mitigate their risks? Like, for instance, for myself I will never like risk more than 5% of my net worth in a single investment. So how do you tell investors that come to you that are passive to kind of spread the risk?

Lance:
Yeah, that’s a great question. I mean, I think that my advice to most people is just, I mean, it’s sort of like, first of all, only invest in things that you understand, right. I mean, that’s sort of, you know, Warren Buffett 1 0 1, right? So like, it it’s, it probably makes sense to do syndications before you invest in funds. As an example, there’s just more complex things going on in a fund, as you know, it’s just, it’s more complex, right. If you understand it, then that’s fine. But if you don’t like it, that’s why multi-family makes a lot of sense. Thank you. And I’ve talked about that before. It’s just, it’s just easier to get your mind wrapped around. You probably rented a house, you rented a house or renting an apartment or, you know, it just, it just makes sense. And then, and then I, I do think, I mean, ultimately don’t put all your eggs in one basket. That’s sort of, you know, pretty much a no-brainer as well, but just diversification and, and yeah. I mean, you just gotta be, it’s exciting and it’s great to, you know, have the potential for double digit returns, you know, and those sorts of things. I mean, I’m not a guy who’s saying like going divest of your entire, you know, stock portfolio or, or whatever, right. Like you really need to think about, cause that’s why I say like, your portfolio has jobs that need to be done. Right? You’ve got so much money. It’s this investment portfolio. It has jobs that need to be done and needs to generate some income. You need something that’s going to have some growth, you know, you’re going to need the different things, but at some defensiveness in the portfolio. So, and then given where you’re at in your lifetime, you’re like, you got to think about it that way. It’s like, it’s your money? It’s your portfolio? What does it need to do? And therefore start there and then go and look at opportunities where you’re going to allocate and what you need. That’s different for everybody. So it’s just, that’s kind of what I preach is just like, if you’re going to do this, then you need to learn to become an investor, right? Like, like, just because it’s passive doesn’t mean that you’re not paying attention. I think that that’s where everyone’s starting to wake up and realize that, you know, cause we made the transition from, you know, being pensioners, you know, and then you had the, the 401k stuff sort of set in, but then we sort of advocated that decision-making to financial advisors and wealth managers or whatever, and you know, people didn’t take it seriously enough that, that it’s your money. Like you need to, you need to educate yourself. Right. And so now I think what we’re seeing is this groundswell of people realizing like, oh my gosh, I’m behind. Or, you know, I, I need to take charge of this myself. And it really starts and ends with education. So I mean, that’s my big advice. Just like you got to educate yourself and you got, gotta do things that make sense to you and that you’re comfortable with and you understand period.

Charles:
Yeah. Yeah. It makes perfect sense. So what are the most important questions you feel every passive investor should be should be asking a deal sponsor before they’re investing?

Lance:
Yeah. I mean, I, I think that, you know, when you’re approaching a sponsor, I always feel like the magic, the magic that any deal sponsor has. So whether they’re an allocator of capital or they’re an acquisition guy, or they’re a developer or whatever, I mean, the number one thing that you’re trying to figure out is that what is their conviction and what is it that, you know, how do they really create value? Like what is it that they’re doing that because that’s their super power, right? Like how they generate and create value. So. Okay, great. So you’re, you know, you’re based in Detroit and you’ve got this beat on, I don’t, you know, whatever it is, single family residences or whatever, it doesn’t matter what it is. Right. But it’s like, if, if they don’t bring something unique and special to the table, they don’t have conviction about their strategy. You know, that’s the, for all your questions should center around that. Like, what is it that you do that’s different that makes you, that makes you unique in your own, in your own way, because that’s, that’s that value creation thing. Because when you think about it, right, if like, if, if you talk to a sponsor and they’re, oh, I invest in multifamily everywhere, like I’ll buy any building anywhere in any city at any time, any place it’s kind of like, yeah, what are the chances that you’re going to be the dumb money? Like what is the chances that you’re going to buy the apartment building on the wrong side of the tracks or whatever, right? Like that’s the stuff I think that in the real estate game, you know, you really need to dig into and figure out like, how do you guys do what you do? And that makes you different. And then who are the people that are going to execute the strategy, right? Like who’s on the squad. That’s going to make that happen. I mean, it’s a hell of a lot easier as you know, to like go buy, you know, stabilized, you know, core assets like multi-family that are, you know, 98% occupied. And, you know, I feel like it doesn’t take that much. I mean, a value add strategy, I’m thinking, okay, like what makes you qualified to execute some value, add strategy? I mean, it, it’s a lot more moving parts and then development or construction. Like, you better know what you’re doing. If this, your first time you’re just gonna develop some pro property or something. I know that’s terrifying. You’re gonna have to compensate me and I’m gonna have to get paid a lot of money to get into that deal.

Charles:
Yeah. The other thing too, is I think that most indicators out there that I’ve only been doing it or investors for the less than a decade, I feel that it’s just writing a lot of business plans. They might tell their investors, but really it’s a lot of returns are coming from just appreciation and the compressing of cap rates. And that’s going to be something we’re going to see the true operators that are going to come out where, when we have a little bit of a pullback and you’re not able to raise rents in these super hot markets, right. Where they’re buying and where they’re just paying crazy amounts of money for. And I guess that’ll be very interesting to see who the true operators are and who are just riding off of a appreciation. And then the hope that in 12 or 24 months, they can sell the property to someone else after performing some S some sort of, a level of a value add to it.

Lance:
Yeah. I agree. I mean, it’s, it’s you know, and I think that there were some guys out there who were just trans very transaction, heavy on the run-up. And they knew it, they just, they knew that, that it had a lot of life in it. Right. And they were just transacting, like crazy knowing that it’s basically just ride the wave. And you know, now you’re seeing those guys are basically sitting on the sidelines. So that’s why I never, because I felt like on the run-up a bunch of operators are sort of like, you know, turn their nose up at guys like that, and try not to be judgmental. It’s like, okay, maybe they are being reckless and what they’re doing, but especially if they’re going, Hey, get, you know, get it while the going’s good. I mean, that’s, there’s nothing wrong with that. But yeah, I mean now in this, in this part of the market cycle, it’s just that, that stuff doesn’t work. And I, I think that that’s what you see is that, and that’s what it goes back to. It’s like, how do you, how do you create value again? What is your method? What’s your process? You know, what is your box look like? Like how do you underwrite? You know, all those sorts of things are very, especially now very, very, very important. And if people are just out there still using those same strategies of, you know, what we do, we just put offers on every property under the sun. I’m like, okay, maybe that worked in like 2017, like a good strategy. That’s not a good strategy anymore. Like that’s, that’s scary stuff.

Charles:
Yeah. Yeah, for sure. And then I was talking to a broker a couple of hours ago and he was telling me that he he’s in Northern Florida and he was saying that he sold the property back in 2013 for like 22, a door. And it’s trading on the market now for 142 a door. And you’re like, he’s like, I just can’t believe it. He’s like, I look back on it, it sold for 80 a door. And he’s like, I thought that was crazy. Now it’s at 142 a door. And he’s like, I just he’s like, I don’t know what’s going on. And it’s the whole thing is that I guarantee the person buying it for 1 42 is doesn’t have the same value add plan as the guy that bought it for 22 several years ago. So it was just of

Lance:
That’s exactly. Right. And it’s like, and that’s just it. Right. It’s like with that asset, I mean, can, I mean, it, it would just be, it seems like it’s very difficult that there’s even a value add strategy could be executed on that asset. Right. Like, and I think that that’s, what’s going to be hard for some people to get their minds wrapped around. It’s just that there’s no more room in it. Right. Like there just isn’t right. It just, it’s not there. And, and, and that is the mistake that you just see people making, right. Is that they just, they want to believe that there’s more room in these things. And that’s where they violate. What I feel like is, is rule number one. It’s like, don’t overpay for, you know, for real estate. And, and they violate it because they just, somehow some way they get their own ego gets in the way. And they feel like, oh, no, I can push rents another 50, 75, a hundred bucks or whatever per door. And it’s just like, no, you’re not. Then that’s why I say it goes back just using common sense as a passive investor to say, okay, just put yourself in the shoes of that prospective tenant. Are you really going to pay, you know, thousand, $1,100 for that fricking two bedroom apartment when you can get the, I mean, some guy the other day was talking, I’m like, dude, just look it up. Like, like when someone brings you stuff, just go and act like you’re shopping for an apartment. Are you looking for an apartment in that neighborhood? Right. Like, that’ll tell you, it’s like, it’s not that complicated. And if you’re going, I would never pay that. Then you basically know that, well, if you’re reasonable and rational, then, then why in the hell would some other rational human pay that for rent? That doesn’t make sense. Right. So, yeah,

Charles:
No, it’s, it’s totally true. That’s the first thing I look at an underwriting is rent predictions and what people are putting for rents. And I was talking to a broker a couple of days ago and he was saying that he was penciling something. Adam is like 45 like, I guess it was like December of last year was 45,000 a month coming in on one of these buildings. And they penciled it the next month that for them after buying, it would be like 62. And he’s like, you can’t just go write the market rent in like as the day you buy it. I mean, you know, where are you getting a 30% increase in rent and going up in that type of rent even after, even if you do it over two years, you’re losing every tenant that’s in there. I mean, there’s a huge disruption.

Lance:
That’s the other, that’s the other issue is like some of these markets. Now, if it’s, if the market has a lot of depth to it, maybe me, I don’t know, once again, I, at this point, I don’t think you can, but some of these people buy, some of these assets are mobile home parks or whatever, and they don’t understand that when they push the rents that way. And everyone revolts. I mean, these are, these are like human beings who like live in these places and when they bind together and say, screw these guys we’re out of here and where are the, where’s the next group of tenants coming from? Like where are they going to come from?

Charles:
Yeah, no, for sure. Yeah. I mean, it’s amazing. I was living in a apartment complex years back that had a, that they are doing a value add on it, you know, and it went up like 15% one year. And I was able to get it down the increase less, but the next year they did the same thing. I’m like, I’m outta here. Like you guys are raising your rent 15%, two years in a row. It’s just like completely nuts. And I just think that most people are in the same mindset that our tenants that, and maybe people that are buying these properties are investing are, have a mortgage and they forget their days of renting. But, you know, you can only Jack the rent so much. I mean, we hear all the time about income, non increasing in the population with the people. And these are the people that are renting the apartments. It’s not these people that are owning all the stocks and only all the equities have been going crazy in the last year. So it’s something that I don’t, it’s just a huge disconnect and I don’t, I think investors just like you said, soon, simple apartments.com, Zillow Craigslist review of half-hour we’ll figure out if their rents are even in line, you know, if the projections where they want to go in 12 months, I mean, if it’s completely crazy from what’s down the street right now, I mean, you know, you want the predictions of the rent being something that they’re already renting a block away. And so it’s apples to apples and you kind of know what’s going on. But I think that there’s a huge disconnect, but yeah, I agree. So what are some easy to do it yourself due diligence that every passive investor is able to perform by themselves other than reviewing on your on your platform? What would you suggest if someone reached out to you?

Lance:
Yeah, I agree. I mean, I think for me, like that I would do straight away is, is basically I want, and it goes back to the thing you mentioned, Charles was the communication piece I’m saying, send me, send me some of the communication you’ve provided to investors on past deals. Like I really want to see how you communicate. And then we, one of the things we have on our platform is also is sort of the, when, when did you send me like the cover page for the tax return? For a couple of the deals trying to see, like, when are you getting the K ones out, right. As a thing I look for, because it’s, there’s this whole thing, like a lot of times the, the sponsors and operators think that it’s like the CPA’s fault that they can’t get their K ones out on time. But usually it’s because it’s the total dumpster fire, you know, on the, on the financial statements side of things, it’s just, you know, it’s such a mess, right? And so that’s right where I go is like, show me communication, show me, reporting, show me what you have that that’ll tell you a lot about the sponsor. And then, and then I think the other thing too, is like, give me a list of investor references and, and then actually call them right. And, and call and talk to the existing investors. Because the other thing that I found in doing that is that I always tell people like, give me your best investors. Like, I mean, I mean, I want like five, five people give me your best ones. And when you call what they think are their best ones and their base, like, eh, they’re okay. But you know, like they never hear for them and whatever, you know, I’m going, see, you didn’t even have even, even take the time to prep the investor to let them know, like I’m telling them these are the best investors. So I’m assuming you’re going to say really nice things about me. Let’s get this out of the way before I put your name on the list. They’re skipping that step. Right. So for me right there, I’m going, it’s just, that’s the stuff that it’s too, like I said, it’s too nerve wracking, right? From an investor’s position, especially when someone’s actually like a value add play. I mean, like I said, core, whatever, something that’s sleepy and just, you know, anyone could do it, but like anything that’s got moving parts to it. If, if I, if, if it turns out that these guys are terrible at communicating with the investors, I’m sort of like, it just, life’s too short, man. Like, that’s just, it’s just too, too nerve wracking. Cause you never know what’s really going on. Cause most sponsors, they think it’s like, I’m crushing it, man. Like I’m delivering these returns. You should be thanking me. Right. Like I don’t need to give you an update. It’s like, I don’t know.

Charles:
Yeah. I like to, I I’ve never had a, a negative passive experience, but I’m always hesitant when people are asking me who I’ve invested with like passively for a reference, because I’m just like, you know what, it could be the next deal this guy invest into with this operator. And it goes bad and you’re like, ah, you know, I just as like avoid the whole thing, Hey, I had a great experience in this market. And but it’s just like, you just don’t know when you’re not running the deal. I mean, I looked at a deal who knows, maybe they got really, really aggressive on underwriting over the last 24 months. Let’s say if I haven’t invested in a couple of years there. And so you don’t mean there’s no control I have over it and I’m not going to review a deal before someone else sees it or something like this, you know? So there’s so many different areas that with investing with it that you just kind of, you just tell people, you gotta do your own diligence and you gotta, you gotta really know what you’re doing and what you’re investing into. Yeah.

Lance:
That’s a good point. I mean, I think I’ve said this to guys too, before it’s like, unfortunately, you know, the WAM factor, the word of mouth factor is not very strong in the investing game. So, you know, when you delight, even when you delight and just exceed expectations for your investors, it, the referral rate is much lower because of what you just said, Charles, right? Is that it’s because when it comes to money, man, money is a sensitive topic. And when people don’t want to be in a position where they’re like you said, Hey, I had a really great experience. And even if it had multiple, they’re thinking, if I go and tell Joe at the club or whatever, you know, my buddy about these guys and then it freaking backfires, I don’t want that on me. Right. And so it’s just, it’s like, this is what makes it hard. This is that friction that I’m speaking of. It’s just that it’s not like other businesses like, Hey man, I use slack, I love slack. I’m going to go tell the whole world about slack and how awesome slack is. Right? Like the WAM is high. Like it just spreads. And people want to tell people about how wonderful it is as a tool or whatever. Investing not so much.

Charles:
Yeah. No for sure. So what mistakes do you commonly see new or experienced real estate investors make passive or active investors because you speak to them so often?

Lance:
Yeah. Well, I mean, I think on the sponsor side, it’s just not taking some of that. Like I said, that conviction stuff seriously, like, like I feel like they spend so much time worrying about like, are my, is my pref competitive? And is this split competitive? And is the, you know, they just get so wrapped up in like the the economics of the deal or, or whatever. And they overlook the fact that like, okay, yeah, people, they are investments. It is sensitive. It is money. They’re going to use their analytical mind to some degree to try to, I mean, you just assume that any quasi sophisticated is going to do a bunch of the things we’re talking about, but at the end of the day, we all buy emotionally. So as long as you’ve got those things covered, I think that the big thing is just, is, is having conviction, like whatever your strategy is, you got to own it. You got to own who you are, what you are, where you are, and there’s gotta be a narrative arc to it. Like we are this, this is why we do this. This is why we’re passionate about this. It’s the 20 point checklist and how we do what we do. And you got to lean into that and have that, that story you know, out there, because I think it, once again, I think it, it creates forcing function as well for you to focus, right? So you don’t get distracted by things that don’t sort of, you know, fit and, and allows them to feel more comfortable with. Okay, this is what you guys do, you guys, you know cause I always talked to guys who are like, okay, we’re in Jersey and we’re doing single family flips or whatever, but we’re thinking we’ll go into Florida and we’re thinking about, you know, it’s always like every guy I talked to, I feel like they’re always talking about, there’s something better beyond what they’re doing. And so I think that that’s sort of a big mistake or a missed opportunity. I mean, on the passive investor side, I think we’ve already kind of covered, I mean, a bunch of this

Charles:
Stuff, but yeah. So crowdfunding is, is something that we, you know, normally we don’t really know him really talk on this show about, but what do you suggest for a potential pass investor who’s interested in crowdfunding? Like how do you, how do they effectively evaluate a platform and deals there? Because it’s something that I’ve heard. Some of that go down. I don’t want to mention any names. I’ve heard a couple that have gone down and some that people invest into. What, what does someone, how do you, how does that work?

Lance:
Yeah. Yeah. I know. It’s, it’s a funny thing. I mean, it, I think that there’s obviously some good platforms out there. I mean that, you know, that, I mean, I think there’s some good things out there, right? So how you evaluate a platform, you know, I’m not, I’m not quite sure of what that is, what I think is happening. Right. It’s just that the, it still comes down to what we’re talking about is that understanding that a platform is just a middleman between someone that’s doing everything we just talked about. Right. So you still have to peel back all of the layers of the onion. So I guess for me, that’s why I kind of get hung up on this where it’s like, it, I’m not saying it’s good or bad. It’s just that fundamentally, when you get down to the root of what, what is the, what is the actual product? If there’s someone there’s some operators, there’s someone executing the strategy, everything we just talked about all applies, right. And whoever is the front man or promoter or the middleman platform for the deal, you know, is just kind of like, you know, I don’t know how much that matters now. Some of them cover up these other issues, like poor communication or whatever. But I just don’t think that it’s really about, I mean, in this I’m biased here because clearly I just feel like the V1 of the real estate crowdfunding is not, I just don’t think it’s the answer. Right. And I think that that’s the issue because once you decide that you’re going to curate and pick and choose deal, pick, and choose specific deals, which they all say, we only take one of the a hundred deals we look at and now you narrow it down to just some small segment of deal flow. There’s so many more, there’s so many more options out there right than just that. And then these guys are trying to convince you to the deal because they’re being compensated for doing it. So I just think that it’s it at the end of the day, what, it’s more of like go direct. It’s kind of like just direct to the sponsor is really the way that it should be. I feel

Charles:
A lot of those crowdfunding platforms are almost like gambling because you can get in for like a thousand or $5,000. So someone that was going to, you know, you might click here and be like, oh, invest 5,000 there, 5,000 here, 5,000 there in these different deals. And you’re not really doing due diligence, any of them compared to investing 25 or $50,000 into a deal. And you’re actually sitting down because when I’ve invested passively, I mean, I’m spending like like, you know, several hours reviewing it and everything like that before I do it. And then I can go back, I get my response back to the GP if I’m going to invest or not. But I feel it’s more just like a whim. We’ll just spread it between these different deals and hopefully something works out and you really don’t know what you’re getting yourself into. And like, oh, I’ve heard that you know, warehouses are great and I’ve heard that this is great. And I, I knew somebody on TV that made money doing this and I’ll just invest into them and you don’t really know who you’re investing into. And I, don’t just, that’s the thing with crowdfunding is I I’d rather review and, you know, review one deal or multiple deals and be putting more into it. And then kind of, instead of like a little bit into each one, and now I have to look at all these different deals and kind of remember what the hell is going on. I

Lance:
Think since you and I sorta like the Robin hood phenomenon now, right? Like where.
Lance:
It’s it’s like the Robin hood is turn, sorry. Even stock investing into just like going to the casino. I mean, it’s just, people are just doing stuff with no, and I guess that’s just, it there’s those two different philosophies. Right. And so of course, once you become a fundamental investor, meaning that once you decide that you want to be an investor, to me, that means that you’re going to invest based on fundamentals, not momentum. And you know, like these other weird things, it’s sort of, like you said, that’s where I think, you know, using the word it’s more like gambling is a progress appropriate because you’re not, you’re not doing any analysis. So are you really an investor then? I don’t think so. I think you’re a speculator. Right. And it’s just, don’t F I guess for me, it’s just, that’s a false sense of security. If you’re trusting this brand on the platform, it’s not the same. I don’t work out, but it’s just, you really need to understand because it is an investment. Just because, you know, Robin hood made it easy to buy Facebook stock or any, you know, or GameStop or whatever, it doesn’t mean that game stops a good company or it’s a good stock or even Facebook, I don’t know. Right. Like that’s your job. That’s what investing is. Yeah.

Charles:
Yeah. It’s another thing with that too, is like, I’m like when they came out and pillar, oh, it’s so easy to buy stock. I’m like, it was easy to buy stock before you go to any of these places, $0 said, go down to your local bank and open up an account with $0 trades and $250 minimum and whatever it is, I mean, pretty much giving it away. I was like, is it really that, I guess it was, I’d be, and I have no idea, but so last as we’re, as we’re wrapping up here, what are some factors that you and your team have implemented in your life in business that have led to your success?

Lance:
Yeah. You know, I think the number one thing for us, it’s just been like, well, it’s two things. So in December, 2012, when we decided to pivot my business partner, Matt Burke and I, we, you know, we really, we basically laid out north star, right? Like w what, what do we want to do now? Right. And so our whole thing was that we wanted a flood of capital to go to worthy real estate entrepreneurs. Right. So once again, we were deciding to open what amounted to an open-ended, you know, hedge fund style, you know, fund. I mean, that’s what we were deciding to do, but we look beyond that to say, well, what do we really want to do? Like, if we’re successful, what will the world look like? And how will we change the world if we do this? And it was, well, we want to see the good guys get access to capital. I mean, that’s why we started our own fund. Is that any good guy we met? We wanted to figure out how to funnel capital into their endeavor so that good deals would get done with good people, people that were worthy stewards of that money. So I think that by having that north star and that’s, that’s guided us since that day. Right. And every decision that we make, and I think that, that, you know, I mean, we, we, we, we figured that would work out, but I mean, now sitting here years later, it really is amazing how, when you, when you know, what guides you, that allows you to basically say no to a bunch of things and say yes to the right things. But, and I think the second thing that we’ve done is that we’re just grinders, man. Like, because that is our mission. And like, that is our vision, and this is where we’re headed. I mean, we just put our head down and just plow through stuff, no matter how hard it is, it’s like, this is, it’s just what we gotta do. We gotta make this happen and mean everything that we create or have come up with is, has none of it’s been easy. I mean, it’s super, super hard, but you know, you just keep showing up, man. You just, you just grind. So that’s, that’s what we do.

Charles:
Focus is power. Right. So how can our listeners learn more about you and your company?

Lance:
Yeah. I mean, you can go to varidesk.com is probably the easiest way. You can email me lance@veravest.com and I’ve got a podcast. So I had, I had you on the show it’s called real estate risk report. So you can just search that in there, type that in and search for that on all the major platforms. But I think that’s the the best way to get to get a hold of me.

Charles:
All right. Well, sounds great. I’ll put all those links into the show notes. So thank you so much for being on today. Yeah,

Lance:
My pleasure Charles, take care, man.

Charles:
You too.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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Verivest

About Lance Pederson

Lance is the founder and managing partner of VeriVest; an end-to-end real estate investment platform designed to bring transparency and trust to middle-market investing. The platform combines capital management consulting, investor servicing, accounting & tax services, and sponsor due diligence, providing both accredited investors and sponsors a holistic service solution.

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