Episode 44 – What SEC (Securities and Exchange Commission Wants You to Know as a Passive Investor?
As a syndication attorney, Mauricio helps syndicators understand the nitty-gritty of real estate investing. Or, as Mauricio puts it,” stops them from going to jail”.
You will learn the difference between a private offering and the ubiquitous IPO. Mauricio then explains the difference between 506 B and the lesser-known 506 C exemption. What are some of the reasons why most syndicators choose to operate under a 506 B exemption?
If you are a passive investor thinking of investing in a syndication, then this show will be of particular interest to you. Mauricio has some great pointers on how to conduct a due diligence so that you can protect your hard-earned money.
We hope you enjoy this show!
- 02:13 – Understanding the basics – how do private investments work?
- 03:10 – Mauricio’s background information
- 04:20 – As a syndication attorney, how does Mauricio help real estate investors?
- 05:10 – Private Offering vs. IPO – Mauricio explains the difference in simple terms
- 07:08 – Mauricio shares his typical client avatar
- 09:43 – What is a Regulation D exemption?
- 12:35 – What is the difference between 506 B and 506 C exemption? What are some benefits of 506 B over 506 C exemption?
- 15:30 – Which exemption do crowd-funding platforms like Realty Mogul operate under?
- 16:28 – What are some benefits of 506 C exemption?
- 18:00 – As a passive investor, should you avoid investing alongside non-accredited investors?
- 18:43 – What is the ONE thing that you should consider in your due diligence process?
- 19:43 – What is a private placement memorandum? Should you insist that your sponsor furnish a PPM before you park your hard-earned money in a deal?
- 23:30 – As a passive investor, is your liability restricted? Can you be sued in case of any untoward instances?
- 30:21 – Taking the Lead Round
- 30:32 – When was the first time Mauricio invested outside the Wall Street?
- 31:20 – What fears did Mauricio have to overcome when he first invested outside the Wall Street?
- 32:07 – Can you share one investment that did not go as expected?
- 34:07 – What is one piece of advice you would give to someone who is investing in the Main Street?
- 31:01 – Mauricio shares his contact information
3 Key Points:
- Private Offering vs. IPO – understanding the difference in simple terms
- How to conduct a thorough due diligence before investing your hard-earned money
- 506 B vs. 506 C exemption – Understanding the difference
Welcome to the Gold Collar Investor podcast with your host Pancham Gupta. This podcast is dedicated to helping the high paid professionals to break out of the wall street investments and create multiple income streams.
Here’s your host Pancham Gupta.
Hi, this is Russell gray, co-host at The Real Estate Guys radio show and you are listening to The Gold Collar Investor podcast.
Pancham: Welcome to The Gold Collar Investor podcast. This is your host Pancham. I really appreciate you for tuning in today. Let’s get into the show. The mechanism of investing in stocks is very easy. You just click a button and you become an owner of a stock that you would like to buy. Of course, you would have to do the research and spend time on which stocks are worthy of your money. Now before you can do that research, you would need to know what you need to research. It is not easy to do fundamental analysis or technical analysis, if you have not studied the subject at all, to do fundamental analysis, you need to understand financial statements, the key ratios, etc. Now, assuming that you know how to do all of that, how many people really spend time in doing the research that is needed before they invest in the company, I used to work for Bloomberg and Bloomberg has an amazing set of tools at your fingertips to analyze whatever you want to analyze, even then, I used to find it very laborious to do the research. Part of the reason was that I used to find it work. And part of the reason was that the overall stock market felt like a managed market as opposed to a free market. Now, that is a topic for some other time. Now, what I want to talk about today is this subject of private investments. When I discovered this new world of private investments, it was a game changer for me. However, there are a different set of rules that apply to private investments. Just like in the public company, you need to trust the management team. But you also need to understand all the risks involved with the investment. You need to understand the opportunity and how it works that you can see if it fits with your risk reward profile. Since these private offerings are not traded on the stock exchange, they are only available to the investors who know the people offering these investments. It’s a big network of people. But if you’re not part of the club, it’s easy to miss these opportunities. Once you are a part of the club, you need to know the rules of the game rules that are defined by the SEC – Security Exchange Commission. To discuss some of the rules of the game. I have invited attorney Mauricio Rauld to the podcast. Known as one of the few lawyers that actually speaks English, Mauricio has real estate syndicators stay out of jail by ensuring compliance with federal and state securities laws with more than 20 years of securities experience. Mauricio is the premier syndication attorney in the country focusing exclusively on syndications for real estate investors. Mauricio has been recognized as one of the top California Attorneys under 40 by Super Lawyers magazine as an educator at heart Morris to regularly travels around the countries speaking to real estate investors on how the legal piece fits into the overall syndication puzzle. Mauricio, Welcome to the show.
Mauricio: Thanks for having me on the show. Really appreciate it. Looking forward to it.
Pancham: No, thank you for your time. Are you ready to fire up my listeners break out of Wall Street investments?
Mauricio: You better believe it. Let’s do it. Let’s do it that to have you on here.
Pancham: So before we get started, can you give my listeners your brief background on what you do?
Mauricio: Yeah, so I’m the I’m the Founder and CEO of Premier Law Group and we are syndication attorneys. I’m a syndication attorney was just a fancy way of saying I’m a securities lawyer, and I help primarily real estate investors raise capital basically put together a deal and raise the capital just to make sure that they’re complying with federal and state securities laws. I do that and just make sure I keep my clients out of jail. And if I do that, then I think I’ve done a good job.
Pancham: That’s great. So let’s dive right in. You know, most of my listeners are some of these guys may not even ever heard of this. So, most people know about what an IPO is? Initial Public Offering. Right, but you didn’t fit private offerings or syndication? Can you explain what those are? And how are they different from IPOs?
Mauricio: Well, a private offering is the opposite of an IPO. IPO is when you go public. And there’s a whole bunch of regulation that goes into basically what we call registering your securities. So, when you go public, you’re basically registering it with the SEC. The SEC goes through a whole process to review everything to approve everything, make sure everybody has all the information they need. And then at some point in the future, usually 12-18 months down the road, usually six or seven figures later, and a bunch of, you know, investment banks later, the securities, the shares of the company, basically get traded or issued to the public. Private offerings are the same without the public piece. So we do the exact same thing. We have a company, but instead of selling it to the public, we sell it privately, right? We sell it to people that we already know. There’s no tradable market. Once I have one of these securities, I don’t have the opportunity to trade it for. Really, most companies that go public, pretty much guaranteed, I should say, have done a private offering before that. So usually it’s the flat deck. Do a private offering like templates… like Facebook, at some point after Facebook got going and generate a little bit of cash or the idea was good, they went out to the private market, raised capital under private offering. And then as they kept growing, they raised a couple of different rounds. And at some point, they got big enough, because there are some limitations on how many investors you can have in the private world. At some point, it was time for them to go public. And so therefore, at that point, you go public, and then all those people who have invested on the private side, you know, you all hear about the employees getting stock options, or whatever, but there’s all the private investors who have been doing it. That’s kind of their big payday now, because now everything gets sold to the public, and there’s a huge market and now you can, you know, buy and sell and in their cases, they would sell some of their shares that they purchased during the private offering.
Pancham: So yeah, that’s a great example of Facebook. So, before they went public, like you mentioned, right, they did multiple rounds of private offerings. Right? Do you do all of those kind of private offerings? Are there certain kind of specific offerings that you do when it comes to private offerings?
Mauricio: I specialize in the real estate world. Most of my clients are starting companies, you know, businesses that are geared towards purchasing real estate, mostly multifamily. Probably about 70% of my clients are involved in the multifamily space but it’s also you know, mobile home parks, cell storage, some single family portfolios, industrial retail, you know, office, a little bit of everything. And then once in a blue moon, I’ll get some real estate investor who wants to do something different, you know. Like I did a client wanting to do a cryptocurrency funds. We did one of those. I just got an invite to do a call early next week to do somebody wants to raise money to do a movie. So we’ll see what that looks like. But yeah, but the act of raising money into some company to go then do something that’s what syndication is all about. It’s raising the capital, what you put in what you have doing with the money. Most people do real estate but you can do anything or Facebook or you could do a gold fund.
Pancham: Right. So from legal point of view, I understand you specialize in the on the real estate side and you’re looking into movies and also the crypto fund, but from the legal point of view what Facebook did on the private side before they went public, you do that. Right?
Mauricio: That’s right. They would have raised I don’t know… I don’t know exactly what exemption they relied on, but they probably did a 506 B to be honest with you. Kind of what most of my clients are relying on that exemption. So they didn’t have to register those initial money raising issuances. They didn’t have to register that with the SEC. They relied on a private exemption, which allowed them actually to raise an unlimited amount of money. Nice things about these exemptions that we use, even in the real estate space. And I just saw a Blackstone Capital, not just maybe two or three months ago, they raised pre COVID, $26 billion into a private real estate fund. And they did that with a 506 B because they had, you know, usually you work with broker dealers and broker dealers have relationships with people already. So as long as you have a pre-existing relationship with these investors, you can rely on some of these exemptions, which are really quite popular as you know.
Pancham: Yeah. So you mentioned a lot of legal words there, and some acronyms which some of the people may not be familiar with. So, let me break it down a little bit after you said that you do you know, Facebook and all Blackstone, they did some kind of exemption. What does that mean? What does an exemption with SEC means? And what does in specifically Reg D exemption mean? And then you also mentioned five or six of that.
Mauricio: So under our laws, the general rule is every securities offering and what we do is we’re issuing securities when you raise money, you’re giving them stock in your company or LLC units in your LLC, every single securities offering must be either registered which is what going public is or must be exempt from registration. And then I always joke that the third one is or it’s illegal for me to register it, meaning you go public, you find an exemption, or it’s illegal. The most common exemptions out there, there’s several of them. There’s actually a lot of them. But for specific reasons, there’s one group of exemptions, which are these reg D…regulation D exemptions that are by far the most popular ones that people use, somewhere in the vicinity of 90 to 95% of people will rely on the regulation D or reg D exemptions, and it’s primarily because these exemptions specifically with reg D, they’re what we call safe harbors, which is just a fancy way of saying, if we comply with all of the rules that we have in this particular regulation, then we are basically assured that we are in compliance and assurance is really important for us, especially lawyers, but also clients, they don’t want to have a guessing game. Did I do it right? Did I not do it? Right? Because, you know, violation of securities laws has some serious consequences. So people like the idea that if I do these five or six things, that the government’s going to tell me, you’re good, you’ve complied with the exemptions. And then the other reason they’re so popular is they, what we call preemption. They preempt state law, meaning we don’t have to worry about going to every single stage and worry about their specific securities laws. I mean, if you can imagine you’re doing a raise, and you have investors from, say, 10 different states, you can imagine that you had to go to hire a lawyer in California, hire lawyer in Texas, one in Florida, in 10 different states, and then somehow have to figure out make sure that what you’re doing is not violating any of these 10 different states, that becomes a nightmare. And so through these regulations, we don’t worry about the state’s…look, there’s still anti-fraud provisions. So we still can’t commit fraud, but we’re not actively looking and cycling through their securities laws because we can rely on our federal exemptions which all these exemptions are at the federal level which we like.
Mauricio: Okay, so regulation D or reg D exemption is the most common one, or D is just, you know, like ABCD. Like, like the fourth exemption, there’s a Reg D, there’s a B, there’s…they started in an order at some point they got away from that. But so Regulation D has several rules. I don’t want to get too technical on this one. Yeah, as technical as we’re going to get. But regulation D, think of it as a group of you used to be about five. Now we’re down to essentially three. But there’s two of them are the most popular rules within the Reg D and those are the 506. They used to be just be five or six. Now it’s 506 B as is in boy. But nobody uses that one. These two exemptions are…well actually to be honest with you 506 B is by far the most popular. The last statistic I saw is that between the two of those 95% of people use fiber 60s still and only 5%. Use five will succeed. So that’s why I mentioned five will succeed because that’s the most likely if you’re a passive investor. And, you’re looking to invest in a particular deal. you’re reviewing, you know, legal documentation. And those are most likely in reliance of a 506 b exemption.
Pancham: Yeah, so you know, you’re absolutely right on in our case, we have done mainly 506 B, we’ve never done 506 C. So talking about that in plain English, what does that really mean? 506 b and 506. c, just quick difference, like, what’s the…
Mauricio: Pivot points is 506 b does not allow you to advertise your deal. That’s one of the prohibitions. So if you have to have in general, a pre-existing relationship, a pre-existing substantive relationship with your investors, you have to know them beforehand. You cannot go on Facebook or a podcast like I couldn’t go on your podcast and tell the world Hey, I’m raising a million dollars for an apartment deal, call me that would be a violation of the advertising rules and there’s no general solicitation, I can’t go to a conference and pass out my business cards or business plan. So that’s one of the In a 506 C. I can. I am allowed to advertise. One of the benefits of the 506 B, I cannot advertise. But the nice thing about B which is so popular is that I can take non accredited investors accredited investors are basically high net worth individuals. They’re either investors who have a million dollars in net worth excluding their primary residence, or they’ve earned $200,000 the last couple of years and have a reasonable expectation of earning that much this year. So those are high net worth individual I forget what the latest statistics are, I think about I want to say 16%. Don’t quote me on that. But there’s about 16% of the population falls within that definition. And so, 506 b allows you to access the other 85-90% of the population which are non-accredited investors, so long as they’re sophisticated, they know what they’re doing. We can accept those into our deals, which is probably one of the reasons it’s so popular. But those are the two pivot points. Accredited versus non accredited. And then advertising versus non advertising – different pending on what your strategy is and what you need, you would pick one of those two exemptions based on that.
Mauricio: When I go on Facebook and I see these – crowd sourced deals…So reality mogul deals and you know all these crowd sourcing platforms, they’re, you know, raising capital for their deals. That is probably not 506 B.
Those are definitely not 506 B’s, those are all 506 C deals. They might be a what’s called a regulated crowdfunding, but I doubt it. But those ones, the specific ones, you mentioned, the Crowd Street and the Realty Mogul. Those are all 506 C offerings, because they’re advertising to the public. They have a website, a platform, and they will do their best. That’s what they do. They advertise their platform to attract investors. And then, you, as an investor go on this platform and typically have several investments to choose from, but the way, you get there is through their advertising, which is why it’s now it’s permitted thanks to 506 C and 506 C is fairly new. It only came into existence on September 23. 2013. So it’s been about six and a half, almost seven years now. But it’s a relatively new exemption. So, if you go back 10 years ago, you wouldn’t have seen all these. These kind of…Realty mogul and Crowd Street, some platforms, the 506 B was there for a very long time.
Yeah, 506, I believe was in 1982. And it was just 506. And when we started doing our syndication seminars, that was it. It was six, and you could not advertise. And then suddenly, after the last great recession in 2012, they passed the JOBS Act, which was things but within the JOBS Act, they wanted to relax the rules of raising money because we were in this huge recession. We needed people to raise money. And so we relaxed the rules and allowed advertising and created this new exemption. And then we just call it 506 C and then we call the original 506 D.
Pancham: Yeah, no. It’s funny to see that even though they thought that this will do the job that they were thinking that it do. But actually I didn’t do that because even now until today, after seven years, you said that about 95% syndicators still doing 506 B.
Mauricio: That’s right. That’s right.
Pancham: So all right, you know from a passive investor point of view, I’m switching gears a little bit, I will ask two different questions. So one, let’s say there is an offering, which is only accepting accredited investors. And there’s an offering that is, you know, accepting both accredited and sophisticated investors both everything else being equal, there is no difference assuming there is no other difference as a passive investor. Should I view these two offerings differently? Or should I be asking different questions to the sponsor given that one is accepting only accredited, and one is accepting both accredited and sophisticated, but everything else being the same?
Mauricio: Yeah, I don’t think for me from a passive investors standpoint, obviously, it matters, whether they’re accredited or not right? So then you don’t have a choice. But I don’t think there’s any additional, you’ll be a partner or a co-owner of this company with some other non-accredited. But honestly, I don’t think that’s really a main concern. But the big thing for a passive, the most important thing I believe, when looking at a deal is who is your sponsor? Who is the one that’s actually going to execute the business plan that they’ve presented to you because anybody can draw up a pretty brochure and pretty pictures and put down numbers and you know, tell you how much money they’re going to make in the next three to five years. And what a great plan this is. And that may all be true, but at the end of the day, you’ve got to execute on that plan and you have to have somebody on that team who knows what they’re doing. And so to me the due diligence on the sponsor themselves in the executive team is by far the most important thing because even if you have a great deal if you have bad sponsors who can’t execute it doesn’t do you any good. But also the flipside is true, right? I mean, if I had to choose between a great deal and poor sponsors versus an average deal and really good sponsors, I take the average deal with really good sponsors. So to me, that’s the most important part that you should be looking at is who’s on that team? And do they know what they’re doing? And do they have the ability to execute on that plan?
Pancham: Oh, absolutely. I’ve gotten that advice so many times. And you know, I fully agree with that. We call that you know, you bet on the jockey not the horse, you know. Okay, so okay, so that’s one like you said, make sure you know your sponsor and be you know, of their strengths and weaknesses and all that. Are there any other things that SEC wants passive investors to know before they invest in the deal?
Mauricio: When you have passive investors, the sponsor the person, the group, putting it together is required by law to provide them with a very detailed disclosure document. We call that a private placement memorandum or PPM that is required and the law, the detail and the level of disclosure is about as high as it gets. But it’s the same level of disclosures that you would be providing if you were doing sort of a semi registration with the SEC. And so as a passive investor, if you’re a non-accredited, you should be seeing a PPM. And if you don’t have a PPM, then the first thing you should be asking yourself is first ask yourself why. But most important that I would ask the sponsor why there’s no ppm, and the sponsor will then probably give you some nonsensical answer, which essentially means they’re just kind of skirting around the rules turning around the laws are not following the rules. That is a mandatory requirement. And I’ve actually had this happen a couple of times where there hasn’t been no PPM and there’s some explanation given which is doesn’t make any sense. And then the question is, well, if they’re cutting corners here, where else are they cutting corners? Right, that’s kind of the question I have. And sure enough in both of those instances, and I’m talking the instance where there’s no PPM, not a PPM. That wasn’t good. There’s no shame at all, you fast forward two years, and both of those deals had issues. One was fraud. And one was they just were losing all their money because, again, somebody who’s doing this properly a sponsor like yourself, or that they’re going to number one, hire an attorney. And number two, put together the disclosure document. Number three, it’s got to be a good one. Everybody, you know, a PPM in and of itself is kind of worthless, you can you can get one off the internet, you can, you know, can pay whatever. But at the end of the day, what you’re trying to do as an, what I’m trying to do is make sure that I’m letting the investors know, all of the risks associated with this particular this specific deal, and the specific marketplace and the specific loan product or whatever the specifics are. And so that’s what your job is the passive investor doesn’t mean all the work you do as a passive investor happens on the front end. Once you write that check your passive right, but at the beginning, you’re doing the due diligence on the sponsor team. As I just mentioned, in your reviewing the documents, it’s very important. I would recommend hiring an attorney to review the docs just to make sure that the documents properly reflect what you’ve been told. Just because it’s in a pretty brochure, doesn’t mean it exists. It has to be in the ppm and more importantly has to be in the operating agreement. Because if you just agree with something and you thought you were going to get a preferred return, but it turns out, you didn’t. And then you go to the operating agreement, and it’s not spelled out. That’s the problem, even though they promised it to somewhere else. So it’s just I would recommend everyone if you look, if you’re going to make a sizable investment, you know, $50,000 – $100,000, I would go spend $1,000, or whatever it is, to have an attorney review it and compare notes, compare your understanding of the deal with what’s actually in the paperwork. So that again, the whole point is that you’re going into this investment, fully aware of all the risks and understanding and you can make an intelligent, informed investment decision. That’s the whole goal.
Pancham: Great, no, those are great points. And you know, I would definitely agree with all of them and so question on that I get this question a lot. So this is like purely from, you know, limited partners or passive investors, as the name suggests, right? Limited partners. So other than their writing this check and their money is on the hook, do they have any other liability as a passive investor, when they’re part of this LLC or this deal? Right?
Mauricio: I always get that. Can they get sued, or any other liabilities associated with it? There’s another example of why you want to make sure you look at the operating agreement. So one of the things this is not a legal thing, but one of the things a passive investor, like you mentioned, wants to know is if I write a 50,000 or $100,000, check, is that it? Is that the most I’m going to be putting into this deal? And is that the most I’m going to be able to lose? One of the provisions in the operating room that you want to pay specific attention to is additional capital contributions where we call cash calls. Is that something that you’re obligated to do? Because if you’re obligated and I said look, we may need another 50,000 or 20,000 from you, then you’re going to have to come up with the money. And so most of the deals that we craft is not a requirement. So because again, passive investors just want to write the 50,000- 10,000 dollar check and know that that’s the most they can lose, right? That’s what they want. Yeah, that’s one protection on the capital. from a legal perspective. As long as you’re not participating in the decisions of the company, you should not be responsible for any…anything that the LLC does. Or any wrongdoing that the manager does. So if you invest in a piece of property, and you know, it just goes to hell in a handbasket, and the lender takes it over and liquidates it and everybody loses their money. That’s it, you’re exposed, the maximum amount of exposure is going to be the amount of money that you put into the deal. That’s definitely exposed. There’s risk there. But you are a limited partner or if you’re an LLC, you’re going to be it’s called a limited liability or a limited partnership. And the idea is that you are as a member, if all you’re doing is being a member, you Your exposure, your liability is limited to the amount of money that you have contributed to the deal.
Pancham: Got it? So what about the legal side? So this is on the lender side, let’s say someone gets hurt on the property. I’ve gotten this question too. Yeah, you know, kids playing in the playground, and they get hurt. And God forbid, they get, you know, they pass away or they get hurt badly. Can they be sued as passive investors?
Mauricio: No, because you’re a limited member, you’re a member of that LLC, the responsible party and something like that on a liability claim is with the owner of the property. And remember the owner, the property is the LLC, so the LLC will get sued. And if there’s an LLC, we’ll get the judgment and the LLC will need to pay which is why the only asset typically the LLC has is the is the actual asset, right? The building so they will liquidate it, you’ll lose all the equity and whatever cash is in there. But assuming they haven’t participated at all it’s very, not very likely. I’m going to go. I’d say it’s impossible for that person to then what’s called Pierce that corporate veil and get to the members unless there’s some fraud, obviously, if there’s some fraud going on, and some something like that was in collusion with the members, and then that might be something that can happen. But if you’re simply writing a check and then going home, then the only people that are exposed are the LLC itself, then obviously, the managers are the people that are making decisions on behalf of the LLC. That’s why I said it’s very important for members not to get involved in the decision making because if they do that decision they make they call some liability. And then if you have a property manager, the property manager can also get in trouble, although typically, the LLC will indemnify the property manager, but the limited member will have no exposure by merely being an owner. Just think of it as let’s go back to the tech example. You own shares in Facebook. Yeah, exactly. You own shares in Google. If something happens to Facebook and they get sued for a billion dollars or they go bankrupt, they’re not coming after you, the shareholder. You just own the stock. You won’t just own the stock at the company.
Mauricio: Yeah. Exactly use that analogy sometimes. And I also said that, as a line of defense, we have, you know, liability insurance. And after that we have umbrella policies. And so those are line one, line two, you know, of defense, and, you know, so depending on the things, it’s enough that there’s property. So there’s like a lot of things before that. I think your biggest risk is the loan. So if you if the property doesn’t perform, the way the plan was, wasn’t being able to execute it, and then the lender can’t get paid, the lender takes it back. The lender forecloses the lender loses money, then typically, there are guarantors on the loan, which is not going to be you as a member, but they’re not going to go after the limited members. They can’t there’s no liability there.
Pancham: Got it. Very cool. No, I think that’s great. So anything other than like what we all discussed anything as that passive investors need to care about before they invest in it learn in this private offering?
Mauricio: I think the due diligence, I mean, that’s the main thing, the due diligence, On the sponsor, due diligence on the marketplace, the market that you’re in and due diligence on these specific property, that’s where you’re analyzing and looking at the numbers and making a decision as to whether it’s a good investment for you or not. Once you’ve cut that check, you have zero control.
Pancham: Yeah. That’s great. Thank you very sir, for that. Anything else you want to add? Before we move on to the next section of our show?
Mauricio: I think we’ve covered it.
Pancham: Great. We’ll be back after this message. Do you ever feel overwhelmed by the thought that you have no time after work, and family time to learn about investing? Do you feel left behind that you are not putting your money to work for you? Do you want to create passive income but you do not know where to start? If so, I have good news for you. I have created an investor club which I call the gold collar investor club for accredited investors. I will be putting together investing opportunities exclusively for this group. These are the opportunities where I have done my part of the due diligence for you and will be investing my own money alongside you. If you are interested, please sign up on thegoldcollarinvestor.com/club. I repeat thegoldcollarinvestor.com/club. I will reach out to schedule a 30-minute phone conversation to discuss your investing goals. Once you sign up, this can be a good opportunity to diversify and take some chips off the hands of Wall Street to produce some cash flow. And in case you are wondering what is an accredited investor? Accredited investor is someone who has earned more than 200,000 as filing single or more than 300,000 filing jointly for the last two years. Another way to qualify as an accredited investor is if your total net worth is more than $1 million, excluding your personal home. It includes your stocks, 401, K’s, IRAs, cars, etc. Just not the equity in your personal home. If this is you, I would highly encourage you to sign up. So, Maurice, I ask these four questions to every guest on my show, and I call this taking the leap round. So, my first question for you is when was the first time you invested outside of Wall Street?
Mauricio: Assuming we’re not counting the days of when I was, you know, 15-16 years old, and I was investing in baseball cards, which was not a good investment for me. In my first apartment building, I bought an apartment, a two-bedroom condo right after I left law school that was my first entree into sort of alternative what everybody calls alternative which I just call, I don’t know the main thing, and I bought it in, in the great old state and city of Las Vegas, Nevada. In about 2007 or 2008, when I think the market just appreciated about 50%. But yeah, that was my first real non-Wall Street type investment was that two-bedroom condo in Vegas? Got it.
Pancham: So did you have to overcome any fears when you first invested in that condo?
Mauricio: You know, not really. I mean, as an attorney, you know what I typically do, and I do it for all my clients. But even in my own head, I go through worst case scenarios, right? And so I just look at what’s the worst that could possibly happen. Like, if there’s a chance of me dying and a 50% chance to be dying, then I’ll probably pause and think, but usually I figure out what’s the absolute worst that could happen? And then from there, I figure out what are the odds of that happen? And even if it did, or whatever, I am I comfortable with that. And so that’s how I approach most things. So when I did my first deal, maybe it was just super naive. I was like, it is what it is. I’m going to go in there. And if it’s a disaster, it’s a disaster. And you know, what’s the worst that could happen? My credit gets ruined, I lose all my money, and it’s not the end of the world. So that’s kind of my attitude and most things and so I think I ran through that analysis and was like, oh, let’s do it.
Pancham: Got it. Got it. Cool. So my third question for you, Mauricio is that can you share with us one investment that did not go as expected?
Mauricio: Well, if you think about it when you buy a two-bedroom condo in Las Vegas in 2007 that definitely did not go as expected thinking the same thing. So that’s I mean that thing you just to give you an idea so that we bought that thing you know, back in the day, you know, I think was like $160,000 for the two bedroom I don’t remember what the cap rate was some obscene Caprio looking back now of course, you’re like, Why in the world would you buy that at that? But it was your first deal was super excited. We had a tenant in there that were paying, it was covering the rent, and then we ended up short selling it. I don’t know how many years right after the Great Recession. I think somebody bought it for like 25 grand. So I haven’t checked in a while I’m sure it’s you know, maybe it’s up to like 60 or 70 or 80. I don’t know what I should probably look at it but yeah, so we have a lot Again, you know, back then Nevada it’s the non-deficiency states so they can’t you know, the lender can just look to the property we certainly weren’t personally guaranteeing it so we basically I can’t remember if we short sold that or just handed over the keys but I do know that was purchased for like 25 or 29 grand. I mean, yeah, the credit got hit and we lost you know, obviously our down payment all that stuff but you live in you learn that’s probably the biggest lesson of all, if you don’t get the lesson from it, then you’ve just really wasted it. I mean, anytime you face adversity like that you want to get the lesson ideally is our good friend Bob Helms say, you know, you can learn from other people’s mistakes, but when you make it, you just learned the lesson and make sure you don’t you don’t buy things at a 20 in a marketplace. It’s gone up 50% in the last six months.
Pancham: Yeah, no, I absolutely agree with you. I call these seminars, they are real world seminars. You do and you learn and that’s the goal, you know. So no, thanks for sharing that. My last question for you is Maurice, so what is one piece of advice would you give to someone who is thinking of investing outside of you know, of Wall Street and that is in the Main Street?
Mauricio: I fall in that camp that investing in Wall Street is basically investing in casinos. You don’t really have that have much control of anything. And so for me, Main Street and when I presume when you mean Main Street, you know, investing in these private companies, or even just buying real estate yourself, or just something outside of that, you have so much more control over everything you get to actually, I mean, look at it. You know, when you’re an investor in one of your deals, I get to pick up the phone call you and ask you questions, and I’ll give you my feedback or after all, what’s going on. You know, if you own Apple stock, you’re not calling Tim Cook, Tim Cook, your phone call.
Pancham: Exactly. Exactly. You know, that’s great. Thank you for answering all that and sharing your knowledge and research. It’s been great.
How can listeners reach out to you if they want to connect with you and also tell us about your podcast that’s launching soon. If anything, anytime soon, you know?
Mauricio: Yeah, so Premierlawgroup.net is the website you can you can find me. I’ve got a YouTube channel that I put out a quite a bit of content on YouTube and Facebook but if you’ll find a bunch of actually a great video that we did on the difference between 506 B and 506. c. And then yeah, I was going to be launching a podcast in the first quarter of this year that hasn’t happened yet. I know a lot of people have launched podcasts during this global pandemic but I am not one of them. But hopefully we’ll get that back on track and I’m hoping to launch that probably in the third quarter now of this year but looking forward to it just to kind of bringing in different areas of syndication and different experts in different you know, if you remember, syndication is a business and so it’s all different facets of business. So I’m excited about bringing experts in different areas and sharing that with my audience…
Pancham: One thing I would like to you know say that your YouTube channel is great. I you know, I’ve listened to some of those videos. I’ve shared with people, uh, you know, anytime I have a simple question like that, and I know that I’m not the lawyer, and desperately I can understand English, but I definitely cannot. You know, and you can actually talk in English, you know, nitty gritty. So, that’s great. Thank you for your time today. And it’s been great having you.
Mauricio: Thanks for having me on. Thank you.
Pancham: I hope you learned some rules of the game that define private offerings. Thanks for listening. I appreciate you. If you have questions email me at be at email@example.com. That’s firstname.lastname@example.org. This is Pancham signing off. Until next time, take care.
Thank you for listening to The Gold Collar Investor podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com. Follow us on Facebook at The Gold Collar Investor. The information on this podcast are opinions as always, please consult your own financial team before investing.