LUR 11 | Vet Passive Deals

 

The beauty of passive investing is how it provides busy individuals a way to still grow their wealth without getting involved in the day-to-day—but not before finding the right deals that you can trust will generate great returns. In this episode, Lisa Hylton is joined by seasoned investor and experienced fund manager Olivier Nallet to discuss the ways you can vet passive deals. Olivier talks about finding the right sponsors you can trust and deploying capital in the marketplace amidst the unpredictable future. Plus, he also shares the key lessons he has learned along his journey of investing in 30 plus syndications, his fund and how it’s structured to help investors, and some advice for new investors trying out the passive route. Join Olivier for more in this conversation.

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Vet Passive Deals With An Experienced Fund Manager, Olivier Nallet

I’m super excited to have on the show Olivier Nallet. He is a seasoned investor with years of experience. He has a good nose for great deals and is always on the lookout for lucrative opportunities. He has a strong network of sponsors, investors and real estate managers. Over the past couple of years, he has significantly ramped up his real estate investments with multiple units and leveraged syndications to aggressively scale with more diversification.

As a result, he invested in more than 30 partnerships directly as well as indirectly across Florida, Ohio, Texas, California and Chicago. He has a passion for perfecting his skills and crunching numbers to find the next great deal. He is also the Founder of Lazuli Capital out of his passion to connect investors to great investment opportunities.

Olivier, I’m super happy to have you on the show. Thank you so much for coming on.

Thank you for having me and for the opportunity.

I remember when I connected with you, learning about all the different investments, partnerships and syndications you’ve invested in, I was like, “Wow.” You come with a wealth of knowledge and I am excited to be able to share your knowledge with my audience. My show is broken into three parts. It is background, experience and then we wrap up with level-up questions. To get started, can you share with my readers where in the United States that you live?

I live in San Mateo, which is in California. It is close to the Bay Area, right between San Jose and San Francisco.

What do you and your family like to do for fun?

We like to go outside and walk for trails. We also go to Half Moon Bay often to see the ocean. We are very fond of the water.

As a part of this background section, what got you interested in real estate investments and then further real estate syndications?

I did a lot of stock market investments and options on futures and forex but I went to do something different because it’s very hard to predict where the market is going. Often it’s as good as mine and you don’t know exactly when you can buy some shares or good options if you’re going to come out ahead or not because the market is pretty efficient. When you go into real estate markets, you have a good idea but only if you have good numbers to begin with. It’s better than the other.

It’s pretty inefficient to some extent. You are going to find on the market deals that are going to be very good and some not going to be so good so we can focus only on the best deals with actual numbers that will make sense over time. That’s why I went to more real estate because it is the best risk-adjusted return compared to the stock market. There’s more predictability there.

There are some recessions and downsides as well but at least it’s probably more controlled than what you would get with the stock market. You wouldn’t get what you would have, for example, in March 2020 where you lose 30% to 40% of your value within a month on a given real estate. If you have some issues, it is going to be much slower and you can more easily reinvest at the time.

Real estate investors are not experiencing large spikes in value either so it’s just a more stable asset class all around.

It grows slowly but surely. I can sleep better at night than having some complex options set up that you can do ten times your money within a week or you could lose everything. You have to be on the good side of the tread there but to real estate, you can go ahead slowly but surely.

When you go into real estate markets, you have a good idea, but only if you have good numbers to begin with. Click To Tweet

Staying in this background section, one of the things I want to start with is about the mindset because as I spoke about introducing you in your bio, you are in the space of multiple units, 30 partnerships and you’re also a fund manager but where did it all start? Did it all start big? Was there a point in time when you were smaller in terms of the types of investments you invested in real estate-wise?

I started much smaller. Initially, I was this accidental landlord where I had my apartment when I was in Paris. I moved to the US years ago but when I moved to the US, I was like, “What would I do about this apartment? Do I keep it or rent it?” I started renting it there and then when I moved to Florida, we were able to house there. When I moved to Washington State, we also had this house as well so I was like, “What do I do about this house?”

I decided to look at numbers and I was like, “The numbers look okay so I’m going to continue renting it.” The same thing happened with Washington State. I moved back to the Bay and we rented the house there. That’s how we started building the portfolio but in retrospect, when you look at the numbers, they were not so great from a realistic point of view.

They were putting positive cashflow but it was not what you expect from the investment point of view, which is why in 2016, I changed quite a bit of the way I was doing things. I was like, “Let’s take that very seriously.” I started investing in a duplex in Florida, finding and comparing different deals in the market and trying to figure out what is the best deal out there. What was interesting is it was very time-consuming. Whether you like it or not, you have to go through all these MLS deals and find a real estate agent that wants to work with you remotely.

I was in California and the real estate agent was in Florida. I wanted to buy in Florida because it was better to buy than rent there. I was trying to find geographically what makes sense. Whereas in the bay, it’s better to rent than to buy. Finding the right agent was time-consuming and then you have to go through a bunch of deals and have the visits through videos. You make the offer, negotiate back and forth, go through the inspection and then have to convince the bank.

My loan officer changed his job in the middle of the deal so I needed to find another bank for the loan and then close on time. I had to do the closing, computing of cash and refinance. It was a mess. I realized, “I cannot scale like that and go through that process. I’ve got the duplex and it is great but can I have 4, 10 or 20?” I can’t go through that process. Even the number of loans is going to be difficult because when you make it to 4, you can go to 10 and after over 10, you go through commercial loans and so on. That’s why I started looking at it like, “How do I scale up? How do I increase my investment?”

I was looking online on BiggerPockets and I started seeing some people taking the bad syndications. I figured, “That’s interesting.” I didn’t know about the concept but I was like, “That makes sense.” I started buying some books and reading. I was like, “Let me look at deals.” At the time in 2015 or 2016, that’s when the crowdfunding started and the SEC allowed it for the past few years for people to agree to the investors to invest and reset through syndications. I was looking at it and I was like, “That’s maybe something that should work for me. I’m accredited. Let’s try that.”

I started to invest in one syndication. Ashcroft was the sponsor at the time. I said, “That’s easy. I have to look at the deals. Does it make sense? Is the paperwork okay? Am I okay with the sponsor? The return seems good so let me send you the check.” I sign the paperwork and so on. This was night and day compared to buying a house. I quickly send a specific check where the money depends on how good the value of the house is, how much down payment you have and how much remodel you have to do.

You cannot send a $25,000 or $50,000 check. It’s going to be variable depending on the deal you find. You can scan the scale very easily there. With syndication, I started with one and then I said, “That’s good. Let me find a second one.” I then got a third one and so on. I started investing over and over. That’s how I grew to 30 syndications and more.

LUR 11 | Vet Passive Deals

Vet Passive Deals: You don’t know exactly when you can buy some shares or good options if you’re going to come out ahead or not because the market is pretty efficient.

 

Can you talk about what are the key things you have learned along your journey of investing in 30-plus syndications?

One of the key things is making sure that you use a strong sponsor that has a great track record and is great at communicating things even when things go bad because that always happens. Not in all of the deals but it is bound to happen especially when you have that many syndications. You have to be looking for syndications that a sponsor has a very strong track record whether it was in the 2008 recession, 2010 or even 2020. That’s the first key thing.

The second key thing is looking at the kind of syndications you’re looking for or asset type. You’re going to have very different results depending on the multifamily offices, hotels, Airbnb-based syndications, mobile homes, self-storages and so on. They behave a bit differently and we discovered that most syndications that were hotel-based got that moment. I’m sure most of the investors lost pretty much all their money in many cases because that was very difficult for them.

For me, I was expecting a recession starting back in 2016, 2017 and 2018. I’m thinking, “Things went so well for the past 5, 6 or 8 years. Something is bound to happen. If the recession happens, what should I avoid? I should avoid the hotels and offices.” I did pretty much everything else but that. I did well for the most part during the COVID period. I have one investment in student housing that did not go so well so I’m still waiting for the final number but I’m expecting I may have lost that. Having the asset types in your mind is very important. Being comfortable and making sure that the return you’re expecting makes sense given the risk that you are getting.

If you do vertical developments, you are going to take much more risk than if you were doing a value add. Are you going to be compensated for that? If you do a core or core-plus, it’s going to be more stable than value add. How does it match in terms of return? What about the loan? What about the LTV or DCR? What are the terms of the loans? Are you overpaying for the assets? What are the underwritings? Do they make sense? There are a lot of things that you have to go through to make sure you pick the right asset types.

When I started, I was mostly focusing on, “Let me diversify. I’ve got this new tool, which is syndications. I’m going to start here.” I started mostly geographic-based. “Indianapolis is going very well. I should invest in a syndicator based around Indianapolis. In Chicago, I should buy more than rent.” I have syndication there. I did a lot in Texas and Florida for tax reasons because it’s simpler there. The growth was and is great there still.

I was doing mostly geography in terms of geographic diversification as well as asset types. I was not vetting as much the sponsors, which is one of the things I learned along the way. The mistake I’ve made was not vetting correctly the sponsors that had an impact. It’s not like I lost a lot of money. It’s mostly an opportunity cost that that money could have been invested in a better deal. Over the years, I’ve learned from that. I am so much better than I used to be. I’m learning every day.

You talked about vetting correctly the sponsor. Can we talk a little bit about what are some of the things that you would recommend doing? This group is for passive investors. Everyone that’s reading here wants to invest passively. One of their biggest hurdles is, “How can I trust that these are people that are going to do right by my money?”

One thing I’ve seen with new investors usually is they have this money and want to invest it. They are going to often focus on the IRR. They are going to say, “I like this deal. The IRR is nice. I’m going to invest in that.” The problem is that you should first make sure that you have the right sponsor. Before you invest in any deal, you should spend some time. It can be several weeks or even months if you want to make sure that you understand the full landscape and you can get as much information as you want before you invest your $25,000 or $50,000.

Real estate has the best risk-adjusted return compared to stock market. There's more predictability there. Click To Tweet

As we know in syndication, you pay these $25,000 or $50,000. If that’s all your money, for example, in your first deal and it doesn’t pan out, you have this opportunity cost and probably some loss as well that will happen. You could be thinking, “It’s not for me. This is not the right model for me to invest in.” No. You may have picked the wrong one.

First, you need to understand exactly what the landscape is and what the different sponsors are. Going through different investors group. For example, going on CrowdDD.com. It is where you have ratings on different sponsors. It is very helpful to get a good feeling about who is a good sponsor or not. What’s great about the investor community is they share information about things like, “That sponsor was great with me for the past years. I trust them.” It’s good information that you didn’t have before.

Having that, you can sway your opinion there and the other way where somebody has been telling you, “I had a deal with them and that was awful. They didn’t deliver the expected IRR.” That can happen but when I communicated about it, they went blank on us for 6 months to 1 year. We kept asking for updates. They didn’t want to tell us that or they made some decisions that I disagreed with. They didn’t take it into my account. I didn’t feel their interests were aligned with the investors. When you start, it’s very hard to add this information until you reach out to other investors and groups and you start getting this information but you should avoid signing the first check on the first sponsor that will show you a good deal because you may not know if that’s a good deal to begin with.

One thing that you mentioned a couple of times here is the opportunity cost. Sometimes, people haven’t had enough networking and outreach to meet more and more sponsors to know what it’s like to get certain track record information. I have seen a variety of track records in my time of focusing fully on this business. It blows my mind that I could work with a sponsor who will show me all the deals when they bought it, what the projected returns are, what the actual returns have been and what their plan is in terms of these types of jobs. Whereas I’ll speak to someone else and it’s like I’m speaking French to them because they’re not hearing me at all. It’s like, “Are you not going to provide how your deals are doing?” That’s important for investors to see and know.

This is the thing where you don’t want this sponsor to make experiments with your money so you want to make sure that they are doing the same deal they did in the past with the same underwriting or a better quality. Hopefully, they learn along the way as well while the track record is showing that you can trust them and they’re going to do a good deed for your money.

If the sponsor is getting started with their first deal, that’s great but what happens if there is another recession in a few years? They go like, “It’s not my first deal. It’s my third deal. I invested in 2018, 2019 and 2020.” I’d be like, “You’re telling me that you have three properties that you are dealing with but none of them closed and so they exceeded. If there is a recession next, you may have your hands full on three different properties. Do I have to trust you on that?”

In some cases, it may make sense to invest with that sponsor if you already have a very established portfolio that has so many other syndications and the IRR on that deal makes a lot of sense. You can say, “I can take a risk on that. That is going to be the speculative and small portion of my portfolio.” In the first 5 to 10 deals, you should avoid taking too many risks. You want to have a good baseline that is going to give you enough time to learn about the full landscape and then after that, you can start taking more risks.

I want to pivot a little bit onto the way you’ve structured your business. Can you share with the audience the fact that you have a fund? What kind of fund do you have?

LUR 11 | Vet Passive Deals

Vet Passive Deals: Make sure you use a strong sponsor who has a great track record and is going to be great at communicating even when things go bad.

 

I have all the syndications here as an investor. I was like, “I’ve come across a bunch of very interesting deals. How do I invest?” My money is not infinite like everyone else. I’ve got a W-2 and invest a lot of it in real estate but money runs out at some point. I see these great deals and I’m like, “What do I do? How can I take advantage of that?” Then I realized, “There are some older investors who don’t know about commercial real estate that may be interested. Maybe if we are splitting, sharing and putting the assets together, we could participate in those deals. I could use my math skills in terms of finding great deals, applying that and helping them.”

I started at work with some coworkers. I discussed with them and said, “I’m proposing that. What do you think?” “I had a good return from that.” A lot of people were interested so I said, “I’m going to talk to a lawyer and see what it is. We can create what is called a fund of funds,” which is a fund that is designed to invest in syndications. The investors will come and bring the money in the fund and the fund will invest in the syndication on their behalf but all the syndication that should be part of the fund will be pooled and all the investors will have ownership of the fund. We call that an evergreen fund of funds, which means any investor can come at any time and join the fund.

The minimum is $50,000. They bring their money and we’re going to invest in the best syndications at the time that we find with the best risk-adjusted returns. That’s how it started. We are slowly growing. We have multiple investors and many other investors are interested. I’m investing as a solo investor with geographic-based syndications. I’m putting my money in the fund. The fund is investing in similar syndications but all the investors are taking advantage of it, which is great. That allows us to have bigger deals because sometimes the minimum syndications can be $100,000, $250,000, $500,000 and so on.

You can have better terms for some syndications with $500,000 or $1 million. When you get there, it’s much harder as a solo investor to get access but as a fund, it’s much easier. That’s the advantage here. In terms of taxes, the nice thing about it is let’s say you have 10 investors receiving $10,000 ones, you also end up with $100,000 ones because 10 times 10, that makes a CPA very happy because they’ll have a good job but for the investors, it adds up to the cost.

In this case, you have 1 fund talking to 10 different syndications to get $10,000. This fund is going to generate $10,000 for every single investor. Naturally, you end up with $20,000 ones. There are savings here in terms of taxing. It’s easier to do composite state taxes as well. There is value. The bigger the fund is, the better the value is provided to the investors. A lot of the new investors were shying from joining the commercial real estate but not wanting to pay $50,000 on one given syndication, wherein our case, they come and can have multiple syndications in one go.

I would assume it’s accredited investors only, which then enables you to have access to even more deals because there are more deals for accredited investors. You talked about Airbnb-based syndications. I was not familiar with any of those. Is there such a thing?

I’ve seen some. I’m looking into that, especially at their numbers. I want to look at the numbers for the past few years to see how they fared. I would expect a very high IRR for that or even the risk. It is not common but it’s happening. I know that in the past few years, there have been more and more Airbnb-based investors so it’s growing quite a bit. I was looking into that a few years ago but I was thinking, “With the recession possibly coming, I’m not sure I want to join.” I was lucky.

Coming back to your fund, would your fund be a blind fund? Meaning investors aren’t able to choose what deals their $50,000 is being allocated to.

Correct. The investors have access to some blend of syndication. They don’t pick and choose which syndication they are interested in. It is blind to the fact that they don’t know exactly what new syndications we’re going to invest in. They only know about the existing syndications. However, it is very investor-centric. I’m an investor so I’m redoing that for me to help investors.

Usually, the way it works is we have an internal mailing list. I’m seeing this deal here. Is there some interest from investors? The deal is good but if there is not enough interest then we’re going to pass on it as a group but if some investors are telling me, “I like this deal. I want to pay $25,000 or $50,000,” then I can send the people to work, have some commitment and we can build from that. I want to make sure that all the investors are feeling that they are heard, feel supported and understand the thought process behind the selection as well.

Every time I’m comparing any given deal and I found a similar deal that we passed on before but this deal is better, I’m going to show the metrics on why this deal is better than this other deal we’ve seen like the LTV and market is better. Build confidence with all the investors and make sure that they’re buying into that because I want them to feel that this fund is representing them and their choices.

All investors have different opinions about what should be. Some are very risk-averse and some are aggressive. They’re like, “I want to invest in the fund only if we invest in s25 plus IRR deals.” I’d be like, “We can do some of that but not all of them.” The thing that keeps me awake at night is, “If there is a recession tomorrow, I want to make sure I’m not losing money for the investors.” We’re taking a 13% to 15% IRR net for the investors. We have this blend of debt, core, core-plus, value add, developments and speculation.

You should avoid signing the first check on the first sponsor that will show you a good deal because you may not know, even if that's a good deal to begin with. Click To Tweet

We try to have a mix of all of that to overdeliver on their promise on this 13% to 15% IRR but still be in a good spot that if there is a recession in the next few yearswe’re going to still do great. That’s why I am shying away from being overly speculative on the syndication of investment. I’ve got syndication that was at 30% IRR and promised with 15% preferred return. I was like, “Let me sign on that.” At the end of the day after four years, I got 0% IRR out of it. That was a huge opportunity cost there. You have to be very careful about which deal you’re drawing.

On that IRR that ended up being zero, when you look back at that situation, was there anything that you would have known before or lessons you’ve taken from that going forward?

I knew that was a risky play. The 30% was too good to be true. There were some studies from CrowdStreet where they were showing that the predicted IRR versus the actual IRR were correlated. These numbers from the CrowdStreet platform are a subset of the actual syndication that we have access to. For example, if you have a 10% IRR on syndication that was targeted, there is a chance that they are going to increase their number a bit to have more investors. Maybe at the end of the day, the actual maybe 8% or 7%.

If you are 20%, they may end up at 15%. If you are 30%, they may end up at 25% or 20%. That’s what my thinking was at the time. My thinking was like, “I don’t think they’re going to make it at 30% but I’ll be fine with 20%.” I knew it was part of my speculation play and there is always a risk that you lose money but it looked like for this one, I wasn’t not going to lose money.

If I had known differently or taken into account all of the learnings I had like the sponsor is very important to make sure you understand the asset class and the risk is commiserate to the return, which was 30% but if you have a much higher risk then maybe you can find something with the same return with lower risk. I would have been fine with 25% with much less risk. Sometimes, this last 5% doesn’t make any sense. It’s not that I was taking much less risk for that. I am much more cognizant of that in the past years. I am much more selective compared to when I was doing things in the first year.

I have two more questions. One is a little bit more technical but this one isn’t, at least I don’t think so. You talked about you’re in debt, core, core-plus, value add but then you’re also in other asset classes other than multifamily. Are you only in multifamily?

No. I’ve got mobile homes, self storages and some offices a bit but not too much. In the fund, we’re investing more in offices because all the offices are doing fine during COVID and going to do better after COVID. I don’t think everyone is going to work from home in the next years. Many people will be glad to return to the office or at least partially. I try to diversify as much as possible. I’ve got some cannabis office in Oakland.

For someone who is thinking about investing passively, they’re like, “There are all these different asset classes.” They live in an apartment so they feel like they know multifamily but when it comes to self-storage, office and all this other stuff, they’re like, “I’m not sure.” What advice do you give even to your investors that are investing alongside you when they’re looking at getting comfortable with the asset class?

It’s looking at the track record of the asset class, seeing how it worked out and if it makes sense. For example, self storages are known to be recession-resistant but with COVID, I’ve seen a mixed bag of results there. Some were doing okay and some were doing not so well. One thing that’s interesting as well is there has been a lot of cap rate compression in the past years so we’re towards the end of the cycle for real estate. There could be something happening in the next years if the cap rate expands again where the returns are going to be lower.

Self-storages have been bought a lot. The value has been increasing quite a bit. I do not know if the returns on self-storage are going to be as good in the next 5 or 10 years compared to the past 5 or 10 years. We have to be cognizant of that and make sure that we’re comparing multiple deals. Even if you don’t know the domain space completely but looking at 5 or 10 deals and making sure you pick the best out of these 10 deals is better than picking the 1st one you see where the IRR is good enough because this is not the best way to look at it.

LUR 11 | Vet Passive Deals

Vet Passive Deals: You want to have a good baseline that is going to give you enough time to learn about the full landscape, and then after that, you can start taking more risks.

 

Usually, you have to train yourself in terms of looking at numbers. What are the different numbers that are driving this underwriting? Make sure the assumptions are correct. You learn along the way. Initially, I was not looking too much into that. I spend much more time looking at those numbers and making sure that I make the best choice. That’s valid for offices, mobile homes and so on.

You said the assumptions are correct. All the different asset classes, many of them have a lot of different assumptions that are underlying what they think is going to be driving the increase in value and how they’re planning on achieving this performance. It’s very critical to be cognizant of that. The other thing you mentioned here a couple of times was being compensated for the risk that you’re taking like the returns. You don’t necessarily shy away from a development project or even an office but you want to be compensated for taking the risk of buying an office building post-COVID or in the current economic environment. That’s very key as well.

I have two more things. One is as we sit here, we’re in the fall of 2021. No one has a crystal ball. 2020 has shadowed everyone who thought they could predict the future. Even though in the face of that, what are some of the things that you’re using? How are you approaching continuing to deploy capital in a marketplace where you have the compressed cap rates and there is still a lot of uncertainty?

I’ve seen some multifamily using 4% year-over-year rent increase in over five years in a row. That’s pushing it a bit too much so I will shy away from those kinds of deals but what we know is that there is going to be a housing shortage in the next 5 to 10 years in the US. Without COVID, there was already a shortage coming but with COVID, everything has been stopped. Things are taking longer to be built.

We do expect that multifamily is still going to do fine in the next 5 to 10 years. We have quite a bit of investment there to make sure but looking at the growth in terms of population growth, it is important as well in making sure for the cap rate. What is the cap rate on entry and exit? Make sure that’s in the underwriting or at least the cap rates are higher by 0.5% or 1% or more if you can find something like that. I rarely find deals where the cap rate on exit is more than 1% higher than on the entry.

If the cap rate expands again then you will still be in a good spot but what we have to think about is what is the issue with the loan and the fact that the rates were not low. It is the rate increases that make you change the value quite a bit that could impact the cap rate. Could that have a big impact down the line? It’s very hard to tell. The way I look at it though is we may get short-term, not lost but the impact on the IRR for a bit but if we continue investing, we will be in a better spot than where we are. You could try to reinvest continuously even on the way down. You can have time to buy one per se.

This continuous reinvestment mindset with on top of the fact that real estate is growing over time anyway, it’s favorable over time and your numbers that you’re getting in are good then you should feel good about it. Nobody can predict the future of this league. You’re trying your best with the situation. The market is going to grow over time. That’s pretty much guaranteed. The real estate is going to, at the very least, match inflation.

Compared to what do you do otherwise, you do nothing. Keeping the cash in your bank account is not going to be a help for you anyway. For the stock market, I have a bunch of money in the stock market. I’m not spooked but I’m very careful. I’ve got a lot of short-term bonds because I’m expecting that things could turn sour very quickly as we saw back in 2018 and before that. That’s the way I look at it. It’s being very diversified, finding the best assets and looking at asset classes that make sense in the long-term. That’s what drives us.

Here’s the technical question. If someone is reading this and they’re like, “I love the idea of what Olivier’s doing. I’m going to put $50,000 into his fund,” do they then have to think that when you get your next deal, they’re going to need to put another $50,000? Are they obligated to then put another $50,000 into the fund?

Not at all. If you come with the $50,000, you are going to have a portion of the ownership of the fund. That’s the value of your fund. We have a fair market value that we have every quarter. We’re trying to be conservative about that. We allow people to withdraw money if they want to after a year. We have to wait a year because it’s an SEC rule here.

As an investor, you can come back and reinvest continuously. The investors who do that will do better than the investor who invested only once. It’s the reinvestment of distributions. If you reinvest to the distribution in the fund, you’ll be in a better spot to meet the target IRR because, by definition, the IRR is assuming that you reinvest to the distribution. You get the money and your check that we have every quarter. You put it in the bank but that money is not going to earn you anything. The target IRR is not going to be met there. You can invest only once.

When investors would see a big payday if they wanted to, would that be when the asset is sold?

Yes. When there is a refinance on a given distribution or syndication and it is on a big payday then all the investors are going to receive a share of that distribution but it’s an opportunity as well for the investors to say, “I want to exit the fund.” It’s a good opportunity. Investors who invested in that specific syndication or put the money to fund that syndication have the highest priority. After that, if no investor took their money out then the next is going to be any investor in the fund but the first investor is first and so on so we can see an order.

It’s a fund. Unlike syndications, we can sell ownership from one investor to the other. That is very handy. You may have to give a discount a bit to attract some investors because some of them are going to say, “I can invest on the money if I get $50,000 to put on the fund. I may add $50,000 on the fund to get more diversification.” You can sell your ownership on the fund. Whereas in syndication, you cannot do that. In most of the syndications, you’re tied to the assets but here, you can move things around.

After one year, people could potentially withdraw their money. I was like, “That’s quite interesting.” Other people could buy the stake that they had from them. It could be at a discount but they can liquidate and come out if they want to. That’s super powerful. This one is a little bit off-topic. Has a blockchain been anything that you have been looking at in terms of how your fund could evolve in the coming future?

In the fund, we have less than 10% reserved for speculative investments. In theory, we could invest in some deals like that. There is BITW, which is the top ten cryptocurrencies that I invested in. It’s sidetracking here but it’s interesting. It’s in partnership as well. You get a K-1 and come in at NAV. You buy at the value of Bitcoin, Ethereum in the fund. It’s publicly traded as well. The public trade has a premium and discount.

At some point, the premium was 200%. I didn’t check how much a premium is but you could arbitrage that. You could come in as an accredited investor in buying the share at NAV. You have to wait one year though. That’s the problem. I joined there back in December of 2020 before the rise in Bitcoin so I’m pretty happy about that. In January of 2021, I could get the shares, sell them and get money on top of the premium. There is potential for us to do that.

Some other syndications are going on that are doing crypto investments. It’s more or less complex. I’m looking into that but we’ll have to see and also if there is interest from investors on that. It’s like ATMs, for example. I’ve seen some numbers like 20% or 25% on a single preferred return. I was like, “Maybe that’s worth it.” I talked to my investors about that. They were interested but not enough to commit some money to it but maybe they could change.

You mentioned CrowdDD and CrowdStreet. Are there any other resources that come to mind as people think about investing passively that could help them in learning about different asset classes to get comfortable with the asset class, track record and that kind of stuff?

There are a lot of Facebook groups and we’re in some groups. You can find something if you’re looking for multifamily. I did not find a group that is dedicated to passive investors. They are not tied to a specific sponsor. Maybe it’s something that we should create. We compare, share the deals and make sure that only the best deals get there. I have seen some specialize in multifamily. It is mostly multifamily but I have also seen some in Airbnb and self-storage but not something across the whole industry. I’ve seen some in BiggerPockets. There are some interesting threads there but not as much compared to Facebook.

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I know that CrowdDD, CrowdStreet and Facebook groups, in general, got some good stuff. This entire episode was good. You have so much experience investing in all these different projects. It has been amazing so thank you so much. Let me wrap up with my level-up questions. These are the questions that I ask all my guests. The first is what are you grateful for in your life?

I’m grateful for my wife. She provided some feedback and helped me enable this fund as well because I was spending quite a bit of time on that. I’m grateful for all the opportunities that I had in all those years, all of those investors, the discretion that I had and all of the people that provided some feedback where I could bounce ideas.

What has attributed to your success and continuous growth?

I always spend the time learning and reading things whether it’s websites, blogs, listening to podcasts like yours and joining investment groups. I’m looking at the numbers and crunching them. I’m improving my skills every day.

What do you know that you wish you knew at the beginning of this real estate journey?

With all these landscapes and opportunities out there, when you are looking at Bloomberg, you only have high-level things like, “Here is the stock market and crypto.” I might be buying and selling Bitcoin. “Is it going to go up or down?” “I have no idea.” “You could invest in this asset. Here is the underwriting. You can get 10%, 15% to 20% returns per year by doing this and that thing. Even if there is a recession, you can still make it good.” It’s like, “You mean I can soften the blow and not lose as much money so I don’t have to worry about it?” I wish I had known that and had more of this mindset back in the day.

If my audience wants to learn more about you, what’s the best place they can go to learn more?

For the fund, we have a website. That’s Lazuli-Capital.com. They can send me an email as well on ONallet@Lazuli-Capital.com.

Thank you so much for coming on, Olivier. I appreciate it.

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About Olivier Nallet

LUR 11 | Vet Passive DealsSeasoned investor with 20 years of experience. Good nose for great deals. Always on the lookout for lucrative opportunities. A strong network of sponsors, investors, and Real Estate managers. Over the last five years, significantly ramped up RE investments with multiple units.

Leveraged syndications to aggressively scale with more diversification and since invested in more than 30 partnerships, directly or indirectly (in FL, OH, TX, CA, IL, etc.). Passion for perfecting my skill, and crunching numbers to find the next great deal. Founded Lazuli Capital out of my passion to connect investors to great investment opportunities.

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