Lincoln: Welcome to Funds That Won, where we dive into some of the world's most renowned investment funds. We'll interview investment managers across the alternative landscape and learn how they built their million and even billion dollar asset management empires. We'll explore teams, structures, strategies, and best practices in launching and running alternative investment funds. All right. Well, Neil, thanks for coming on here. Excited to have a conversation with you today.

Neal: Thanks for having me on the show. Very excited to be here.

Lincoln: Yeah, Neil, why don't you just start off by giving me the elevator pitch on GrowCapitus?

Neal: Sure. So I'm a computer science graduate, data scientist by thought process, run a technology company, had a terrific exit, and got into real estate basically for tax savings because my taxes, I live in Taxifornia, we're too high. most of the people that follow us and grow capitas, we have 1000 investors that have invested with us and they've given us $300 million. And most of them are people like us, I'm a geek. And so we basically have a collection of geeks that are either technologists or doctors, a lot of technologists, a lot of doctors, and then, you know, business folks, and they like our data-driven approach. In fact, my moniker in the industry is the Mad Scientist of Multifamily. So I presented about 20 conferences a year, and everyone looks for the mad science, which is basically the analytics around real estate, around cities. We rank 323 cities every year in terms of real estate profits, and about 20,000 people take that information and use it for real estate investing.

Lincoln: Excellent. So you guys manage north of 300 million equity. I imagine that's probably close to a billion of assets then. Close to, yes. Wow. Phenomenal. And how long have you been doing this for?

Neal: So I started in real estate without any other investors being involved in 2003. And in 2014 is when I took investor money for the first time. And just, it's been snowballing from there. So the first 10 years was basically, I was doing real estate both for myself, again, you know, taxifornia. So I had to, you know, I had years where my taxes were over 50% of my income. And then I was also building campuses from scratch for my company. So we had three, 400 employees, we didn't want to rent. And so we built campuses for ourselves. And the first one we started building in 2003.

Lincoln: Gotcha. Well, it sounds like you have a very systematic approach to investing. I would love to hear about how you think about your actual investment strategy a little more. Sometimes multifamily is just blanketed as multifamily. But I'd love to go a little deeper here with you today.

Neal: Absolutely. So the first thing that you should know about us is that we are very, very tied to the use of analytics and data. What we find is that most people like to say that. And what they mean by that is that they do their underwriting and they do their due diligence. And that's great. That's fine. You need to do that. And people in the industry do it really well. But very, very few people in the industry, I'd say less than 2%, are really changing metros each year because you get comfortable. It's like Houston's my market or Texas is my market. And then you basically just keep doubling down on that and every property you're buying is in that particular market. Maybe you add another market there just for diversification, but you're mostly in that market because you say, I'm an expert in this market. Well, that I find to be a problem because you can't really say that you're data-driven when you are staying in one market. I think Texas is an incredible market. In fact, I would probably rank it number one if I wanted to stick with one market. I'd probably rank number one in the US. But today, it's not even in the top five. And the reason for that is every market goes through individual cycles. There's no such thing as a real estate cycle. There are real estate cycles for every market in the United States. At the same time, there are markets that are under-saturated and over-saturated in the US, sometimes even in the same state, right? And so, Our goal as data scientists was to take information about 323 metros in the United States, rank them, and be very transparent about which metros are going down and which metros are going up. Right now, almost every blockbuster metro in the United States is on its way down instead of going up. And so we publish that data, and we try and basically figure out which metros we should be investing in. So our thesis has changed over time as we've learned more. We've gone from wanting to invest in the most blockbuster metros in the US, the Phoenixes and the Austins, to the metros that are basically two levels below them because now we're, we're focused on what metros are on the rise. So today, we want to invest in Nashville, even though Nashville is a great metro in lots of people are investing they're making money, simply because we feel that that metro has peaked at this point of time and so the next three to five years, its growth will be anemic because it's had such amazing growth. Smaller than Nashville, Nashville's more than a million people, is Chattanooga. And Chattanooga's half a million people. It's the third largest metro in the state of Tennessee. And when we look at the uptrend curve in Chattanooga, the rent curve, all of the stuff that's happening there, our ability to make profits, it's massively greater than Nashville. Now, it's much harder, much harder to convince investors to invest in Chattanooga than Nashville. Nashville is harder than, let's say, Phoenix or Austin, right? Because the less you hear about a metro, the harder it is. So we take on that we take on that onus of trying to convince our investors that a metro like Chattanooga that you don't even know where it is, is actually better than a much more talked about metro like Phoenix or San Francisco Bay Area or, or Austin, and the people that follow us. you know, follow throughout the year as we publish content. We do six presentations in a year that have data and content about what's happening. And that's the process that we follow. We also publish it on the web. We don't just publish on our website. We don't just do it for our database. There's a website called Udemy, U-D-E-M-Y.com, Udemy.com. It's a very popular website, hundreds of millions of users. And there we publish a course, it's called udemy.com slash real focus, one word, real focus. And you'll notice that if you go to that page, you'll notice that there's 12,000 very geeky data driven investors. taking our data science course, right? So we've published a data science course. It's very specific. It talks about what are the specific things that you need to look in a metro, what's good, what's bad, how do you know if a metro is peaked? All of that stuff is in a data science course. And right now, there's 12,000 people taking that course.

Lincoln: Fantastic. OK, because I know that you're very numbers-driven on your investment side from deploying capital. But I also know that you've got the science down of communicating with your LPs systemically. So I'd love to transfer over and talk about how you think about both sides of that ball there.

Neal: Sure. I think that it's good to be good at something. I think it's equally important to be able to transmit that information to your investors. And what I find is that a lot of people that are good at doing something are really not good at transmitting that information either to investors or to prospective investors. So one of the things that we did very early on is we said, hey, we want to communicate with our investors a lot. And we want to have a very professional level of communication. And we realized that we really couldn't afford to do that with people here in the US. So what I did was I built a team in the Philippines. And that team right now has 18 full-time employees, including a director. What I realized was that I also, it would become a lot of work if we had one or two or three of these people. So we needed to scale up our business to the point where they were their own business unit. They've got their own recruiters, their own directors, their own managers. They hire and fire and train and bring people to Manila and do all of that stuff on their own. I just want to be an organization that receives services. I don't want to be involved in their day-to-day running, but I want every single department to have people in the U.S. and people in the Philippines working together. So we basically embedded them in departments. We never use them on a part-time basis. They're all full-time employees. They all work Pacific Standard Time. And by embedding those people, we were able to create a methodology of reporting to our investors that we think is superior to anybody else, right? So whether it's email drip campaigns, the number of times that we do monthly updates, the specific nature of those updates, the depth of the updates, right? Videos that I record and then I just throw it in some Slack channel and somebody does all of the necessary work with it and that goes into an update. videos from property managers, videos from our full-time asset manager. There's just a lot that goes into it that gives investors that feeling, hey, these people know what they're doing and they're very friendly to investors and they want to report to them in detail. So very detailed webinars are built sometimes with 80 or 90 slides at least twice a year to report to our investors on our projects.

Lincoln: Gotcha. So talk to me, I want to go a layer deeper here. So you've got basically a CRM that you're running that's communicating with your LPs at different stages of their conversion process, if you will, of becoming a limited partner into your investments. So talk me through some of those stages. I'd love to hear a little more in detail. What's the average time to writing a check? What's the average check size? I'd love to get some of the data here.

Neal: Sure. The average check size is $140,000 and change. The average lifetime value of an investor, which we actually don't calculate over lifetime, we calculate over three years, is about $300,000, which, if you think about the math, makes a lot of sense. We have 1,000 investors and $300 million of equity, so you divide $300 million with 1,000 investors. and the lifetime value becomes $300,000. On average, an investor will give us $140,000 per investment. And that number actually is going down a little bit because of the fact that we are in a challenging time frame. So right now, the average probably is 100, whereas in the past, it's been like 140. It takes us roughly nine months to convert people in our database into an investor. So the average amount of time that it takes for an investor to go from Okay, I'm filling out a form to the time when they make their first investment is about nine months. And then the process becomes much more rapid, because the second investment usually only comes four months after that. And the third investment usually comes only after three months after that. So at that point, because they made their first investment, and they start receiving emails, and they start getting updates, they're like, yeah, these people are legit, right? So I've made the right decision. you know, now I want to invest more. So you really need to spend nine months nurturing these people and understanding what it is that they're doing. I see a lot of people talk about CRM, right? Lincoln, I mean, that's a catchphrase. I think it's a terrible catchphrase because 99% of the people out there are using their CRM as a contact database, right? And very, very few are actually using it as a customer relationship management software. We've got over 30 software plugged into our CRM that basically are connected to them. We use a software called Zapier that allows these 30 software to talk with ActiveCampaign or CRM. We've got over 455 automations. These are automations that basically look at what a customer is doing and then take action based on that. I'll give you a simple automation. Some of them are extraordinarily complex, but here's a simple automation. Every time someone opens one of our emails about an investment, right? So like there's a property that we're buying for $29.6 million in the next 30 days called Midtown Ridge. You know, we need about $10 million of equity. So we're sending our emails. So they're opening an investment email. then an automation gives them 10 points this is called lead scoring so it gives them 10 points if they open an email about a educational webinar because we do a lot of those every year They get five points. If they click on it and register for that webinar, they get 10 points. If it's a RAISE webinar, they get 20 points. If they actually show up for a RAISE webinar, they get 40 points. By doing this, we lead score our entire database. This is why our investor relations managers are not spending time talking to people that are not interested, because we're ranking everyone by lead score. So we want to spend our time with people that are interested, that are continuously interested, and most important, that have been interested in the last 30 to 60 days. Because their level of interest will go up, it'll peak, and then it'll wane. You want to be talking to people at the peak. And that's what CRMs really do for you if you know how to use them properly. Email and text messages, so we send a lot of emails and a lot of text messages, are our ways of not just communicating with people, but actually looking at what their response is. What are they interested in? Now, people are like, yeah, everybody does that. No, nobody does that. If you're sending emails to 10 or 100,000 people, we're sending them to 82,000 people. Nobody has the time to look at the response. The only way to actually gauge people's response is lead scoring. But I very rarely see people lead score an entire database. Wow.

Lincoln: Fascinating. Hey guys, thanks for listening. As you know, we don't run ads on this channel. So if you could really help me out, if this podcast has added any value to you or your business, please subscribe, rate, and review.

Lincoln: I would appreciate that greatly. Thank you.

Lincoln: So you plugged in all these softwares that track you know, all the different various interactions that a potential LP has with your firm.

Neal: Right? Yep. Or an existing LP has with our firm, because we don't just want to do it with people that haven't invested with us. We want to do it with people that have invested and continue to be engaged. Now, people are, you know, let's say we have an investor. This is an email from today. We had an investor who's invested $1.5 million with us. And so we have a Slack channel that posted today that this $1.5 million investor has just unsubscribed. So We think either it's because we've sent too many emails to this person, obviously too much spam, so they're unsubscribing, or they're no longer as interested in us as they were before. So this post that appeared in a Slack channel, it automatically has also created a call for one of our investor relations manager to call this person and talk to them and when that person talks with them they will post in the slack channel and either say something like yeah he's just not interested or doesn't have any more money to give us or That was just a mistake. We were sending him too many emails. So I've now put him in this new bucket that doesn't get a lot of these emails, but he's still going to get emails about new investments. He's just not going to get them about educational events, right? Because he doesn't want to go to those. So that kind of process is important. You're losing, but when you send a lot of emails out, most people do, you're actually losing 20 to 30% of the value of your database each year. And no one's doing anything about it, right? Because people have unsubscribed. No. If they're valuable to you, if they're important to you, you want to immediately make a phone call the day after the unsubscribe. Now, sometimes we find out that they've unsubscribed because they're unhappy with us. Well, that gives us a chance to fix that.

Lincoln: Gotcha. Wow. Fascinating. So you have almost over 1,000 LPs in your database that you raise money from. What is your internal team? You mentioned investor relations personnel. Paint me a picture of what that team looks like, because I doubt that Neil Bawa actually is hopping on the phone with each individual investor. Talk to me about some of those systems you've created from working with and the human touch points with working with LPs.

Neal: Sure, so there is just one one US based investor relations manager. But that US-based investor relations manager is tied to a team of three callers in the Philippines, so a dedicated calling team. And so that dedicated calling team is responsible for setting up the appointments. And the appointments, the queue for them is based on the automations. The automations basically are adding people to the queue. So someone that fills out a form is an obvious one. They're going to be in the queue and will set up an appointment with an investor relations manager. There may be people that have done certain interesting actions. They're like, well, this person opened four emails in a row, and those emails were about us introducing ourselves to them. Or this person has signed up for this upcoming investment webinar, or this upcoming educational webinar, or they attended one. So there's 100 different triggers that basically lead to a list being created or auto-created. And then there's three dialers that are basically using that list, talking to people, and then scheduling our full-time investor relations manager, his name's Peter. And then Peter's job basically to stay on the phone. He's usually on the phone six or seven hours a day, but he's extremely efficient because he's only talking to people that he's scheduled an appointment with. He's not talking with, there's no cold calling in Peter's job. He's just on the phone talking to people all day long. And that team of three doesn't just set the appointments, they also confirm the appointment. So 15 minutes before they call and confirm the appointment. And if that person doesn't answer, then they go ahead and cancel and reschedule the appointments and plug another one in for Peter.

Lincoln: Fascinating. That is absolutely incredible. So I'd love to take a step back here and talk a little bit about kind of your the product sets that you're pushing these investors to. Do you have any structured funds? Do you primarily just do syndicated asset, single asset transactions, or what does your rolodex of offerings look like?

Neal: So to get to $300 million, you need a lot of diversity in your product mix. You can't just keep giving them the same product one after the other because once they buy or they buy two times, they're not going to come back. So you need diversity. So we have multiple different kinds of diversity. The first kind of diversity that we have is in the product type. So our standard product is multifamily value add, but we also have multifamily new construction. We have built to rent new construction. So, you know, multifamily new constructions like apartments, right? We're building 240 apartments in one part of Phoenix. We're building 320 apartments in a different part. So that's one kind of product. Then we also have built to rent, which basically is that we're building townhomes for people that don't want to live in apartments. So instead of a classy apartment, they want to pay $200 a month more and go live in a townhome. So now you have three product types, but that's not enough. You still have to give people other things. So every once in a while, we'll do a storage project with people that we respect. They're in charge, not us, but we'll partner with them and we learn. We'll do an industrial project. We'll do a student housing project. So consider this the supplementary part of our portfolio that fills in and gives people a buffet, even though we don't have the time to be student housing, industrial, or self-storage experts. So we partner with people on the supplementary portion of the portfolio. The rest of it, we do ourselves. We have an in-house team to build townhomes. We have an in-house team to build apartments. We have an in-house team, obviously, to buy and do value-add apartments. So you've got the primary offering and then the supplementary offering. So that's one kind of diversification. The second kind of diversification is You need to give people both, you know, the ability to invest into a single project. You need to give them the ability to invest into a fund. And then you also need to give them the ability to do other interesting things. So single project is straightforward, right? So, you know, hey, Midtown Ridge, 183 units in Tennessee. That's that's my pitch later today. I have a thousand people signed up, by the way. So I'll be, I'll be telling them, hey, you can just sign up for, you know, $100,000 minimum, you know, 200k if you want a higher pref in this project. Or as it happens, Midtown Ridge is the last and final property in the Growcapitas Value Add Sunbelt Fund. And so it's the third property. So we've already bought group properties. We already own two properties. So now you can basically invest into the fund rather than investing into the property. And now you have triple diversification, three different states, Tennessee, Georgia, Florida. Right. So you've got that option. And then we also like to do raises that are slightly different. So we recently did a raise, a pref equity raise, where people basically are not investing for five years. They're not looking to double their money. They just want a lower risk option. Preferential equity is definitely lower risk in general than common equity, which is a much higher risk. So now they're going in for pref equity and they're basically getting 13 to 14 percent a year, probably for two years, probably not for five. But these are the investors that are focused on the short term. So you noticed many different classes, many different sets of diversification, and that allows you to basically reach out to a much bigger portion of the portfolio.

Lincoln: OK, and I feel like these are kind of intertwined because well, actually, before I go there, so what what percent of the 300 million that you've raised has been raised through blind pool structures? And what percent has been raised through, you know, single asset or direct investment transactions?

Neal: We have two funds. So the first fund was 70 million. It's closed. The second fund is 30 million dollars and it's closing this month. So 100 million through funds, 200 million through, you know, direct property investment.

Lincoln: And as you look forward to the future, do you have a preference of doing more of one or the other and why?

Neal: We certainly have a preference of doing more on the fund side. What we find is that if you only offer funds, it reduces the velocity at which people invest. Because once they've invested into a fund, they just ignore upcoming projects that are part of the fund. So we don't want too many people going into the fund. We want the fund to be available to people that are tied to diversification, but we also want them to be able to directly invest into the property. The truth is, my goal is to have as much money as I can into funds rather than properties. But the way we've structured it is, it's really the investors making that decision. If they want to go into a fund, they can. If they want to invest into a property, they can. For the same property, they have both of those choices. What I find is the majority of investors still continue to invest into individual properties, which I think is a bad thing to do. My personal money, I usually invest with 25 to 30 syndicators of various kinds, things that I don't do like hotels. I have a very strong preference for investing in funds as opposed to investing into individual properties, but most investors don't. And I'm not gonna go and teach people why funds are better, right? I mention it in all of my webinars. I give them the 30 second spiel of why I think a fund is better, but it is what it is.

Lincoln: Yeah, gotcha. Well, what I was going to is, look, you've essentially mastered fundraising and deploying from high net worths, it sounds like. You've certainly excelled at that side of the business. Have you pursued larger family office investors, institutional grade allocators? Why or why not? And are those kind of in the plans in the future?

Neal: They are. So I am starting that run this year. So I just felt like I didn't have enough of a track record, not enough exits. I don't tend to exit properties very quickly. So I tend to wait for a while. I'm pretty patient. That's worked well for us in the past. So my eighth exit happened in December 2023, and I feel like I've got enough of a track record over a significant number of years that I can go after these allocators. I'll never really go away from the individual investors. These allocators are not easy to work with. They require different pref structures and all kinds of different things. In many cases, they simply don't want to be in a project where there's other investors, other LP investors. They want to be single check writers. And so some projects work well for that and some don't. So over the last next five years, I would be surprised if 50 plus percent of our total equity doesn't come from these kinds of allocators. But at the moment, it's very small. It's very small. But we are starting that process. Excellent.

Lincoln: Well, and so where are you sourcing then, you know, this massive hopper of LPs? You know, how are you getting, you know, in touch with so many high net worth investors to get into your ecosystem?

Neal: Um, lots of different ways. So I, you know, appear on a hundred podcasts a year. Right. So that's one source. Um, I am, you know, teaching webinars, you know, throughout the year, I have a, I have a dedicated team that builds me these webinars, you know, 50 slide webinars, one hour long, and we do more than a dozen of them a year. Now you might say, well, yeah, but how do people find out about the webinars? Well, firstly, we're bringing our goal is to bring 20,000 new people into the database. And I'll mention how we do that in a minute. But then there's also people outside of our database. So we're posting our webinars on Eventbrite. We're posting our webinars on a whole bunch of channels out there. And those channels are bringing us brand new people that are not even in our database. So on an ongoing basis, those people are coming in. Social media, of course, is well known as a way to get investors. When it comes to spending money, I feel that we are very savvy, we are very advanced in that process. I find a lot of people use Facebook to advertise, they use Google to advertise, and the vast majority of people using those channels are losing money. They're not breaking even. The vast majority of their money is being wasted. And the reason for that is they're not obsessed like we are. We have an almost unhealthy obsession with tracking every single dollar that we are spending on Google or Facebook. We found Facebook to be more efficient than Google, but still it's extremely inefficient. When we started doing this, it was costing us $20,000 to acquire an investor from Facebook. Now it costs us about $6,000. And the reason that that's changed is we realized that we had to scale to the point where we would give Facebook the audience. It wouldn't be Facebook giving us the audience because the problem is when Facebook gives you an audience 80 or 90% of your clicks are non accredited. We only deal with accredited investors. And so basically eight or nine of those people that are coming out of 10 that are coming to a landing page and looking at our projects. can't give us money because they're not accredited. Or even if they are accredited, they have very little money. So we realized that we had to create custom audiences. So in a year, we spend about $50,000 just creating audiences of accredited and high net worth investors. How we do that is a trade secret, so I won't mention it on this webinar. All I can tell you is that process is fantastic because we only show Facebook ads to audiences we upload on Facebook. As a result, on average, we spend $9 per incoming lead. 100% of those leads are accredited. 100% of the time, well, 80% of the time, we know their net worth and their average net worth is 4.3 million.

Lincoln: Okay, so, sorry, a lot to break down there. So you are spending $6,000, so 5%, if your average check is 120, about 5% customer acquisition cost.

Neal: No, because our lifetime customer, our lifetime is 300,000, right? So we're spending six grand once, but we're getting 300,000 over three years. So I can't look at the 120 because that's just one project. I'm looking at, I made 300K in equity, For an investor that's, you know, $6,000 in Facebook cost.

Lincoln: Gotcha. So a 2% customer acquisition cost. Right. Interesting. And, and how are you, um, are you just, are you fronting that money out of, uh, are you reimbursing yourself for that cost out of, uh, like, uh, a reimbursement clause out of the management fee out of an acquisition fee, or are you just fronting that out of the, you know, parent company?

Neal: We haven't done that because it is very difficult to do on a practical basis. I think this is a conversation that's pretty common. Marketing teams want it reimbursed from the project. It's actually very difficult to do ethically and to do legally. Legally may be a little bit easier, but to do it ethically is harder. So no, we basically have allocated roughly 20% of all incoming fees to this process.

Lincoln: Gotcha. So you don't, you don't do any separate fees. It's just, it's included in your, your, your traditional fee base. Cool. Correct. Well, okay. Neil, thanks for letting me get in the weeds there a little bit. I mean, truly incredible, the empire you've built. I want to take, take a step back a little macro here. The name of this podcast is called Funds That Won, right? So we're, we're identifying investment managers that are, you know, winning at the fund management, asset management, investment management game. So, you know, to answer the question, what, what do you think makes a fund win?

Neal: I think you start with the end goal in mind. I find that too many folks are so focused on my upcoming acquisition check, right? That's my check. And I need to just be doing whatever I need for that first check or that second check. I understand that when you're starting out, that approach is useful. But I want you to consider this. If you're starting a new business, right, you would be willing to put money into it. And I know that there's people, fund managers that start out that have no money at all. I'm not talking about those folks, unfortunately. I'm talking about the people that do have some money. People invest money. They seem to invest in their education. There's people buying $50,000 courses, these get-rich-quick sort of real estate courses. My question is why for every dollar that you're investing in your education, if you're investing 50 grand there, you should also be investing 50 grand into your CRM, into your marketing. And I do not see enough people making that investment. I was successful because from the very beginning, so first, you know, I had money. So I'm going to brag a little bit here. Apologies. I invested $250,000 into my business. I didn't say, well, I'm, I'm going to just basically invest my time and make it up on acquisition fees. Right. I said, I'm going to invest $250,000, and my first goal will be to return this $250,000 to myself. And I set a goal of returning that money to myself in a year. It actually took longer. It took 18 months for me to give that money back. So I was my limited partner in my company. I'm not talking about a project, right? I opened a company. I called it Grow Capitalist. And I said, I'm going to have an LP. And his name is going to be Neil Bauer. And Neil Bawa is going to get his money back in 18 months. And of course, then Neil Bawa is going to get a return on that money. I invested $250,000. You can invest $25,000, right? But the point is that 99% of the fund managers out there that are looking to be successful, that are looking for these secrets, never go and actually make an investment into the business itself. Their investment is their time. And while that's fine if you have no money, If you do have money, I still don't find 90% of them making an investment in the business. Why? A business needs investment. Most successful funds were started by people that invested both time and money, and they had the balls to invest money, not just time.

Lincoln: I love it. I love it. I'm going to let you pontificate a little more on that by asking the question, What advice do you have to other fund managers that aren't as far along as you?

Neal: I think be obsessed. I think you've got to be obsessed. And I think that there's too much obsession amongst multifamily or real estate fund managers on finding the next property. I think that obsession is there. And I want everyone to tweak that back. Take 30% of the time that you're spending on finding properties, pull that back, and invest all 30% of that into customer acquisition. And also understand that customer acquisition is a journey. If you're only able to raise $200,000 on a property today, well, you will be able to raise $400,000 six months from now, and $800,000 12 months from now, and then $1.6 million two years from now. It builds, and it builds at a pretty high rate of growth. It's not really a 10 or 20% rate of growth. You're going to easily build at more than 100% rate of growth each year. And 100% rate of growth on raising a quarter million doesn't sound like much, because next year it's half a million. But then it's a million, then two, then four, then eight million. And so those numbers build up. And you need to basically be prepared to make that investment of time, not just today, but also in the future. I want you to consider paying yourself last. I think one of the other things is incoming acquisition fees come in and there's this temptation to basically say, hey, I did the hard work. Now I received my acquisition fee and this is going to run my household. I think the answer is 50% of it or less should go into running your household. The rest should go into creating a bigger business. Once again, all incoming acquisition fees need to be split up. right? What portion goes into your, your, um, your household, right? And that percentage will be different for everyone because your expenses are different. And what percentage goes into your company? I can give you my formula and my formula is straightforward. Um, I invest a hundred percent of incoming acquisition fees and asset management into my business. 100% I have some exceptions. I give myself a salary, which, including benefits, is $200,000. So I have a $200,000 salary as CEO of the company, but I don't take any more money. All of the money that comes in goes into the company's growth, and that $200,000 salary helps me because you want to have a W-2 because it makes it easier for me to sign on loans, right? I'm signing on $100 million plus of loans every year. So not having a W-2 income is an issue. So I basically keep it at the same level. It hasn't even gone up with inflation. It just stays there because as long as it's helping me sign contracts, it's fine. And then I have another company where I have a 200K, same thing, $200,000 salary there. So basically $400,000 salary as CEO of two different companies, But no matter how much higher the income goes, it basically goes into the company, and it goes into the company in two buckets. Number one, growth of the company. We're hiring more people. We're building more infrastructure. We're spending more money on marketing. We know that nine out of 10 marketing initiatives will fail. So if we double the marketing initiatives, well, now instead of one success, we'll have two. So we're willing to do that. The second piece is we're always growing a bank of money that the company only uses for new acquisitions. So instead of buying a $20 million building and having, you know, let's call it $200,000 in hard money. We want to buy a $30 million building and have $300,000 in hard money. And we want to be able to invest in two buildings at the same time. So once you know we're just starting on one and we're almost to the to the end and one that gives us velocity. So now that's $600,000. So the company always needs to have $600,000. that has nothing to do with investing. It's just the money you need to have in the bank. And that number, that $600,000 goes up every year because you want to do more projects. What about development projects? I have two development projects going on right now. One's in Florida, one's in Idaho Falls. And I've already invested $2 million each in both of those because what I don't like doing is bringing investors before zoning permitting entitlement because I'm putting the risk on them. So my company now takes the risk. It puts in the $2 million into each project, brings it to shovel ready. And now instead of a 20% IRR on a five-year project, we're now doing a 25% IRR on a four-year project. So we've cut a year off. Well, the project wasn't any shorter, but the investors were in it for a year shorter. So I look like I'm a magician, where I'm not. I mean, I'm just putting in my own money. And the company is receiving a return for that. So that $2 million has a return. charge the company, not a huge return, it's basically 10% a year. So you put in the $2 million, make a 10% return when we are starting the project. So we're not marking up the land from 2 million to 4 million, but we're marking it up from 2 million to 2.2 million. So by doing those kinds of activities, we increase the velocity of our business, right? And once again, this is obviously a very spread out business and a lot of people listening are like, yeah, but I'm just starting out. What I'm describing is not numbers. I'm describing attitude. Attitude applies the exact same way to a $2 million investment that you make into a piece of land and a $20,000 investment that you make into your CRM or into ads or into other ways to build your database. Attitude remains the same. Scale changes.

Lincoln: Hey guys, so if you want to learn more about investment funds, how they work, how they're structured, if you want to become a fund manager, how I became a fund manager, visit our YouTube channel for more free value. The link is in the show notes.

Lincoln: Thank you. I love it. I love it. Well, look, we were we were talking outside of this podcast and you had mentioned your life mission, which I think this audience would I think would be great for them to hear. So let's let's jump into that a little bit, if you would.

Neal: Sure. When I started on real estate, I was just, you know, buying single family rentals and, and my, my, you know, we still have 15 of them. And my wife won't give them up, even though we should sell them and, you know, and take the profits and move them into a multifamily, but she doesn't want to do that. So I liked single family. I liked that kind of tenant. And I noticed that when I went into apartments and started buying, you know, a thousand units here, a thousand units there, the quality of the tenant was not the same. So, you know, the overall quality, the amount of money that they had in the bank, how often they would go into delinquency or eviction, not the same. The single family audience, you know, just mathematically was higher quality. And so I was like, this is an interesting audience. But when I'm in apartments, I really don't get to go to them. And then somebody said, hey, no, but what if you build class A apartments? Well, the class A audience has more money. And I was like, that's interesting. But at the same time, I had this and I'm talking about 2014, so 10 years ago. I had this belief that you've got to bring true value to something. And you might say, buying a value-added apartment and improving it is value. And I thought so, but actually I was wrong. What we did was 10,000 Neel Bawas, 10,000 syndicators got together, bought 10% of all the apartments in the US, rehabbed them and raised rents by $200 or $300. And when we did that, What we essentially did was we made huge amounts of money for our investors, good for us. But what we did was we basically just made apartments more and more expensive for the people that didn't have the ability to pay that extra $200, $300 delta. So in a way, we didn't make housing more affordable, we made it less affordable. So I was like, OK, so what should I do to fix this? Because this clearly is not a mission. This clearly is not having the positive effect that I wanted to have on this country. I'm an immigrant. I want America to do well because I'm so thankful for what it has given me. So I said, maybe I should increase the stock. When you buy a value-added apartment, you're not creating new apartments. I should become a developer. So in 2016, I became a developer and started building apartments. And now I'm like, I'm going to really help solve this problem. And I did. I've added thousands of units of stock to America. But the catch was, it wasn't as cool as I thought it was, because I realized that all the people living in my Class A apartments are renters by choice, RBCs, not renters by necessity. I wanted to help people who were renters by necessity. They had no choice. Well, the people that were living in my apartments, because it was Class A apartments with infinity pools and gyms and clubhouses, were basically a bunch of young yuppies, mostly in IT, that just liked the idea of living in these highly amenitized apartments. So then I was like, hmm, this isn't solving America's housing crisis. It's probably helping it because stock is increasing, but it's not really solving it. What could solve it? So I started talking with a lot of my tenants. And what I realized was everyone that lives in my apartment doesn't want to live there, none of them. They all believe that one day they will own a home. Now, until COVID hit 2020, The dream of live in an apartment, gather money, and then go out and build a single family home, that dream was real. It was actually achievable. Since COVID, home prices have increased by 40% and haven't dropped even though interest rates doubled because of the locking effect. You know, people are locked in with interest rates at 2% or 3%. And so the dream of home ownership in America for first timers is lost. If you make $50,000, $60,000, $70,000, or $80,000, their dream is shattered. So what I realized was I needed to give them the next best thing and it wasn't an apartment. The next best thing to owning a home is renting a home. Got it? If you don't own a home, you want to rent a home. And so I started building, build to rent, which is not, you're not building an apartment, right? So it's a home that people are living in for rental. And these are custom built, right? From the very beginning, they're designed for rentals. Very quickly I realized that I was going above that $60,000, $70,000, $80,000 level if I was building single family for rent. So I switched very quickly to townhomes because with townhomes, I can build brand new townhomes, granite countertops, steel appliances, nine foot ceilings, $1,800 in rent, which means that if your income is $65,000 to $70,000, You can live in that townhome for $1,800 and not be rent bird because only a third of your income is going to rent. Any more than a third, America is losing its ability to spend money on everything else, on happiness, on vacations. You lose all of that when you're at 40% of your income in rent. I want it to be at 30%. So I did it. It worked. those built-to-rent communities had almost no turnover, meaning nobody was leaving. People were just staying there. So not only had I come up with the perfect formula, but I'd found the perfect audience that every year could give me 5% rent increases and still not be rent burdened, because if they were, they would leave like apartments. So 40% to 60% of people in my apartments leave. Only about 20% of the people in my built-to-rent townhome communities leave. I realized this should be my life mission. So I went back to my investors and I got them to give me $60 million of their money to create a company. Out of that $60 million, $40 million is at my discretion, meaning I don't ever need to put it into a real estate project. So they're investing in my company, my BTR company. And only $20 million of that is funds to go into a real estate project. And of course, I'll raise more money as I go. And this new company is called Mission 10K, mission10k.com. And Mission 10K is building 10,000 townhomes for rent in smaller cities in the United States. I can't do it in large cities. I can't do it in any of the big blockbuster ones because my mission is that it's for people that make $60,000, $70,000 a year, not for people that make $100,000, right? And those $60,000, $70,000 middle Americans, the backbone of this country, they live in smaller cities. So I'm building these in places like Reno, and Kansas City, and Raleigh, North Carolina, and Chattanooga, Tennessee. I can't build them in blockbuster places like Austin. So Mission 10K first identifies the cities where people have these mid-level incomes, 60, 70, 80K, and then identifies the cities where you can build townhomes where rents can be under 2,000. Out of 323 metros in the US, there are only currently six that meet these requirements. six where I can have a brand new townhome under $2,000 in rent. And some of those six, the rents are as low as $1,700. And I'm talking about a three bedroom, nine foot ceiling, brand new property. And now I'm obsessed with building 10,000 townhomes there. That's my mission.

Lincoln: That's fantastic. I love it. And how far are you onto this mission? How many of you built and deployed so far?

Neal: So we've, we've finished the first pilot community. It's fully deployed. It's a hundred percent occupancy. We have a second in construction and we have eight in the pipeline that we'll be releasing later this year. And, um, I already have the equity for the first four. So I'll be looking for equity for the, for four more of them. So that's a thousand units. That is this year's goal. Next year's goal is 2,000 units. I don't have money for that. Have to figure out how to get it. Excellent. Five years old for 10,000 units.

Lincoln: Love it. Neil, this has been an awesome conversation. As we wrap up here, just a couple of rapid fire questions that I like to ask everyone. Any sort of habits you have that you feel like have contributed to your success in your life?

Neal: Miracle morning, get up at five in the morning, right? First thing you want to do is exercise. You want to have some meditation time. You want to write down your goals for the day, your goals for the week. You know, again, if you don't know what the miracle morning is, check it out. I think it makes a huge difference to the way that I start my day, my week, my month and of course my year. So right now I'm writing down my annual goals because we're doing this in January. I think miracle morning is a very powerful exercise. I also like to do all of my research before seven o'clock in the morning.

Lincoln: Excellent. On the flip side, any pet peeves you have in business? Things that just drive you crazy that people do?

Neal: I think what I find is that there's a lot of, you know, you can come to a three-day class and learn how to buy a 200-unit property. This is one area, and I'm a huge fan of smaller government, huge fan. But this is an area where we need more government, we need more control. There's too many 25-year-olds entering the syndication process, their ethics sets are not built yet. And I feel very sad. I feel good about the crowdfunding that started in 2013 that allows us to do what we do today. But I also feel that there needs to be more scrutiny to make sure that the people that are in here are truly tied to the investor benefits.

Lincoln: Interesting. So sorry, just to better understand that, you feel like there's a lot of people that are you know, like working loopholes into the system and doing things they necessarily shouldn't in the multifamily space or?

Neal: I'm not talking about shysters because I actually, to be honest, haven't come across a great deal of shysters where I've come across people that I simply think are unprepared, right? So you may have the best interests of people in mind, but you're so woefully unprepared to go out and buy a bunch of $30 million buildings that it often doesn't lead to good outcomes. Gotcha.

Lincoln: Well, Neil, thank you so much for being generous with your time today and coming on and sharing your journey with us. Really appreciate it.

Neal: You're welcome. It was fun.

Lincoln: All information shared are the sole thoughts and opinions of the author. Do not take any information as legal or financial advice. You should seek a certified accountant and a professional legal team before taking any further action. We are not selling or soliciting a security in any way, shape or form. This content is for educational purposes only and is not to be construed as financial or legal advice. Clients of FundLaunch or Black Card Capital Partners may maintain positions and securities discussed on this podcast.