53. Ins And Outs Of Passive Real Estate Investing With Aryeh Sheinbein

Are you interested in venturing into real estate syndications through passive investing? Do you think your current knowledge in investing is enough to help you succeed? Come and join us in today’s episode with Aryeh Sheinbein as he shares his more than twenty years of experience in the financial services industry. He describes some of the motivations that different platforms and operators have when presenting opportunities and how this could influence the performance of an investment. Aryeh also discusses some of the popular metrics sponsors use in their investment presentations and the importance of properly analyzing the sponsor prior to making an investment. Stay tuned to learn different strategies and to help you gain a deeper understanding of passive investing!

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Listen to the podcast here:

Ins And Outs Of Passive Real Estate Investing With Aryeh Sheinbein

I’m pleased to have Aryeh Sheinbein with me. He helps people invest their money intelligently, allowing their wealth to accumulate, so they can focus on what matters, which is their business and their mission. He’s worked with private equity, venture capital, hedge funds and banks. He now focuses on helping passive investors who joined his community in both reviewing the deals they bring to him as well as presenting his own deals to the investors, and he’s the host of the Inside The Lion’s Den Podcast. Aryeh, welcome to the show.

Thanks so much for having me, Jim. It’s a pleasure to be here.

The way we start is your journey. Your passive investing journey, your financial journey, how did you get to where you are now with your community, and helping other investors. Can you bring us up to speed on where you started and how you’ve got there?

From a financial perspective, I went down the go to college, got a good job type of path. I’ve got an undergrad degree in Finance and immediately went to Wall Street. Not in the stockbroker type of model but more in investment banking, which is focused on capital markets, raising money for companies, mergers, and acquisitions, buying companies, and things of that nature. From there, I moved on to private equity investing. Investing in non-publicly traded companies, as well as a lot of early-stage companies, so venture capital and companies that are like, “We are giving them the capital to grow.”

From an early on perspective, though, as much as my career had a lot of success and I learned a lot, both about investing and building businesses in my day job. My passive investing was peaked pretty early on, I would say. When Robert Kiyosaki’s book first came out, Rich Dad Poor Dad, dating myself a little bit, probably in the early 2000s, maybe even 2000, 2001, I remember reading it, and it was very eye-opening, even as someone in finance.

The idea is that there’s the business, the employee, the investing, self-employment side, and all the different “quadrants.” It made me realize like, “I spent a lot of my time investing in either companies, businesses or stocks. Real estate had this passive side to it because if you invest in the S&P 500, it’s great. Historically, we are talking 8% to 10%. Obviously, in 2021, it was up 27%. The year before was a good 20%.

At the end of the day, there’s dividend investing on the stock side, so that could be a little bit of a passive in an environment like this where dividends are whatever 3% yield. You are like, “I want something that can generate returns for me but in a very passive way.” Unless you are going to get active in your portfolio, whether it’s trading or options, you are now going to start to move back to this trading time for money. You are moving away from the passivity of the whole thing to the active component. There’s nothing wrong with that, especially if you enjoy that and are going to do the research but outside of indexes or super long-term approaches, there’s no set and forget it type of thing.

Most of it is not income-driven. Most of it is going to be appreciation-driven. Some people will have a hybrid approach but more or less like I started looking at real estate early on. Not everybody does but it seemed pretty interesting to me. Again, dating myself a little bit. When I was starting this, the big things in real estate back then were Carleton Sheets, and Robert Allen had these no money down programs. They would try and sell you into these $5,000 programs like, “You could buy a house for no money down.”

The truth of the matter is, not to crap on those programs but those people were no longer doing real estate. They were making money marketing to you, and it wasn’t passive. I did go out and get a single-family home. That’s where I learned all of the pitfalls. There’s an active requirement on your part, like finding a tenant and if the roof has a leak or your boiler breaks or any of these things. This is no longer passive.

Even in this market, where there are a lot of places where you can get an active manager for you, you can get outside management, you still have to manage those people. At the end of the day, it’s your asset. When I started meeting people, their professions were to buy 200-unit multifamilies or even 60-unit multifamily. That seemed like a whole lot more passive to me. It was much more like, “I’m the bank. I’m the equity investor. I am the person who’s putting up the capital.”

You have to assume that someone is getting paid to have underwritten a deal.

In the beginning, I didn’t have the money that a lot of these people were like, “Our minimum is $100,000,” or even if it was $50,000. Over time, my objective was I had started doing a lot of other, let’s call it now, side hustles. Back then, it was nightside things that I built up in eCommerce. I have a couple of eCommerce businesses. These things were generating excess cash. That allowed me to start investing in these syndicated deals. I’ve probably got into my first single-family home. It was pre-‘07. It was around probably ‘06, ‘07 time. I dealt with ‘08, which was not a good time but I did one syndicate in 2007.

We bought at the peak in 2008, 2009, and 2010 were rough in that project. They needed a lot of capital to get through that time. It was like, “You can ante up.” As a limited partner, you were asked to either ante up. They were willing to take you out at $0.10 on the dollar or something like that. Long story short, I didn’t have the money to ante up through that or at least I didn’t have the desire, I should say.

At that point, I had the money but I didn’t have the desire because the project was looking pretty bleak. Most people bailed on it. The people who stayed with it and the operator have done phenomenally well on that property. All that being said, that is the long-winded version of my journey into some of these different things.

People are making money marketing to you rather than making money on the real estate. That’s still something that you need to be on the lookout for. The other thing is sometimes you think that you are getting into a passive investment when you are hiring a property manager to manage it for you. As you said, you end up managing the managers. That is not at all passive. Syndications are a way to hire an asset manager who handles everything else. One of the first questions is back to marketing. How do you know when someone is making money marketing for you rather than making money investing for you or managing the asset for you?

I look at platforms. I would say the last few years, the overarching world in general but specifically to access to investments, has changed tremendously. If you think about Realty Mogul, YieldStreet or Fundrise or any of these platforms, the marketing angle that they have is like, “Access for the masses. Individuals can get into the big deals now.” The first question to stop and ask yourself is, “This big deal of $100 million acquisition or even a $30 million acquisition of a large building or buildings or storage or development of buildings, how is it that now I have access to this and in the past, I didn’t? Who’s making what?” This goes to any investment.

Where is the money being made? Which is part of the challenge with the financial industry in general because most people are designing solutions for you but most of the time, people are focused on giving the solution that benefits them. If you go to the insurance broker, he’s going to tell you, “You need life insurance,” whether it’s a whole life or term life, whatever it is but he’s incentivized to close you on something because that’s how he’s paid. He’s commissioned and incentivized.

The wealth advisor who works for, whether it’s Edward Jones or Merrill Lynch or whatever it is, his objective is to get Assets Under Management, AUM. He gets you into the funds and certain funds they make more money on. At the end of the day, he’s being paid to manage your money but he can’t get you into that real estate deal.

It’s not in his best interest to advise you to do that. If you look at Fundrise or Realty Mogul. I’m not knocking the platforms because they are creating something that couldn’t have been done years ago but understand that they are taking a cut. If you were to have found that sponsor, that operator on your own, or if you reach out to that operator, if you have the ability to write a $50,000 check, if you look at the returns on Realty Mogul and you say, “Here’s this deal,” and you find that exact deal through the operator direct, the returns should look different. If they are not, someone is changing something on you because, at the end of the day, Realty Mogul has to get paid. I’m not questioning their business model. They have to operate to make money, and I totally get that.

At the end of the day, you, as the investor, need to understand that someone is taking something off the top. When you look at a deal as an investor, if you are going to look at a syndicated deal as a passive investor, everyone has their different benchmark things that they look at. We have a MOIC, Multiple On Invested Capital or otherwise known as equity multiple. We have IRR, which is effectively your return but it factors in the time value of money.

We have the average annualized return if we take the total return and we divide it by the number of years that we have been invested in. We have the cash-on-cash, actual cashflow relative as a percentage of the cash we deployed into the deal. Those are typically what most investors are going to be looking at, 1 or all 4 of these things.

PILF 53 | Passive Investing — Passive Investing: Most people design solutions for you, but most of the time, people are focused on giving the solution that benefits them.

Everyone has different drivers for what’s interesting to them. If you run your numbers or you understand those numbers and the fees are already baked into that, that is okay but understand that if you were able to have gone direct, those numbers should look better for you as the investor. If you are like, “Fundrise or Realty Mogul lets me go in at a $25,000 or $35,000, and I wouldn’t be able to.” Some of these platforms allow you to go in for even less. I even learned about a new platform. It’s called Allied Homes or something like that. It is basically like syndicated single-family homes now.

Outsource through all these new regulations that allow these syndicated offerings that act like share prices. The long and the short of that is that you have to understand where people are making it. In terms of the marketing, is this being looked at for you? The people who are giving education are generally marketing to you to sell you something, which again, some people want the education. Some people are reading this and like, “This is great but I’m missing something. I need even the deeper dive.” They are looking for the course or they search YouTube or whatever it may be.

Therefore, they are okay being marketed for education. If you are now being marketed to invest in something, understand like, “What is the fee structure?” I would say like at a very high level, it’s fairly normal that most deals you would see in multifamily, storage, office, there’s something called an acquisition fee. More or less, the idea here is that the operator, the sponsor, is being paid for all the diligence, all the work, everything they have done to get to the goal line of presenting this opportunity to you, their investors or whomever. That fee can be anywhere from 1% to 5%. Standards look like 1.5% to 2.5%.

Most people would say, “I feel comfortable with a 1%.” That fee can get paid to other people. Let’s say I capital raise for somebody. They may say, “We are going to give you some of that 2%.” That 2% has been fully baked into all of the numbers. If you are going direct, you have to assume that someone is getting paid to have underwritten this deal. That’s again a fair thing but the most important thing about that number is making sure that it’s built into the projections. Usually, it’s on all the closing costs. It’s usually on sources and uses. You’re going to pay 1% for the mortgage fee, a broker fee, all these different things.

In there, usually, is some origination fee, acquisition fee. They may call it a million different things. The operator, obviously, inside their projections should have asset management fees. Where those, again, can range from 1% to 5% depending on how good and efficient they are and how many buildings they have probably in the neighborhood that they can scale but that’s how they keep on the lights and how they pay their employees.

These are things to be paying attention to as investors and saying, “Where are these fees? Are they modeled in or ready to my returns?” If yes, then that’s fine but be on the lookout to understand like, “They are running a business, which is great. I’m not knocking anyone for making money on their business. They should.” At the same time, you, as the investor, should be paying attention to some of these things. The same with a mutual fund like, “What’s my expense ratio? What are these fees?” Someone is ultimately operating some of these things.

Some of what you said is, “How is this working? Who’s making what? Where is the money being made?” Those are all questions you need to answer. You said it very well that just because someone is making money on it doesn’t mean it’s bad. Obviously, the people that you are dealing with have to make money. If you are working with someone through crowdfunding, that’s another layer. They are simplifying things for you. They are reducing minimums, so you are paying for that essentially rather than going direct. That all makes sense.

You mentioned a few metrics. You mentioned the equity multiple, cash-on-cash return, IRR, and average rate of return. Some of those metrics are on all the deals that we are looking at but not all of the metrics are on all of the deals we are looking at. Would you mind talking about which metrics of those you think are the most important or how you factor those into analyzing a deal?

The money you get today is more valuable than the money you get tomorrow.

To answer the first question, what is the most important? I cannot give you a generic answer, and the reason for that is it depends on the investor and what their objectives are. Let me explain so that I’m not trying to hedge the answer. IRR, in general, is the most probably marketed number. Meaning people promote that number often as like the number. There’s a lot of value in that, and I’m not discounting the IRR whatsoever but here’s the thing about an IRR. An IRR can be, let’s call it juiced. Meaning the higher the IRR, the more attractive the deal looks because that implies the Internal Rate of Return. That is what it stands for.

When I was in college, I learned this in Finance, I had no idea what the heck the professor was talking about. I know the formula. I did well on the test but I didn’t even understand what the purpose of this number was. I don’t even know what it was telling me, honestly. When I’ve got into investment banking and investing in private companies, then I started to understand why it’s a metric that people use and how to think about it.

The concept is pretty simple, time value of money. The money you get today is more valuable than the money you get tomorrow. This is the present value, future value. If I can give you $1 today versus giving you $1 a year from now, the $1 today is worth more to you. Why? It’s because you can do something with it. You can reinvest it, invest it, whatever it may be.

When you look at an IRR, the assumption is that if I get the money back quicker, it’s more valuable to me because then I could do something and reinvest it into something else. On paper, that makes complete sense. In practical reality, though, as an individual who’s in syndications, the first question is, “Do you have the ability to constantly redeploy that money? Do you have enough deal flow that is attractive and good enough that if you are getting the money back, that you can redeploy it?” Let’s go with the assumption of the yes.

If I model out this investment for you, we are looking at this apartment deal. I model it to a 5-year exit versus a 7-year exit. By definition, the IRR on a 5-year exit will be higher, assuming the numbers all to be the same. It will be higher because you are going to get the money back 2 years earlier than on the 7-year modeling. When you see a shiny, big IRR, the first question is, “How long do they expect to be in the deal? What is the expected duration?” If they are modeling out a five-year and this is your first deal, you may get out in 5 years but you may get out in 7 or 10 years. The IRR will totally change.

The next thing with the IRR is how is it being calculated from the standpoint of, is there an expected refinancing in the deal? Sometimes the sponsors, when they are going into a deal, they know that they are going to what we call add value to the property, raise rents, restabilize it, then in year 2 or 3, they intend to refinance the loan. Let’s say you have a $10 million acquisition. You take a $7 million loan upfront. Two years in, we now increased the rent. Therefore, the Net Operating Income, the NOI, is higher.

Let’s even assume that the cap rate is the same from the day you bought it to two years later. You now can go to the bank, though, and get the same $0.70 on the dollar but your loan to value of $0.70 will be on a higher value because you have increased the NOI. The two drivers of value are NOI and cap rates. Assuming the cap rate stays the same, meaning the market conditions are the same, it’s no better or no worse but you have improved the cashflow. The bank will give you more money. What happens, we say, “Instead of having a $10 million value property, we now have a $12 million value property.” Instead of taking a $7 million loan, we are going to refinance that $7 million loan, and we are going to take out $9 million. $9 million, we have two excess million.

We replayed the $7 million. We have $2 million. That goes back to the investors, so everyone will get a chunk of change. After 2 or 3 years, you will get, call it half of your money back in the form of an equity repayment. Again, if there are tax benefits to doing this but it will also juice the IRR, it will increase the IRR because you are going to get money back faster.

That may be very attractive to you but your cashflow now in year 3, 4, 5 and 6 or whatever it is after you do this may or may not drop. Why? If you refinance a loan, if you get an IO, meaning an Interest Only, for one year. You may get the same cashflow but in years 4, 5 and 6, you now have a higher debt service on this thing.

We had a $7 million loan but now we have a $9 million loan. The cashflow from the property, even if we have increased the NOI and increased rents, we may decrease our annual cashflow. As an investor, it depends on where you are in your life cycle. Meaning, what’s more important to you? Going back to your initial question, “Is it constant cashflow of 7%, 8%, 9%, 10%, 11% of cash-on-cash annually or is it getting the money back quicker and therefore, an IRR is more important?” Do you say, “I don’t care if this is going to be 1, 6, 10, 5, 7 years, however many years, I want to look at every dollar I put in. How many dollars out am I going to have at the end?” That’s what the equity multiple is going to tell me.

The equity multiple is going to be like, “You put $1 in, you are going to get $2 out.” That’s a 2X equity multiple. It’s going to be 100% return but that return is going to be over, call it 5 years, 7 years, 10 years, whatever it may be. It differs. Like if I say to you, “You can have 100% return. The ROI is 100%.” It sounds attractive but did that take me three years or did that take me ten years? That’s what the equity multiples are going to be telling me. All you are doing with the equity multiple is you divide that exit. If you have a 2X, so that’s a 100% return. You are going to divide it by the number of years it took, and that is your average annual return. These metrics depend on what your objective is and how you think about your investment portfolio.

The thing that you need to do before you invest, which I haven’t always done but I’m slowly learning this, is figuring out why you are investing. Are you investing in cashflow? Are you investing for appreciation? Are you investing for a speedy return of capital, so you can go invest again? Once you figure that out, then you can match your strategy to the metric that you are most looking at. You explained that very well because the IRR, as you said, depends on how fast you want your money back.

Also, if their main focus is getting your money back but the market is deteriorating, so you don’t have something good to invest it in, then I would rather have kept my money in that deal but that’s not what people talk about. Most of the communities like mine, we are mostly focused on how fast we can get our capital back, so we can do it again. There’s going to come to a point where you are not going to want to get that capital back because maybe there’s not a good place to put it. That was well said.

There are two things. One is newer investors always are like, “I have de-risked my investment. I have gotten my money off the table. I have gotten it back quickly. This is pretty attractive to me.” We have entered a period though here where valuations are so high that if you do get the money back and you have to deploy it, it starts to make you wonder of like, “Is this a good time to be redeploying it?” I’m not saying it’s not but it’s something you have to start to think about.

If you looked a couple of years ago at what a cash-on-cash return looks like, it’s honestly totally different than what it looks like now. If you tell someone now that you have a good solid cashflowing property and the pref is going to be 6%, 7% or 8%, but that’s probably all you are going to see from a cash-on-cash return perspective annually, that’s a pretty attractive deal at this point. If you tell that to someone, though, who’s playing in the crypto space, they are like, “What the heck is that? That’s horrible.”

Granted, they are not taking into effect, into account any of the tax benefits as a limited partner that you have. You have the depreciation and the amortization expenses, and you have the interest expense. When you get your K-1 as a syndicated investor, you are going to get something at the end of the year called a K1 if you have never done this.

Let’s give a hypothetical. We put $100,000 into a deal, and it’s a 7% annual cashflow for year one. In year one, I have received $7,000 of cash but when I get my K-1, I will probably see somewhere in the $4,000 to $5,000 of losses. Don’t freak out. You should be happy because you have now received $7,000 of cash. You do not have a tax bill and yet, you have a loss that you can use to offset any other gains that you may have across your investment portfolio.

When we look at it that way, the 7% is totally different animal versus an actual 7%, so to speak. As well as, “I’m looking at this long-term.” Meaning, I plan to exit this at a better rate or I know that we had done so much value add to this property that when we bought it was a Class C property but we are going to turn this into a B or an A. We may have bought it at a 7% cap rate but we can get out even at a 6%. Not to say it can’t be afforded in this market but ultimately, to the point you made, why are you getting into this investment? What are the most important things to you? Where is the juice of the return coming from?

The two drivers of property value are NOI and cap rates.

Meaning, is it from the assumed improvement on the sale? There’s generally what we call three cap rates that people talk about. There’s the going-in cap rate like what are we buying it for. There’s the in-place, meaning after year one based on the trailing twelve numbers, what’s that cap rate going to look like, then there’s the stabilized cap rate. Meaning after we have made whatever improvements or increases, what is that cap rate look like? Sometimes that stabilize one is the same as the exit one. Sometimes you may have a different one where they are assuming a different exit.

If you are trying to compare things on an apples-to-apples basis like on a stabilized cap rate, what are we basically paying for now, and what do we assume we are going to exit for later? If you are buying it, let’s say hypothetically, at a 6.5% cap rate. They assume that you are going to exit at 5.5%. That’s a pretty significant move. If you are not super experienced and you hear that, you are like, “It’s one percentage point.” That is a huge move. One of the big things I generally do with any deal I’m looking at or reviewing for other people is I look for a working model or I’m going to have to rebuild the Excel model myself.

The biggest thing I’m going to tinker with on the onset is what is the assumed cap rate on the exit, and what happens if I move that 50 basis points higher? Even 25 basis points. You will see that sometimes 10 basis points, so 0.1% of a move. If they assume that you are going to exit at a 6.1% cap rate, if you move that to 6.2%, that may change the entire dynamic of the investment thesis.

Going back to like, “Why am I getting into understanding the driver here? Is this a back-loaded deal where they are assuming they are going to get a way better cap rate on the exit?” If that’s the case, ask yourself, “Do you believe in that? Does that make sense?” If it makes sense and you believe that, that’s great. Again, I’m not saying that’s not possible. It totally is.

If you bought anything a couple of years ago, the cap rates have dropped tremendously. We are not talking about the impossible but understand where most of the value is coming from. Is it coming from increased rent, a refinancing, a good exit? You understand almost like the risk to the underwriting model because, at the end of the day, it’s very rare that you see a deal that goes exactly according to the underwriting model. It’s better, worse, longer, shorter but it’s very rare that it’s what they modeled out. Again, whatever works for you, it’s okay to have 5 different investments in 5 different properties that have totally 5 different theses.

Like, “This one, I’m looking for straight-up cashflow because that guy has given me an 11% cash-on-cash return. I know that I’m not going to see much of a lift on the exit but that’s okay. I’m going at a 5% cap rate. I’m going to come out at a 5% cap rate. Maybe I will even come out of the worst cap rate but it won’t matter because this is all about the cashflow. This one is going to be a two-year refinance. I’m going to get a chunk of my money, maybe 2/3 of my money back in two years.” I’m looking at it from that perspective.

The next one is quasi. It’s not even cashflowing well now. Year 1 or 2, I may even not see a cash coupon of anything significant. Maybe 1% but I know that we are going to see a totally different cap rate on the exit. I’m going to see the money on the exit. We are going to get a 3X multiple because we are going to improve the value tremendously. All these things are things to be considering and have a good understanding of what fits you. Again, you have a diversified strategy across it but making sure you understand all these drivers.

Each sponsor is going to be different. You want to understand the underwriting. As you said, you want to understand the risk to the underwriting model, what could go wrong or go right. You also have to recognize that each sponsor is going to be different. You have to evaluate that. I would like to pivot and talk about that. There are all kinds of sponsors out there. How do you find quality sponsors? Even more important than that, how do you vet them to know that they are quality sponsors?

The easiest way to find them is through trial and error. Invest with them and find out what they are like. Let’s assume you can’t invest in 5, 6, 7, 8 sponsors a year. You are like, “I need to have a good understanding.” Number one is you can always ask any sponsor for their track record. They will all provide you with something.

If all of their deals, though, have been inside the last 3 or 4 years and they have no dispositions, meaning they have no exits, it is a lot more difficult for you to have a very good vantage point of how they are going to perform heading into this market. Not because of anything about the market. It’s only they have no real performance record for you to know that, “Here’s what we underwrote and here’s what we sold for.”

If you know someone at that sponsor or you know someone who knows someone at that sponsor, great. Now you have a leg up. One of the things I generally perform for people when they work with me is either have heard of them, I have known of them, I know someone who knows them or I will have to do the diligence on my own. One of the things is they have been in business for 3 or 4 years.

They have no dispositions. Question number one, because of the craziness that we have lived through the last couple of years is, “When March and June of 2020 were happening, did they pause distributions? If they did pause distributions, did they turn them back on? Do they make you whole inside of 2020?”

I have heard a lot of different stories about a lot of different sponsors who did a lot of different things. Some were like, “We are going to hoard cash for a quarter or two because we don’t know what’s going to happen.” If you are in multifamily and the government basically says, “Nobody has to pay rent, and you can’t kick them out,” at the same time, the banks are like, “You can freeze your payment on the loan only for a month.” You or the sponsor is paying the bank regardless but your tenants don’t have to pay.

How did they fair during this? Did they have to pause? Did they not? You can get a pretty good sense of people. Even if they haven’t had a disposition, they can show you like, “Are we ahead of plan or behind the plan?” The better sponsors typically will show you two original underwriting plans to date. There’s a self-storage sponsor I work with where they are like, “We are in these 10 different deals, and these 6 are crushing it way ahead of plan. Here are our numbers. These 2 are in line, and these 2 are terribly behind plan.” You now like, “They are honest. Twenty percent of their deals are behind the plan.” How do I feel about that? Let’s look at the market. Let’s look at what went wrong. You can ask them.

If you are an investor, you have the right to ask, “Why did it go not according to plan? Were your costs off-base or did you assume that you could raise the rent? What mistakes did you make or what changed in the market from what you were doing?” Most operators and sponsors have no issue if they are not trying to hide something telling you what’s happening because they understand. For the most part, you are the lifeblood to their ability to go out and get that next deal.

You may not be writing a $10 million check yourself but if they start to treat investors a certain way, eventually, it will catch up with them. Obviously, if they have poor performance, that will catch up with them even faster but if people don’t like working with them, people won’t invest. As much as they may find the deals, if they are not putting in 100% of the equity on their own every time, which no sponsor is, they ultimately need an investor base who believes in them.

One of the key things is that investors, especially new people who may be a little bit nervous talking to a sponsor. You have the right to ask questions, and you said that. That’s super powerful because if they are honest enough to give you some of their bad news, then they are certainly going to answer any questions you have about something that didn’t go right. Even anything that is going right or any questions you have or fees you don’t understand, all of it.

There are so many sponsors out there that you don’t have to get hooked into one and think, “I talked to this person. I have to invest with them.” Ask the questions. If you have a question, you’ve got to ask it. That’s powerful. I would like to pivot here and talk a little bit about your community and what membership provides. I understand that you can help people analyze deals and sponsors. Can you talk a little bit about your operation, your community, and what you do?

I was working a lot with entrepreneurs and people who had a hard time getting their arms around their numbers, their personal financial plan, and things of that nature. I co-created a course and it was not real estate and passive investing focus. It was step one, get your financial plan together and understand. Ultimately, we all want to have money but how much money and how big of a pot of money or how much cashflow do we want? The problem that a lot of people have, honestly, step one, is they don’t necessarily know what their cost of living truly is.

The easiest way to find a quality sponsor is through trial and error.

It’s not about judgment or saying, “Change your lifestyle. Don’t spend this.” I don’t care. Live how you want to live but start to get your arms around that. I co-created a course called Future Fund. That’s located at Future Fund Me. What I had done before that, and now I have grown it is the people who are looking to invest and have the ability to invest, let’s call it $25,000, $50,000, $100,000. Those people either lack the access, lack the ability to vet it, even know the key drivers or some of the things that we have talked about, I call it high speed here, understanding where the risks lie.

I created a program where people can work with me. When I created that course originally, what I found was there were a lot of people who were not ready to necessarily even put the $50,000 out because they are not sitting on that capital, and that’s okay. There’s this thing called Beyond Future Fund. It’s the next stage. The Future Fund is like the foundational work of, “How do my numbers work?” Even like the asset classes. Some people don’t even understand what we are talking about, real estate as a general thing.

I touch stocks and crypto, and all kinds of other asset classes. Beyond Future Fund is one-on-one work with me for a pretty short time, call it 6 to 8 weeks. The one-on-one for one year is where you are going to see a deal flow. Probably once a month, you will see an opportunity that I will have vetted. You also have the ability to, if you are seeing stuff, you call me and you are like, “Aryeh, I saw this deal and I’ve got this email from the sponsor. I have never invested with them. I’m not sure. Can you break this down? Can you watch the video? Can you tell me all these things?”

I basically will be your personal analyst. It’s the way I think about it. My job in my mind is, I’m an offensive coordinator, and I’m calling the plays for you. You are ultimately going to be the one executing. I will tell you, “Here’s why I like it. Here’s why I don’t like it. Here are the risks. Here are the benefits of it. Are you looking for casual?” All the things we talked about.

What is your real objective? Do you want to be getting a higher exit and therefore, you are not looking for cashflow now or you are like, “No, I want to live off of this. I’m trying to get fat fire or I’m trying to get regular fire,” or whatever your personal game plan is? That’s the thing about personal finance. I tell everybody the word personal is there for a reason.

If I invest in a startup and I know that it’s going to be a boom or bust, that works for me because that’s 1% of my portfolio but that may not work for someone else because that 1% would be 10% or my 1% is someone else’s 0.0001%. It’s all relative and very personal. From the foundational side, FutureFundMe.com is where that is, and the solution advisory is where people can apply. I can tell based on five questions where they are at to guide them to that next step.

Are they ready for, “I’m looking for syndications. I’m sitting on capital?” One of the things that we didn’t get to but you and I had talked about in a previous discussion were things like, “I don’t want to take this risk but I am looking to earn a nice return.” In this market, you have things that a lot of people don’t necessarily know about or they are scared of in the “crypto” space. We have these things called stablecoins. Stablecoins are pegged to the dollar. They have them pegged to other currencies as well. If we quickly think about how the banks work, you put a dollar in deposits. Now the banks, according to the Federal Reserve System, are allowed to lend $4 out against your $1.

The way stablecoins work is, it’s not 1,000% but more or less are backed dollar for dollar. Every dollar in stablecoin has a Fiat US dollar behind it even if it’s only $0.75 on the dollar. What they then do is they lend out that money but they don’t lend it like if you go into Bank of America or Wells Fargo now. When they lend, 1/2 the time it’s on a home and 1/4 of the time, it’s on a car but if I lend it on a car, what happens? I have this depreciating asset that I now to go get a tow truck, foreclose on it, and try and resell it to recoup my loan. The way the stablecoin market works is people put up other collateral, other coins that think of it almost like a stock margin call.

They will lend you $0.50 on your value dollar. You put your Bitcoin in at $48,000. They will lend you $24,000 of the stablecoin, and they are going to charge them 12%. This platform is basically going to take the 12% and give you 9% of it. They will make the 3% because they didn’t have to do a whole lot but if Bitcoin drops to a certain level, they are going to sell out the Bitcoin, take the cash and give you back your money and they will have their money. Whereas, like a bank that’s why they have loan losses or loan loss reserves because they have to go and assume that whatever the value was, they are not going to get fully on it.

Whereas in this crypto space, they generally don’t lend on loan to a value of 70% or 80%. It’s usually in the 50%, maybe 60% or less. They have control of the asset that they can liquidate in real-time. Again, helping people have perspective on things and understanding where they feel comfortable and can get nice returns.

Your philosophy is you are not about having people change their lifestyle or cut their expenses. You are about trying to find ways to help them invest and manage their finances but not only that, to understand where they are and where they want to get to. That’s a super powerful service that people need. If people want to get in touch with you, what’s the best way to do that?

They can head over to SolutionAdvisory.com. You can reach out to Instagram. It’s probably the platform I’m most active on, and that’s @AryehTheBusinessman, those websites. I’m on LinkedIn, Twitter, Facebook, all these different platforms but I’m probably the most active on Instagram but all the other ones are as good. I get all my messages.

I want to back up and ask you, what is a great podcast that you listened to? You can throw more than one in there if you want. I know you have your own podcast, so you can’t use that one but anything else is game.

I’m going to go wide in the sense that it is not going to be a direct investing podcast. It is going to be a general business one that will seed ideas for investing and businesses. It’s called My First Million. The two hosts are Sam Parr and Shaan Puri. I can say I don’t know either of them personally but they are on episode 300 at this point in time or something like that.

The episodes, think of it as two people hanging out talking business and about other people’s businesses and saying, “Did you see this thing? That looked interesting.” “No, tell me about it. I don’t know anything about it.” “Yes, I did.” Each has a different point of view on it. One is a more conservative investor. One is a more aggressive investor. You get different vantage points. It’s not just about the money. It’s about thinking and hearing different viewpoints. That would be my recommendation.

Inside The Lion’s Den Podcast is your podcast. We had that a little bit out of order but it’s 2022, and we are starting out. I’m out of practice but this is a great episode. I appreciate your time. We will do this again for sure, so you can help me understand stablecoin a little bit better.

You’ve got it. No problem.

Thank you very much.

It’s my pleasure.

—

I enjoyed the conversation with Aryeh. There are a couple of things that stuck out to me. The first one was he talked about some of these sponsors are making money marketing to you. They might not necessarily be making money for you but they are making money off of you. It’s critical to figure out who’s doing that and probably to avoid those people and stick with people that are making money for you. It’s okay for them to make money as well.

The whole point is they want to make money. You want to make money but you have to make sure everyone is aligned and that both parties are making money. Not just they are making money marketing to you. That’s when you are the product, and that’s when you probably don’t want to be involved.

He also talked about how passive investing sometimes is active. We have talked about that here before with my single-family turnkey properties. Those were intended to be passive but they were anything. Having an asset manager manage the property, manage the property manager makes it more likely that this asset that you are investing in will turn out to be passive and not active if that’s what you are looking for. If you are looking for active, understand it and go for it.

The questions, don’t be afraid to ask questions of sponsors or of anybody that you are investing with. You want to make sure that you ask where the money is being made, who’s doing what. We have talked about this before in the show as well but to make sure that you aren’t afraid to ask the questions, intimidated or think that the sponsors are going to want you to invest if you ask questions. That’s easy.

If they don’t like the questions you are asking, move on. There are plenty of sponsors. Don’t invest with them. One of the neatest things he talked about was making sure that the metrics you are evaluating are aligned with your intended investment strategy. He talked about equity multiple, cash-on-cash return, IRR, and average return.

He talked about how each one of those might cater to a different type of investor, whether you are investing for cashflow or quick return of capital or appreciation. That was pretty powerful to me to think about, “I need to think about what my strategy is and find the investment.” I already do that but to cater the metrics to make sure that they match with my investment strategy. That’s something I will take with me from this, for sure.

He’s an advisor trying to help people invest. We do that through our community as well. We each do it in different ways but I like that he’s not trying to change the lifestyle of his clients. He has an abundance mindset where he’s trying to grow their wealth. He wants them to recognize their lifestyle, costs, expenses, and things like that.

He’s not going in there and saying, “We’ve got to cut all these expenses so that you can have money.” He’s saying, “Here’s what they are. Recognize and understand them. Now, let’s go invest so that you can maintain or increase that lifestyle.” I thought that was a great conversation. I look forward to learning from him more and having more conversations. For this episode, that’s it. We will see you next time on the Left Field.

Important Links:

About Aryeh Sheinbein

What’s in a name? Well, in Aryeh Sheinbein’s case, it’s a perfect metaphor for
his track record as a wealth architect; his given name derives from the Hebrew
word ????) aryé), meaning “lion.” He is every bit a lion for those he works with:
passionate, courageous, protective, and willing to fight for the valuable assets
his clients entrust him with.
Aryeh’s bread and butter is helping successful business owners and
entrepreneurs invest their money intelligently, allowing their wealth to
accumulate so they can stay focused on what truly matters—their business and mission. He’s spent his entire career sharpening his operational experience with investments and valuing businesses, having worked with top private equity, venture capital, hedge funds, investment managers, and banks, as well as a wealth of success in the eCommerce and Amazon selling spaces. Aryeh is particularly skilled in managing large, complex projects and teams—a credit to his excellent executive leadership skills rooted in finance, business strategy, marketing, and operations. When he’s not sculpting the financial futures of his clients, Aryeh loves coaching his kids’ sports teams, donating his time to various non-profit organizations, and enjoying quality time with his four wonderful kids and amazing wife. He also hosts the iTunes Top 100-ranked Inside the Lions Den podcast, a show that explores the leadership skills, financial acumen, and operational improvements required for sustained entrepreneurial and financial success.

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