63. Investing In Recession Proof Real Estate With Hunter Thompson

PILF 63 Hunter | Recession Proof Real Estate

 

How can you insulate your investments from an economic downturn? What do you need to become recession-proof? Jim Pfeifer talks about investing, inflation and recession-proof real estate with Hunter Thompson, Managing Principal at Asym Capital. Hunter talks about raising capital, multifamily syndications, and why real estate is the real deal. Learn more investing tips and tricks as you build your passive income streams.

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Investing In Recession Proof Real Estate With Hunter Thompson

I’m pleased to have Hunter Thompson with us. He’s a full-time real estate investor. He’s the author of Raising Capital for Real Estate and the Founder of Asym Capital. Since starting Asym, Hunter has helped more than 400 investors and raised more than $50 million. He’s also the host of Cash Flow Connections Real Estate Podcast, which has received over one million downloads, which is unbelievable and phenomenal. He’s the host of the Intelligent Investors Real Estate Conference. We went to that for the first time as Left Field in 2022. That was fabulous. Thank you for that, Hunter. Welcome to the show.

Thanks. I’m honored to be on.

The first thing we do here is to know your journey. You are well-known within our community. We would like to hear how you’ve got started in investing in real estate and then started your company. Can you talk a little bit about that journey?

I have an interesting background. I played poker as a summer job when I was in college during the poker boom. For those that don’t know, the poker boom took place in 2003, 2004, 2005, 2006, 2007 or so. It was pronounced in Tennessee because someone from Tennessee ended up in a $17 tournament that they played in that won them a ticket to a $200 tournament and a ticket to the main event, which is a $10,000 tournament. They won the main event a million dollars. Their real name was Chris Moneymaker. That was actually this person’s name.

This created something in the poker community that is called the poker boom, which is a multibillion-dollar boom in the industry. It created a very interesting bubble, all the makings of the bubble in the sense that you could make solid money if you took it seriously at all. You can even make solid money if you didn’t take it seriously but I did take it seriously. I’ve got a coach, started playing online, read all the books, started clipping away $10,000, $20,000 to $30,000 for months. I thought I was the smartest person in the world but I didn’t know much about bubbles.

That bubble burst when the United States government made it illegal to play online for US players. There was this whole aftermath of that but it was very good timing. This was in 2007. I took my money offline, and then the real estate crash happened. There I was, a college kid that wasn’t impacted by the real estate crash and always was willing to go left when people were looking right. There was this massive opportunity to focus on real estate. The first deals I did were not the typical deals that most people think about but I took a circuitous route. Now here we are. I purchased around $150 million worth of a real estate.

I hadn’t heard that story before, especially the poker part. I want to dig in a little bit. I remember in 2007 and 2008 that I wasn’t into real estate. I had just become an accidental landlord. It was scary to go in and buy stuff because everyone was like, “This is the end. The markets will never go back up.” I love how you said it. You go left when others go right. How did you know what to do? How did you have the courage to take those steps?

I don’t want to take full credit because everyone has their strengths, weaknesses, and natural inclinations. I’m very much inclined to go against what everyone is saying. It wasn’t that I had a lot of knowledge of real estate. It was just that I had heard the mantra of, “Buy when blood is in the streets.” It was clear that blood was in the streets. Thankfully, I didn’t go left when everyone was looking right. I started researching and eventually started looking at real estate books.

I moved to California which the crash was pronounced in California. Everyone had lost their shirt but because of that, the people that were attending these networking events that had not lost their shirts ended up being some very savvy and sophisticated investors that did not go the typical route of buying and fixing single-family houses but had purchased $20 million to $50 million pieces of properties. My first investments were based on that guidance.

Not that I don’t want to deal with someone that stood to gain $100 a month for managing some single-family house. There’s no disrespect. That’s not the model I was going to go for. I wanted to invest alongside people that stand to gain millions or tens of millions. As soon as I uncovered the world of passive investing, I recognized it makes all the sense in the world. The first deals I invested in were syndications prior to the JOBS Act being allowed in the sense that I had to go to physical networking events to talk about deals.

It was illegal to talk about real estate deals on the internet. That’s how my career got started. 2008 was the moment when I started paying attention. I was like, “Stocks are interesting. I should be buying stocks. Maybe real estate is good too.” I didn’t recognize it. I went all-in on real estate for a very specific reason that I don’t think anyone talks about, which was I was clued into this world of finance in 2008. In 2009, I was learning. In 2010, the European debt crisis took hold.

PILF 63 Hunter | Recession Proof Real Estate
Recession-Proof Real Estate: The United States government printed $6 trillion in the last two years. Somewhere between 40 and 60% of all the dollars that have ever been created were created in the last 24 months. And that’s just the United States. The rest of the countries printed another $4 trillion.

 

This, for me, was the moment where I was like, “I have to get everything out of the stock market.” I will tell you specifically what happened. I was obsessed with the stock market. I’m talking of Warren Buffett and Charlie Munger. I was trying to read these people. All of a sudden, after all that reading and research, everyone on CNBC, which I was obsessed with at the time, was talking about the German bond yields being the single most important predictor of my whole portfolio.

I was like, “This hasn’t come up in all the research I had done. Keep your eyes on the German bond yields. How in the world?” If I have been “diversified” as most financial advisors tell you to be, how is it the case that this completely ridiculous and obscure economic data point is now the sole determiner of my life? I had to get out of that casino and into predictable, cashflow-focused, recession-resistant assets. That’s what I spent the next decade doing.

I’m a former financial advisor. It used to drive me crazy. The example I always use is Apple. They could have the best year they have ever had but if the market tanks because of the German bond or whatever it is, Apple is going down too. I could be the best stock picker in the world, pick the best stocks, and still lose. Whereas in real estate, it feels like the market swings aren’t as instant.

Maybe they are sometimes volatile but they’re not instantly volatile. That makes me a little bit more comfortable. That’s part of the reason I exited the advising world to get out of the volatility and knowing that cashflowing assets would always bring me cash. That might go up and down, but the cash is going to still be there.

Part of that is because of the lack of liquidity in real estate. I’m willing to exchange the lack of liquidity to be able to sleep at night. My whole portfolio is built around this thesis, “What am I going to feel if things go wrong in the overall economy?” We felt that during 2020. Our portfolio outperformed, and I was not surprised at all. We braced for impact and hoarded reserves because that’s what most investment firms are going to do. When there wasn’t any distress in the niches that we were focused on, we were like, “That’s the whole point.” It wasn’t this massive buying opportunity. I don’t mean to come off the wrong way but it’s this boring strategy that I have been talking about. It has been the same three asset classes for years. There’s a reason I have been talking about them. It was proven accurate in 2020.

What are those three asset classes?

They are typically mobile home parks, self-storage, and multifamily apartments. To various degrees, all of them perform quite well, far better than even I thought they would during 2020 for reasons we can talk about but those were the three asset classes that I’ve focused on. That’s the case always. Prior to COVID, you could even include some grocery-anchored shopping centers. The percentages of those three may be changing based on changing market dynamics or our natural deal flow. That will probably be what we invest in for the next years because that’s the whole point of the thesis. It’s not that interesting but it works.

Boring is good. We have hopefully and finally come through COVID. That’s a little bit in the rearview. It’s still going to be around for a while. How are you adjusting things? Where are you, given all this talk about inflation and global events? Is that changing anything that you are doing? Are you looking at things differently? Are you full steam ahead? Years ago, everyone said, “Everything is a bubble. Slow down.” If I had kept my money on the sidelines, I would have missed out on a lot. It seems like we are still at that place where, “Are we in a bubble? Should I slow down? Is it full steam ahead or something in the middle?”

I have been asked and I, myself ask this question a lot, and because of that, I’m doing a specific summit to answer this question. It’s called the 100K to Invest Summit. It’s a free summit. It’s to ask experts in their particular niches what they are going to be doing about this situation, which is a tremendous amount of liquidity. The United States government printed $6 trillion in the last few years. Somewhere between 40% and 60% of all the dollars that have ever been created were created in the last few months. That’s just the United States. The rest of the countries printed another $4 trillion.

You have this massive $10 trillion tsunami headed towards the financial sector. Every single one of those dollars is looking for favorable risk-adjusted returns. United States’ assets, in general, but specifically real estate, are going to be the main benefactor of that $10 trillion tsunami. What’s going to happen is, first, it’s going to go into the bond market because it’s the only place you can place trillions of dollars.

Eventually, as investors start to recover, they are going to be looking for better ways to get not only not negative returns, which is in the bond market typically but also positive returns. My view after conducting these interviews for the summit is that this is an incredible opportunity to borrow money and buy quality assets. We can talk about why that is. If you are interested in checking out the summit, it’s 100KToInvest.com. I have interviewed some awesome people on it. Inflation is coming. The $1 trillion tsunami is coming. If you think it’s competitive and cap rates are low, wait for what is about to come.

Inflation is coming, the trillion-dollar tsunami is coming, and if you think it's competitive now, if you think cap rates are low now, just wait for what is about to come. Click To Tweet

Everyone is asking this question. You are doing a summit to answer it. What’s the date of the summit?

It is a virtual summit. It’s May 18th through the 20th, 2022.

I’m interested to know that. I heard you talk on another podcast. This is related to all the money in the system. You were talking about Phoenix and the huge rent increases you were seeing in that market. Is that sustainable? I’m looking at a deal. If they have 15% rate rent increases booked in two years in a row, years 1 and 2, at any other time and market, I would be done. I’m not even looking at that deal because that’s ridiculous but Phoenix has done it. How does a passive investor look at a deal like that and decide, “Is this crazy? Is this the world we live in if you live in Phoenix?”

This is an important point. Not only do we have this $1 trillion inflation tsunami coming. This tsunami is about to crash on a wildly imbalanced market in terms of affordable housing in the United States and these specific markets where it’s pronounced like in Phoenix, for example, which leads the country in rental growth, income growth, and population growth. It’s top five in every single fundamental metric that you would use to justify why you like investing in multifamily. I’m very bullish on Phoenix.

We started looking at Phoenix in 2021. I wish I had started looking at them in 2010. 2021 at the time was May to May. Year-over-year growth in May was 15%. As we are conducting due diligence, we looked at it again from June 2021 to June 2022. It was 20%. From July to July, it was 25%. It kept moving up to 28%, and then 32% year-over-year citywide. It’s the fifth-largest city in the country doing this number. As investors, we hear that and go, “That’s a bubble. That’s going to pop.” I get that.

Anytime you hear something that’s wildly out of balance, that should probably be your natural gut instinct. If you look into the data points of what drives this particular rental growth, it isn’t like 2007 when some new ahistoric loan product came into existence, financed 40% of the economy, which was construction at the time, and created this massive disequilibrium. Those rental growth data figures are based on those nonvolatile fundamentals, meaning things like population, rent, income, and job growth.

It isn’t the case that 300,000 people moved to Phoenix and then three months later left Phoenix because what’s creating this is jobs. This is the case in other markets as well. When we see 28% rental growth, something in our hearts as investors thinks, “It’s going to snap back and lose 28% the following year.” That is not historically accurate. Rental growth, for example, is usually somewhere around ten times less volatile than valuations. That makes sense because it’s a multiple of income typically that we trade real estate on.

You don’t typically see rental growth going negative. That’s pronounced. It’s a once-a-generation type of thing. You can see the 28% figure go to 10% and 5%. When we are underwriting deals in Phoenix, once the value-add plan is implemented and the property is brought up to market rates, we are underwriting 5% for the remainder of the five-year hold. To answer your question, is that conservative or aggressive? Where does that stand?

Inflation doesn’t impact every market the same. There is market-specific inflation as well. You have not only a massive amount of money printing but also a crazy supply and demand imbalance and massive job growth. Phoenix is going along at 9%, not 7%. If you use the Bureau of Labor Statistics data, you are going to get about 9% or 10% inflation in a massive city. To use 5% is half the figure of what the government data is, which we all agree is understated. That’s very conservative.

That’s an interesting analysis. You talked about this tsunami. People are going to put into the bonds, come out, and put it elsewhere. That’s going to further compress cap rates. As a passive investor, you mentioned the three asset classes you are looking at. How do I decide what I am going to invest in throughout 2022 and beyond? What are you looking at? Is it different markets? Is it different niches within the asset classes?

There are a couple of things. That was our original thesis at Asym, which is the name of my company. It’s to focus on those recession-resistant real estate assets. From networking, we started to participate in other recession-resistant assets that aren’t necessarily real estate. We have ATM funds that we have done and a Bitcoin mining fund that we relaunched. The Bitcoin mining fund isn’t typically within our recession-resistant thesis but it is a cashflow-focused and high-depreciation type of thing.

PILF 63 Hunter | Recession Proof Real Estatev
Recession-Proof Real Estate: Most passive investors, if given infinite time, horizon and an infinite budget, would do a lot more due diligence than they currently do.

 

In terms of other niches, I will talk about what I’m not as inclined towards and things that I like. I try to stay away from anything that’s going to create a lack of predictability for our investors. I have stayed away from land entitlement and development. These things can be justified and make sense on a risk-adjusted basis but I don’t think it’s taking on investor capital to say, “It’s going to be somewhere between 12 months and 24 months when you receive your first check.” We haven’t built a brand that attracts investors that are comfortable with that.

There are other opportunities there as well. There’s senior living, for example, which is an interesting one because a lot of people are very skeptical in the wake of COVID. Anything in the build-to-rent space is interesting. Maybe it wouldn’t be a fit for Asym Capital but there’s so much demand. The low-income tax credit strategy is becoming more popular for a good reason. All of these are interesting. As a passive investor myself, I might pursue some opportunities in those spaces even if Asym Capital doesn’t go in that direction.

Your business with Asym Capital is you are vetting sponsors in asset classes. That’s your business. You are presenting these opportunities. You find best-in-class operators and assets and provide those opportunities to your investors. That’s not unlike what a lot of passive investors do. We are looking for the best sponsors and asset classes. I’m excited to dig in a little bit on how you find those best-in-class operators and then, secondarily, how you choose, find and analyze new asset classes.

I’m a little bit of a nerd. One of my main mentors is Jeremy Roll. If you know anything about him, we are super nerds. We are different people but cut the same cloth when it comes to due diligence. I uncovered that most passive investors, if given an infinite time horizon and budget, would do a lot more due diligence than they do. It’s not viable if you are investing $50,000, $100,000 or even $250,000 in a deal.

As an example, if you are investing $50,000 in a deal, are you going to spend 100 hours on due diligence? Are you going to fly around and see the properties in multiple states? Are you going to speak with the sponsor across twenty hours? Are you going to run criminal and background checks and not just talk to their investors but also their service providers, CPAs, and attorneys?

Are you going to pull a title on the properties they claim to own? All those things I rattled off, if a passive investor sat in silence for a year, they would probably come up with that list themselves. What are they going to do? Even if they knew exactly what to do, it’s going to impact their return meaningfully if they tried to do that for themselves.

I saw an opportunity, especially in the wake of the JOBS Act, which allowed us to talk about real estate deals on the internet. I saw an opportunity to play that role of vetting sponsors with which I had invested or planned to invest very significantly. That was the founding of our firm. It was like, “I’m a passive investor. I have been able to negotiate favorable terms from the sponsor from pulling investors together.” My first investor was my mom. Here’s a shout-out. That’s how we started. It grew from 1 investor to 5 and 100. Now we have hundreds, and they rely to some degree on me and our team going through that whole process.

When you find a new sponsor, how many are you vetting? You explained. You are flying out there and digging in deep. You can’t evaluate tens of sponsors a month. We talk a lot about community. That’s how I find sponsors. Someone in my community introduces me to somebody that they have invested with. That gives me a headstart or a shortcut. I’m comfortable at least doing my due diligence. Is that how you do it? Do you hear about a sponsor, meet someone and then dive in?

To be honest, you did have a question about conducting due diligence on asset classes. I will get to that. This is not a scalable part of our business. Our goal is not to scale these relationships. It’s the opposite. I want to find 6 to 10 groups where we can invest tens of millions of dollars with each. The other piece is I’m one of, if not the largest investor in each of our offerings. Our compensation is paid by the sponsor and is only paid if investors receive a return of capital on a pref.

The reason I’m saying that is that this creates a structure where I’m not incentivized to do a bunch of random deals. I’m incentivized to go very deep on a few relationships. I do suggest to others think about this space the same way. People ask us to raise capital for them all the time. I don’t even read the emails. It doesn’t matter because I don’t need more new friends. It’s like a best friend. It’s as if someone was like, “I’m interested in being your best friend.” You are like, “I already have one. I’m going to move on.”

Maybe that person is going to be your best friend if you give him the opportunity but you are going to move on. We do have a very detailed process. We have seven stages that we take our sponsors through. To get their foot in the door, we are only looking for a specific kind of sponsor. It’s $100 million or more. They are usually taking multiple assets full cycle in various niches that we are interested in and bullish on and not too large for us to be given favorable economics for our deal.

Everyone's asking when prices are going to change. That's the wrong question. The question is when is that back the truck up moment and it is happening right now? Click To Tweet

There are not that many players in the space that meet all those criteria, and because of how we are positioned in the space, we are constantly hearing about the names we should be introduced to. It’s not that we send a bunch of traffic to a form to fill out if you can work with us. It will happen organically or not at all. That’s fine because that’s not our goal. I can walk you through that process. That’s the reality of the situation. I don’t want people to think that if they go through this particular vetting process, we will work with them because it’s not the case.

What I’m doing is a little bit scattershot. I’m investing in a ton of different sponsors at the minimum they will allow me. In 3 to 5 years after I have had more deals go full cycle, then I will start taking bigger bets on fewer sponsors. You are already doing that. Starting a relationship based on capital gets you into that system of what I’m trying to do on my own. You can do it DIY or go to a company like Asym Capital, maybe have a few deals there and get some of that same thing.

I would like to dive into the asset classes because Bitcoin mining is new. Our community is big on ATMs. I know you are into that. I’m super interested in senior housing. I haven’t been able to find a whole lot of quality syndicated opportunities because I like to be very passive. I don’t want to invest directly in something. I would love to learn about how you find your new asset classes.

When I looked at some economic data before I even made one investment, I was trying to find a way to potentially give up some of the upsides in exchange for predictability of the outcome. I saw what took place in the hotel industry, hospitality in general, and anything related to travel in 2008, 2009, and 2010. I recognized I’m trying to avoid that at all costs, even if it means 3% on an IRR basis. In doing that, I researched a couple of the theses on recession-resistant real estate. Particularly, a no-good example is the mobile home park business.

The worst the economy does, the more demand there is for affordable housing. I went all-in on that industry in 2012, 2013, and 2014, the self-storage industry starting in 2013, and then apartments starting in 2014. I paused on apartments because I felt the mobile home park and self-storage industry at the time were so much more compelling. As cap rates continued to compress, I ended up turning up apartments starting in 2017. That’s a good example.

I was always bullish on all of those but as cap rates and the market changed, my dynamic of the allocation of those asset classes changed. We have access as the industry becomes more institutional. We have access to compelling data, even with private deals. If you go to Green Street Advisors and google net operating income across the main asset classes in commercial real estate, you will find out of all the calls I have made wrong in my life, the thing I may be most proud of is that chart.

It is because it shows mobile home parks and self-storage blew everything out of the water in terms of NOI growth, and then multifamily apartments blew everything out of the water in terms of net return. NOI is a little bit more predictable and less volatile. IRR is what most investors care about. I’m not understating it. One of the proudest moments in my career is having that foresight. I didn’t come up with any of this.

This was just fortunate timing in terms of who I met at the time and rubbing shoulders with some high-quality people when the market was decimated. I’m very fortunate in terms of how old I was. If I were three years older, I would have been flipping houses in California and making so much money I couldn’t even know what to do with it until there was a smack in the face. It turns out you weren’t right. I’ve got to be humble about that because I was always interested in financial assets. If I had started my financial career in 2005, I don’t know if I would be in this interview.

I started as a stock market guy. If I hadn’t, I probably wouldn’t have found passive investing in real estate later in my career where I did. It’s a function of where you are, what opportunities you can find, and what you do with them. You teed up the next question, which is impossible to answer but hopefully, you will have one for me. What’s going to blow us out of the water over the next years? Are you going to find the next mobile home? I don’t know what’s cratering now like self-storage or multifamily. What’s the next big thing?

I don’t know the answer but I do have a perspective that I want to share. That’s why I was excited to come on the show. Everyone is asking when there’s going to be a pullback, and I’m trying to share the message that it is happening now. This is the pullback. This is the back-the-truck-up moment. Everyone is asking when prices are going to change. That’s the wrong question.

The question is, “When is that back-the-truck-up moment?” It is happening now. If you think it’s competitive, cap rates are low, if you think, “There are so many people in real estate. It’s me, Jim, BiggerPockets, and all these people,” and there are a lot of podcasts and discussion and that your cousin is in real estate now for the first time wait because the data doesn’t lie.

PILF 63 Hunter | Recession Proof Real Estate
Recession-Proof Real Estate: In the current state of the cycle, you have to be very careful about overpaying for potential, generally speaking, but specifically for value add.

 

When there are record highs in cash sitting on the sidelines, that cash that has to get yield is eventually going to recognize what we are recognizing, which is that United States’ real estate, particularly multifamily is infinitely scalable, where you can place $100 million pretty quickly. That is the place to be. Imagine sitting in a meeting with a bunch of bond traders, and it’s like, “The Japanese bonds are only -1%. The European bonds are only -0.05%. It’s inflation. What is going on?”

They are going to figure this out. They already are. You used to have no institutional participation in a $30 million multifamily purchase. Now, everybody that knows that’s in these growth markets, who are all their competitors? It’s large pension funds, Goldman Sachs, and people flying in from New York on private jets. We still have a massive advantage because we don’t have a board of advisors.

It’s all about the speed of execution and predictability of the outcome. These massive firms have to be run by twelve people before they get their underwriting accepted. It’s the predictability of outcome, especially in a market like Phoenix, for example. If I’m the principal of a large sponsor in Phoenix and say, “I’m going to give you $1 million of my money non-refundable on day one,” it’s my money. There’s no board. I’m going to get this deal closed. Trust me. This is the ninth deal we have closed in a row.

I’m getting that deal before my guys in New York, even if my guys in New York are overbidding me. That’s what we are seeing happen in all these markets. I’m very bullish about what’s going on. I want to make the message. It’s not some random new thing that’s going to come up. It is the thing that we are focusing on but maybe it’s the case that cap rates never smacked back. The first time I heard that I was like, “Oh,” but then it shifts your mindset. That’s where I am.

You are thinking that mobile homes, self-storage, and multifamily still have a long run ahead of them.

I don’t want the readers to think I’m this permabull because this is very specific to the sponsors we work with and the strategies they implement like, “We are going to go non-refundable on day one,” either you are completely insane or you have a tremendous market advantage. Maybe you know the asset intimately, the roofer, the electrician that puts the assets in, and the current status of the chiller.

Maybe you have been giving offers on this property for years, and it finally came on the market for the first time. You know more than anybody, especially someone in New York. That’s the type of relationship I’m trying to leverage. It’s those ones that have a certifiable and verifiable market advantage that everyone else thinks, “Those guys must be crazy to offer that much or get that type of lead flow.” There are a bunch of different ways to do it but a significant market advantage is what I’m looking for.

There are two things so that everyone is on the same page. Can you explain what you mean by $1 million non-refundable? Also, you mentioned strategies. First, answer the non-refundable part, and then I will ask my question about strategies.

Especially in competitive markets, there’s a non-refundable deposit that represents a percentage of the purchase price. What it means is that we are so confident we are going to close. We will give you $200,000. Due diligence is 30, 60, 90 days or whatever it is. If during that process we find out there’s something we missed, you can keep the $200,000. What this does is, number one, the broker is going to be very interested in working with you because they are trying to get their fee for making the transaction complete.

Usually, the seller’s main goal is to ensure that they can sell this property on time. If this sponsor is saying, “I will give you $1 million non-refundable on day one, meaning I haven’t technically entered the property. The due diligence process hasn’t technically started yet. You get to keep the $1 million.” That guy is going to try to push the deal through no matter what but people hear that and think, “You would have to be crazy to want to do that.”

Maybe or maybe the person that’s willing to do that has such knowledge of exactly how the plan is going to go, knows the market intimately, and probably owns three properties within a 5-mile radius of the subject property. It’s the same vintage, size, and property management company they may own. That predictability is so high. They are willing to put up the $1 million non-refundable on day one. That’s just one of many examples of things. Their competitors are going, “Those guys are idiots.” It’s like, “Let’s see how it plays out because maybe not.”

If you raise capital and you don't know what you're doing, you're going to have a bad time very, very quickly. Click To Tweet

As far as strategies, when you are talking about multifamily, it’s almost like people are flippers now. You hold it for two years, refi or sell, get out, and leave some skin on the bone for the next guy. That’s a business model I have seen a lot. What strategies do you think will be fruitful going forward within the market that we have?

I don’t know where we are in the cycle. That 2020 thing is weird. In the state of the cycle, you’ve got to be very careful about overpaying for potential value-add. What ends up happening when things are super competitive is that sometimes people will see a property and say, “We can raise rents by 20% to bring it up to market rates.” At that point, we would have a blank cap rate or you could buy a property that already is that cap rate.

You’ve got to be cautious about overpaying for value-add. However, it’s attractive for buyers to do. The reason I’m saying this is it’s very common for people to overpay for value-add. To your point, if we are buying a property where 60% of the units need to be renovated, 40% have already been renovated. It’s a proven business plan. They are already getting pro forma rents, for example. We are going to go in and renovate 60 units.

It’s a good strategy to renovate, not the entirety of the unit. It’s not 60% but maybe 80% of that 60% to leave enough meat on the bone for the next buyer to come in because you can sell the dream of the potential for value-add. That is still very much on the table. Another side note to that, I was always staying away from Class A anything because we try to be better investors every single year. I had some inconsistencies in my thinking regarding Class A.

We saw this play out pretty pronounced in 2020, where if you are making $100,000 a year, the predictability of the payment stream of that rental income is very high. I had never invested in Class A apartments. As cap rates have compressed, there used to be a 200-basis point difference between Class B and Class A, where you could buy 4% caps versus 6% caps. Now it’s 3.5% caps versus 3% caps. It’s only 50 basis points. The argument for Class A is strong. More and more people are going to be interested in that. This is a bit of a rant.

The other side of that argument is that if I am correct and this money printing is going to crash into United States’ real estate, it might also be interesting to look at higher-cap rate asset classes, such as senior living. If everyone is looking for yield and every piece of real estate in multifamily is trading at 3% cap or some-3% cap, there’s going to be a move to the chasing for yield. It may work itself to those 8%, 9%, and 10% cap rate assisted living places. Aren’t you going to look smart if you buy a 9% cap that turns into a 5% cap? We are participating in that space as well.

I want to circle back to how Asym operates. You are not a typical syndicator. There are a few others like you where you vet the sponsors and raise capital for those deals, various asset classes, and your handpicked sponsors. As a passive investor, how do I vet you and analyze your deals? I’m talking to you. I’m not talking to the actual boots on the ground syndicator. You are involved in all of that but as a passive, how do I figure out, “Is Asym right for me?” When a deal comes down, how do I make sure I’m getting all the right information? I’m dealing with you, not the person on the ground.

I spend a lot of my time focusing on the marketing side of things because that’s a big part of what capital raising is all about. You have to know what you are doing. If you raise capital and don’t know what you are doing, you will have a bad time very quickly. In terms of raising capital, the skillset is based on marketing. We are conscious about who we want to cater to in our branding. We are looking for savvy and sophisticated investors, typically not making their first investment in real estate but are usually making their tenth investment in real estate.

That goal is from top to bottom in our branding. The name of our company is Asym Capital, short for Asymmetric Returns. The tagline is, “Achieve asymmetric returns through recession-resistant real estate.” That tagline resonates with the people that we want to serve. Here’s another version of that. If we said, “How to make your first $3,000 flipping houses,” that’s going to cater to a different audience. If that resonates with you, perhaps it is worth your time to go down the Asym Capital rabbit hole. For people that have a platform such as yourself, the level of transparency is so much higher.

I’m hesitant to work with someone not available in the public eye with a podcast, website, etc. If you are interested without taking any of my time, not that I don’t want to talk to you but I just don’t have time to go through a bunch of investor calls, I will go down the Hunter Thompson Asym Capital rabbit hole. We put out 400 podcasts. You can easily get a glimpse into my view of a lot of things. We also have a lot of very scalable ways to communicate like webinars on our website and podcast interviews that we have done. If you go through all of that and you are like, “This is a good fit,” then we do schedule a call with our investors.

The reason I say that is that if you watch a one-hour presentation about how we are thinking about the Bitcoin mining space, it will either turn you off or you will be interested. It’s very difficult to get an hour and a half of my time but with that, I can communicate to a lot of investors at the same time in a scalable manner. That’s how we do it. You can get a lot out of watching people think through things. My podcast listeners, for example, know things about me that some of my best friends don’t know because of the time they have been listening and thinking about similar things.

PILF 63 Hunter | Recession Proof Real Estate
Recession-Proof Real Estate: If you watch a one-hour presentation about how we’re thinking about the Bitcoin mining space, it will either turn you off or you’ll be really, really interested.

 

One last question on this topic is, let’s say there’s a syndicator that I know that you are working through. Why would I go to you rather than directly to them? Does it matter? Is it the same? Do I get the same returns? Is there an advantage of going through you than directly?

I’m a registered representative under a broker-dealer, which means that when my investors invest with a sponsor, they are investing directly with the sponsor. Investors get to rely on all our due diligence. They get access to everything that we do like the buildup to the thing and our webinars. When they fund, they fund directly to the sponsor they are investing with. There isn’t any additional fee associated with that. Sometimes there will be an upfront fee that’s baked into the deal. It doesn’t matter if they go direct with us, someone else or the sponsor directly. Our comp is paid from the sponsor’s pocket, which is a compelling value-add strategy as a business.

The last question I always ask is, what’s a great podcast that you listened to? You cannot say Cash Flow Connections. It’s a fantastic podcast but you’ve got to pick something other than your own.

I will give you one that is not talked about enough. Maybe you are familiar with it. First of all, Macro Trends on iTunes. They have some hedge fund managers, IMF consultants, and people that speak at the Fed. They are high-level people. Here’s another one for the more entrepreneurial listeners. Alex Hormozi’s podcast is very good and dense. It’s called The Game.

Thank you very much. One more time, can you tell us how we can watch the summit that you are talking about? Also, if people want to get in contact with you or Asym Capital, how do they do that?

I’m so excited about it. They are prerecorded sessions. We are going to make them live quickly. I cannot wait. There are so many high-level people. It’s way crazy, especially because it’s free. It’s 100KToInvest.com. Get the VIP upgrade. You can attend the meetings live. It’s all a bunch of cool stuff. As far as Asym Capital Investors, it’s AsymCapital.com.

Thank you so much for your time. This was amazing. I appreciate it. I will be watching you as you keep going.

I’m happy to do it. Thanks a lot, Jim.

Thank you.

That was phenomenal. I could talk to Hunter all day long. He’s such a knowledgeable guy. I’ve got a bunch of good golden nuggets out of there. I’m so thankful he came on the show. Right out of the gates, he goes left when others go right. He does it with research and purpose. He’s not just going to go the opposite way because he wants to be different. He’s going the opposite way because he sees something. He dives in and researches it, “Why is everyone going this way? Maybe I will go the other way because there are better opportunities there.” Do that with purpose.

You are not just doing it. You are doing it with purpose. He nailed it too with the German bond example. This is how I think, “Is it the stock market paper assets?” It could be anything. It could be the German bond. It could be who knows what that’s going to make the market tank. It does not matter if you are a great stock picker. If the market crash is 30%, your stocks are going down 20%, 30% to 40% with it, regardless of how well it has performed. That was when I figured that out and said, “I will see you later. It’s the right field. There’s no more paper asset speculation for me. I’m going to be an investor.”

To do that, you’ve got to get into real assets and produce cashflow. I thought the German bond example was great. He didn’t want the German bond to determine whether his assets were going up or down. He got out of paper assets as well. Another golden nugget is the lack of liquidity is what helps him sleep at night. How powerful is that? If you are someone who’s in the market and you sold everything in March 2020, if you are in real assets, you didn’t, and you couldn’t because it doesn’t work that way. The lack of liquidity is what might have saved you.

For Hunter, the lack of liquidity is what makes him sleep at night because he can’t make rash decisions. The other thing he was talking about was rent. It’s less volatile than valuations. That goes right back to what we were talking about with paper assets. The stock market can crash. Real estate doesn’t crash as hard or as fast but even if it does and those valuations go way down, rents are not going to follow. Rarely do they go negative but even if they do, it’s not going to be overnight because you have them all spread out over the year. Your rents can’t go instantly down.

You have a lot more stability with these cashflowing assets. He was talking about a best friend. If a new guy comes along and wants to be your best friend, if you already have a best friend, there might not be a place for him. That’s how he feels about his sponsors. He finds quality sponsors, digs deep, and goes way into them to make sure that they are the kind of sponsors he wants to invest with. He doesn’t have time to go vet a bunch more because he’s already got that best friend sponsor. He’s got a few in different asset classes.

I like his approach. At the show, we are a do-it-yourself community. We help each other find sponsors and deals and help each other screen the sponsors and analyze the deals. There are a few of these out here of people that vet the syndicators for you in a community like Hunter’s. He gave a lot of reasons why that’s a powerful and interesting way to go. I will never be all-in with one syndicator or one syndicator aggregator, which is how I think of Hunter.

I will always have some other investments here and there. I see now the value of hitching your train to somebody like Hunter or some of these others that are syndicator aggregators because they do a lot of the due diligence for you. Investing in a few of their deals makes complete sense to me. I’m going to take another look at Asym Capital, dig into some of their deals, and see if I can find something I like because I like Hunter and his Intelligent Investors Conference. I’m excited about the summit. I’m going to going to check out Asym and dig in a little deeper there. That’s all we’ve got for in the show.

 

 Important Links

 

About Hunter Thompson

PILF 63 Hunter | Recession Proof Real EstateHunter is a full-time real estate investor, author of Raising Capital for Real Estate, and founder of Asym (“AY-SIM”) Capital. Since starting Asym, Hunter has helped more than 400 investors and has raised more than $50,000,000. Hunter is also the host of the Cash Flow Connections Real Estate Podcast which has received over 1,000,000 downloads.

 

 

 

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