64. What To Gain When Ditching The W-2 With Clive Davis

PILF 64 | Multifamily Real Estate

 

The decision to leave the corporate world in favor of a career in real estate is always a difficult one. When you finally decide you are ready and it’s time to ditch the W-2, take the leap because there is never a perfect time! This is exactly what Clive Davis did when he left a high-paying corporate job as an attorney to fully embrace real estate investing. He sits down with Jim Pfeifer to share his transition to a full time investor and how he navigates the many challenges this change entails. Clive also talks about the investment community he built where he provides a much-needed forum to share information and inspiration in the multifamily space. Listen in to hear from someone who successfully ditched the W2!

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Learning The Ropes Of Multifamily Real Estate With Clive Davis

I’m very happy to have Clive Davis with us. He’s the Founder of Park Royal Capital, a multifamily syndication group. Clive is also a Passive Investor, a Lawyer, an Angel Investor, and a Diversity Equity Inclusion Champion. He left a high-paying corporate job as an attorney to go full-time in real estate, which we love to hear people ditching the W-2 as we call it. Clive, welcome to the show.

Jim, thanks for having me. I’m glad to be here.

The first thing we usually do on this show is to hear your journey. I know you were an attorney in New York City, and now you are a syndicator, a passive investor, and all in on real estate. Can you talk about how you’ve got to where you are and where you came from a little bit?

My professional background is I started as a corporate transactional lawyer working for a firm in New York City servicing Wall Street clientele. That’s how I cut my teeth as a young corporate lawyer. I did that for several years, transitioned to being in-house counsel at the pleasure of joining Pfizer, and worked with them for six years.

Later in my career, I transitioned into the compliance world and ultimately became a Chief Compliance Officer for a Belgian pharmaceutical company, all in all, a twenty-year corporate run which ended at the end of 2016. That’s when I made the pivot and full-time transition to the large-scale multifamily pursuits that I’m involved in now.

However, for the twenty-year period that was my corporate life, I was investing in real estate from the very beginning. My first real estate investment was back in 1999. I invested in a duplex down in Florida. I was living in New York City. My parents had retired to Southwest Florida, Cape Coral specifically. I bought a duplex there, and that was my very first investment. Throughout most of my corporate life, I was invested in real estate, small-scale multifamily for the most part. It’s in the last few years that I have pivoted and transitioned to the biggest scale multifamily activities.

Can you talk about some of the real estate you were doing while still working on the W-2? In our community, a lot of people are working to transition to where they are not dependent on the W-2, which gives them financial freedom either you can completely get out of the W-2 or maybe decrease hours and all that. Was that a thought? Were you working towards that?

I was blessed to be relatively highly compensated throughout much of my corporate life. Real estate was always peripheral. It was never anything that I relied on. That first investment that I mentioned was a play for me to be able to assist my parents, who had retired back in ’96. I set that up. I have rent payments going into an account that they were included in and had access to it.

PILF 64 | Multifamily Real Estate
Multifamily Real Estate: In the years after leaving corporate life, those small multifamily holdings turned out to be a lifesaver for us. It helped us bridge the gap before the activities that we were engaged in took the momentum and jumped off.

 

I always saw the real estate value but it was never anything, at least during those days, that I relied on. I recognize the benefit of it, whether it was a single unit that I moved out of in New York City and continued to own, rent, and still own or a five-unit that I acquired right after leaving corporate life. I always had small multifamily and always saw that as a way of supplementing. In the years after leaving corporate life, those small multifamily holdings turned into a lifesaver for me. It helped me bridge the gap before the activities that I was engaged in took the momentum and jumped off.

Can you talk about your transition? How did you plan and decide, “Now I’m ready and have enough passive income?” or was it, “I have enough savings so that I can get through the time until I build up the passive income?” That’s a major question and challenge for some people trying to reduce dependence on their W-2 or eliminate it altogether. What’s the transition like?

There is no perfect time to make that jump. I don’t know of too many people who have planned it perfectly and had fully replaced their W-2 income and then made the transition. My story was more about accumulating savings that could carry me for some time so that I didn’t need to dive into another job or back into corporate life. I have lived most of my life below my means. Although I have been highly compensated throughout much of my W-2 life, I tended to live fairly modestly.

At the time that I left corporate life, I had no car. The only payment that I had was the mortgage on my primary residence. Anything else that I had was real estate that was either owned free and clear or real estate that covered itself through the revenue it was generating. I have no credit card debt, no car notes, or no lavish vacations. What was already a relatively humble lifestyle got period back to adjust for the fact that I was now in a position where I had more cash going out the door.

I would joke for the first time since I was eighteen years old. I was living in a situation where I had more money leaving the household than was coming in monthly. That took some adjusting and getting used to. It was a leap of faith. I’ve got to the point where I said, “If not now, when?” I was in my mid-40s and had always had this entrepreneurial itch, real estate interests, and not quite married those two interests together.

I’ve got to a point where I said, “If I don’t jump ship now, when am I going to do it?” It was a leap of faith. The safety net for me was that worst-case scenario, if this journey had not worked out, I always told myself, “I can go get a six-figure job. It may not be something that I’m passionate about or interested in but the family is not going to starve.”

It’s always nice to have that fallback. “You are making plans and burning the ships,” so they say. You left one in a cove somewhere that if you absolutely needed to you could go back to. That’s a good fail-safe. Talk about the journey since then. You are done with the W-2, and now you are a real estate investor. What was the decision, whether you are going to go passive or active? How did you make that decision? How did you get started? You were making a transition but how would you make money and get more passive or active income? What was the process there?

It’s all the above. The first thing that I did was I was sitting on legacy 401(k) money from the last employer that I had departed from and my prior company, Pfizer, that I had been with. I had gotten to the point where I said, “I was not confident in the stock market and leaving my money where it was to ride it out.” It’s because I knew I was going into this commercial real estate world, I stumbled upon a self-directed IRA. That was not something that I was familiar with in my corporate life. I, like most people in corporate life, had heard about, “You have got your 401(k). You can put up to a max.” It’s $20,000 these days. I don’t know what it was back then.

The beauty of self-directed IRAs is that you are directing where your investments go. There are very few limitations, options, or investment types that you cannot invest in. Click To Tweet

It’s up to $20,000 into your 401(k) each year. You have got $10,000 to $12,000 that you can put in. They generally recommend you put 60% here, 30% here, and the other 10% here. That was all I knew about retirement funds and what you could do with them. I attended a real estate-related conference where I first learned and heard about self-directed IRAs. It’s an IRA by another name. All IRAs are effectively the same but the beauty of self-directed IRAs is that you are directing where your investments go. There are very few limitations, options or investment types that you cannot invest in.

I learned that trillions of dollars are invested in self-directed IRAs, with probably 60% plus of it devoted toward commercial real estate. This was all part of my education, and I call it my self-directed real estate MBA. I had committed that I was not going to go back to school. I was done with academia. Nonetheless, I knew that there was a ton of education that I needed to expose myself to and immerse myself in if I was going to pursue multifamily real estate in the way that I wanted to.

One aspect of that was investing in my retirement dollars via my self-directed IRA into institutional quality opportunities. I happen to do that via a crowdfunding platform geared towards accredited investors. I started looking at and reviewing opportunities, pulling the trigger, and investing my self-directed IRA dollars into those investments. These were not investments that would generate cashflow for me that I would have access to because any monies, profits, and distributions would simply go back into my self-directed IRA and continue to be part of that plan.

I was more so interested in the long-term gain potential of these opportunities. It also afforded me the opportunity to learn, “How these larger-scale transactions are structured? What do investor relations look like? What does it look like to be on the limited partner side of these deals as a passive investor? What does good look like? Conversely, what does bad look like in this context?”

Beyond the ROI expectations that I have for each of these investments, I was also leveraging it as a way to become educated about these opportunities that I ultimately aspire to do myself, whether that was going to be 18 months or 2 years away, whatever the case may be. I used all of that as a learning opportunity in addition to the opportunity to invest and hopefully, made good returns on my investments.

Let’s talk about the self-directed IRA or dig a little deeper. I know there are a couple of different ways you can do it. Did you have a custodian? Did you do the checkbook control? There’s a lot of talk in our community about which is better. Checkbook control can accidentally get yourself into trouble if you are not super careful but sometimes it is easier because you have your own bank account and you make the investments without going through the custodian. Which way did you go? Did you evaluate both options?

At the time, I was not familiar with the checkbook control or the solo 401(k) options. The self-directed IRA made sense to me. I researched that, looked into it, and comparing that option to leave my money where it was. I made the determination that the greater flexibility, the ability to put money into deals that weren’t a cookie-cutter, pick one of these twelve baskets but rather invest in a sector and asset class that I believed in or made sense to me.

I did it via a custodian, and basically, the custodian handles the administrative aspect of the investment. They take care of the paperwork and will wire the funds out of your account to the sponsor for the particular deal. That’s the way that I went. I have subsequently learned about solo 401(k)s that grant you that checkbook option. There are clear benefits to doing that. There were even some tax benefits. I don’t want to go into a rabbit hole but there are some benefits to doing that if you qualify.

PILF 64 | Multifamily Real Estate
Multifamily Real Estate: If you did a more holistic assessment of your personal situation, you might make a different decision.

 

Every individual has to determine, “Do I qualify to participate in a solo 401(k). Do you have a business where you will be the sole employee? Do your circumstances a good fit for a solo 401(k)? Do you have the discipline to make sure that you are not running afoul of the rules of the road with respect to checkbook control and investments that you might make?” The self-directed IRA has worked for me. I’m probably going to end up with a self-directed IRA and a solo 401(k). That’s something I’m looking into now in terms of setting up a solo 401(k). Every individual has got to make a determination as to whether or not the particular requirements make sense for them and their particular situation.

I want to dip our toes into that rabbit hole and not go all the way down because it’s a journey. I did a similar thing where I started with a self-directed IRA and did have checkbook control. I started hearing about these terrifying things about UBIT and UDFI, which are basically, the investment you invest in uses leverage, you might end up paying a little bit of tax. I quickly rolled over my self-directed IRA into a self-directed 401(k). I guess the question I want to ask you is, since you have had this self-directed IRA for so long, have you had any experience in paying that tax that comes with using leverage on your investments?

I have not had any taxes due yet. I’m still awaiting some 401(k)s but this may be the first because I had several investments that went full cycle in late 2021 in the 3rd or 4th quarter. There’s that potential there. This is something that I have looked into. I have heard about UBIT and the downside of the self-directed IRA. One thing that has become clear to me is that a lot of folks who are marketing solo 401(k)s will overblow the extent of that downside. They will focus on what the stated potential taxable rate is. Where you should focus on is, what is my effective potential tax liability? In most cases, your effective tax liability is much lower than whatever the state.

I won’t try to quote the percentage for UBIT but let’s say it’s 30%. Your effective tax rate, which is more important and which is the percentage for you to focus on, is usually much lower when you factor in expenses that the sponsor will be looking to write off. For me, that’s what I focused on. The additional thing to take into consideration and again, everyone’s personal situation is going to be different.

If you have passive losses that you have to leverage, those losses can also offset any UBIT that may be due. You have got to look at your picture holistically. If you look at one component and do not take a holistic approach, you may make decisions that, on their face, seem to make sense. If you did a more holistic assessment of your personal situation, you might make a different decision.

That is good to know because you nailed it. The 401(k) people advocating switching from an IRA to a 401(k) for self-directed do focus on that UBIT and UDFI. They’ve got me scared enough throwing, “I’m going to transition to a different product.” I have been hearing people say the things that you said that, “It’s not as burdened some of a tax as it seems. It might not be cost-effective to make that change because these are expensive plans to set up.” It’s nice to hear that it might not be as big of a problem as you think. It might make sense to go beyond what the marketing people are saying and dig into your situation and see if you will have that.

I want to go back to crowdfunding. There’s a journey for many investors in our group where maybe they start with single-family homes, and they are active investors. They find out there’s passive, and maybe they first find out about some crowdfunding, and then they go and find out about on the syndications that we are doing more generally, which aren’t the ones on crowdfunding platforms. Can you talk about your crowdfunding experience, maybe which platforms you were using? What the returns and experiences were like as compared to investing in regular syndication as we think of it?

I prefer not to use the name of the platform. Suffice to say that there are multiple platforms out there. I can share a list of them. If you google crowdfunding platforms for real estate, you will get half a dozen, if not a dozen, names that will show up. They all generally function the same way and have some vetting process for the sponsors, deals, and opportunities that they allow on their platform. The platform that I invested through, which is one of the earlier players, generally has sophisticated sponsors who have substantial assets on the management, have done multiple deals, and rate each of their sponsors based on their tenure. They are experienced in the game.

You've need to look at your picture holistically. If you look at one component and do not take a holistic approach, you may make decisions that, on their face, seem to make sense, but actually don’t. Click To Tweet

If they are seasoned, you have an indication as to what makes them seasoned versus someone who’s doing their first opportunity, and that’s part of your evaluation. Generally, the sponsors will do a webinar where they will fully present the deal and open themselves up to Q&A. You will have an opportunity to ask questions. The platform itself has already done its due diligence to the extent that you can attribute any credibility to the platform. You can take some measure of comfort in that they have vetted the sponsors and the deals that going on those platforms.

In terms of returns, it varies widely and returns that I was seeing being offered back in 2017. They look much slimmer now than they did before. Generally, I would say that you were looking at anything between a multiple of 1.6X and 2X your investment. From an internal rate of return standpoint, most of the investments that I was in tended to be in the mid to upper teens, so the 15% IRR up to 18%, 19% IRR.

Most of these investments that I made were via my self-directed IRA, I did do some with cash on hand. For those that I invested with cash, quarterly or periodic distributions was the money that I would see. It’s between a 1.6 and 2 multiple was what you could expect, depending on the whole period of the investment. I have invested in ground-up development and existing multifamily.

I have also invested here in Atlanta and a portfolio of three hotels. There’s a wide variability depending on what the asset is. If it’s a development-type activity, there’s greater risk involved. With greater risks, you should anticipate, expect and demand greater returns. For example, I’m invested in a ground-up microunit development in San Francisco, which is a ten-year hold. That multiple is closer to a 3X multiple. It varies depending on the type of asset obviously, location, and the whole period.

Location, San Francisco that’s someplace that almost nobody wants to invest in because the market is difficult, and it’s California. I see you are also in Los Angeles, and it seems like you are in Washington, DC as well, with some of your investments. I know you are also in the typical Atlanta and some Texas stuff. Can you talk about how you pick markets and the difference between some of those expensive San Francisco, LA, and DC as compared to maybe Atlanta and some places in Texas?

In my personal business and what Park Royal Capital is focused on, my criteria are very different than what my passive investor criteria were years ago when I first launched into investing passively in deals. Park Royal Capital and what I’m focused on a day-to-day basis, I essentially exclusively focused on Georgia and, more specifically, the Atlanta Metro. These are for active opportunities, and large-scale, multifamily acquisitions that I’m pursuing.

In terms of my passive investing and markets that I have invested in, I have invested in states like Texas, Georgia, and Florida, which are considered landlord-friendly states. That’s certainly one of my criteria. As an active investor, I have only pursued opportunities in what are considered to be landlord-friendly states with a focus on the Sunbelt and even more refined and focused on Atlanta. Generally, when I was starting, I was much more looking at the type of deal. Would this be something that I would invest in? Would this be something that I would want to sponsor?

Whether it was a development opportunity in Austin, Texas, or San Francisco like I mentioned or whether it was a hotel portfolio within a radius of me where I live, there were other factors that I looked at beyond location alone. Some of the investments where I am now are investments with the knowledge, information, and education that I have gained since, I might not do the same investment now that I did a few years ago.

PILF 64 | Multifamily Real Estate
Multifamily Real Estate: Figure out what your criteria are and pursue opportunities that meet your criteria. Recognize that your criteria aren’t fixed.

 

As I said, I would not be seeking out an opportunity in California or New York to take out to private investors via syndication for example. We are talking about population and job growth. We know California is losing population to places like Austin, Texas. I’m invested in the ground-up development in Austin, Texas, now as part of the marketing of that 300-plus unit multifamily development. Silicon Valley, you can live and play in Austin and Texas. Keep your Silicon Valley pay and work remotely from Austin and live in a place that offers you a much lower cost of living than living in San Francisco or somewhere in the valley.

You do have an exodus of high income, salaries, and jobs out of places like Silicon Valley to places like Austin, Texas, and other places in Texas, the Sunbelt, Phoenix, and others. One thing that I recommend for any passive investor is to figure out what your criteria are and pursue opportunities that meet your criteria. Also, recognize that your criteria aren’t fixed. My criteria a few years ago are not my criteria now. However, if you are constantly keeping your finger on the pulse of what’s happening, you should be open to evolving and refining your criteria and making adjustments accordingly.

It’s a journey. Some of the investments I made a few years ago or longer, I would not make them now. It does not mean that they are bad investments or I didn’t know what I was doing but frankly, I probably didn’t know what I was doing. Now with the knowledge I have, I have been learning, I’m further on my journey and would not invest in those same things now. It’s great to see someone able to evolve and change. Your recommendation, “Figure out your criteria as a passive investor,” that’s fantastic, and allow that to change. You are a syndicator and looking mostly in Atlanta. Are you partnering with other operators? What deals are you looking for? Is it mostly in Atlanta?

Yeah, it is. I got awarded my first deal, and we ended up closing that deal in November 2021. That first one was a 244-unit that we acquired for under $30 million. Within a week or so of closing that deal, we were awarded a second deal, a 200-unit, over $40 million. Those first two deals have gotten the ball rolling. I’m trying to seize upon the momentum. With all of the relationships, I have established here in Atlanta having my boots on the ground here is part of the reason why I am focused on the Atlanta Metro. In addition to the fact that any list that you look at, Atlanta will probably be in the top three multifamily markets in the country.

You are going to see jockeying between some DFW markets, Phoenix, Atlanta or Tampa but, invariably, if you look at any list paying attention to strong multifamily markets, Atlanta is going to be high on that list. For me, having boots on the ground enabled me to be positioned myself as a partner who has boots on the ground, relationships, and the ability to do a lot of the heavy lifting that a partner who’s not located here might not want or be able to do.

On these first two deals, I have partnered up with partners based who are in Dallas, Houston, and LA. I take the lead role with respect to asset management, locate the deals, and underwrite the deals. We all come together and raise the capital we need for the deal. We all chip-in in terms of our expertise and experience. Me, being here on the ground, I run point and leverage my other partner’s experience whenever needed.

How do you vet those partners? How is that different than a passive investor vetting a sponsor? Are there similarities? Are there differences? Can you talk a little bit about that?

There are definitely differences. I tell people there’s probably not a week that goes by where I’m not imparting advice to people about the importance of making sure that there is an alignment of values and worldview when it comes to getting into bed with someone and becoming their partner. Typically, these deals are a 3 to 5-year hold plus or minus. The last thing you want to do is to partner up with someone who turns out that you are not a good fit for a variety of reasons. My story is not one of overnight success. Before I got the first deal, it took me two years before I landed that.

If you're constantly keeping your finger on the pulse of what's happening, you should be open to evolving and refining your criteria and making adjustments accordingly. Click To Tweet

This is me offering and submitting Letters of Intent, LOIs, to acquire properties. Being a runner-up, a bridesmaid, almost being awarded a deal but not getting over the hump of being awarded a deal. During that two-year window, I had an opportunity to establish a relationship with someone who agreed that we wanted to work together and partner. He was a more seasoned syndicator with multiple deals. He probably had 4 or 5 deals that he had syndicated at that point in time. In addition, he had also been heavily involved in some development-related activities in Dallas. He and I were chasing deals. He was my preferred partner plan A to the extent that I could find and secure a deal.

He would be my partner, provided he didn’t have a conflict of interest. He had another deal that he had landed on a similar timeframe or timeline track. Over the two years of chasing deals, underwriting, submitting offers, and filling out by questionnaires that gave me a real opportunity to get to know him very well and him to similarly know me very well, what made us tick, and our risk appetite. People underestimate the importance of alignment on that front because if you have a high-risk tolerance and your partner has a low-risk tolerance, that can be a source of tension. There’s nothing that brings out tension more than when money is involved and on the line.

To the extent that you were able to determine those things before you get awarded a deal, that is ideal. In addition to that partner that I mentioned, I met him in a mentorship program and each of my other partners that I alluded to earlier, I met in the same mentoring program. I knew that they had gone through the same multifamily education and philosophy.

I didn’t necessarily know them as well personally in terms of their risk appetite, their values, and things of that nature. Having the initial partner who had been chasing deals for a couple of years and an opportunity to get to know well was a solid foundation to then pull in other partners that either of us had some connection to our relationship.

That’s a great explanation of how you partner up. The alignment of values is critical in any partnership. I want to change gears a little bit here. We are getting towards the end but I know you started a community. Left Field investors, that’s what we are. We are a community and huge believers in the power of community to help people, beginners but also to help people who have been doing this for a long time. Can you tell us about the community you started? Why did you start it? What do you guys do in your community?

This is all pre-COVID. I started as part of that self-directed real estate MBA that I joked about. I started attending real estate conferences in person for the first time. For the first time, I’m attending conferences where an employer is not a foot in the bill. It’s not related to my W-2 job. This is my personal interest, and me saying that, “I need to get educated. Let me go to venues and seek out opportunities.” I started doing that.

I found that in a lot of these events there may be 500, 600, or 1,000 people in attendance. I was always disappointed at the representation of African American attendees. After one of those conferences, a handful of us that I had connected at one of these conferences said, “We need a way to communicate and share information and inspiration.” I seized the opportunity and preceded to set up the African American Multifamily Investor Network. The whole idea was to create a forum, a community, where we could share information, inspiration, and examples of people having success in the multifamily space.

Also, disabuse folks of the notion that large-scale multifamily is only for an exclusive group and insular. Diversify the picture of what it looks like when you think of a large-scale multifamily acquirer. I have set up that group. The size is now about 1,200 of us in the group. We have people who have never owned real estate whose aspiration is to do a house hack or buy a duplex and live on one side, rent the other, and that is the start of their accumulated wealth through real estate.

PILF 64 | Multifamily Real Estate
Commercial Real Estate Investing For Dummies

We have people on the other end of the spectrum who are doing portfolio acquisitions, where they are taking down 1,300 units in one transaction. We have both ends of the spectrum and everyone in between but the focus is on multifamily. It’s about empowering the community and curating a space where people feel they are seeing and learning from and being exposed to people who have a similar background to them. It helps them disabuse themselves of the notion that, “Large-scale, multifamily maybe it’s not for me.” On the contrary, our message is for you. There’s a community that you can tap into to help you in that journey.

There are all kinds of communities out there. I know it’s difficult to run and get one going. To set one up, help people get into it, and offer resources is great. I commend you. That’s a fantastic thing. The last question I always ask on the show is, what is a great podcast you listened to? It could be real estate or anything else.

I am a part of that education that I mentioned. I became a junkie of podcasts. I probably have about three dozen podcasts in a rotation that I’m listening to at any given point in time. I don’t have a favorite, and I get something different from them. I am going to answer the question and look for one now.

It’s like picking your favorite child.

It is. It’s tough. I’m going to give a shout-out to Peter Harris, who’s one of the co-authors of, Commercial Real Estate for Dummies. If you have seen that book in Barnes & Nobles or on Amazon, he’s the author behind that. He has a podcast. He’s a great educator. His podcast is the CPA podcast, Commercial Property Advisors, hosted by Peter Harris. That’s 1 of the 3 dozen that I have in rotation at any given point in time.

If people want to get in touch with you, what’s the best way they can do that?

I’m very active on LinkedIn and Facebook. You can reach me by email at [email protected]. You can reach out to me via text. I welcome text messages and email outreach. I pride myself on getting back to you within usually 24 to 48 hours, even if it’s to say I’ve got your message. Give me some time to come back to you.

I appreciate that. Thank you for being here. This was a great conversation. I appreciate it very much.

The whole idea of the African-American Multifamily Investor Network was to create a community where we could share information, inspiration, and examples of people having success in the multifamily space. Click To Tweet

Thanks, Jim. I’m pleased that I was able to join you.

That was a fun conversation. I always enjoy learning how people exit their W-2 to do something else, work for themselves, retire or whatever it is. Here’s one where Clive exited the W-2 and was relying on savings because had a high-paid job, and presumably, moving from New York to Atlanta, your expenses go down. He was able to live off in savings until he could generate more passive income. It sounds like he was in a lot of development deals. It took a while to pay off. He didn’t get the passive income set and then got out. He put money in the bank, got out, and developed the income afterward. It’s always nice to know that.

I also was interested in how he did his IRA because he used this as I did as a test. You are investing in things that maybe you wouldn’t invest in now that we know a little more when we have been on this journey for a longer time. Knowing that you are not going to use that money for quite a while, you can use it to test and make sure that you are doing the right things and in the right spot. I also thought it was interesting that UBIT and UDFI issue in a self-directed IRA, the marketers for the eQRPs and the self-directed 401(k)s are always hammering on that.

Maybe it’s not that big of an issue. Instead of doing what I did, follow along, and me, “I will get my self-directed 401(k),” maybe you sit down with your CPA or somebody and analyze your investments in your self-directed IRA and figure out, “Is this going to be an issue for me?” It was interesting. He said, “Sometimes your passive losses inside of your self-directed IRA can offset some of that UBIT and other things.” Those are things I didn’t know. Always consult your accountant about that but those are interesting things. Make sure you educate yourself before you make the leap. Sometimes what I do is I make the leap, and that’s how I get educated. That’s not always the best way to do it.

The other thing that Clive mentioned was to figure out your passive investing criteria. That sounds basic. You will have a plan to figure out criteria but too often, we see something shiny object, and we go invest in it. If you have a box where your investments fit in and something is outside of that box, it’s easier to pass on it if you already have those criteria. The most critical part of that, in my opinion, is to make sure your criteria change and grows with you, your education, your learning, with change in the market, all of those types of things.

It should not be static. It should be ever-changing. It was fantastic advice from him. The final thing that I liked that Clive said was to make sure you get alignment on values. This is something that seems obvious but too often, we get into business with people with that maybe we don’t have the same values as us, which causes conflicts down the road. When you are investing in a sponsor, talking to a new accountant, a financial advisor, any of these people, an attorney, people that we have in our lives, make sure to the best extent you can that you are comfortable with their values and they are comfortable with yours.

That way, that is one less conflict because, in business, there are always conflicts, discussions, and things change. If your values align, you have a much better chance of success in all of these relationships. I’ve got a lot out of that episode. I appreciate Clive coming on. We will keep in touch and watch him as his business grows. That is all for this time. We will see you next time in the Left Field.

 

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About Clive Davis

PILF 64 | Multifamily Real EstateClive Davis is the Founder of Park Royal Capital, a multifamily syndication group. Clive is also a passive investor, lawyer, angel investor and diversity, equity and inclusion champion. He spent four years as a corporate transactional lawyer in Banking, Real Estate, M&A and Securities with a global Wall Street law firm, headquartered in NY, NY, with assignments in Menlo Park, CA and Hong Kong, China. Clive spent six years as In-house counsel with a global pharmaceutical company, headquartered in New York and nine years in Atlanta as a Chief Compliance Officer of a Belgian biopharmaceutical company.

Clive holds a Juris Doctorate from the Columbia University School of Law and is admitted to practice in New Jersey, New York, and before the Court of International Trade. He holds a M.A. from SUNY at Albany and a B.A., with high honors, Rutgers University.


 

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