Welcome to our latest episode! Join us as we sit down with Patrick Grimes, Founder & CEO of INVEST on Main Street, bringing fifteen years of experience in the world of real estate investment.
Patrick’s hands-on approach has led to ownership of over 4000 units in emerging markets across Texas and the Southeastern United States. With a background in machine design and corporate experience, Patrick seamlessly combines his unique perspectives to create a winning formula for sustained success.
In this episode, Patrick discusses the evolving landscape of multifamily real estate investments. Explore the strategic aspects of debt investments in current market conditions and the pivotal role of diverse investments supported by an acquisition fund. Patrick shares insights on navigating the current real estate market and outlines investment strategies tailored to different income groups, emphasizing the importance of diversification.
Tune in for this episode featuring Patrick’s wealth of experience. Discover how his dual expertise in corporate America and real estate has shaped his success. Don’t miss actionable strategies and thought-provoking discussions that will deepen your understanding of real estate investment!
Get my new book: https://bronsonequity.com/fireyourself
See Full Transcript:
Bronson Hill: All right, so Patrick Grimes, great guy, raised tons of money for real estate, for alternative assets. We get into this interview about the new rules and kind of what’s happening in multifamily today and why you should consider looking outside of multifamily. He talks about debt funds and acquisition fund.
He’s got different things that he’s doing. And I think it’s really important that investors have a place to park cash where they’re staying ahead of inflation. So that’s what we get into on this episode.
Let’s jump in.
All right, welcome to the Mailbox Money Show.
I’ve got a great friend with me, Patrick Grimes, who we’ve been friends for the last four or five years.
I’ve actually just set his house this weekend, celebrating his son’s birthday. And he lives in a beautiful place right on the water in Southern California.
And excited to have you here, Patrick, how are you doing?
Patrick Grimes: Bronson doing well. I’m excited to be on your show again. I think this is round two for me.
So I’m feeling extra special today. Plus, I got to see yesterday. So a lot of Bronson.
Bronson Hill: Yeah, yeah, for sure, man. It was quite a fun party for your son. You had a snow machine there and you had a pizza maker and all kinds of fun stuff.
It was like a circus carnival in a good way. It was a lot of fun. So awesome.
And well, we’ve been buddies for a while. I know you’re somebody I connect with a lot and respect a lot of your opinion. You know, we’ve done deals together.
We’ve been talking about we’ve kind of, we talk quite a bit. Let’s just talk for folks. Like what are you seeing a kind of multifamily state of the union?
And we’ve kind of a very different place than we were a couple of years ago. Why don’t you give us an update on kind of how you’re seeing it and kind of the threats and the opportunities you see.
Patrick Grimes: Yeah, so it is the case that kind of the playbook from three years ago, five, 10 years ago, just isn’t penciling like it used to be. And the buzz is all around interest rates. But that’s actually only one piece of it.
You know, we’ve seen distress in commercial real estate overall and in multifamily because of interest rates compounded with a number of other factors. And when interest rates rise, valuations remain, they start to lower. And that means it’s harder to sell it your hoped valuation.
Meanwhile, it’s hard to refinance if you’re in the middle of a project and things are a little bit slower. We’ve seen expenses grow aside from interest rates. Well, inflation has driven as a product of code.
Inflation has been growing, which drives payroll. It drives a material cost. And those are some of the biggest expenses.
Natural disasters, especially in some of the markets that are typically more favorable in the southeastern states in Texas. We’ve seen those raised by 30 percent. And we underwrote conservatively five often times, you know, and that would be a very conservative number on double that taxes.
And we still have some lingering issues from covid, which are eviction backlogs. And right now in Atlanta, there’s 12000 evictions hung up in the courts and take up to 15 months to get somebody out when they stop paying. Can you imagine running a store where the people can just fill up their cart every day for a month?
And it’s like you’re complaining to the sheriff and 16 months later, they’re finally showing up to tell that guy they can’t come in anymore. And so it’s bizarre.
Bronson Hill: Yeah, yeah, it is an interesting time, but things have changed. And, like you said, costs have gone up. Interest rates have changed.
And of course, the bridge debt versus fixed debt, people that had fixed debt or were able to get a fixed debt for rates rose was was was a very smart move. So, I wonder what I really want to talk about today, too, is you know, you and I both the last couple of years, last year and a half have shifted to do a lot of different things.
Oil and gas, we’re doing EPMs. You’re doing you have a couple of different funds. You’re doing a debt and acquisition type of funds. I want you to talk a little bit about kind of what place you just talk a little bit about that.
Like what places that have an investor’s portfolio and what are some of the like these the debt fund is one thing. And acquisition fund is another thing. So maybe you just take a couple of minutes on each one and just kind of explain kind of how that works and why you like that field.
Patrick Grimes: Right. So stepping into this this year, we decided to retool. And I went through 2009 as this Bronson knows.
And I was heavily indexed in a new development and I lost everything during that time, the global financial crisis. So stepping into a recession, I’m looking for that opportunity. How to get the upside of downturns.
And there really is there is multiple ways to invest in real estate and debt is one and equity is another. Those are two different things. And we call it a capital stack because you’re capitalizing a property and the debts kind of the bottom and the equities at the top.
Now, since equities at the bottom, they have the first position. They’re much safer. Typically, the returns are lower.
And equities at the top, they have unlimited upside, right? You can win a lot. You can also lose a lot.
Right. So turns are reasonably higher. Well, it happens to be that right now in a time in a recession, a lot of investors are seeking to invest lower on the capital stack for lower risk returns.
Now, what’s beneficial about rising interest rates is that lower risk position, the debt side, instead of six, seven or eight percent on a commercial asset like a multifamily property or retail strip mall. You’re going to get eight or nine or 10 percent. And because the banks are struggling. And they’re kind of liquidity crunch for having issues with their bonds and deposits are leaving. We can do nine, 10 or 11 percent or 12. Some of our loans are 13.
So we’re seeing a lot of movement towards what we’re equity investors before moving into debt because it can be in a first lower risk position, but still pocket high returns and immediate cash flow. Not a ton of upside, kind of capped on the upside. So you’re seeing a little bit of emotion that way.
And so there’s really that if you look at the Tiger 21 allocation of their group of high net worth individuals, you actually see fixed income is actually a part of a healthy portfolio. Not everything has to be tax advantaged. Right.
Bronson Hill: Right. Yeah, well, it’s actually a really good point because, this is where now fixed income is actually starting to become attractive again. So there are bonds, there are our T-bills and treasuries that are paying five, six percent now.
And so this basically pays more than that, but they’ll be backed by real estate and they’ll be in first position and things like that, which I think is really interesting because when you have money coming in, it’s interesting, the investments we have that are higher upside or higher appreciation.
Some of those haven’t performed as hoped. And the ones that are just steady cash flow, it’s been really nice because you just get that steady cash flow.
And some of these debt funds as well, they allow not only are they in kind of a first or higher position for second position ahead of equity. They also, you know, they allow for cash flow, but they’re more liquid. Some of these are they have some liquidity components.
Can you talk a little bit about kind of just another way we’re not obviously pitching a specific deal, but how are some of these structured where they’re kind of like 90 days versus up to two, three years? I mean, there’s different ranges of that. And then you get a higher if you lock it up longer.
That’s but it’s kind of nice for an investor to park some money. If you’re like, I don’t know what to do right now. I think I’ll put it here.
Patrick Grimes: Right. Yeah. Carrying the debt conversation forward.
There’s really two problems that investors are looking to solve. They’re looking to take that money. They’re stashed away in a bank account, a CD, a retirement account, brokerage account, whatever.
They’re they’re worried about spending it right now. They don’t know where to invest it. And they know they’re losing with inflation.
So maybe they’re trying to find a high yield interest, a savings account, money market account. I still only giving you five percent. So where can they put it right now and beat inflation, but still be within reach, a short throw of it?
And so there’s 90 day notes you can just like in CDs where you can invest for short periods of time and seeing your secured notes and debt. You can invest for 90 days or half a year or a year. And of course, your fixed income return is lower, respectively.
But that solves the problem. Hey, you’ve got some money is put it aside and wait for that next bigger investment. Meanwhile, you’re beating inflation.
Or there’s the hey, I need an allocation of my portfolio that is in a lower risk, not a ton of upside, but a lower risk position, but happens to be a high return. You know, some of these debt funds are returning north of 10 percent, north of 15 percent right now because of how advantageous the market is to be a debt investor. Those are kind of analogous to the equity investments like two or three years ago.
So, you know, although it’s all about downside protection, but even the returns, if you can lock it up for three years, we’re seeing we’re seeing equity investors move their funds away from equity and into debt because they see that lower risk profile immediately realized annualized monthly payments.
Bronson Hill: Yeah, yeah, that’s that’s a big deal. And that’s the thing, too. I think people often don’t consider is just, you know, for what even like the Tiger 21 example of these high worth individuals, there’s a certain percentage of your portfolio you can put to different things.
So some will be like we do some like five or 10 percent of my portfolio is higher risk, you know, things that are 10 to 100 X type of things. Right. But I know that most of those will probably go to zero.
But there’s a there’s a part of my portfolio. Not everybody does that. I do that.
Other ones are saying, well, hey, at my age and, you know, if you’re over the age of 75 or something and you’re or 65, whatever age it is and you just need steady income and, you know, something like this can be great, just even as a something to hold for a bit longer. So but I think it’s really in my eyes the last couple of years, just the benefits of being a debt investor or being an equity investor at times or having some some debt investments because of the higher position in the stack. Can you talk a little bit about the acquisition fund that you mentioned?
Patrick Grimes: Right. And so the really good points there, Bronson, you nailed it. And Tiger 21 actually has a 7 percent allocation for fixed income.
And it’s funny because the wealthier you get, you don’t necessarily need to invest in all tax advantage assets. Sometimes you just need an allocation to know you have some income coming in when the market falls. And so I really, so as a, and mostly we’ve been in acquisitions, right?
That’s where about about 5,000 units and multifamily get some oil and gas. And so our pipeline of deals of distressed operators owning, performing assets, cash flowing assets but they’re financially distressed for all the reasons we described. They overpay.
They didn’t get long enough terms on their loan and it’s coming due at a time when all these costs are higher and they haven’t been able to execute on their renovation strategy because COVID or they ran out of money because of inflation, whatever it is, there’s a million reasons why they’d be holding these performing assets and they just, they need out. Now we, in that pipeline that we have, we’ve seen two things happen. One, some operators are like, no, this is a great asset.
I just need a transaction gap or bridge loan to get over the hump, right? And that’s where the debt fund comes in. And on the other side, it’s, hey, look, I’m out.
I want out. And the acquisition fund comes in and says, okay we’re gonna purchase it from you. It’s not gonna be at the same price or basis that you probably bought it at but we can move quickly.
And in those acquisitions funds in a time like now, if you look back in 2009 and 10 the people that made billions, they bought when you can buy right and make your return on the buy. And that means you bought at a great basis. It didn’t mean that you bought and hoped to get a return for three to five and five to seven years.
And so what we’re seeing is that in the acquisitions fund and the acquisition side today and I just published an article, the upside of downturns, recessionary acquisitions it’s really about making that return on the buy. But when you hold my crystal ball, I mean, I’m the engineer that’s the analyst and you’re a tech guy too. I don’t know what valuations are gonna do.
All I do know that the calculus of here’s a bunch of capital improvements to try and increase rents or occupancy to try and get a bigger valuation that’s not paying out right now. And so instead of holding, we’re acquiring all in cash very quickly and pulling out capital, buying another one and then 1031 exchanging forward and we’re gonna buy as many times as we can. And each time you buy, you stair step up your equity as opposed to holding and hoping and wondering what’s gonna happen.
And then the benefit of that is if we were doing what we did five, 10 years ago we would be putting investors capital in one deal and holding it in one deal for three to five years. I mean, miss this entire buying window which is the second most exciting buying window of my life. I missed the first one cause I was being raked over the coals but I’m not gonna miss the second one.
And we cycling through and acquisition after acquisition doing as much as we can while the buying is hot is what we’re doing.
Bronson Hill: So Warren Buffett, we quote him a lot on the show is be fearful when there’s a greedy and be greedy when others are fearful. And not that it’s necessarily a good opinion all the time to be fearful or greedy but in general, there are opportunities all the time. And often when we are most afraid and these things don’t happen in a vacuum, right?
It’s all rates are down on a deal of struggling. And so I don’t know, like, should I invest? Especially if people have gotten pinched I talked to one investor that had five multifamily deals that were in a capital call situations, right?
Just very challenged. So, you know, but at that time when, okay, maybe I don’t know, I’m kind of getting pinched on some of these multifamily stuff. Maybe it’s a great time to consider getting involved in multifamily level because that’s when deals are available.
And again, when interest rates are higher there are opportunities. And so you brought up the debt fund, the acquisition fund there’s also new things to be able to acquire in a time when most people are afraid. And so, you know, Warren Buffett talks about the best quality investors have is a temperament.
You know, having the right temperament. You don’t get frazzled, you don’t get chicken little the sky is falling or something. How do investors, I guess, how should they plan going forward?
Do you think multifamily will get more attractive than it is now? Do you think rates will come down? Like, what do you think are just good options beyond the couple things?
I think it’s very smart, the funds that you set up, the debt fund, the acquisition fund but what are some other things you think investors should consider or just be aware of right now?
Patrick Grimes: Well, I think if you’re not investing in the strategies of yesteryear, right? You’re not investing in the strategies of like the buy and hope, prove and hold. I think multifamily is very exciting right now.
I’d stay away from office, but I think retail and there’s a bunch of really great buys right now. And if you find the right opportunity that’s looking to win from the upside of a downturn more, then I think it’s absolutely a great time. Do I think rates will go up?
I don’t think they’re going to skyrocket. Larger macroeconomic data suggests that it’s not. The cost of interest rate caps is already starting to decrease.
The Fed’s signaling that it’s not and we’ve seen inflation begin to level off. And while the Fed says they’re going to, they initially said they’re going to continue to raise rates until inflation gets to 2%. They’ve also said there’s a neutral percentage that they’re going to get it to when they stop raising rates.
And what we’ve seen is that they’ve already signaled rates are going to level off. I don’t like betting on what the Fed’s going to do. And I’ve bet before on markets, leveraged huge, gone all in and lost everything back in 2019 and 10.
That’s why I typically think if you’re worried and you’re sitting on the sidelines and you’ve got a bunch of money in the bank and you’re worried, put it in some kind of senior secured or debt first position investment with low loan to value. I mean, you think about a 50% loan to value loan. If the market wanes by 15%, then the equity investors lost 32%.
But the debt investors lost zero. And if you can pocket high returns, that’s a way to ride this out. If I don’t necessarily be fearful when others are greedy and I challenge, I don’t think Warren Buffett was ever fearful or greedy.
I think he was, he’s just an analyst, right? He’s a boring analyst. He was probably like me and you.
An engineer just went back and then the analyst analyzed and decided, hey, there’s some good buying opportunities. And aside by the greedy and fearful, if you can come to grips with the fact that you may miss potentially the second best buying opportunity and you can move and you can buy right, then I think now’s the time to actually pounce on those opportunities in real estate. And even though they’re all assets, this is the exciting time for real estate, both debt and equity.
Bronson Hill: Yeah, it is, it is. It is a, there’s the idea of being a contrarian. I talk about this in my book a little bit about being a contrarian investor, that if you just simply follow the crowd, you’re gonna jump in in times that are not necessarily the best time.
I kind of look back on this. I try to reflect on investing and think about, there were times where it was like the easiest to invest, or it was easiest to find investors, right? Like it was just like everybody wanted a couple of years.
It was easier, but it probably was a time, there was more risk in the market than what we really saw versus now, it would actually be a lower risk time because some of the risk has been taken out that the cap rates are higher, or the interest rates are higher, things have to cashflow. It’s actually a better time, I believe, to be involved. What are some things that you focus on?
Are there indicators that you look at of just, if somebody wants to kind of be in the know of what’s happening now, what are some kind of things people should consider just paying attention to, I guess, as things are changing?
Patrick Grimes: Well, I guess it depends on what perspective we’re looking at.
Bronson Hill: Yeah, so I think, you’re right, it does depend who and what perspective, but I just think as a passive investor, the goal really is not, hey, I think as a good passive, it’s not just, hey, I only do multifamily, or I only do this, hey, I have this money, and how do I get a good return? How do I preserve what I have? So what are some considerations when it comes to that?
Patrick Grimes: Well, so when it comes to investing in the upside of downturns, right? That is where I think the investor should be focused. It shouldn’t be sitting on the sidelines, losing with inflation right now.
It’s how do you win for the opportunity? And I think it all comes back to, and I’m not an all in real estate guy, I’m actually an all assets guy, and that’s what drew me from my automation robotics, high in like leverage and high tech into real estate to begin with, and then all into energy, debt, and other things. So I go back to when I meet with investors, and I’m not a financial planner like you used to be Bronson or a CPA or attorney, but I’ve been doing this for a long time, and I look back at the data which suggests here’s how the middle class high income and ultra wealthy are investing, and our location strategies is really where you wanna be, and 25 to 50% of portfolios in the high income and ultra wealthy are in alt assets, and alt assets is in real estate and private equity, the Tiger 21, 26% is in real estate and 27 in private equity, and then there’s seven in fixed income or 6% in cash, and so what I do is I typically look at investors, and we have a conversation, and while I don’t guide them, I say, well, let’s compare to some of the benchmarks that are out there, and what that typically leads to is a conversation of, okay, let’s take certain percentage of your wealth, and let’s put it into a short term note, right?
Short term note, maybe 90 days, means you’re 90 days away from it at any given time or six months, right? And that provides immediate fixed income, that can compound, or let’s put a percentage of it, like you said, in higher equity, which are buying in a downturn for potential very high returns, right? Equity plays, and let’s put some into a longer term, debt position, and then we look at alt assets, right?
And you and I both have different alt assets. We actually have a completely new alt asset coming out next year, which I’m not gonna talk about yet, but you can have me on a third time, we’ll talk about that, but the alt assets, there are incredible ones, which Bronson’s involved in some great ones that are very much hedged against recessions, provide outsized returns and recessions, both tax-advantaged cashflow and appreciation. And we explore options such as those, and that’s what led us into energy, which is a different asset as well, that provides for that ordinary income loss.
So it’s a very much a specific conversation that I have, and it’s what I get to do, I love talking to investors and kind of guiding them on what I would do in their situation, I can’t give advice. But it’s very specific in those ways.
Bronson Hill: Yeah, we don’t give any advice here, of course. But yeah, that’s really good, man. Well, I admire you, I think we had you on the last, I think it was a couple of years ago, we had you on the show and you, we met, I think it was 2018, 2019, and you just like, you had a full-time job and you just started like going, like taking more gangbusters action than anybody had seen, as far as going after raising money for deals, and it was like initially like 10 million in 10 months, or it was like some crazy 15, it was some big amount, and now you’re raising a lot more than that. But I guess when it comes to that, because I look at that, it’s very much a personal development thing, right? You had a goal and you went after it.
And so I guess what’s something like from a mindset perspective that you would tell people, hey, here’s one thing that really helped me in the area of mindset that helped me to be such a big achiever, and now do all these big deals and be able to fire myself and leave my job and just do all the things that you want to do.
Patrick Grimes: Well, so just backing up before that, unsuspecting to Bronson, as I had already developed this large single family portfolio, I had already done development, and I have been doing machine design automation and robotics, which are large innovation projects, much higher risk profile and working with accredited executives. And so my take on multi-family was this was another application of similar kind of business models to what I had done, but a much lower risk and cash flowing and tax advantage. So when I stepped on the scene, said, Bronson, I’m going to buy a bunch of apartment buildings.
You didn’t see it coming, then I was actually going to go buy a bunch of apartment buildings after that. So, but yeah, it was really great to work with Bronson, see him grow and us do it together.
Bronson Hill: Yeah, it’s fun to see, I think there’s a point. And like you said, we don’t have to just simply leave your previous experience at the door. You had all this experience, and I’ve seen it too, with your automations background that you’ve been able to automate a lot of things in your business, which is amazing.
I mean, it’s a business, it’s like, that’s a great thing. You’re able to create a self-managing company that kind of has people and systems that kind of take care of things for you. So you had all that stuff you’re able to bring.
But then the other thing too, as Tony Robbins has a saying, he says, it’s in your moments of decision, that your destiny is shaped, right? So you made a decision, but I’m gonna do this, I’m gonna full board. And you just, you went 110% after it.
It’s really amazing to watch, man. So being your friend and watching you go through that, it’s just really fun to see. You just go out there and do it.
And really, you know, you just do an awesome job, man. So I wanna just really acknowledge you for everything you’re bringing to the financial space, to my life, to people and investors, and the content on your multiple, you’ve authored multiple books. So I just wanna say thank you for all the stuff you’ve added.
How can people get in touch with you and follow what it is you’re doing, brother?
Patrick Grimes: Well, first of all, Bronson, I’m just barely in your footsteps here with the content and the books, looking with your book. Thank you for signing. I’ve got your book right here.
And I didn’t mind sign, so everybody can be super jealous about that. So I’m pretty proud of that. And if you are interested in my lowly old book, Persistence, Pivots, and Game Changers, you can have a copy of that.
I purchased a bunch. It’s got a lot of great stories. Phil Collin, Lee Guitars, and Def Leppard, NFL, NBA players.
And I did a chapter, I tell my whole story and it talks about the journey, high-tech, development, losing it all, coming back, single-family, multi-family, energy, all kinds of stuff. And we give out a copy of that. And so if you would like to have a copy and follow us, you go to a passive investing mastery, passiveinvestingandthenmastery.com slash book. And just say that you mailbox money in the promo code and that you heard about us there and make sure you put that promo code in though because we don’t just, and I sign them and I send them out. So happy to share that with you. If anybody wants to have a conversation, you go to passive investing mastery and my calendar’s right there on the homepage.
It’s, since I’m full-time in real estate and left the engineering stuff behind, although I’m still a geek at art, I am full-time and I’ve been for a number of years now. And, but I love talking to investors. It’s part of the joys, being able to work with people like Bronson, as well as serve investors out there and then do good in the world and our investment products.
So I look forward to have that conversation. And if you’re interested in the investments, we have a couple open right now.
Bronson Hill: Awesome, man. Well, I just want to appreciate you for coming on the show today and I encourage everybody to reach out to Patrick, great guy, doing a great job in the investing space. And thanks again, brother, for being here.
Patrick Grimes: I just want to encourage everybody to reach out to Bronson, great guys in the investing space, doing really good stuff. All right, thanks so much, Bronson.
Bronson Hill: I pay you to say that. We just, we just talk well of each other. Thanks, brother.
Patrick Grimes: All right.
Bronson Hill: Appreciate you, man. Bye. All right, so my good buddy, Patrick, hopefully you enjoyed that interview.
Really loved talking with Patrick. I always learned something when I talk with him and just really appreciate, you know, one thing I liked about that interview kind of overall was kind of what I was commenting about, about that you can bring your past skills into real estate.
So like for people that own a business, a lot of times they’ve managed budgets, they’ve looked at numbers, they’ve done all these things, or somebody’s a physician, they have certain clinical or skills that are applicable that they’ve learned a certain thing, that you can bring those same skills of learning or the same skills of applying those things, not just to a medical profession or to a business, you can bring those into real estate. So there’s a lot of carryover from life into real estate, even being a passive investor. We talk about mailbox money, talk about firing yourself back behind me here in my new book.
You know, it’s important to continue to develop your skills and it’s important to realize what skills you have and really where you fit in that. So some people start and they passively invest, some people find deals, some people do like what I did and raise capital for deals and get involved in different ways. So my hope for you is that you got some value out of this and you are able to fire yourself or at least get started in the past with investing.
Check us out on social media. If you haven’t joined our investor club, go to bronsonequity.com. Look forward to seeing you on the next episode of the Mailbox Money Show.
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