Joel Block is the chief dealmaker for Bullseye Capital. As the CEO of a real estate hedge fund, they acquire distressed assets nationwide. He’s been involved in over 40 syndicated transactions through his career and he formed in 2012 a team to launch what’s referred called “Bullseye Capital Real Property Opportunity Fund”, which really deals with real estate, but beyond real estate, Joel’s a financial expert.
If you’re an investor in real estate or want to be an investor, this is a show you won’t want to miss. Joel really understands markets and I’m honored to have him here as a guest on Straight Talk Radio.
Tired of traditional talk? People pontificating about this or that? The left or the right? Sometimes the truth is just off lost in the noise. Having learned life lessons the hard way, Chuck Gallagher, international speaker and author, cuts through the noise to share truth through transparency!
Nationally-known guests talk about what’s important to you – your life, your concerns and your success. So tune in, turn on to Straight Talk with Chuck Gallagher.
Now, here’s your host, Chuck Gallagher.
CHUCK: And this is Chuck Gallagher with Straight Talk Radio and it’s always an honor to be with you guys and to have an opportunity to carry on some really interesting conversations. I think most of you that listen to the show on a regular basis know that years back, and when I say years you can kind of see from the gray hair, well, if you’re listening you don’t see the gray hair, but if you’re seeing it on YouTube you certainly would, but from the gray hair years ago I was involved in the financial services arena. I was a CPA tax partner in a firm and things were simpler then. It was an easier environment. I guess I came in kind of after the Carter years so I remember when interest rates were incredibly high.
In fact, I’ll never forget it, I think it was in 1980, my father-in-law died and my mother inherited a small amount of money, it was truly small, but she went to the Savings and Loan, when they had those back then, and put it in a CD that got her 12% interest per year for five years, and that was normal. The interest rate on a house was about 21% and very few people could actually afford it.
Then of course we came along to the Raegan years and things got, I guess, a little bit better financially, although in the ‘80s, and at various times we all have those fluctuations. So, if you’re young and you’re listening to this, you’re like, “I don’t know what this guy is talking about. I mean, I don’t remember Carter or Raegan or any of those people,” and you’ve just lived through the great recession of 2007, 8, 9, 10, 11, whatever years we want to call that and yes, it was bad. But those of us that have a few years under our belts understand that everything, like the ocean, the ocean comes in, the tide comes in and the tide goes out, and there are good times and bad times, bull markets and bear markets, and the question is “What are we learning from the experience?” Today we’re going to talk financial stuff.
I’m excited about this, because this is kind of like in my wheelhouse. My guest is Joel Block. He is the chief dealmaker for Bullseye Capital, and I kind of like that, chief dealmaker. He is a CEO of a real estate hedge fund. They acquire distressed assets nationwide. He’s been involved in over 40 syndicated transactions through his career and he formed in 2012 a team to launch what’s referred to or called “Bullseye Capital Real Property Opportunity Fund”, which really deals with real estate, but beyond real estate, Joel’s a financial expert. He really understands markets and things and how stuff works and I think the greatest value on this show is talking a little bit about how does it work? We’ve got people listening literally from coast to coast and everybody wants to improve their financial standing and we come up with ideas and we’ve heard of ideas, but how does it really work and what can we do? So, Joel, I am thrilled to have you on the show. Thank you so much for joining me today.
JOEL: Hey, man, thank you for having me. Nice to be here.
CHUCK: And, dude, I’ve got to tell you on the frontend, what a radio voice. I love it! Gosh.
JOEL: All right, listen, maybe we’ll do this together a little more often.
CHUCK: [chuckles] That would be all right.
JOEL: I had no idea, by the way, you were a CPA.
CHUCK: Yup. Well, we’ll put it this way, former CPA. Those that listen to the show know that, yes, I was a CPA and I screwed that career up royally, which gave me a little diversion to federal prison. Not something I am proud of, but something that has changed my life forever and gives me the unique opportunity today to talk to people about choices and consequences, because every choice we make has a consequence.
I think one of the things, Joel, to start this off is, this is kind of a blunt thing to say and it’s a little odd beginning perhaps for you on a radio show, but I know from my end that the one thing that was easy to do was sell a fraud. Now, what I mean by that was, and again, not proud of the past, but I did create a Ponzi scheme before I knew what a Ponzi scheme was, and there are certain things that make it easy to do, and I call it the P.I.T. There’s a promise, people are looking for something extraordinary, some way to invest their money, something that’s going to give them better than what the average person gets. The “I” part of it becomes an illusion. Now, in a real asset transaction there isn’t an illusion, but if it’s a fraud, there’s an illusion. Bernie Madoff created an illusion. He created fake documentation to support the idea that what he was doing was real. And lastly there’s trust, and when I say trust, trust from the perspective that the closer you are to people, and the more they feel that this promise and illusion works, and you can embrace the trust, the easier it is to get people to invest.
So I say that as a little odd beginning, because in the world you’re in you’re actually, through the creation of Bullseye Capital Real Property Opportunity Fund, you have created a real hedge fund or asset fund to invest in real properties nationwide that you feel and your partners feel are going to produce a profit. So tell us a little bit about how that part of it works and how you find people that are interested in doing that.
JOEL: Well, first let me– I don’t personally have any experience like you just described. I’ve never–
CHUCK: That’s a good thing. [laughs]
JOEL: That’s good. I’ve never been the subject of any kind of regulatory inquiry. I’ve never even had a shareholder lawsuit in 25 years. So, I mean, I’ve always, you know, been pretty straight. So, to be very crystal clear about that.
CHUCK: Right. So you’re the good guy. I get that.
JOEL: Well, listen, I think 98% or 99% are good. I think there’s a couple of guys that get a little out of control, they don’t thoroughly understand the rules, there’s not a lot of supervision. I operated in an unregulated area, which makes it probably a little easier to do some things that are bad. I teach a course twice a year to see CPAs, attorneys, investment bankers and others about how to set up these kind of organizations. There’s a piece in the middle of the program that I say, “If you’re somebody that has a hard time by keeping your hand out of the cookie jar, this is probably not a good business for you.”
JOEL: Because for guys that don’t have any self-control this could be really a problematic area. But people are gullible. Trust and gullibility kind of go hand in hand. When I think of Ponzi scheme, I think about people being gullible and I do some expert witness work. Attorneys call me regularly and they ask me, “Hey, listen I got a client that was ripped off by somebody who had this problem,” and it’s always about security’s matter. Things were– They invested money, 50,000, or 100,000, or 500,000. I’m actually in the middle of something right now that is in the high, near a hundred million and somebody did something to somebody they shouldn’t have done, and what’s my opinion? How does it work?
Ponzi schemes never are on purpose. I can’t say never, but they usually are not on purpose. They’re usually accidental. They happen in a lot of different ways. I counsel people who take my class on what not to do to prevent that from happening. So, just to be crystal clear, really important, if you’re going to be in this business for any period of time, you really have to be, really good and clean.
Back to the first thing that you said when you were talking about markets and how I got started, in the mid ‘80s. I came out of school in 1984 and started at the Price Waterhouse,, the CPA. I’m also a CPA, still licensed, although I haven’t done accounting work in 25 or more years, but I was doing tax work for the Price Waterhouse for a giant real estate syndicator, and I didn’t even know what that was at that time, but I just loved reading the partnership agreements. I hated doing the tax work, but I loved reading the partnership agreements.[Chuck laughs]
JOEL: I said, “This is the business for me. I want to be in this. This is a deal-making business and there’s a lot of money being made.” It just sounded great. So I left Price Waterhouse. By the way, I was terrible at doing taxes and accounting and if I didn’t quit, I’d have been fired for sure.[Chuck and Joel laugh]
CHUCK: Well, I’ll tell you, I was terrible at accounting, good at taxes. By the way, we’ve got about a minute to wrap this portion up, but let’s go back to you where you were with Price Waterhouse and the real estate.
JOEL: So let me just tell you that when you talk about good markets and bad markets, I’ll tell you that in good markets when the tide is in, everybody wins. Everybody makes money in a good market. In a bad market, and I would say that we’ve just come out of a bad market, we’re still in a mediocre and not-so-good market, only professionals make money. Almost everybody else loses. You got to really remember that. That might be some of the most significant investment advice anybody ever gives you. I will promise you one thing, I will tell you the truth, and the truth is that in good times we all make and in bad times only the pros make, and you can try, try, try and maybe through this interview I’ll explain some of the reasons why mere mortals don’t make money and professional investors do.
CHUCK: You know, Joel, I think, as we wrap up this first segment, and it goes so quick, I think that that is a great starting point for our next segment, because the reality of it is, you’re right, in a good market when everything is going right, of course people are going to be okay, but fundamentally, if I’m a betting man, and I don’t really bet, the markets aren’t rigged for the common guy. So, this is Chuck Gallagher with Straight Talk Radio and what we’re going to do is when we come back from our break, we’re going to talk with Joel Block who is the chief dealmaker of Bullseye Capital, and we’re going to talk about the markets and how that really plays into what the average person can do, who wants to invest and wants to protect themselves. We’ll be back in just a minute.[Commercial break]
CHUCK: And we’re back with Straight Talk Radio. This is Chuck Gallagher and it’s always a pleasure to be able to talk about something that’s a whole lot of fun and important for the people who are listening because in reality all of us want to make sure that we’re financially stable, that we’re prepared for retirement, that we’re doing the best we can with the assets that we have.
My guest is Joel Block. He is the chief dealmaker of Bullseye Capital and he really understands these markets. Joel, we finished the last segment with you saying, “When the tide’s in, when everything’s going great, everybody wins, but when it’s a bad market, only the professionals win.” What do people do who want to protect themselves? And how do they time those things or do they?
JOEL: Well, listen, the one thing, I tell this to my wife, my kids, is that the one thing that none of us can control is timing. We might know something’s going to happen, but we don’t know when. That’s one of the things that is very significant. I can’t really tell people what to do with their money and that it’s going to make it work for them. That’s what financial advisors do and other people. But what I can tell you is the difference between retail investors and professional investors.
JOEL: It’s really important and I hope that if people understand, because 99.9% of people are, certainly they’re retail investors. They’re just regular people that, they don’t do this for a living. They do whatever their job is all day long, they accumulate some money, they want to put it somewhere that works for them. Those are retail investors. They pay retail commissions. It doesn’t matter if you’re paying discounts at Schwab, you’re still a retail investor. You’re not buying wholesale, you’re not on Wall Street.
The biggest difference between what we do and what retail investors do is that we pretty much know in advance what’s going to happen before it happens. Retail investors, they guess, they hope, they wish, they think, they might. We understand the markets, we understand the neighborhoods. Again I’m talking about real estate because real estate is something that’s a little different than the stock market. But we understand markets, we understand neighborhoods, we understand a lot of things that other people don’t have access to. It’s not that they can’t access it if they wanted to, it’s that they don’t and they don’t recognize the importance of doing that. So, we’ll buy a house and we’ll have it sold before we ever pay for it. That’s a guaranteed deal because it’s sold before– Now, I’m not saying that that’s a Ponzi, because it’s not. The steps are that we get a buyer and then we close on the transition, we lock something up, we get a buyer, we close on it and then we do the second sale. So, at no time are we ever selling something that we don’t own–
JOEL: But we go and we find the person that we want to buy the house that we’ve just locked up before that ever happens. So, we know with 99% certainty what’s going to happen before it ever does. It takes a lot of skill to do that. You don’t get out of the bed in the morning and just say, “I’m going to try and see how this goes.” That’s one of the things that a lot of people don’t recognize. Sometimes I kid around doctors. They’re very intelligent people, they’re highly educated people, but sometimes they don’t give credit to other people for having lots of skills. Carpenters may not be a university skill, but let me promise you those people are highly skilled people.
JOEL: That kinds of skills are a [14:41] that are very hard. I can’t do any of those things. I do what I do very well. I can’t do any of those things. So I said I like to kid around that none of us wake up in the morning and say, “You know what? I think I’m going to do a brain surgery today and just see how it goes.”
JOEL: But yet, other people, doctors and others who will say, “Listen, I’m going to flip a house. How hard can it be?” Let me promise you, it’s very hard. It’s not hard to do it wrong and it’s not hard to make no money, but it’s really hard to consistently make a lot of money.
CHUCK: So, Joel, let me ask you a question, okay? And I’m going to be the retail guy, okay? So I want to flip a house, hypothetically. So what I do is I’m going to go out and I’m going to start scouring the market. Well one, I need to find a house that is a good asset purchase. Perhaps undervalued, but yet sellable. But my perspective would be – if I’m going out and looking, you’ll have already found that house before I even have a sniff that it’s a possibility. Then when I do find something, I’m spending time trying to fix it up and perhaps I’m putting more into it than is required to be able to turn around and sell it. And third, I’ve got to find a buyer, but I’m not in the buyer-finding business, which means I’m probably finding a Realtor who’s making money on the purchase and the sale, but I’m the one at risk. So how do you do this when the person flipping it I think I just described?
JOEL: Well, listen, those three things that you said are all a 100% right and there’s about ten more that we can add.
CHUCK: [laughs] Okay.
JOEL: There’s a whole bunch more reasons. One of the first things is that a retail person who wants to try to be involved in real estate needs to do, and this is not a real estate conversation per se, it’s really more of an investing conversation–
JOEL: The first thing you got to understand is who’s on your side and who’s in your pocket. Realtors are not really on your side. They’re not on the sellers’ side, they’re not on the buyers’ side. They’re on the deal side. They’re rooting for the deal to happen, because when the deal happens, they get paid. That’s how it works. Number one, you’re paying lots of fees. Now, we do pay brokers, by the way. Brokers provide a very important function and they do know a lot of things, but it eats into your profits. Now, 3% or 6% may not sound a lot, but you get paid on the whole amount. Think about this, if you’ve got a 75% mortgage and 25% cash, which is kind of normal, 6% is really 25% of all the equity in the whole deal.
CHUCK: Wow. Okay.
JOEL: Look at kind of from that perspective. You get what I’m saying, right?
CHUCK: Right. Absolutely.
JOEL: You start to think about what they’re getting. It’s a lot. I’m not saying that they don’t deserve it and I’m not saying anything about Realtors, because we deal with them. I’m licensed in California myself, although I don’t take listings and I don’t do those kind of representations, but you have to think who’s in your pocket. Even the attorneys. Do the attorneys entirely help you the way you want them to help you? Even CPAs. I mean, everybody’s got an agenda, and part of the thing that’s very difficult if you don’t do this all day long, is understanding who’s got what agenda? What is that agenda? How are they going to help me? Where is it? It’s very, very difficult for retail consumers to figure these things out. It’s just terribly difficult and I don’t have a good solution, but what I do tell people is that most activities are a team sport. You’re going to do a lot better working with other people.
Now, there’s different ways to form teams. You could have somebody who’s really good at looking for properties on your team, somebody who’s better at selling properties on your team, you can have a contractor who’s really good at fixing stuff on your team. So you got, different people that could participate. You got to make sure, though, that everyone’s on the same side of the table, and here’s what that means. If you hire a contractor and the contractor’s going to get $20,000 for doing a whole bunch of work and then he says [18:40] and it adds up to $30,000. Does he get paid for showing up and doing the work or does he participate in the profit? So that he’s smart about how he does whatever it is that he’s supposed to do. And it’s really, I think, a problem. Somebody might say, “Well, Gee, we should decorate the bathrooms, and we should redecorate the bedrooms, and we should redecorate all the other things, do all these different things and…” Some things yield profit, some things do not.
I will tell you that we don’t hardly ever renovate anything. We buy at deep discounts and then we resell to somebody else who wants to do the rehab, because rehab, there’s a lot of risk in a rehab, it takes more capital, it takes a lot of time, you’re subject to all kinds of possible zoning issues and there’s a lot of issues involved in doing a rehab. So we really don’t do it, unless it’s an apartment building, unless it’s larger. If it’s a small home, we won’t even do it. We do what’s called wholesaling, which is we will buy the property one day and we’ll sell it another day. We have a whole group, it’s called arbitrage. We buy one day and we sell the next day and we have a whole engine that does that.
CHUCK: Now, I have to assume from what you’re saying, Joel, I’m sorry to interrupt, but I have to assume from what you’re saying, that goes back to the comment you just made, which is you need a team, because fundamentally, if I’m hearing this kind of right, if I was the investor, then really what I’m looking to do is take my capital and put it to some financial use. I want to take my 25,000, leverage it with the 75,000, buy the $100,000 house, turn around and sell it for a 120,000 and you’ve got a team, I’m gathering, put together that finds the house and finds the buyer so that that $20,000 profit can be generated in my hypothetical example.
JOEL: Yeah. But let me go on. There’s a few more things. One of the things people never think about is if you buy a house for a 100,000, you put 20,000 in it, now it’s worth 130,000 or whatever the number is, or 140,000. To pay your Realtors, that’s another 10,000, and you made 5,000 or 10,000 yourself, whatever it is. Plus, there’s probably a cost of capital. You’ve got to factor in everything. Cost of capital how much time did you invest in the deal? How hard did you work on it? And the reason that that’s important is because if your goal’s to give yourself a job, that’s fine, no problem, no hard feelings about that, but a lot of times when you take a step back, what you find out is that all you’ve done is give yourself a job and you’re making $10 or $20 an hour and if that’s what you want, then that’s great, but a lot of people are disappointed to find out that they’re not really making that much money on a time basis, if they think about how much time. So the question you have to ask up front is do I want to be an active investor or do I just want to put the money to work? Are you looking for a job to keep you busy or do you want the money to maximize its opportunity? And if the goal is for the money to work, then you might want to consider being a passive investor in something like what we do, where we just do the work and we get 40% of the profit and you get 60% of the profit, they get certain advances upfront, but you got to think, is that the way I want to go or do I really want to do the work? There’s reasons that you might be on either side of the coin. Some people are right for us and other people are not right for us. We tend to work with people that are a little more well-healed anyway.
JOEL: Just in general, those opportunities are really for a certain sector of the economy. That’s not because I set the rules, that’s because how the government sets up the rules.
JOEL: They don’t want everybody doing that.
CHUCK: So, since we’re coming up on a break, let’s do this. Obviously one of the things, and I think that is really critical, is am I an active investor? Do I really want to do this stuff? Or, do I want to put my money to work? And I think that’s a great question and something that when we come back, we can talk about. So, for those people, I’m going to use your doctor example, for those doctors that say, “Well, you know, I have capital and I want to put it to work,” how do we make that part of it happen and what are opportunities that make sense outside of being the retail person that thinks they’re going to be the brilliant stock trader? This is Chuck Gallagher with Straight Talk Radio. My guest is Joel Block. He is the chief dealmaker for Bullseye Capital. Joel, it’s been a great conversation as far. Those of you that are listening, hang with us, we’ll be back in just a moment.[Commercial break]
CHUCK: This is Chuck Gallagher. We’re back on Straight Talk Radio and my guest is Joel Block, the chief dealmaker for Bullseye Capital. Joel, when we finished the last segment [chuckles], I thought it was kind of interesting, one of the things you, you end these things really nicely, one of the things you were talking about is, okay, so I’ve got capital. Do I want a job? Do I want to physically get involved in doing this stuff or do I want a return? My guess is that probably somewhat separates, I’ll call it, the men from the boys, or the professionals from the amateurs. So give me a perspective of those two things.
JOEL: Well, listen, number one, you have to decide do you want to put your money to work or do you want to work? A lot of our clients are doctors and I respect them greatly, not only for the great work that they do, but because the ones that we deal with, we have a great relation all of us together. We deal with athletes, celebrities, all kinds of people. What they recognize is that their highest earning power is doing whatever they’re trained to do. The doctors are making $400,000 or $600,000 a year or whatever it is, but a lot of those guys are in surgery right this minute being mad that their money’s not working as hard as they are.
JOEL: And that’s a frustrating thing to a lot of those guys. If the doctor starts thinking about buying a house or rehabbing it and he starts thinking about his hourly wage based on how much money he makes, real estate doesn’t yield that much money most of the time. If you start doing fixer-uppers and flippers, now, if you don’t have a job, and this is kind of you’re going to create yourself a little business, this is a pretty good one. It is a pretty good business. But if you don’t have a stated capital and you don’t have a better alternative, that’s one of the ways you want to think about what to do with yourself. But I would tell you that for people who decide to be active in real estate, there are some important things that you need to know.
JOEL: Some hard truths, if you don’t mind me being very forward about that.
CHUCK: No, that’s– Absolutely. That’s what Straight Talk Radio is about, buddy.
JOEL: Well, I guess I’ll give you some straight talk then, how about that, you know?
JOEL: You talk about ethics and other kinds of things, keeping people on a straightened arrow. All investing, all investing, in fact, almost everything, it’s not just investing, it’s almost everything, is rigged. It’s rigged for somebody and not for somebody else. If you look at politics, I mean, all these things, they’re all set up to favor some side or another. So let me tell you how these things are rigged, and when I say rigged, I don’t mean illegal. I just mean that you don’t really have a chance and I’m going to tell you why.
You started to mention some of the things very early when we started talking, but let me give you a few more things. This is a great example. I was in on an airplane some time ago and I’m talking to some guy and he says, “What do you do?” and I said, “I’m in the real estate business.” And I tell him that I run a fund and we buy distressed assets all over the country. We’ve got a team, we’re out there doing this and that. And he says, “You know, I’m looking to buy an apartment building myself,” and I said, “Really? That’s fantastic.” I said, “If a real estate broker got a call from one of his clients and the guy said, ‘Look, I’m in terrible distress. My business partner’s cheating me, my wife is leaving me and the government is chasing me for some money, they’re going to put a lien on my property any day now. So I got this property over here at First and Main Street. It’s worth a million bucks, but if you can find me a buyer by Friday, I’ll take 600,000 in cash, because otherwise the government’s going to put a lien on it.’” I asked the guy on the airplane, “Who’s the real estate broker going to call? Is he going to call you or is he going to call me?”and the guy got really mad.
JOEL: I mean, he got really upset, like, “What do you think? Just because you run a fund, my money’s not as green as yours?” and I said, “You know what?” I said, “Your money’s not as green and I’m going to tell you why. And I’ll tell you this and this.” Everybody needs to put themselves into the shoes of the guy on the airplane and you’ll understand all of these things. I said, “Number one, who’s been feeding deals to that broker all year long? The doctor or the guy on the airplane or me?”
JOEL: Probably someone like me.
JOEL: The way it works in the United States and all around the world is that people trade favors. Listen, you were nice to me, I’m being nice back to you. So that’s number one. Number two, brokers are in it for the commission. They’re not in it for fun and games. Who’s more likely to close? Okay? Well, I may or may not buy the property, but I can give the guy a “Yes” or a “No” in 30 minutes. My money’s all in cash. It’s sitting, ready to go. That guy’s money’s probably in a stock broker house. He’s got to sell some stocks. He’s not ready. Maybe only has 200,000 out of the 600,000 that he needs. He’s probably got to go borrow some money. That money’s not going to be ready immediately. So the truth is the guy’s not really organized to take advantage of an opportunity like that.
Here’s another couple of things. The broker calls and says, “Okay, we’re going to be having a due diligence meeting at the property. So you do your inspection of the property on Thursday at 2 o’clock.” The doctor says, “No. Listen, I’m sorry, I can’t be at the property Thursday 2 o’clock. I have surgery. How about a week from Friday at 4 o’clock?” “Well, the deal’s going to be gone by then. I can have five people at any city tomorrow morning at 11 o’clock in the morning if I need to. You know what I mean?” We’re organized for things to happen. Retail people are not organized for it.
CHUCK: That makes sense.
JOEL: You get what I’m saying?
JOEL: And then there’s always a little [28:43] “Hey, listen. I’m going to give you this special deal, but you know you’ve got this one friend I’ve been wanting to meet. Can you arrange dinner for all three of us?” There’s just these all kinds of things, none of them are improper, none of them are illegal, we’re not doing anything that’s wrong, it’s just I circulate in a network of people who know more stuff that other people do for my particular area. I don’t circulate in other– It always amazes me. We have friends that are fireman and then they seem to have great comradery. One guy needs to build a brick patio and so all the guys come out this Saturday, and then the next guy needs to build a, I don’t know, a deck the next week and all the guys go to that guy’s house, so they all help each other and they end up with really nice stuff at their house. And I have to go pay retail, because I don’t have any friends that do that sort of thing.[Chuck laughs]
JOEL: But we all have our advantages.
JOEL: We all have something going for us and you got to recognize what is real for you. People who are more realistic are more successful. People who are less realistic and hope, wish, think, guess, and all the things that I said retail investors do, those people are less successful. Then they turn around and don’t understand why. Well, I’m telling you why. It’s because of all these reasons; that we bet on sure things and we don’t hope and guess, we strategize, we plan, we organize, we have teams of people. We’re organized to do everything we need to do, and it’s all we do, all day long and we’re very good at it. We don’t stray away from doing these sort of things too much either. I mean, we’re pretty clear about what we’re good at and why we do these things.
I don’t want to scare people away from trying things, but on the other hand I think you need to be realistic about what’s possible. The possibility of most people, starting to get in the wholesaling or flipping business like it shows on television, it’s just life doesn’t work that way. It just doesn’t exactly work. In fact, in Los Angeles where I am, the saying is, “That reality [30:41] means anything but.” I mean, I don’t know how they make those shows, but they’re not entirely real.
JOEL: It’s still television. You know.
CHUCK: [chuckles] Yeah, yeah. You sit and you watch some of those shows and there’s camera shot from some tree somewhere of somebody doing something and you’re like, “Okay, wait a minute, how the hell did they get that shot? There had to be a camera there, which meant there wasn’t anything real about it to have captured the shot in the first place.”
Joel, one thing you say, and I know that your primary focus is real estate, I really do understand that, but I would have to say what you just said probably applies in truth to most investments, because the true money that’s made, even if it’s Wall Street on the stock market or in some form or fashion is going to be made behind the scenes, putting the deal together and creating something before it ever becomes a retail stock that somebody can go to e-trade and buy.
JOEL: Unfortunately, listen, I’m not in the stock business, but unfortunately we all know this. Stuff gets cherry picked and then the drapes fall down. I don’t know what retail people buy here and there. I know in real estate that I’ll pick up that building for 60 cents, that I was talking about before, 60 cents on the dollar, and I’ll flip it to the guy who is sitting on the airplane for 90 cents and I’ll make more money in five days than he’ll make in five years. And that’s just how it is. So what’s that guy’s alternative? What can that guy do instead? How can he actually be in the game? Well, he can recognize that he probably can’t beat me at the game, because just the nature of how things are–
JOEL: He’s got to be on my team and we can share the money together. That’s for a lot of guys, that’s not a strategy that works for everybody, but a lot of people will say, “You know what? I want to invest in a hedge fund,” which is not the same as a RIEF. RIEFs are very controlled, they’re regulated, they do things different than funds like ours do, but for the right people, that guy could say, “You know what? I’d much rather be on a team with people who know what they’re doing and take a percentage of the money than try to do it all by myself, which takes a lot of time, a lot of energy and I probably won’t make any more anyway.”
CHUCK: Okay. So, Joel, in the two minutes that we have in this segment tell me if Chuck wanted to be an investor on your team, what are the requirements that either you have or that the SEC requires in terms of being able to make that happen?
JOEL: Well, actually this is going to be a great segue into the next part of our discussion anyway, but the government set up rules a long time ago. I can tell the story about where those rules came from, but the government set up rules that, for the most part we have to deal with people that are called accredited. Accredited investors are people that either make a couple of hundred thousand dollars a year, either two hundred or three hundred if they’re married or not, or have a net worth of a million dollars or more. Now, a couple of hundred thousand on the coast is not all that much money, but a lot of people in the middle of the country don’t make that kind of money because it just costs less to live, but a lot of those people might own farms, they might own ranches, they might own all kind of things, so they have a lot of net worth because their families have been accumulating things for a long time.
So, there’s about I think it’s about nine million accredited investors in the United States. Those are people that meet that requirement. That’s only about 3% of the population. Then the other 97% really are somewhat required to go into other kinds of assets, but that’s changing. I’m happy to share how that change is coming up when we keep going.
CHUCK: All right. One of the things, I appreciate the– It’s an interesting conversation because if only 3% of the country is accredited, that means there’s a lot of people out there that are looking for something that they can do that is going to give them at least a fighting chance. My guess is that’s the majority of people who will be listening to the show.
This is Chuck Gallagher. This is Straight Talk Radio. We’re having a financial discussion with Joel Block. He is the chief dealmaker for Bullseye Capital. Bullseye Capital is a hedge fund that deals with distressed properties nationwide. He has 40 syndications throughout his career. This is the real estate guru if you want to talk about things like this. But we’re going to take a quick break. We’re going to come back and we’re going to talk about but what can we do for the other 97%? This is Chuck Gallagher. Stick with us.[Commercial break]
CHUCK: So this is Chuck Gallagher with Straight Talk Radio and the question, the burning question, is what happens to the other 97%? Now, if you [chuckles] if you haven’t been tuned into the show the whole time, my guest is Joel Block. He is the chief dealmaker with Bullseye Capital. Joel’s involved in the real estate segment of the market, put together the Bullseye Capital Real Property Opportunity Fund, which is a real estate hedge fund that acquires distressed multifamily and commercial assets nationwide.
But, Joel, we were talking that only 3% of the population of the United States technically is a suitable candidate to invest in your hedge fund so that begs the question what happens to the rest of us, the 97% that say, “But we’ve got some assets to invest. We just don’t happen to meet the requirements that the government has established to say we can play ball with you”?
JOEL: Let me give you a little bit of background, a little bit of history on where this all comes from. I think that understanding this will help people to kind of appreciate it. It may not make them like it any more, but it’ll certainly help them to understand it. In the 1920s, you had all these con artists and hoodlums around town telling widows and orphans that if they had $20 that they would turn it into $500 and they’d be set and life would be great for them. They would collect all these 20-dollar bills and they would run away.
JOEL: And then the stock market crashes in ’29 and you’ve got all these people who are destitute. So in 1933, in 1934 the government sets up the Securities and Exchange Commission, SEC. Basically that agency was set up to monitor all transactions where stock is being sold to the company. They basically set up rules that said, if you want to sell stock in a company, then you’re going to get audited, you’re going to get attorneys involved.” That’s why these giant aid accounting firms, that’s where they came from, to audit all these companies and that’s why you go certain giant legal firms, because these giant corporations need all this legal service. And so, that’s kind of where all these things came from.
But the entrepreneurs of the day, in the early 30s, would go to the SEC and they said, “Listen, this is a terrible idea because if you force all of us to have to have audits all of these things, you’re going to stifle motivation, you’re going to slow down the growth of the country and it’ll just be terrible,” and the SEC said, “You know what? You’re right. So we’re going to make an exception. We don’t want little people ripped off. We got to protect little people, but if you’re a millionaire” or whatever, I don’t know what the standard was at that time, “but if you’re a substantial person and you can call your own accountant, you can call your own attorney, and you can sustain a loss, then you can invest in anything you want and the government of the United States will just be hands off.” That’s what the rules are.
JOEL: That’s why we have to deal with accredited investors. Now, we can take in a couple non-accredited, a small number of them, family members, brothers, sisters, people you know that you know they’re pretty– They may not totally meet the standard, but they’re not– It would be improper and it would be really bad for me to take the last dollar somebody had and I would never ever do that. That would just be a terrible thing to do. That’s the reason I’ve never had any regulatory problems or otherwise, because I deal with the right kind of people and I know who they are and that’s just how it works.
JOEL: These rules have stayed in place for 80 years.
JOEL: Until 2012 when they made the biggest change in the securities laws in 80 years and those rules are the adoption of the JOBS Act, the Jumpstart Our Business Startups in 2012. You know what that basically did is on the heels of this terrible recession, the president and the Congress wisely said, “We have to do things that are going to help little companies have access to more capital. We got to figure out ways.” So they came up with these rules. They’re controversial rules and they’re still not all implemented. Basically what the rules say is that little businesses can now crowdfund and here’s what crowdfunding is. I’m not talking about Kickstarter and you want to make a movie. On Kickstarter somebody wants to make a movie about dogs, so they find all the people who like dogs. They say, “If you put in $20, then I’ll have the money to make the movie and then when the movie’s made, I’ll give you a copy of the movie.” That’s called “make a donation and I’ll give you a reward”. Donation and reward.
JOEL: But that’s not equity, that’s just a donation. And there’ve been a couple situations in the last, well actually, it’s happening almost every week now, but about a year, a year and a half ago, this company comes out called Oculus, and Oculus makes these video goggles, these–
JOEL: Virtual reality type goggles and they said, “If you want a pair of these, we haven’t invented them yet, but we’re going to, give us $250 and when they’re made, we’ll send you a pair.” So they collected about $250 from like 10,000 people and a couple of million dollars. And them some venture capital company calls them and says, “Gee, this is incredible. What are you doing?” “Oh, well we just crowd funded two and a half million dollars,” and they go, “Wow, we’d like to throw a little money in the pot.” They put in fifteen million. So they’re doing whatever they’re supposed to be doing and then they, sometime later, get a call from Facebook and Facebook says, “What are you all doing?” “Well we did this crowdfunding campaign and it went great. Then we got a bunch of capital company, it’s going great,” and Facebook says, “You know, we’d like to buy this company,” and they gave them two billion dollars. Two billion dollars. The people who have made the donations were pretty unhappy about this because number one, they didn’t participate in any of the two billion, and so each 250 would have been about $40,000 by the way.
JOEL: Except [41:12] was listen, “Crowdfunding is like, we’re supporting your effort. We’re part of your community. We didn’t give you the money to monetize and make you a billionaire. Now, we gave it to you for a different reason.” And this is happening now every week for companies that went on Kickstarter, or IndieGoGo, or any one of that kind of sites are turning their ideas into hundreds of millions of dollars. People are a little bit tired of this. They’re a little bit unhappy. “Wait, I’m donating and you’re getting all the money. There’s something wrong with that.” It doesn’t appeal to the fairness that we all understand, that we all learned in kindergarten. You know, we all have a certain sense of fairness we learned when we were five years old.
JOEL: So [chuckles] you know? So currently but coincidently the Congress and the President in 2012 had come up with these new rules and they basically say, “Listen, for little companies, for a little capital raises, you don’t have to go through all the trouble like the SEC set up. We’ll set up something where you can crowdfund and sell stock at the same time. See, you can sell stock to the crowd.” Now, that’s not totally legal yet. You can’t do it. It’s actually in process. But imagine the impact. You’re a dry cleaner and you need to get all the equipment, you’re not going to sell stock of your company, but you might borrow money, you might say, “Listen, I’ll pay 12%. I need a hundred grand,” and a hundred people each put in a thousand. Listen, so if you’re somebody who– You got to keep most of your money in a place like the stock market, which is safe, maybe in a mutual fund or whatever your financial advisor tells you to do. You might keep it safe, but they might take some small percentage of your money and put it into things that yield a little bit more money. So maybe a 12% loan to a dry cleaner, maybe a 10%, investment in this, whatever. So there are going to be opportunities that are on the horizon in the crowd funding environment that are very exciting. They’re not guarantees and you don’t want to put your life savings in these things. You’ve got to be very careful, but opportunities that don’t exist for non-accredited people, which is almost all Americans by the way as you already noted–
JOEL: They’re on their way. They’re on their way for sure. Just be a little patient. One of the things that– We just have to be a little patient and it’s going to work out.
CHUCK: So fundamentally, as we start to wrap up the show, it’s a fascinating discussion because everyone, fundamentally, wants to make sure that their money is working for them and quite frankly, you know this, most Americans don’t have their money working for them. In fact, the generation that I’m in, the baby boom generation, excluding what might be inherited from the generation that’s ahead of us, excluding that, are willfully unprepared for retirement, because we have not done the work that we need to do in terms of investing our money.
So, let me say this, I guess is part of our close, obviously the crowdfunding is something that’s on the horizon, that’s Kickstarter might be the internet approach to I’ll make a donation, so to speak, but there is something that’s coming out there. Likewise, I’m also hearing that there are probably a fair number of people that are going to be listening to our show that might decide you know what? I don’t want to have to get out and hammer nails on a weekend and paint stuff to try to flip the house when I could invest my funds with Bullseye Capital Real Property Opportunity Fund and know that I’m going to get 60% of the profit of what you do. You are working off of my capital to create that profit for you.
My guest has been Joel Block. You can find out about Bullseye Capital at bullseyecap.com. He’s out in California. So, Joel, it’s been an honor and pleasure to have you as one of my NSA friends. I know that you do some wonderful work whenever you have your symposiums and the people come in and do the training work that you do. We appreciate the training side of it, but also the other perspective that you bring to the table. Thank you so much.
JOEL: Listen, thanks for having me. I hope that people are benefited by understanding a little bit of straight talk about how the money business works.
CHUCK: Well, we’ll actually get you on again because I like having straight talk about money. That’s a wonderful thing. This is Chuck Gallagher. Remember, every choice you make in life has a consequence and so I wish you, and hope, that you’ll consider all the choices that you make and know that those choices can create the success that you want. This is Chuck Gallagher with Straight Talk Radio. Join us next week.
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