Steve Breton 2:41
And I was like, well, maybe I’m not gonna leave my job in the first two, three years or whatever. But it certainly by the time I get to retirement age, I’ll have plenty of income to augment whatever social security may be available at that time. So that’s really it was all about cash flow.

Robert Leonard 2:56
Why did you decide to get out of the investing in active strategies of real estate investing and become a passive investor through apartment syndications?

Steve Breton 3:05
So I did this active stuff, I got to 16 units, I was coaching my kids soccer teams, I had this hour commute to work. And there’s just so much going on at 16 units. And I was self managing, because prices were a little bit expensive here. So management would just kind of wipe out the cash flow. So after a while, I realized I can’t continue to grow with this way. And a friend of mine introduced me to a syndicator.

Steve Breton 3:26
And I had no idea I’ve never even heard of such a thing. And I gave him I think was $50,000 as an investment into one of the properties that they were investing in. And it started the cash flow right away. And I was thinking myself, well, this is a heck of a lot easier than self managing for roughly the same returns. And so I just from that moment on, I just kind of started to plow all of our savings into different syndications with different syndicators, different properties around the country. So I was diversifying across the managers across the geography and in different classes as well.

Robert Leonard 3:59
For those who aren’t familiar with apartments syndications, what exactly are they?

Steve Breton 4:04
So investing, like I started it was you investing in small properties on my own, and then as you get larger, you want to go into bigger properties, you may do a joint venture so that like the two of us could both get together and take that property that way. But eventually you get to the point where you’re, you know, you’re looking at 100 units, 200 units, that’s millions of dollars for down payment. So what we do is we pull together equity from a bunch of investors, and that equity coming together is basically a syndication.

Robert Leonard 4:31
Now, I know that not everyone is legally able to invest in real estate syndications. According to the SEC rules, what does it take for someone to be allowed to invest in these types of deals?

Steve Breton 4:43
So the SEC has two different rules that we generally do our syndications under one is 506 B. And that that allows non accredited and I’ll get into the definition of accredited in a moment. So that’s it pretty much. It’s you know, anyone who has income and the wherewithal to make a decision and around you and financially making decisions, you have to have a bit of a relationship with them and understand this person, do they understand the real estate concepts at a high level, at least, that they manage their finances?

Steve Breton 5:10
Well, can they make a proper decision here or do it but do they have a financial advisor who can advise them. So that’s a sophisticated investor, then there’s a 506 C, which is the different rule that’s only for accredited investors. And an accredited investor means you have to have $200,000 in income for each of the last two years, and that can be combined with a spouse. And then the net worth of that individual has to be at least a million dollars, excluding the value of their home.

Steve Breton 5:36
So those are the two differences. 506 b five or six. See, if you qualify as accredited. It’s very simple. If you qualify as sophisticated as real, no hard test on that it’s really developed relationship with the sponsor, the sponsor can then decide whether this person knows enough or you know, is really competent to make this decision.

Robert Leonard 5:56
Have you found that most apartments syndicators, and you could talk about your experience investing passively, but also, now that you’ve become a GP, which we’ll talk about in just a minute, but do most syndicators go one way or the other? Do they choose a, you know, the C option the B option over the other?

Steve Breton 6:12
So I have found that even when I was invest that I was accredited already when I started investing, so I never really even paid attention. A lot of the people I invested with, were creating a 506 C, and there were definitely a handful of folks doing five or six B as well. So you probably have a mixed bag, maybe maybe even half and half. Today, with multifamily.

Steve Breton 6:31
There’s a lot more people doing it. And I think as people are getting started, it makes more sense to try to raise capital from friends and family. And not all of their friends and family are accredited. So they want to be able to include their parents or their brothers or siblings, neighbors. So they’ll go ahead with that 506 B, taking into sophisticated investors to get started, maybe after a while they have a large enough investor pool that they can start going 506 C. And the reason they would do that is the benefit of going five or six C is that you can then advertise.

Robert Leonard 7:00
And so on the 506 b You cannot advertise?

Steve Breton 7:04
With a 506. B, you can’t say anything about the fact that you have a property that you’re about to go to market, when you give people an opportunity to invest with you, you pretty much can’t say a whole lot on even on Facebook about I have a company that does investments. And if you’d like to invest with me come talk to me, even if it’s not about a deal specifically can’t say much at all, because that would be sort of a it’s I think they call it conditioning in the market, sort of a general solicitation.

Steve Breton 7:30
The SEC doesn’t want us out there advertising what we do if we’re going to be doing 506 B offerings and having sophisticated people come and invest with us. But if you go to a 506 C, then the SEC believes will those people that you’d be attracting who are allowed to invest with you are generally going to be more sophisticated solely because they have more money. And that rule doesn’t always make sense to me. But that’s that’s how it’s currently written.

Robert Leonard 7:54
So for someone who might be going after that 506 B and can’t advertise it, how are they supposed to go about getting that information out to people that can actually invest in the deal.

Steve Breton 8:04
That’s where we call friends and family. It’s literally, you know, having coffee with your friends, talking to your family and getting them interested in what you’re doing in general. So that when you do have a deal that they can potentially invest in, they’ve already had those conversations, you’ve got that strong relationship with them. And you’re able to just say, I have this deal, but it’s again, it’s you’re not saying on Facebook or on Twitter or on a podcast, you’re literally having a conversation with family.

Robert Leonard 8:31
Yes, you can’t even put that on Facebook, even if it’s just friends and family, you have to actually go and sit down with them.

Steve Breton 8:36
Exactly. Yeah. Cuz somebody else could see that on Facebook, and then that would be seen as a general solicitation.

Robert Leonard 8:42
Yeah, that’s really interesting. So you’ve invested in 1100 units as an LP, which is the limited partner and then you’ve done over 1200 units as a GP, which is the general partner, what is the difference between an LP and a GP.

Steve Breton 8:58
So as a limited partner, those first investments that I made when somebody introduced me to a syndicator, it was literally me trusting somebody else and saying, here’s $50,000, I like the business plan on your property, although I didn’t really know that much at the time. But I it seems like it made sense. I had the wherewithal to make that decision. So I went ahead and invested with them. And then I was completely hands off 100% passive, and the checks started coming to the mailbox.

Steve Breton 9:24
And eventually they sold the property, we made a nice gain at the sale as well. And I was hooked. And I just kept investing that way as a limited partner, eventually got to the point where I figured I can probably do this as a general partner as well. I tested the model on a small six units apartment building, with just a couple of investors. It was more like, like a joint venture, but I treated it as though I was doing a syndication. I just didn’t have to do all the documentation and everything.

Steve Breton 9:50
But I tested that that process did a value add, we sold it, they had a great return again, and then I was really charged up and I said okay, I’m gonna go do this with much larger properties. But at that point, I am the sponsor, I’m responsible for everything, making sure that I’m handling their money properly, I now have a financial fiduciary responsibility. So it becomes a lot more serious. And you have to take it very seriously. That’s people’s well being that you’re messing with if things don’t go well.

Robert Leonard 10:18
Yeah, I mean, it’s a very serious thing, like you said, and going from an LP to a GP is a really big jump, it’s a really big difference. So how did you know that you were ready to make that change?

Steve Breton 10:28
So I probably oversimplified a little I did that six unit and went fantastic. And I started looking at larger properties and looking at a state for those larger properties. So now it’s going to be working at a distance. And it just the complexity is orders of magnitude greater. And at that point, I decided I was going to get coaching. So I actually signed up for a coach spent, you know, several months in a coaching program, practicing my underwriting, running, you know, all the deals that I was looking at, by someone who’s really good at underwriting.

Steve Breton 10:58
I made sure that I understood what I was doing. And then I also knew that I had that backstop now that I can go to them even when I’m doing an actual deal. And they can walk me through all the steps and make sure that everything’s good. And if I happen to have a misstep, I also have that backstop to help me get out of whatever trouble I might be in.

Robert Leonard 11:13
So once you made that jump to being the GP and outside of a 506 B, so let’s let’s talk about the 506 C deal. How were you able to find those investors? They’re not friends and family. So how did you go out there and actually get those investors to invest in your first large syndication?

Steve Breton 11:31
So you’re coming out of that coaching program, I started to make offers. And we’re still struggling because brokers don’t take you that seriously when you’re first starting either. So it’s hard to get good deals. And this will lead directly into your question. I decided to try to partner up with somebody who’s more experienced than I am. Because I was also concerned that maybe my friends and family are going to look at me and say, well, you’re used to doing three family, six family, what is this 100 And something units you’re going to buy?

Steve Breton 11:57
How do we know you’re going to be okay with this. So I found someone who actually lives in Texas, we started talking quite a bit over over the course of several months. And eventually we found a property together. And the two of us worked on it together. But he had done several of these already. So I was able to lean on his experience a bit. So that helped me in order to find the right property and also to get friends and family and their friends. If some of their friends were interested, could because word of mouth or whatever.

Steve Breton 12:23
And we ended up doing that deal together and worked out really well. Beyond that. Now it’s more like I’m at a meetup. And we’re just talking about real estate in general, people find out that I’m a syndicator. They want to be added to my list or they want to have coffee just to learn more about it. And then they’ll they’ll kind of watch my progress as I send out emails and updates and eventually they’ll invest.

Robert Leonard 12:44
As you start getting into large real estate syndications. You start to compete with private equity firms and just other really large players in the real estate space like Grant Cardone. For example. How does this impact the returns of syndication deals? What are some of the average returns you’ll see as an LP for a typical real estate syndication?

Steve Breton 13:03
So I’ll take the second part of that first. So the typical returns for syndications and this has been true for me, since I started investing in syndications in 2013, five average somewhere between 16 and 18%, average annual return. So it’s taking all the cash flows for the for the period of the whole period, as well as the gains on the on the back end when we sell. So as an LP, and as a GP, it’s been in that 16 to 18 Average annual, or something like a 15 to 16 IRR

Robert Leonard 13:35
So the GP is earning the same type of return as the LPS in your deals.

Steve Breton 13:40
No, So that’s just the LP. So on the GP side, I can’t even say are stated as a percentage return because you’re working. So it’s not simply like we put in money, and then you get a return on that money. If you were just looking at it that way, it’s actually fairly high return much higher than the LPS. But in fact, we are working, you know, 3040 hours a week, not specifically that one given property, but it’s a lot of work to manage these things and to keep it going. So, you know, depending on the deal, where you’re trying to earn a living, so it’s it’s really just trading your time for dollars, I guess.

Robert Leonard 14:12
Is the GP return so much higher? Also, because it’s off a smaller base or the GP is not putting in as much money to the deals as the LPS?

Steve Breton 14:21
Yeah. So I mean, I took away put in at least the minimum and sometimes more than that. So I like to put in as much as my largest investor, if I can, sometimes I’ve got a couple of large investors that I could never match. But for the most part, I’m trying to put in around that same amount. But yeah, it’s really because of all the additional effort that we have, right and we have the carried interest.

Steve Breton 14:41
Like let’s say we do a 7030 split. So we’re getting this carried interest of when we sell the property, there’s a lot of gain at the back end, and we’ll split that 70/30. So it’s sort of disproportionate return given how much we’ve put in compared to how much the LPS put in. Again, that’s that’s our reward for having done a good job of managing that property.

Robert Leonard 15:00
Yeah, that makes sense. So what are some of the downsides of real estate syndications? Everything we’ve talked about so far seems to be, you know, great for the those types of deals. But what are some of the cons about just real estate syndications in general,

Steve Breton 15:13
I think a lot of people go into syndications, and I was no different. On my first view, they hear a good story, they see some nice pictures, they see pretty high returns, almost looks like it’s a fantastic return compared to the stock market in general, although last few years, the stock market’s been on a tear. So they just look at that. They say, Okay, I’m in, sign me up. But they don’t really understand what they’re getting into. I don’t know that there’s enough education out there.

Steve Breton 15:38
And in the end, if they didn’t do a really good job of vetting that sponsor, business plan, and knowing how to do that’s quite a task, like you really have to be fairly educated. So without all of that, I think people can get hurt, and particularly with the market the way it is now, it’s, you know, the deals are getting tighter and tighter, people are probably overpaying. And at some point, the market is going to turn and some of those deals are going to go sour, so that that stuff makes me nervous. That’s probably the biggest downside.

Robert Leonard 16:05
So as an LP How do you find a good GP to trust with your money? And then take it even further? How do you find? Or how do you analyze a deal to understand that it might be able to weather the next downturn that we have coming? How can you potentially hedge your risk or analyze a deal to see what your risks are as the LP?

Steve Breton 16:24
I love that question because I spend time at meetups talking specifically about this, I’ll present on how to vet a sponsor and their deals. And at a super high level, it’s always in sponsors first, because the the person behind the deal to me is far more important than anything else. So you have to look at their experience. What kind of caliber person is this in general, ethically, morality, everything. So I’m looking through their Facebook, their LinkedIn, just trying to get a sense of like, what’s this person about? And then of course, having multiple calls with them asking for references, I’ll end up doing a background check eventually, if I’m very serious about investing with the person.

Steve Breton 16:59
And at some point, I say, okay, probably going to be okay, investing with this person. Now, let’s look at the market they’re investing in. So if they’re investing in Cleveland, Ohio versus Phoenix, Arizona, I’m looking at population growth, job growth, what’s driving that growth, etc. And you’ll notice that, you know, most of the Ohio markets probably except for Columbus, in terms of larger markets, they’re all going downhill, they’re losing population losing jobs, that’s kind of a tide that I don’t want to be fighting.

Steve Breton 17:26
So even as an LP I don’t, I don’t want to have my money tied up in a market where things are going downhill. And even it’s a great general partner, that that’s kind of running the deal, the sponsor, they’re going to be fighting that tide as well. And even if they do everything correctly, we might get what they suggested we would get a performer or we’re going to underperform.

Steve Breton 17:46
So I look at that market. If it’s a market like San Antonio, Tampa, Phoenix, where the growth trajectories are unbelievably high at the moment, and they’ve been like that for a while, we’re probably going to be outperforming even if the sponsor only does what they said they were going to do. Right. So those those two things in terms of sponsored market are huge for me, then I’ll dive deeply into the actual dynamics of the deal itself. What are they using for cap rates for the exit cap, which makes a big difference on the sale price?

Steve Breton 18:13
And we can talk for hours just on those two things? What are they doing for financing? how aggressively are they pushing rents? Did they really do rent comps? So you’re just kind of asking all these questions to see how they respond, how confident they are about their responses to get a really good sense of,did they really do their homework?

Robert Leonard 18:30
So it sounds like if you’re going to be asking these types of questions, and really vetting a GP that you’re going to have to know your stuff to before you start investing in these deals. So what level of competency does an investor need to have in order to invest in these types of deals? And really, you know, understand what’s going into it rather than just throwing money at it blind and not understanding what they’re putting their money in?

Steve Breton 18:51
That’s a good question. You know, I gained some of this knowledge over time, as I talked to my sponsor, for my second deal, my third deal, my fourth deal, I would learn a little bit more each time because they would just share, here’s what we’ve done in our underwriting, here’s what we did for rental comps. So start to get a sense of that. And then I asked better questions on the next one. That could be an expensive way to learn because those first couple of deals might not go well. So again, there’s a fair amount of people that are doing this today. And it’s a small world. So certainly asking everybody about the sponsor at that level.

Steve Breton 19:22
And that is maybe one of the easier things to do market analysis super easy, right? You just type in Cincinnati, Ohio, and population or Cincinnati, Ohio job growth. And you’ll see the charts and that stuff is pretty simple to find. When it comes down to analyzing the deal. That’s a lot more effort. And that’s something that didn’t really understand well, until I started getting into coaching and understanding how to underwrite myself, and some of the tricks that sponsors will use to try to make a deal, a deal.

Steve Breton 19:51
So they’ll split it differently. They’ll offer a preferred return, they’ll juice up the rent growth, maybe more than they need to. So you start to see what works and what doesn’t work. In that way, and then I actually show my friends what I know. Right? So I’ll be at these meetups, and I’ll spend the 45 minutes in front of room talking about just how do you do that deep dive one of the questions you ought to be asking a sponsor, I should probably post this on my website, actually, so that people can use it against me.

Robert Leonard 20:17
So for someone who’s listening to the show, that wants to get started in real estate, would you recommend that they start with their own properties, being an active investor, whether it be single family or small multi, or should they save their money and just passively invest in other people’s deals?

Steve Breton 20:32
It depends on so many things. So the person themselves, if they’re somebody who’s who’s willing to roll up their sleeves, and get into property and maybe do a little bit of self management or deal with tenants or whatever, it’s not a bad thing for them to do, I’m really happy that I did it, that I was self managing, even if I had put it under a property management company, but I still owned it myself, I did the deal myself, there’s certainly some things you’re gonna learn there, I wouldn’t do it if you’re in a market where it doesn’t make sense.

Steve Breton 20:59
So just for the sake of saying I did it, I can check the box, I learned something, if it’s not a good deal, you shouldn’t be doing it. And I would highly recommend doing it in the in a market that’s near you, in terms of your first deal that you do. So while it’s a good learning experience, it’s also generally not going to make a whole lot more than then you make in syndications.

Steve Breton 21:18
If you pick the right sponsor ideal, so you know, I’m kind of torn about was it really worth for me to spend all that time? For me in the end it was because I ended up being a sponsor and and knowing what I know now, from all that experience is super helpful. But unless somebody is going to actually go down that sponsor path at some time, I don’t think that it’s necessarily a requirement to be a good passive investor in syndications, to have done something on your own.

Robert Leonard 21:42
If someone’s built a small portfolio of active rentals that they manage or bought themselves, when is it right for them to take it to the next level and become a GP? In a syndication?

Steve Breton 21:56
For some people? The answer is probably never again, so much of it is dependent on what’s that person’s background? Were they involved in financial management, project management? What sort of work do they do in their their work life a W two job? And does that directly translate? It doesn’t have to be that they worked in, you know, as a CPA, they could just be construction guy building houses, but he runs all the numbers himself. And he’s always done fairly well on those projects, right? You can ask for that history.

Steve Breton 22:25
Those guys actually tend to have all the numbers right in their head, and you ask a question, and they snap to it far better than CPAs would, or some of the financial guys that I’ve seen in companies I worked in, so you can’t judge a book by its cover. But having that background and understanding what this model is about and how it works. I think some people get there much faster than others, and some people won’t ever be there and others get there when they’re 20 years old.

Robert Leonard 22:49
So we’ve spent a lot of time so far talking about where you are currently, and apartments indications in general. Let’s go back and talk about when you first got started, what was your first deal? What did that look like?

Steve Breton 23:00
So I had analysis paralysis, staring at spreadsheets for days on end, or it was really months in the end, but it was like days for each property. And then finally, I’d say Okay, I gotta go look at this property, I think it might work. And then it wouldn’t work out. I didn’t get the deal. Eventually, I got a Triplex, under contract. And I was totally petrified. Even though I had done all this research, I actually knew what I was doing. I just hadn’t done it yet.

Steve Breton 23:24
So I had to take that leap of faith got under contract closed on it, when did a little bit of renovations I have the curse of being a little bit handy. So I ended up doing a lot of the stuff myself. And then you know, found leases through friends who are who had properties, and kind of copy those and just did whatever they told me to do, assuming that they knew what they were doing.

Robert Leonard 23:44
Before I got into real estate, one of my limiting beliefs was that I couldn’t become an investor because I wasn’t handy. I can’t swing a hammer, I can’t really fix things. I’m not that great at it. And so I didn’t think I could become an investor. So that really limited me from getting started. Do you think somebody needs to be handy to become an investor. And let’s not talk about the syndication side of things. But as an active individual investor, somebody need to be handy to be a successful real estate investor.

Steve Breton 24:09
So it’s a blessing and a curse. If you want to save a little bit of money, and you have the time and you can go fix a faucet yourself or do a little bit of work around that property. That’s great. The Curse of it is if you are handy, you refuse to hire other people to do the work. And then you end up spending a lot of time and everything takes longer than you think it’s going to take and the job that you’re going to do may or may not look as good as professional.

Steve Breton 24:32
So in the end, you’re much better off not being handy and just knowing it right out of the gate and letting the other people do the work. So find a couple of great contractors it’s not that hard right? Just ask around and you know, have them meet you at the property tell them what you want to have done and and they’ll do it so I believe it’s probably better not to be handy.

Robert Leonard 24:50
Yeah, I might be a little biased because I’m not handy. But I tend to agree with that. I think I think if you are handy, you feel like you have to do it and a lot of times you spend you spend a lot of doing those types of things, whereas you could be doing higher value tasks. So like you said, maybe you can save some money on that, on that renovation of that rehab or whatever the project is you have going on.

Robert Leonard 25:08
But if you start to look at it through a different lens of how much money could I have made, using that time doing other things, maybe finding another deal finding, you know, other investors networking, whatever it may be, the value of that might be two times what you spent or save on that rehab or renovation that you did. So it might not be even worth it. So, but if you’re handy, it’s almost like everything is a nail, and you have to, you know, use your hammer to fix it. So it’s one of those things, it’s an interesting dynamic that I think sometimes it’s just better not to be able to be handy.

Steve Breton 25:35
I agree, I’ve actually sold off a good amount of my portfolio because of that.

Robert Leonard 25:40
Yeah, and for me, I thought it was a big limiting, like I said, I was a big limiting belief I had at first but then outside of just learning delegation skills, it’s also taught me that I can invest long distance. So when I first started investing, actually, we live very close to each other. We’ve talked about this before the show. And so you know, we live in an expensive market, it’s hard, especially when you’re just getting started. And I did one or two deals locally here.

Robert Leonard 26:00
And then I decided I wanted to go long distance, I’d done some research on it, I thought I could do it. And so I did, I bought a property in Texas. And if I thought that I had to fix everything myself, I might not have been willing or able to do that. But because I was able to learn those skills early on or just not even have those skills in the first place, I was able to go and take my portfolio a different direction that has done very well for me.

Steve Breton 26:20
Agreed. If I hadn’t invested as a limited partner, first, I would have had a hard time making that leap. But because I made it as a limited partner, I had to completely let go, I had zero control over the property or anything that was going to happen. And I had to trust that the sponsor is going to take care of things. But then I learned a lot from those sponsors and how they manage things with big property management companies and realize that I don’t have to actually do it all.

Robert Leonard 26:43
So after that triplex that you bought, what was your next property? What did that look like?

Steve Breton 26:48
Within a couple of months, I was… I was actually on the beach in Florida with with my sister, brother in law, my wife, we’re just we went away for a few days. And my realtor called me and said, I have a deal. It’s a fantastic one, we got to do it right now to be home for a few days. And he said it couldn’t wait. So he sent me the link with some pictures, I ended up doing pretty much the whole transaction sight unseen, from the hotel, fax machine, signing documents and faxes.

Robert Leonard 27:18
So why did you decide to go straight into rentals? You mentioned you, you just mentioned that you did some fix and flips. But why didn’t you start there? I think fixing flips attract a lot of new investors, I think that’s kind of like the shiny object of real estate. And I think that’s where a lot of real estate investors want to start. So how were you able to kind of go past that and start with the a lot of people consider the long term strategy of buying hold.

Steve Breton 27:38
I think I knew right out of the gate, that fixer flip was a lot of work, it was gonna take a lot of my time and I had an hour commute, I was working actually in the city, but I live in the suburbs. And I knew that if I had a fix and flip project going, it would, or at least I thought that I’d have to be there often, right, I have to go in the morning, check things out, make sure everything’s good before I go into town, but my commute starts at six or 630. In the morning, contractors aren’t on the job yet, by the time I get home at night, they’re already gone from the job.

Steve Breton 28:07
So I like I would never have that overlap, I’m just worried about again, because I’m handy that I would have to be there all the time to manage things to make sure it’s going well. So I had a hard time even conceiving of this concept of me being the guy running next. Whereas buying a rental property seemed much more simple. I literally just put down a down payment, fill it up with tenants and kind of runs itself at that point.

Robert Leonard 28:30
With you mentioning that you’re actually pretty handy. I would have expected you to have started with a flip. It seems like a lot of people that are handy tend to go that route and start with flips.

Steve Breton 28:40
The other thing is, I was already in my late 30s When I started so you know at that point I’m looking at do I really want to be running around and doing fixing flips? Or am I really just looking for a place to invest my money for cash flow? And I was really looking for cash flow at that point. I think a lot of guys that do fixer flip it is sexy. It does make money. And sometimes it’s the our guys who don’t have $100,000 for a down payment for a triplex in the Boston area seems like a lot of money.

Steve Breton 29:10
So if you don’t have the money, or if you have an abundance of time, then yeah, fixer flip makes a lot more sense to start with. I guess I was lucky that I was able to just skip that right away and go into the multifamily until I found the triplex that I had to get rehab. And then I was like, well, if I’m doing a gut rehab, and I can manage that it’s no different than managing a fixin flip. So why not go down that path. So the contractor that I used for that got rehab did a lot of fixing flip properties, and he found a property and we figured out a way to kind of manage it together and I trusted him to do everything.

Robert Leonard 29:44
How are you funding your original deals when you’re first getting started those first few deals, how are you funding them? I mean, you mentioned that you were mid 30s When you started and you were doing well in your corporate career, so I’m guessing it was probably just from savings, but was there anything else that you did?

Steve Breton 29:58
Yeah, it was pretty much savings. So at the point where, you know, 2013, the market was coming back, or had come back a fair amount, I think we’ve probably back to even for my weight at that point. And I just wanted out. So I literally started to sell everything that wasn’t in my 401k. And I would take, you know, I’d sell 50,000, $100,000 worth of stocks and just put it all into a down payment on a property. I did that for him for the first three.

Steve Breton 30:23
And then the cash flow from those properties over that timeframe was enough that I was able to then cover that was a down payment enough for doing the next one. And at that time, we were also saving, and we still are like half of our income. So I just, you know, we don’t live fancy lives. We’re not really taking fancy vacations or driving beautiful cars. For me. It’s all about socking it away so I can get to the point where I am today, where I was able to retire before I turned 50. Even though at that time, I didn’t quite think I could do it that early. I just wanted to be able to retire someday.

Robert Leonard 30:54
Yeah, absolutely. So you mentioned that you were a part of that coaching program. And so you probably had some mentors that way. But did you have any other mentors or anybody else that you leaned on throughout your real estate journey? And if so, how important was that for you? I get a lot of questions about mentors.

Steve Breton 31:11
It’s super important. I had nobody at first. So when I did that triplex, I think I had just met somebody who had a couple of properties probably weeks before, but prior to that I hadn’t had anybody hadn’t met, anybody didn’t have a mentor to help me kind of understand also, I literally just did a ton of research to figure it out. The realtor I was using actually had his own rental property.

Steve Breton 31:32
So I would highly recommend that for anybody who’s looking for their local property. Find a realtor who has rental properties, because they’ll help you with the analysis, hopefully. And so that that helped me a little bit. And then this person I met just before my first deal, he helped me when it came time to like leasing it up and figuring out what leases look like and what they should have in there. Some of the legal stuff. After that, I started to run into a lot more people, right, once your property owner people give talks. And next thing you know, you’re talking about properties. It’s really surprising the number of people who actually have them.

Robert Leonard 32:00
Now, how about the flip side of things you’ve done over what 2200 deals total now, so I’m sure that there’s probably a lot of people that would love to pick your brain or just use you as a mentor to help them in their financial career, their investing career, what do you look for in someone as a mentee.

Steve Breton 32:19
So I, I didn’t mention earlier, but I’m actually coaching now with the coach that I had hired. So now I’m part of that group and coaching some folks, and I absolutely love it. And sometimes people come in, they’re just not ready. So they pay the money figuring, well, if I pay the money, it’s kind of like a gym membership. If I pay $50 a month, then I’m more likely to go to the gym. So they thought if they would pay for coaching, they’d be more likely to actually go and take the necessary action to take down their first multifamily property.

Steve Breton 32:47
And that’s not always the case. So when I’m looking for somebody who has already tried, they’ve already fallen down a couple of times, pick themselves up, dust themselves off, and they want to try again. And you know, they’ve learned a few mistakes, they’re resilient, and they’re really ready to move. Those are the folks you know, once you start to give them some mentorship, they’re taking action, and they’re actually making things happen.

Steve Breton 33:08
And then that’s fulfilling as a coach, because you see that, you know, you’re not just wasting your time with somebody who’s not really going to do what you’re asking them to do, or not follow the path that they ought to be following, which is going to be specific for everybody. But whatever it is that they ought to be doing. If they do it, then you’re fulfilled as a coach, and you want to keep coaching them. And I, I have done that for free for quite a few people as well. friends or people that we meet at meetups, I’ll help them get to that first duplex, a couple of calls or coffee meetings or whatever.

Robert Leonard 33:36
Yeah, that was gonna be my next question is, are you looking for the same types of things for someone who maybe isn’t ready, or just quite frankly, can’t afford to pay for a coaching class or course or program like you’re a part of now? Are you still looking for those same types of things that you just mentioned?

Steve Breton 33:52
Yeah, very much. So if I meet somebody in meetup, and they say, you know, I just want to buy a duplex, and I’m not sure where to start. I’m like, Okay, let’s have coffee. And I’ll tell you everything I know, whatever I can tell you within an hour, it’s literally going to be a brain dump, bring your pencil and your pad of paper. And it’s just tell them how to get started, right? Here’s the 1% rule. Here is this a few markets in this area that might work but you want you’re gonna want to stay away from the city or stay away from these expensive neighborhoods and just tell them why just trying to shorten that window for them where they can understand what they need to in order to get that first successful deal in a couple of months, rather than a year or two.

Robert Leonard 34:31
And I think a lot of people, specifically new investors reach out to potential mentors in the wrong way. What would be the right way as a mentee to approach someone that you would like to be your mentor?

Steve Breton 34:41
So the wrong way being like, Would you like to have coffee because I want to pick your brain, but not really offering anything or not really putting any context around what they’re asking for? And then that’s sort of the wrong way, right in the right way is what I like is somebody who comes to me says I’m trying to do XYZ I know you have you know, had experience in that area. And they have a couple of specific questions.

Steve Breton 35:03
And then that’s, that shows me they’ve already done some work, because now they have specific questions that I’m able to answer more directly. And that tends to lead into more powerful conversations for them. And if that conversation goes well, and I continue to feel like they’re learning and that they’ve done their homework, and they’re really ready to take action, and it’s just easy to keep that conversation going, it’s the people that come to you have no idea what they’re asking for, it’s just so obvious that they haven’t done anything for themselves yet. So if you’re not willing to do it for yourself, you know, I can’t do it for you. And I know where that’s gonna lead, as soon as we have that conversation.

Robert Leonard 35:34
Yeah, if you’re not willing to put in the effort and the time on the front end, then you’re probably not going to be willing to put in the time and effort that it takes to actually get a deal, which means that the mentor is essentially wasting their time, right?

Steve Breton 35:46
They can’t help you. Right. So what’s the saying about you can’t take a horse to water, but you can’t make him drink?

Robert Leonard 35:51
Yeah, absolutely. I agree with that. I think one of the biggest mistakes mentees make when they want to be mentored is their ability to show that they’re gonna put in the work and actually do what the mentor says. Because I mean, ultimately, the mentor is giving you something for free, they’re giving you their time, which is arguably their most valuable resource. And if they’re going to be giving you your time, they need to see a return on that. And they’re not necessarily expecting a monetary return. Specifically, in the real estate space, I’ve seen a lot of people that are willing to just, you know, mentor, people give advice help in for free, but they do want to see a return on that. And that return is you going out there be successful doing what they’re telling you to do.

Steve Breton 36:25
It feels really good to help people. So I’m happy to do it for free. For some folks who if it’s a call or two, I’m not going to go through a whole coaching program. But it is a it’s a value exchange. And the value I get is that it feels really good. And I love to see other people succeed and be able to follow their passion or their dreams as well. The other bit of speaking of value. Another good way for people to approach is this. A lot of people say generically, how can I help you? I’d love to help you in your business, because they know that there has to be a value exchange, but they just don’t know how to help yet.

Steve Breton 36:53
And so to me, it’s again, have you done the homework to understand what is helpful for somebody like me, somebody in my position you what does that look like to be an owner of whatever, 12 units, 15 units in your local market, and you’re trying to grow that? What sort of help with that person need? And if you can figure out how to help that person, then you approached them and you say, Hey, I would like to be able to help you find off market deals in this market, or, or whatever it is that that person may need it. Was that something that that appeals to you, rather than just saying, How can I help you? Again, it’s just showing that you’ve done your homework.

Robert Leonard 37:25
Yeah, I mean, that makes a lot of sense. And it’s definitely something that I agree with, what have you found to be the most common reason holding people back from actually getting started investing in real estate? How can people overcome that?

Steve Breton 37:36
There’s two huge factors. One is limiting beliefs, everyone’s got something in their head that tells them they’re not good enough, they’re not smart enough, whatever it is, the other is the perception of you What will others think, and because there are a lot of real estate scams, I think there have been in the past, some people tend to look at real estate and just think well that you’re probably going to get scammed, probably gonna lose your money, we’ll leave that up to the experts or whatever that your advice that your friends are telling you. Because they don’t want you to get hurt. Because they don’t like you.

Steve Breton 38:04
They just don’t want you to get hurt. So if you listen too much to that you’re never gonna move. But then if you do move, or if you start to go down a path where you you may take the action, now you’re afraid of, well, if I do fail, now, I’m going to look like an idiot, right? Everybody’s gonna say, Why did you do that? We told you not to do that. So it becomes this massive thing in your head of what if I fail? And instead of looking at it and saying, Well, what if everything went right? What would this look like? That in itself should be motivated enough.

Robert Leonard 38:31
Yeah, and I think the biggest hurdle is just getting that first deal. And I talk about that here a lot on the show. And that’s probably one of my biggest goals of the show is to really get people listening to the show today to get their first deal. Because in real estate, arguably more than anything else I’ve experienced is you do your first deal. And then you do a lot of deals after that. It’s very rare to meet someone who’s only done one deal in real estate and then quit. Usually, people I’ve talked to you, they’ve done one deal, and then they’ve gotten hooked. And then from there, it’s not easy, but they’ve been hooked, and they and they continue to go on. And they’ve done multiple deals from there.

Steve Breton 39:02
Now it’s very appealing when you’re in it, and you see how well it’s going. You can’t help yourself to go and do more. And that, again, is very telling for those who haven’t done their first deal yet. They should be looking at that, as you say and say, if everybody’s doing multiple deals, once I get one done, it’s probably pretty good. And it’s worth whatever effort and falling down and wipe myself off and going at it again. Because eventually I’m going to get to the point where I’m doing multiple deals.

Robert Leonard 39:27
And you also realize that it’s not really as scary as you thought it was before you got started.

Steve Breton 39:33
For sure. That’s another thing when I’m coaching folks is to have them look at it, whatever problem or issue they might be having us look at it from the perspective of I already own 10 properties, and my friend is having this problem. What would I tell them? You probably think to yourself at that point. Oh, that’s a cute little prop. I remember when I had that, right. It’s really not a big deal. So you got to just look at it from the perspective of I’m fully capable of taking down multiple deals, and this is just, you know, a very small hurdle in my way

Robert Leonard 40:00
What is the common piece of advice you often hear given by real estate experts that you don’t necessarily agree with? And what do you think is the actual truth?

Steve Breton 40:09
That’s good question. So I want to say investing for, I don’t know, like, if it’s really advice, investing for appreciation, rather than cash flow, that’s a huge one for me. So one of the things I hear a lot is, especially in the Boston area, people are investing more for appreciation. They’re like you have to buy in South Boston, or you have to buy in East Boston or this other neighborhood that’s popping, because the appreciation is going to be enormous. But when you run the numbers on those properties, they’re literally negative cash flow.

Steve Breton 40:37
So you’re going to be feeding that property on a monthly basis, because the rents Don’t cover your mortgage or cover all of your expenses, in hopes that eventually you can sell that property at a profit, that might work at the very bottom of a market when the markets starting to heat up. I still don’t like the idea, I really like to invest for cash flow. But if you’re near the top of the market, like we suspect we are at this point, at some point that music stops, and now you own a property that doesn’t cash flow, and you probably can’t sell it for four or five years. So the reality is invest for cash flow. Don’t listen to anybody who says to invest for just for appreciation.

Robert Leonard 41:11
Yeah, I like that advice. I tend to be more conservative like that. And I don’t really, really worry too much about appreciation actually invest mostly in the Midwest and Texas, where parts of Texas even where we’re not going to see a ton of appreciation. But we’re also not going to see the volatility, we’re not going to see huge roller coasters. Right. And we have relatively stable cash flow. So that’s what I’m looking for as well. I think that’s great advice.

Steve Breton 41:33
I do invest in both, right. So my first criteria is a has to cash flow. But then I’m looking at how can I force appreciation by raising rents and improving the property etc. I want that big pop on the back end. And yeah, that’s that’s where syndicators tend to make most of their money is managing a property correctly, increasing the value of that property and making sure their investors are taken care of, and then they get to keep some profit on the back end. So the appreciation piece of it is certainly important. But if the property doesn’t cash flow, you’re putting everyone at risk.

Robert Leonard 42:05
Yeah, I mean, it is one of the big four pillars of real estate. And I think it is definitely important. But like you said, it can’t be the only reason you’re buying a deal. And it can’t be the only thing that makes up pieces make sense. Steve, for those listening today that might have more questions about real estate syndications, or how to get started, where can they go to connect with you learn more about all the different things you have going on?

Steve Breton 42:27
They go to my website. So the name of the company is velocity capital, and the website is velocitycap.com.

Robert Leonard 42:34
Awesome. I’ll be sure to put a link to that in the show notes so everybody can go connect with Steve there also put books related to the different topics that we talked about today in the show notes. You guys can go read up on those further if you’re interested in diving into these topics further. Steve, thanks so much for joining me.

Steve Breton 42:48
My pleasure, Robert. Thanks for having me.

Robert Leonard 42:50
Alright, guys, that’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro 42:57
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