Why Non-Correlated Investments Matter in Uncertain Markets

Transcript

Josh McCallen:

Welcome back to the big show. Josh McAllen here. Just want to say hi. I get to do this show today by myself. This intro’s even by myself. I get to, uh, say hello to my best friend, John Edwin, and tell him I love him, but he’s not here today. So he said, Josh, I bless you my friend. You get out there and you do a great show. So in order to do that, I went out and found a great guy named Patrick Rimes. He had just hosted, uh, a really incredible national panel called Hospitality Investing, basically where we went over all the mechanics and he grabbed some of the best operators and we were there along with some others and we dug in through his platform with his audience on the hospitality investing. And spoiler alert, we could not believe the feedback for the deals we’re doing right now, which is incredible with that, uh, project called Capital H6.

So if you’re curious about what we talked about last night, please just hit us up at accountableequity.com and we will show you what we talked about last night because it was a, it was a barn burner. Everybody was excited about it like we were. And that led us to a great relationship with Patrick. So let me tell you about this gentleman. Engineer by training 25 years ago started getting introduced to private investing and today after the good news here, he’s had some setbacks like all the best people. He’s also had some successes and today he’s built a platform of education called Passive Investing Mastery and that does really interesting national platform webinars each month and, and, uh, we were on that. So if you’re, if you’re excited to meet a Forbes author, a writer for Forbes, a, uh, an Amazon book bestseller, a sponsor who knows about real estate, multifamily, other types of, uh, debt funds and credit funds, we have a show for you today, but here’s the reason you’re gonna stick around.

Well, that was great. He, he shares a deep analysis of the difference between REITs. If you haven’t heard this topic yet, you, today you’re gonna get a deep dive. REITs stand for Real Estate Investment Trust, and he wrote a great article on Forbes called The Ruse of REITs. Now that’s a fancy word. You’ll have to wait around to find out what that means, but check out this episode and let us know what you think. Enjoy. Well, Patrick, I am excited to get to know you better. I mean, it was fun being on your nationally syndicated show, uh, the other day and talking about hospitality investing and you do a great job with those. So we’re gona get into that. But for those of us who are listening today and who have not met you yet, sir, would you mind sharing your backstory and kind of business you’re in today and what you’re passionate about?

Patrick Grimes:

Yeah, was delighted to have you on our mastery series. Josh, you did a great job on hospitality. It was incredible conversation. So thank you for that. So Patrick Grimes, I was just like probably many of your listeners, Josh, a hardworking, professional, busting away

Corporate America. I was doing automation robotics. Uh, loved it. Machine design. I’m still a geek today. I don’t, I don’t do as many gig things as I used to <laugh>, but it’s still there. Uh, and I just got into investing earlier, more so just because I talked to the founder of the company I was working for and had a lot of respect for him still do to this day and he’s got a lot of investments with me now. But he en- encouraged me. He said, “Hey, don’t go put it, don’t go put your bonuses into more startups and stocks and crypto, put them into real estate, put them in alternatives.” And that’s how he actually developed his wealth, made it in high tech and invested into real estate. And so that’s what was kind of like my, my aha moment and kind of started the really bumpy and windy road from there. <laugh>

Josh McCallen:

And that was while you were an engineer, correct? And you said that was the owner of the company that you worked for? That’s great. So basically you were getting mentorship at work there. Was he doing that kind of sharing, sharing about that kind of financial independence and financial literacy with others? Did you seek it out? How did that come about?

Patrick Grimes:

I don’t think, I’m, I don’t think anybody else was ever present in any of our conversations. So I don’t know if it, I don’t know if it extended to anybody else, but I, um, I was a talented engineer. I, I started doing R&D projects, which meant I started working closer with the two founders and started traveling out and working with, you know, really cool medical devices from diagnostic stuff. I mean, through my career, I’ve done heart valves, I’ve done, you know, ablation catheters, I’ve done all kinds, I did a bunch of stuff and during COVID, I’ve done solar cells for Lockheed missiles, I’ve done airlines, I’ve done Tesla’s rotor assembly, robotic and stuff. I did a lot of stuff, but I mean, I, I got to the point where I was kind of in lot of contact and I started getting some bonuses in, and I was like, “Wow, like, what do I do with these?” And so that’s, was in that conversation, you know, that he shared his only regret was not investing more sooner into real estate.

Josh McCallen:

Okay. So he, he’s your mentor and he introduces you to commercial real estate. Does he recommend a sponsor? How did it go next? Like, how did you find your first sponsor to partner with and invest?

Patrick Grimes:

Okay. This is where I, this is where the bumpy road happened, right? Because this was back down 2006 and seven, you know, and eight. Like real estate was never gonna go down. It was basically free to buy stuff and I was just a snot nose engineer wanting to rule the world and so I got my head over my skis, purchased, uh, uh, development, uh, a, a lot in pre-development, speculative, you know, high growth, double triple my money every year kind of thing. I’d done some research on the last half dozen projects, but not, I hadn’t zoomed out far enough to look at what happens when the market takes a turn and, and what is a recession resilient asset class or investment or, or region. I had no idea. You know, 2008 and nine hit, I was upside down very quickly. Uh, I flipped upside down unfortunately and, um, I paid for years, was determined not to go bankrupt, but I ended up had to, uh, uh, pay taxes on the forgiven debt, um, in the subsequent year, which was kind of brutal.

It’s like the debt that the bank forgave became ordinary income for me. Yeah, so I mean, I was battered and Bruce, but I mean, it, it was, it was lessons early, fail early they say, right? And, um, but I mean, it, it, it, I didn’t make … I was still a talented engineer. I got a master’s in engineering and an MBA and double down and when I finally got a higher paid position, smaller place, I moved companies, I was on the seat, on the journey. Where do I invest now and what went wrong? And that’s when I learned about recession resilience. <laugh> And so buying for cashflow and stuff like that.

Josh McCallen:

Well, buying for cash flow is the big one, right? I mean, Ro- Robert Kiyosaki, who does this quick little intro to this podcast all, makes everybody so happy every time I hear. I know, uh, wait till you hear when you get to listen to your episode and, and, uh, Robert Kiyosaki endorses you. But, uh, here, he endorses the show that you’re on. So he is the genius of the cash flow. You know, he’s cashflow quadrant, he’s, he’s Rich Dad Poor Dad and the, the rich don’t work for money. Were some of those things part of your origin story or just this great company mentor that kind of changed your mindset?

Patrick Grimes:

Well, there was a lot of contributors to it and the purple book was absolutely critical to it and when I read it, I, I will tell you what, I, it spoke to me. I mean, my. My, my father has three doctorates, on divinity and one in education and one in evolution. So I had been raised in an academic household, was an educator. Uh, my, my sister’s an educator, PhD clinical psychologist, professor, runs a clinic, mom ran preschools growing up, but they were so passionate, they were so passionate about what they do. Uh, they weren’t ever thinking about anything as an investment. It was very, and just very stark for me

Reading a book that described my life, reading a book that described, like, where I’m at and, and really not wanting … And there was other entrepreneurs, like my, my dad’s mom’s dad, right, had, had some loyal royalties that came through, my mom collects. Not substantial, but they’re there, right? And then there was like my, my dad, my mom’s dad, my grandfather, my grandfather also had some real estate investments, but there was nothing in my immediate area. Like I didn’t have any support. So I was kind of venturing into this unknown space, but it resonated with me and I got it. And I had already lost it all one time and I was determined not to do it again. So, but yeah, those, there was, that’s when I started meeting people going to meetups, getting physically in front of, going to every Warrior Bootcamp I can find, you know, with those weekend getaway things and those buying programs and learning, um, downloading audiobooks every morning.

I, I run every morning and I- Yes. …

listen to Audiobooks and webinars and stuff still to this day. Uh, and eventually I started learning and started, I told my wife, it was like, “This is my third master’s degree, but this is my last one because at this point, like I’m actually learning what you need to be successful.”

Josh McCallen:

Yes. Not

Patrick Grimes:

Just learning how to work harder, but learning how to make a difference with our-

Josh McCallen:

I love hearing that. I love hearing that. So with your, with your journey, I, by the way, we have to cut fast forward to today, right? Because we wanna keep our listeners excited because we’re gonna deep dive into all the things Passive Investing Mastery does. So now let’s fast forward and then we’ll go back a minute later. But today, what does today look like for Patrick Crimes and what is the business? Give us a little more insight into, uh, Passive Investing Mastery. Well,

Patrick Grimes:

Passive Investing Mastery’s really two things, which I think are super awesome. You know, on is I wish when I was younger that somebody was coming to me saying, “Hey, here’s the 50 different alternatives you can invest in that give true financial security and stability outside of the volatility of the stock market.” Instead, they were like, “Here’s 50 stocks and have 50 startups and Bitcoins.” And so I created a educational platform, which you were on yesterday where we dug into hospitality. Ha- we have one next week on AI data centers and before that it was cannabis and timberland and airline pilots and every kind of real estate you can think of, uh, laundromats, we’ve done, we’ve covered so much stuff, but it’s, it’s a platform where I just agnostically blotion approach, educate on every kind of alternative investment that’s outside of, outside of the stock market.

And I think that’s the college course that they should be teaching. That’s the college course, that’s the junior high course. The high school course that should be teaching is what true financial literacy means and your options of the investment landscape. And so we do that, we teach, educate on that also tax strategies and asset protection and estate planning and retirement accounts and all the things you need to know to build efficiently and stabilized and protected generational income and, and wealth. So that’s one of the aspects that I’m just really excited about.

Josh McCallen:

And then what else? What else is there?

Patrick Grimes:

So the other side is like, well, I, I have somebody that rode the high tech wave, the dot com, boom. I, I rode Y2K, I rode- <laugh> And meanwhile, I rode the real estate wave. That was, it was in 2009 that I lost at all the fr- and then I built a large, uh, partner in thousands of apartment units and what happened in 2002, just race skyrocket evaluations dropped, uh, that stripped a bunch of the equity from, you know, m- I, you know, half a decade or more of, of, of, of work. So if, if I was all in again, just like I was in 2009 in real estate, that would’ve been really challenging, but I wasn’t, right? I build what I consider to be as my passive investment is really three rings of the VIN diagram. One is, does your investments have recession resilience, right?

Are the fundamentals stable through market downturns, right? Are your new investments non-correlated to your existing portfolio? If you’re all in in the stock market, then you get, you can’t do more in the stock market. That includes reads because that’s all paper. But if you’re all in in real estate, then maybe an allocation in the markets makes sense, but that’s an allocation. There’s also allocations in others. So non-correlation. And we talk a lot and educate about what’s correlated and what are market fundamentals and how it would drive those.

Josh McCallen:

And, and what it … May I interrupt you that first? So, so when you say you teach on that, is it always through this platform like I did with you last night, panels of experts?

Patrick Grimes:

So we have a bunch of webinars that we do. And if you actually look on in our history, I’ve done my own one-on-ones, like what is recession resilience, what is non-correlation? I did one-on-ones as well, or one to minis, I guess. Uh, and if you look, we had to do education. I’m gonna be on stage at best ever in Salt Lake speaking on Friday if anybody wants

to Join us in, in two weeks from now. I think it’s on the 19th. I’m really a February, really excited about that. But I, I speak and we record all that stuff. We get it out. The day before yesterday, I was on, one on private credit. I was on a panel on private credit hosted by, uh, Bronson. It was a really cool one. We had three really cool fund man- four fund managers all in private credit offerings and we featured our commercial debt, litigation, legal and medical in there. But so I, I do a lot of education. I also write a lot. So I write articles in Forbes and I got, I got blogs out there. So there’s a bunch of content. I’ve been over a hundred podcasts. There’s a lot of things that I’m doing to educate. But in all of our slide dexpert deals, we actually address what is non-correlation, right?

What, what, what are, what, what does it mean to invest into markets that have different fundamentals that don’t rise and fall together? So if you’re, you’re looking for recession resilience, you’re looking for non-correlation, and then we have a third one. We don’t want to have to go too far into it, but it’s installation from AI disruption. And I had to add that right. I like that. I had to add that wrong because, like, there were industries which I was very excited about, one of which was rolling up CPA firms. What happened? Now you see the, the big CPA, you know, the top big five, big seven. I think it is that they’re starting to lay off because it’s becoming so much more efficient. Some of those industries are on the chopping block and you gotta be really careful even in the top next five, 10 years, what you aggregate, what you put together based on insulation from AI disruption.

So really th- that’s, that’s the focus. And so now we are, I’m spear phishing investments for us to sponsor as past investing mastery and those are ones that fit our buy box that help investors not just have independence in one asset class like I did and then ride the wave and fear the news every time the, the one indicator that you’re looking for that drives your whole world fluctuates.

Josh McCallen:

Wow, that didn’t know. I, I like that. I liked the way you were going about it. And by the way, great domain, passive investing master. I’ve said it so many times, you could tell. I love it. Uh, and as a matter of fact, that AI disruption one or, or combating AI disruption as a strategy that you wanna keep your eye on and what do you look for, is that what led you to do a panel that had us as an expert on hospitality or what was your origin story on that panel?

Patrick Grimes:

Well, so the passive investing mastery, we go through every kind of alternative asset class. So it wasn’t specifically AI disruption. There’s a … And it’s not … I don’t think you can battle AI. It’s happening. I th- I think you wanna have, you wanna have an industry that’s not going to become functionally obsolescent through AI, right? And that’s happening in a lot of industries right now and it’s, it’s ha- it’s gonna escalate. It’s gonna be an exponential curve. You know, hospitality, are people still gonna need to travel? Are you still going to need hotels? Are you still gonna wanna have some place to eat out? There may be some questions there. Why? Because they’re … Hesla just announced they’re shutting down the factory. I used to work in when it was Toyota and then I worked in again when it was Tesla and I did the robotic assembly.

They’re ripping all the car manufacturing out of that and they’re putting in robots, robots that can do your laundry, robots that can do your cooking at home. And my wife, she had a Chinese cooking robot shipped in on her lanai side kitchen here and we’re already automating our dinners here at our household. So, so like when you can have a gourmet meal made by a robot at home, will that affect the service industry and

Josh McCallen:

Restaurant Matt, can I ask you real quick, what did you just say you had shipped in from China? What, what was it again?

Patrick Grimes:

Ro-

Josh McCallen:

Cooking

Patrick Grimes:

Robot.

Josh McCallen:

You have a cooking robot? We have a

Patrick Grimes:

Cooking robot in our

Josh McCallen:

Kitchen. Okay, okay. Time out. I’m not sure I understand what that is. Is it like a humanoid looking thing or what is it?

Patrick Grimes:

No, it’s not. So it’s, it’s actually more functional than like a humanoid because it sits on your counter, but it has like change out blades where it can like stir fry, it can pressure cook, it can steam. <laugh> And it’s got, it’s a little touchscreen that’s, you, you search through the recipes and I’ll tell you, add a little bit of this. So you add a litle bit of that. It does it all by weight. So you can say to add a little bit much. You never have to use any measuring cups ever again. There’s just an incredible amount of … And then it’ll go through frying, simmering, stirring, and then pressure cooking and then do twice cooked pork all in its own. Just all and it’s just all it’s, it’s insane. The thing’s amazing and it pumps out actual like taste, restaurant tasting food and that’s what I’m saying.

Is there a risk that you’re not, you’re, you’re gonna not need cleaners of your house anymore? Is there a risk that you’re not gonna need to go out to have a great meal? You know, is there a risk that you, you know, may not, uh, need to go to the car mechanic? No, not, not really. You probably need Carmex. What about AC units? Well, you’re still gonna need somebody to repair your AC. No, I

Josh McCallen:

Get it. I get it. It makes me think about real quick on the, you know, it’s, it’s funny about AI because obviously we, we know it’s innovation and, and the component that it will disrupt a lot of categories of business absolutely and there’s a lot of money going towards it. I heard one time you did a, a webinar on, uh, data centers, data centers. So-

Patrick Grimes:

Next week, actually.

Josh McCallen:

Yeah, that’s right. You said that’s coming out next week. So data centers, great, great idea and technology using AI or AI enablement, great idea. We, we just share a true story over the last few weeks for us here at the Veeva May and all the resorts platform we’ve built, which, you know, I, I’ve been building because it was good to build. It’s good to build something that is excellent and treats people with love and dignity and all the good stuff. And of course, because our business is based on contracts and weddings and, and events is a core component, we’ve been able to weather all the crazy stuff over the last seven, eight years and then before that 10 more years. So that’s what I, that’s the way I looked at it, doing the right thing, stabilizing it through contracts. In the last two months, we have been in conversations with potential strategic partners, basically platform, private equity, platform partners that are saying, “This is the first time I’ve ever heard this, but it makes sense that they’re seeing us as part of the AI play being correlated in a way that the more AI grows, the more businesses like ours that are not obsolete because of AI.” That, that doesn’t mean one or two of the roles that we have here at the, at the resorts could be automated.

Absolutely it could. But the event of an experience with humans has been around since the dawn of civilization, right? Yes. Even, even eating dinner with a robot is not the same as eating dinner in community. That’s right. So even, even though that robot probably will eliminate the private chef component, it may not eliminate the fact that you want to go in community. So they called us, this group is saying to us that they’re putting us on that play with AI. And I’m like, “What do you mean?” Well, they’re like, “As more AI goes and more things do become obsolete, we want to be in a safe haven that may actually grow.” And then of course ours, I was briefly sharing with your community last night, but ours is nature based and the opposite of tech. Not that we don’t use, we use great tech, that’s why we’re so efficient, but the thousands of acres are uplifting.

And so they’re the opposite of like immersive ver- VR, immersive AI, where you start to start to feel actually anxious, right? Anxiety and depression are on the rise. All that stuff is somehow associated to too much automation and too much detection. So anyway, I was really honored by that. And as a matter of fact, it’s actually, we believe we’re here currently experiencing two really cool things that you would love. One is a portfolio effect of having multiple properties and more growing. That helps because that a- that attracts a different type of investor that is willing to push your cap rate down. And you did a great job last night studying hospitality because you talked about how the high … Cap rates are higher, which means you can’t easily engineer it. You know, back in the day when people were buying multifamily and the cap rates- Yeah.

… were super small, four or 5%, 4.5, you could change a value by $200,000 of EBITDA and $100,000 of EBITDA and it would have a disproportionate benefit to the appraised value, even though you didn’t really make much more cash. And that’s- One

Patrick Grimes:

Way or the other.

Josh McCallen:

Yeah. One way or the other. So that, that’s not how we make money. We make money the old fashioned way we make money. But anyway, I thought you did a great job last night, and so that’s why I wanted to really compliment, uh, the community you’ve built. And also I want to- Josh,

Patrick Grimes:

Let me just say, when I said AI disruption, I was meaning more like, in our world, it’s like you’re, you’re calling takeout, right? Yeah. You’re, you’re, you’re not necessarily … I 100% agree. If you’ve got, you’ve got that green space, you’ve got that community building, that’s what it’s about. It’s not necessarily- Absolutely. May not be about having the best meal anymore because you may, that, that level might be coming home, but if it’s about community, I love it. It makes more sense.

Josh McCallen:

Now, I want to ask you about an article you wrote for Forbes, which is great, great platform, great job there. You call it the Ru’s of REITs. Just professor, sit down for a moment, maybe a minute here and explain to us what is the RUS of REITs and what are these? I think it’d be a great little educational piece of the show.

Patrick Grimes:

I think my sister, when she, if she hears it, she’s gonna fact check that professor because I’m like the one of the few not professors in the family. And my two master’s degrees does not equal a PhD. She’s very clear about that. Professor,

Josh McCallen:

I gotcha.

Patrick Grimes:

But, uh, yeah, well, I mean, the problem is, is that when you get a job, you’re working hard, you make money, they want you to put it either in company stock or with the company and they’ll match it. Maybe all that they’re gonna tell you is graduate it to an IRA because they still keep control over it. And quite honestly, you’re that manager’s annuity plan. They want you locked up in there forever so that they can retire off of you. And, and that’s not a good place to be. That’s right. They’ll say, “Oh, we’ve got you diversified into REITs.” Well, what are REITs or publicly traded paper? You’re not investing in the underlying real estate. So what does that mean? You’re not getting the tax advantages and depreciation, you’re not getting the inflation hedging aspects of, of real estate, you’re not getting the secured asset because the company value of the REIT could drop to zero even if the real estate hasn’t, right?

So you don’t have any recourse action to go in after that asset. The challenge is, and if you look at the charts, and we show this in our decks, if you look at the charts, I actually put from the Fred data, federal serve data, the index of REITs, values versus the S&P versus real estate. And it is the REITs and the S&P travel in the stock market. They detract very, very closely and with significant volatility, right? So I do try to say the ruse of REITs because it is like that dying hope of the, you know, financial advisor, financial planner trying to clamor as best they can while putting a little bit of a blinder over your eyes saying, “Here’s a lesser thing that doesn’t give you the tax advantage, the inflation hedging, or the resilience, but we can say it’s real estate.”

Josh McCallen:

They call it real estate, right? And but you’re saying- God, it’s so painful. Point that I, I would love for you to dig in a little more. So you buy 100 shares of a fancy REIT for, let’s say, office, uh, retail shop strip centers, which perhaps are doing okay right now because, you know, people still use drive to strip centers maybe and you buy in some, you buy 100 units of that. You’re saying that the paper I bought could fluctuate or will fluctuate up and down even if the underlying real estate, let’s say the rents on those spaces are stable and unchanged this year, the, the paper value could have gone up and down. Is that basically your point? So what makes it go up and down and why do they call it REITs then?

Patrick Grimes:

Well, so you’re actually buying an interest in the company and the interest in the company is valued based off what it trades at. What things trade at are the sentiment about how well the economy’s doing. On the stock market, people look at, “Hey, this is how I feel about the future of America, the economy.” And so everything on the stock market tends to go up and down based on the allocations they make to the stock market, which is a future bet and where they think our economy is going. However, the safe haven assets, the assets that people tend to invest in that are outside of the stock market are actually hard assets. They tend to go into gold and oil and gas and real estate. Or in our case, we love legal and we love medical because those are even more resilient than, than the aforementioned ones.

But the issue is they’re going to pull that money out of the stock market. Real estate and if you, I’m not saying, I’m not trying to make anything up. If you go look at yourself, you can plot the data of REITs in the, in the stock market. It trends with itself where real estate stays completely non-correlate. It doesn’t mean real estate doesn’t go up or down. It means that real estate shows low correlation. It means that it relies on different market fundamentals where you don’t have that sentiment driven of the, of the volatility of the stock market affecting your direct real estate holdings. Meanwhile, your returns are amplified- Yes. … because of the tax efficiency and the inflation hedging and your cash flow, right? So you

Josh McCallen:

Get that cash- Well, let, let, let’s dig in on that because you’re teaching a lot of great ideas here that I want to make sure everybody follows you and stays up with you. But we’ll come back to that about the direct type of investing in real estate versus what is called a REIT. But before we do, what is the difference between a public rate and a private REIT and do they have better fundamentals if it’s a private REIT versus a public REIT?

Patrick Grimes:

Yes. Typically, when it comes to, you know, REITs, most people are thinking about the public REITs, the publicly traded REITs. If you can access the private REITs and you depend, and you can’t, you can’t label private REITs altogether because there are private REITs that are specifically designed to be, you know, non-correlated or specific asset driven. Now, you’re not gonna get the inflation hedging, you’re not gonna get the tax efficiency- Right. … you’re not gonna get that cash flow and appreciation and you’re not gonna be able to 1031 exchange tax free until you die and then pass no tax burden on. But all that said, those are, those are fundamentally two different things and you, you can do a little bit better, right, in the public REIT space,

Josh McCallen:

But- Well, is, is it appraised, is it a based on appraised value on a private REIT, whereas in public, it’s based on sentiment of paper?

Patrick Grimes:

Well, if, so I’m not a financial advisor and I’m not a- Okay. I’m not, I’m not allowed to give investment advice or interpret, you know, and I don’t wanna talk broadly about these markets because I’m actually, I’m an engineer that’s doing a bunch of alternatives, right? And so-

Josh McCallen:

Yes. …

Patrick Grimes:

I’m a litle bit hesitant to go too far because I’m immediately gonna get hit up by these individuals putting these public, you know, and private REITs together and they’re gonna say, “Oh, that’s not true for this specific case and that specific case.” Got it. And we do these differently. And we’re a hedge fund REIT and we’ve figured out the way to do non-correl- private REIT and we’re all gonna do non-correlated returns and we’re beating the, you know, on this and that. And that’s the case. That’s true. But you can only really answer these questions in kind of like a broad, you know, sense. That’s a good

Josh McCallen:

Point. The

Patrick Grimes:

Ruse of REITs from your financial planner really is at the heart of it.

Josh McCallen:

I love it.

Patrick Grimes:

They’re traditionally the large, uh, publicly traded REITs. I, I don’t want to get on like a situation where I’m like pising off my Forbes buddies, right? Because there’s a lot of these other guys that are in there.

Josh McCallen:

Let me not, let me take you off the hook then because I thought that was already fun. So let’s get into the cool things and the community you’ve built with passive investing and, you know, you’ve attracted, you actually do sponsor funds now and you sponsor your own projects and funds, I should say, and you have said to me that you’ve learned the power of partnership. Would you mind sharing what you meant by that and how your business works on the fund side?

Patrick Grimes:

Yeah. I mean, you know, I tried to do, the first time I tried to do it all myself and lost it all and then the next time, you know, I, I tried to, I tried to, uh, do, follow the guru, you know, and I, I lost my life. I took over everything. And then when I finally figured out how to work with others, partner with others, I was able to build a sustainable portfolio where I could do what I’m really good at somebody else could do what they’ve been doing for decades and in markets that are better markets and in different asset classes that are non-correlated. So partnering was really what allowed me to build the quality of life and the security in the portfolio. You just simply can’t build enough investments, a portfolio with enough investments that rely on different market fundamentals to have stability doing it all yourself.

Y- you can do that maybe as a, you can be good at a lawyer, an engineer, a doctor. Yes.

But then you can’t do it again in, in real estate, but if you, if you do and you’re successful, you’re like the 10% to do all, all, you’ve lost a lot, you’ve traded a lot of your life away, but, but you actually need seven of those or 10 of those- Yes. … depending on who you talk to. To build stability, you don’t have seven lifetimes. <laugh> And I don’t wanna live like Elon Musk either, right? I don’t wanna live it- Yeah. … where I’ve traded my life away for my investment before that. I wanna augment it. And so partnering, I mean, I, I’ve been in enough partnerships and deals, so no, I should’ve been in less partnerships and less deals. <laugh> So I, I think part of is patience and learning to, to, to be very hyper focused. And for us, it takes me years to find the right people and I, I spearfish different industries and then within those industries, you gotta figure out how to solve a need, you gotta figure out what asset class provides enough security and resilience and, and what structures within those.

And so that’s, we’ve curated a set of investments that all fit our very specific buy box, non-correlation, resilience and installation from AI disruption by finding people that have a decade and a half in every case in commercial debt, litigation funding and, and medical receivables have shown huge, tremendous ongoing success and we’ve set up businesses together, like shake hands with these guys and we become partners and we originate all our own investments and that’s, I’m an engineer so I’m big on the numbers and then we aggregate capital and build hyper diversified portfolios within each of these different sectors, right? And that That’s what’s been really strong for us.

Josh McCallen:

No, I think it’s beautiful model. Let me, let me ask a couple fun questions about it. Uh, you know, since you talk to a lot of wonderful investors, I imagine you’re like our team at Accountable Equity where they have accredited investors and this means people that have the SEC guidelines of over, over a million dollars of personal net worth not counting their house. So when you’re talking to those families, it’s best to start with education of categories. And I think you did the best thing possible by creating your webinar series. Great job on that. Um, so you’ve talked to a lot of investors. Here’s what we learned are the key interesting questions. One is IRR. A lot of times investors will ask you, “If I invest in that portfolio fund that you have, Patrick, what would be my IRR?” Now, instead of overly explaining what an internal rate of return is, can you just share what percentage points, 10, 15, 20 is what they are pursuing, um, and what they think of higher numbers versus lower numbers.

What have you learned about people’s appetite when they see big numbers versus middle numbers versus little numbers in IRR?

Patrick Grimes:

Well, I, I’m probably gonna answer it in a couple different ways because in, in private credit, you can be current oftentimes, uh, with your cash flows because you can make- Okay, so IRR. Right. And the, or you can look at IRR, like, so let me answer it a couple different ways. For example, in our, uh, debt, in our debt fund where we’re, we’re lending to small balanced commercial real estate and right now we’re getting high interest rates. At six, seven, 8%, we’re getting 10, 11, 12. What does that mean? That means, well, we have a lot of churn, right, because we’re, we’re doing bridge loans so we’re able to have investors in and then pay them out and we’re, we’re clipping significant rates. There are two different kinds of investors. There are some people that love that growth. Something, they’re, they’re working, they’re making a lot of income and, or they’re putting it, investing from a retirement account and they, they don’t want cash flow because it just sits there.

They’d like to reinvest. So there’s a growth and then there’s the income. And what we found is that there’s investors that like that are one versus the other or they’re others that want to switch between. So if you give somebody, uh, the ability to switch between growth and income, you can chart, you can provide rates between sort of that seven, eight and a half, 10, to up to 13 and 14 and they’ll go between sort of that income, shorter lockup periods where we have 90 days, six month or one year at seven, eight and a half and 10, which means they can get it out, right, pretty quick and they can do income. Or if they’re really looking for longer lockup periods, even since inception, we’re hoping for like 11, 12% we’ve been doing more like 13, you know, 14 and a quarter percent for the longer lockup periods.

And so what we’ve found is that like there’s, there’s literally like a four to five point spread for those individuals that prefer shorter lockup periods and they’re willing to forego the four to five points than for those that have the longer lockup periods, right? But what we’ve found is that those individuals that are saying, “Hey, you know what? You know, I, I’m okay not doing the liquidity. I’m okay with the longer lockup, as long as I can kind of toggle between cash flow and not cash flow.” Right? And so, so a lot more people would be like, “Okay, as long as I can grow it now and tell which AI can cash flow.” So we found kind of like this sort of this different makeup and based on where people are at in their lives, you can put them in different aspects.

Josh McCallen:

You know what’s interesting you just said, you’ve said what we have found too. So, you know, uh, Scott Bindis runs and Bob Bolan and Phil Bogia and Katamba Van. These guys are actually the, the managing directors and leaders of our accountable equity and they have said the same exact thing. And that’s the fact is you even said, you know, when you offer total aggregate returns, people sometimes trade off liquidity or cash flow versus growth. And in the growth category, I thought you said exactly what our research says, 14% would be like very successful growth program. And 7% would be incredibly strong cashflow program. So we agree with your, your range 100% we find that. As a matter of fact, I get approached sometimes by different types of investors and they’ll say, “Oh, how come your IRRs aren’t 20%?” And I say, “One, we build a very conservative proforma and 15% is about the most I ever believe our performers can get to.

Though we’re going to try to hit home runs every time, we are very comfortable in this range between 13 to 15% on a growth and lower for cashflow steady, right? And it’s funny how almost every investor agrees with that understanding. Not, not many actually believe the 20 plus percent IRR because it is … I want to ask you, why do you think most investors don’t believe it or do you disagree with me?

Patrick Grimes:

I think it’s an industry specific number, first of all. I, when you said most investors, because I, I can’t believe how many times I probably, I can think of a dozen right now where somebody … Well, your returns are just not interesting to me. I’m only looking at 30%, you know, or whatever. Right. Right. 30% over here. And I’m like, dude, that is an unsecured consumer line of credit fund. I was like, that is a very different fund. It doesn’t have a recession. It’s not in a secure position. Right. There’s no lien. No, there’s no ability to take collateral. But there’s different industries, right? And some industries become much more efficient where like when you’re in real estate, there’s a lot of operators, a lot of players, right? So the numbers you’re saying are which I originally started out, private credit, first position debt, commercial real estate.

There’s a lot of … There, there’s ability to provide the returns, like you said, and the ranges like we’re talking about and that is very plow- palatable. Um, I think where, to answer your question about what’s believable, I think that some of the lesser known non-correlated alternatives provide greater returns at a lower risk premium even than real estate. Why? Legal and medical, they just never go down. And for every thousand real estate operators, there’s one medical financing company. For every thousand real estate operators, there’s one legal financing company. It’s a boutique industry that if you’re been in it for a decade and a half and built a reputation, then, and you, those are, those are who they go to because it’s a smaller industry, right? So you can get and private equity and hedge funds and sovereign, they all know this. You can get higher returns and less efficient markets with less players if you have a relationship, longstanding relationship.

So do I think that the numbers that we’re both talking about make a ton of sense in real estate?

Josh McCallen:

Yeah.

Patrick Grimes:

Absolutely. But is it very normal to back 20, 30% returns in legal funding? Very, very common. If, in fact, there’s le- there’s publicly traded stocks to doing, doing that in, in legal funding. I mean, that, that is not a, a question, right? And of course, every investment has like, you know, the sliding scale of high risk and high return versus, you know, very late stage- Yeah. No, I agree. … no risk and established. But then in medical, typically it’s around that 10, 13, 14, 15%, um, uh, current payout, right? So that is higher, I think, than where you don’t have to go down to the seven. You’re like, and you can do one year lockups for 10, you can do one year lockups for 15 and be in existing receivables that you can underwrite, that have liens, that have care that’s provided with government or institutional payers.

It’s about as secure as a payment-That’s good. And you can actually return 15% current cash on, on that, on that asset.

Josh McCallen:

No, that’s good. And that, and that is new to many people, so that’s, that’s why you do those educational webinars, and that’s why I compliment you and look forward to finding ways to do more with you. And I just think this has been fantastic. And I think, Patrick, would you mind sharing with our team of our wonderful audience how they could find out more about you?

Patrick Grimes:

Yeah. So, and Josh, you’ve been fantastic. You do, like I said, you did an incredible job, uh, yesterday and today. Thanks so much for having me. Patrick Grimes at PassiveInvesting Mastery, all spelled out, Passive Investing and Mastery all spelled out. At the top, we do have some of our investments. Down below the page, we have the opt-in for our alternative investing mastery series, renew AI data centers. I mean, we’re, we, we do every single different kind of alternative asset class. <laugh> If we miss one, tell me about it, because I get we, we create these based on a lot of the times feedback from you and we usually, we’re all live. We get all the … John knows we wait till we get all the questions answered and there’s a bunch of questions. There’s like 40, 60 questions. So get in there, dig in there and when you start learning these new asset classes, start to be more familiar, more comfortable, feel more confidence in finding- Yeah.

… the ones that are the right fit for you. And set up a meeting if you’d like. I actually give away this book J- Josh was giving me a hard time about it because he knows the guys that I did this with here. <laugh> Less, this is lessons from thought leaders. I loved it. Uh, I think Russell Gray’s on here, uh, Navy SEAL, Phil Co- Phil Consles to Def Leppard, Kevin Eastman, Tom Zigger, Dennis Whitley, Brian Tracy, a bunch of really cool people.

Josh McCallen:

Really great people.

Patrick Grimes: 

It was really fun working on this book and I give it away for free. Josh, passiveinvestingmastery.com/book is this secret link and as long as you put Josh McAllen, the promo code, if you don’t put anything, we’re not gonna ship it to you. <laugh> But you can either download the PDF or you can put in your address and we’ll sign and ship you a copy. And if it helps, I tell my whole story, these guys all tell theirs. I

Josh McCallen:

Love

Patrick Grimes: 

It. If it helps, helps your journey learning about my ebbs and flows and losing it all and coming back and journeying into alternatives, moving to Hawaii, moving to Honolulu, tell, talk about all of it. If that helps it along your way, then that’s enough for us and make sure you set up a meeting too. I’d love to chat with you. I mean, wherever you’re at, you know, if any of this is resonating with you and you’re like, “You know what? I kind of would like to put a slice of my pie into something new that won’t rise and fall, you know, not correlated.” What, that may, that maybe make sense. Set up a call, you know, we have opportunities, but we also have a Rolodex of 50 other alternatives with people not as, not as awesome as Josh, but really great people out there and all kinds of different alternatives we can get you pointed in the right direction.

Josh McCallen:

Well, that’s very nice, Patrick. Thank you, buddy. We’ll have you back on soon. Jo. Thanks,