Financial Freedom Through Alternative Investments

Michael Levitt:
Welcome back. I’ve got Patrick Grimes on the line. Patrick, how are you?

Patrick Grimes:
I’m great. I’m excited to be here after a great run, an espresso and taking care of my newborn all morning long.

Michael Levitt:
There you go. So you’ve got the energy for this. That’s good. And always love when we have engaging and energetic conversation. So why don’t you share a little bit about you and the work you do and then we’ll dive into the conversation.
Patrick Grimes:
Sure. So my name is Patrick Grimes. I’m the CEO and founder of Invest on Main Street. We provide passive investments in real estate and diversified energy funds to busy professionals that want to get out of the rat race sooner and love a happier retirement.

Michael Levitt:
That’s really important, especially for the population that we’ve got, a huge chunk of people that are approaching retirement age and then you’ve got the people that are really young and we always tell them, “Start investing, start investing. The sooner you start, the better you’ll be.” But there’s so many different options and on that, but the types of investments that you guide people on, I think, is definitely unique. So let’s dive in a little bit on that. So of all the things you like enjoying and doing in the investment work that you do, which one do you think jumps out at you as something that you really enjoy?

Patrick Grimes:
Well, honestly it’s the relational part of it. I came from a high-tech background, machine design, automation, robotics, got a master’s in engineering and business. And I really like diving in and solving problems and building machines that hadn’t been built before, but that obviously wasn’t going to provide me the financial future. It’s a volatile high-tech space and there’s no passive income. It’s work until I die and hope a 401K or IRA will get me there. What I love now is really there’s the three steps to it. One step is once I scaled into investments and started a company, I now get to talk to investors on a daily basis. Even my own employees, I spent an hour yesterday, right in the middle of the day, just coaching one of my own employees on how to invest in different kinds of investments and just really pouring out so that they don’t do what I did early on and dump it all into things that guarantee you work until you die and are inflation infected.

So I love that, giving back to people, learning about their goals and trying to get them pointed in the right direction. That’s step one. Step two is I love working with people like you, because there’s such a great network of people out there that are giving in their way, strong leaders and partners that I get to work with. And I like that we make a positive impact on, for example, the step three is our residents. We put in every deck that we make a cleaner, safer and improved living experience for our residents. And we have large two to 300 apartment communities. We have 500 million worth of those in 26 southeastern states and Texas, and each community has a dozen buildings. So there’s whole communities of people and we buy these properties that are distressed and we make it a cleaner, healthier, and improved living experience for them. And so I love that, that give back, that ability. And on the diversified energy side, we provide the ability to get into a greener portfolio, a way for you to do it, a more regulated and a little more safer way, and to help increase our national security here through diversified energy funds. And so I like that idea of being that socially responsible on all three of those levels.

Michael Levitt:
It’s great work that you do, and let’s dive in a little bit on the real estate side of things. And we talked a bit in the pre-show about the cost currently at the time of this recording, inflation, interest rates are all over the map. Affordability for homes for people is getting further and further out of reach so the work that you’re doing on that, and you just mentioned it, going in and buying up these distressed properties and turning them around and making them a place where people can really enjoy living in, which if you, and I know this and I think a lot of people have gone through these things, when you live in a nice place that creates a foundation for you to be able to do other things in life, you feel better. It’s a place where you feel comfortable because when you feel comfortable at home, that means you’re getting your rest, you enjoy living there, it’s a good experience for you, which means you can start thriving in other areas of your life, which we all benefit as a society when people are thriving

Patrick Grimes:
100%. And it’s so clear to me because we’re the guys that get a call if it’s an apartment building because the owner’s struggling, he’s distressed, he wants to sell it off market quickly. Man, we were living in Hawaii during COVID and I was constantly red eyeing out into these properties and walking them and there were pest issues, mold issues, just major safety issues. The gates didn’t work, the security systems weren’t there, crime had moved in, large amounts of people stopped paying, there was foundation problems, leaking problems, and they shut down the amenities, half the washer dryers didn’t work. That kind of stuff where the owners just neglected and it really frustrates me. But those people lost their buildings, we got the opportunity to come in and improve it and make a better life.

On the other side, that’s on the multifamily side, and we were just talking about that I’m launching a new fund, which is very appropriate for this season. It’s not on large apartment communities, which we do stand those up, those investment opportunities still, we have one on our website now, but this is a different approach. And this is looking forward into this year and saying, “Look, you know what? There’s a lot. We’re headed in a recession. People just came out of COVID. They’re not getting into the job market as quick and there’s a lot of delinquencies. People need more affordable housing, they need more affordable options.” And as it is with many booms, affordable housing tends to take a hit. People keep looking for the highest rents and so they convert out of affordable housing. And so what we want to do is the reverse. We’re in markets right now where we have lists of not criminals, but hardworking people that need affordable housing, that are sitting there in line raising their hands saying, “Look, can I get into a government subsidized place with you?”

And so we’re buying swaths of three bedroom, two bath homes, we’re improving them, and we’re taking our residents and we’ve vetted and made sure that they’re the right kind of residents and we’re putting them in those homes, and that provides them with a more affordable way to survive, essentially. Now, it also provides us as investors, government subsidized rents. So at a time when rents are faltering and delinquency is high, we have the government to back that so that provides some hedging against rents. What does that also do? Well, three bedroom, two bath, they tend to be the strongest appreciating asset, so that controls the most likelihood that they’ll rebound and stay solid through a recession. Also, because of that, we can get great debt. We can get 30-year mortgages on these assets. What does that mean? That means we can fix our interest rate for 30 years.

Well, at a time when interest rates are rising and they’re volatile, that provides us some hedge against interest rates. So what does that mean? Well, we’ve got great low interest, long-term fixed debt, we’ve got an appreciating asset and we’ve got hedge against faltering rents and delinquencies. That means we can pump out over 12% a year and also provide the tax advantages along with that, while making a positive impact on the communities. It’s perfect. And in a year when our investors can’t find cash flow because interest rates are rising, and the multifamily deals and many other areas in real estate, it’s really hard to cash flow right now. So that’s what we’re doing on the real estate front and it’s really exciting, we’re getting a lot of interest in it. I highly recommend it. And not only can you just get disbursements of your payments monthly, but you can also participate in a reinvestment option which allows for you to rapidly grow your wealth by just redistributing and then one day when you retire, start cash fun.

Michael Levitt:
It’s a beautiful thing that you’re doing and it’s addressing a huge challenge and I think that’s one of the things where people that are looking for opportunities to invest in… I probably should have said this at the beginning, this episode is for investment information, not investment advice, work with your own investment professionals, but this is really good work that your team is doing. It’s really, really important because, again, housing is such a huge necessity. We need it. It’s one of those basics that we need to have. And those three bedroom situations in apartment buildings, depending on where you live, you don’t see that many of them. Some places do have them, but most tend to be one or two bedroom. That third bedroom is a special thing. So people need to go into homes and not being able to afford them really creates an issue.

And then the fact that your organization is going into these properties, obviously doing the same thing that you’ve done with the condos and the apartment buildings, turning them around, making them really nice, that improves the neighborhood. What does that do to the neighborhood? That brings up the amenities, that brings up investment and other neighbors going, “Okay, wow, they actually did a good job with their garden. Okay, let me clean mine up.” Next thing you know, you’ve got a beautiful neighborhood, the value of the homes appreciate, and we know that that’s going to continue. And yes, there’s down markets, but come on, we’re not going to be able to buy a house for $5,000. I don’t anticipate that being an option for a three bed, two bath, full basement, all that good stuff. I think those days are long beyond us because the cost of things are going up.

But again, and even with the 12% situation too, last year, a lot of people that were invested in the stock market, and I’m not even going to go into cryptocurrency, but in the stock market, it wasn’t the best of years and a lot of people are looking going, “Mm, that hurt a bit.” And we’ve known that there’s a lot of people that are really interested in learning investing and getting into it and I think the real estate play is definitely one that it’s going to do well because, unless I’m completely wrong, I don’t think housing and homes are going to go away. I think it’s going to be something that’s going to be around for a while. So it’s definitely one of those sectors, that’s really important to look at. And again, understanding the economics of what’s going on right now, this fund is critically important and appropriately timed from my observation.

Patrick Grimes:
You said it better than I could. Absolutely. The apartment buildings are always a solid option, workforce housing. We can still find those great deals, we’re finding some distressed assets now. But leaning into what is needed most, and that’s the affordable housing into potential recession and stagflation or in times. That’s a great service to both the Americans that are the hardworking people, that make this government move forward, as well as our investors. But real estate is not the only answer, so we also do diversified energy funds which makes us a little bit unique as well. But I agree with you on everything you said.

Michael Levitt:
Yeah, diversification is something that we’re always taught that we should do. Don’t put all your eggs in one basket. So you want to share a bit about the diversified energy? Because energy obviously is front and center on the minds of a lot of people, especially in recent weeks there’s been some energy challenges that people have faced. So I’d love to hear your thoughts on that and some of the work you’re doing around there.

Patrick Grimes:
Sure. Yeah, so energy is on one of those super cycles that they have. So it’s actually an appreciating space where you see, and prices are high, where prices are faltering in real estate, cash flow’s going down in real estate and the stock market’s down. Energy’s certainly one of those places you can invest in, start to appreciate. And this specific diversified energy fund, a lot that we’re doing is there’s really no other one like it. And most investments, if you’re, say going to invest in natural gas and oil drilling, they just put you in one well, and every other operator I know of does that. And it’s really risky because they’re out drilling somewhere and people are trying to get rich quick and so the industry has pretty much a bad reputation because of that. And so this is a reset reinvention reapproach of that and that is to say, “Well, let’s not just do one well because things didn’t go wrong.”

It’s like building one unit of an apartment building and that’s it. But if you have 100 units and there’s a flood or there’s fire, well you’re fine because it washes out in the economics. So if you do dozens of wells on plots which have known producing wells nearby, and so you have reserves blow it, and you’re just farming. It’s like what we did when we build a building, there’s buildings all around it cash flowing, it’s a much safer bet. So we’re doing that, but we’re doing it at scale. We’re doing dozens of wells across multiple leases. Leases being not intangible asset, it just means you control the reserves below, and we’re splitting it half natural gas and half oil, which allows us some product mix, allows us to pivot between the two based on markets. And we give you a piece of the reserves, we give you a piece of the lease in the fund and we’re the only operator doing that.

So that allows for you to have an appreciating asset as well as cash flow, and an exit. So it’s interesting thing is it actually appears on its surface to be very similar to our multifamily deals where you invest, you get significant tax advantages, you cash flow monthly, you return at capital in year two and three is what we’re projecting and then an exit in three to five, and we’re working to do 1031 exchanges in a similar way that we do in real estate. And to your point earlier, it’s because we’re investing alongside of the government into essential needs. This is housing, food and energy. The government needs us to house, feed and energize America. It just so happens that not only is energy an appreciating asset right now, and we can talk about, you were hinting at the global political moves that caused that to be the case. We can dig into that.

But it also is far more tax advantage in real estate and people don’t realize that. When you invest in our multifamily deals, you don’t pay taxes on the cash on cash returns, because we’ll pass through depreciation, which allows you to offset those monthly passive income. So you’re pretty much just collecting the mailbox money and not paying taxes on it when we distribute it. But we also pass through year one losses that are really high, but most people can’t use them because they have to just carry it forward. The interesting thing about energy is that on 100,000 investment for example, we’ll pass through 75% of it, $75,000 loss, but the IRS calls it intangible drilling costs and they give you special treatment, which means it can be used off normal ordinary income to offset your W2 income, not just passive income like in real estate. But for most of our investors that are hardworking professionals and out there owning a company, K1s, 1099s, W2s, for most of them you invest 100,000, the government basically will give you a 30,000 back at tax time or not tax you on 30 grants.

That’s pretty incredible. Now you’re all in at like 70, and then you’re still collecting monthly passive income that’s tax deferred, and then you’re doing an exit. We’re projecting a triple equity multiple like we did on the first fund. And so the tax advantage is astronomical and the diversification play, because we don’t use debt, is incredible. It’s not going to rise and fall with real estate. It’s not going to rise and fall all the stock market. It’s a place for you to hang your hat, somewhere where it’s appreciating, and not be all in in one thing, and more essential needs. Call it investing like the wealthiest, that’s what I call it.

Michael Levitt:
Yeah, it’s definitely an investment in infrastructure, which we know in certain parts of the country has been, I don’t want to say neglected, but maybe not as important an issue as it should have been. But now it’s come time to where we’re realizing this is important and the partnership of government and private investors and organizations. I love seeing that because it’s a collaborative effort and when you combine, you can do a lot of great things, and the tax incentives alone are something for a lot of people to really take a look at because, especially the example you said, you get a 100,000 in, you get 30,000 basically off from the tax situation is a significant deal and it’s a big reduction. And when you’re trying to minimize your taxes, especially as you get into higher brackets, anything like this that can help you obviously earn a return is important, but to save money as well on your tax situation is even better. So definitely great options.

So one of the last questions I want to ask you before we wrap up, because I know we’ve talked about it and some people may not know, okay, we say passive investing and then there’s active investing. What’s the difference between those two? Because some people may not understand what that means. So could you shed some light on that a little bit more for the people listening?

Patrick Grimes:
Yeah, sure. And so if you’re like me, like I was, I had a high income earning job, I was the expert in custom machine design automation robotics, and did work for Lockheed and Tesla and all kinds of stuff. It was insane. And I was so good at what I did and making money and I was like, “I can go be active and I can become an expert somewhere else and do that in my investment portfolio.” Well, the first deal I got into, I lost everything, and then I started doing it lower risk and it started taking over my life, taking over time away from my family, friends and hobbies. I tell the story in my book and if you go to Forbes, Patrick Grimes, multifamily versus single, or 1031 exchange, I’ve got a ton of articles about the trials and tribulations of being an active investor. When you’re not the expert, when you’re an expert at making high cash flow in [inaudible 00:19:59] jobs and the costs that can have in your personal line.

It turns out that there are, which your employers are not going to tell you about because they want to keep you in your 401k, they want to keep you in your IRA, and if you’ve got a financial planner, they’re also not going to tell you about because they sell the same kinds of products that are in your 401k and IRA. There are completely alternative investments like real estate and diversified energy funds through syndications. That’s what we do, we pull investors’ capital together so you can participate with us into investments purely passively. We’re the expert, we have decades of experience, relationships, we find better investments than you could, we do all the due diligence, we execute on those, and we provide multi passive income and appreciation that’s protected from interest rates, inflation, hedge, and all these great things that the stock market isn’t, that the products that your retirement accounts aren’t.

And you’re purely passive, you’re limited in risk and liability, and they’re completely diversified outside of the same metrics and fundamentals that will cause your retirement accounts to swing up and down. And so it is passive like how your 401K and IRA is, but you’ve got to make an election to choose to invest. You can do that with cash, you can do that by self-directing. You can take some of your IRA and 401K funds and put it into a self-directed account, and then point that and invest that into some of these alternative deals with us, both in energy and in real estate. People don’t really realize that. I’ve written articles on Forbes, but you can maintain time with your family, friends and hobbies. I couldn’t even get married, and I tell the story in my book, until I stopped doing single family buy, renovate and flip, because I was moonlighting my investment portfolio and slaving away with my master’s engineering MBA in a high-tech job. It wasn’t until I started partnering up and trading up the larger and better assets and better locations with partners that I was able to actually scale and enjoy my life at the same time.

Michael Levitt:
No, I’m happy for you and the newborn and all of that and all this amazing work because obviously it’s doing well for you and all of your investors, but more importantly it’s improving the lifestyles and homes and opportunities for so many fellow Americans and that’s just a great thing. So I’ve loved this conversation to talk to you for probably hours about all of this because, we just scratched the service on some things. But where can people find out more about you, your book that you had mentioned and anything else you’d like to share?

Patrick Grimes:
Yeah, so one of the things I love about what I do is I get to talk to people, so feel free to drop me an email, [email protected]. If you go to investonmainstreet.com, you can go to slash contact and set up a meeting with me. I’d be happy to chat with you, wherever you’re at, get you pointed in the right direction. Also, I have a book I’m happy to give away to your listeners. We have a secret page for that, investonmainstreet.com/book. Real simple, investonmainstreet.com/book and this book is… Well, it was an Amazon number one bestseller. I had such a good time writing this. It’s called Persistence, Pivots and Game Changers: Turning Challenges Into Opportunities, and you’ve got Phil Collins, lead guitarist at Def Leppard, Russell Gray, Real Estate Guys, you got NFL, NBA players, coaches, entrepreneurs, there’s handful of us and there’s me on the cover. That’s right, I have hair there, if you’re looking at the video, I did have hair. But it did make an Amazon number one bestseller. Brian Tracy did the cover. You go to investonmainstreet.com/book and in the promo code, make sure to put the… What’s the promo code that we’re going to be using?
I couldn’t hear that.

Michael Levitt:
Sorry about that. Let’s use the promo code breakfast.

Patrick Grimes:
Breakfast, okay. We’re using promo code breakfast. That made my team. Investonmainstreet.com/book, promo code breakfast, and if you do that, we’ll ship you for free a hard copy of this and I’ll sign it. I really do believe in the stories in here and lots of really amazing stories about persistence and pivots and I was able to find my way out of the grind and I’m happy to contribute on your journey to do so as well.

Michael Levitt:
That’s awesome. I’ll definitely have all that information in the show notes. So Patrick, thank you for being you and for doing this amazing work. It’s benefiting society and that’s what’s so important. Each of us can do something and we make the world better when we collectively gather together to do some great things. So thank you again for being on the show. Really appreciate it.

Patrick Grimes:
Michael, I’m so happy I can be here.