Eric Lindsey:

Welcome to The Moonlight Real Estate Syndication Show. I am your host, Eric Lindsey. Here at Moonlight, we choose to focus on achieving financial security through real estate. And today, we are here with Patrick Grimes. Patrick specializes in commercial real estate acquisitions, private … Let me start from the top on that.

Patrick specializes in commercial real estate acquisitions, private credit, energy and litigation finance. As the CEO and founder of Passive Investing Mastery, he syndicates investments through multiple funds that provide high-growth returns and passive income across a range of alternative investment strategies with over 5,000 apartment units valued at $600 million. Patrick also has 15 years of experience in engineering and custom manufacturing. Without further ado, welcome to the show, Patrick.

Patrick Grimes:

Eric, glad to be back with you. You’ve come long ways I think since we originally did this several years back.

Eric Lindsey:

Yeah, I would say I’m definitely a little bit more developed with my podcasting and we’ve got a few more episodes since the first time and so I’m looking forward to the interview and introducing you to a lot of my listeners that may not have been around when you first came on the show, but before we get into more details about you, if you can bring us back up to speed on who you are and how you got started in real estate, that’d be great.

Patrick Grimes:

Sure. So as you mentioned before, it’s Patrick Grimes, CEO/founder of Passive Investing Mastery. I got my start as a mechanical engineer, as you alluded to. I did machine design, automation and robotics. It was custom equipment for manufacturing. Did some really cool projects with companies like Tesla, Google, Lockheed, Johnson & Johnson, really cool stuff. It was a lot of fun. I was doing well, but as many of your listeners probably can attest, it’s the, “Work until you die,” and I was looking for how to invest to accelerate that retirement. Got some advice early on to by actually the founder of one of the first automation companies, design firms I worked for who said, “Make your money in high tech, spend it in real estate.” And his only regret was not buying more sooner in real estate.

And so this was back in 2006 and ’07 and I was eager, so I went all in into a pre-development, highly leveraged certain to double triple my money, make it big, and I lost it all during ’09 and ’10. So I was battered and bruised. And so that was actually my first tumble. If you want to hear more about it, I’ll offer a free copy of my book here at the end to your listeners. I actually ship those out, so stay tuned for that. But still a successful engineer, made my way back into real estate and various alternative investments from there and found myself here today.

Eric Lindsey:

So I love to unpack some of those early beginnings. It sounds like you ventured into the real estate arena, but bit off a little bit more than you could actually chew, but ended up finding success down the road. So what did that look like? How did you learn from that mistake and also how did you navigate those waters? When you were working W-2 exactly, how were you able to accomplish so much while working at your W-2?

Patrick Grimes:

So moonlighting it. I write all about it in the book. It was not easy. I actually got two master’s degrees as well. I got a master’s in engineering and an MBA with a bachelor’s in mechanical. So I wasn’t one to just sit around. Meanwhile, I was also living in San Francisco, running a running group with some friends know RunSporting.com and traveling the world. I’ve done two different gap years and whitewater up to the Grand Canyon, hiked base camp of Everest, been all over and I’ve been very adventurous. I’ve always been one to be out and doing new challenging things. One of those challenges that I took on was investing and I really was in that desire to want to build …

As you mentioned, the very first words in your introduction, you talked about financial security, right? And I wanted that. I didn’t just want financial independence or financial freedom because you can get that maybe from one investment that does well, but then you’re on a sandy foundation that can wash away from you right up from underneath you, even if you do everything right, wash away. So financial security really was about allocating into various types of investments that all of which stand on more stable ground when joined together and what they call those noncorrelated investments. And so my journey through my career was not just to be in high tech, was also to be in real estate and to be in energy and to be in other types of investments, like we’re doing litigation funding now.

And not just in real estate acquisitions, but also in real estate debt and try to find ways to allocate such that I have true financial security that can withstand the test of time and I don’t find myself having lost it all again.

Eric Lindsey:

That’s the name of the game. You definitely don’t want to have to restart. And so many people lost a lot of real estate during that ’08, ’09 period of time, but there’s a lot of people that learned along the way and they are now doing very well. They’ve learned to go after cashflow rather than appreciation and so it’s always something to learn within those mistakes or past failure. So if I could drag us back briefly before we move forward, so you mentioned that you were able to accomplish all the things that you accomplished through sheer hard work. You said that you actually earned a degree while you were still working at your W-2 as well. So how was you managing family and all of your other life responsibilities while you were working W-2, while you were closing transactions? What did that look like and what was working for you? What was not working?

Patrick Grimes:

And I actually talk about Persistence, Pivots and Game Changers, this is the name of the book and it spells out all of that, because when I say I was moonlighting single family because when I came back I started finding recession resilient markets like in Texas. And then instead of highly leveraging myself into development, I bought existing assets that I could renovate. And so I was from California while doing projects for Tesla and Lockheed, working my ass off and I was finding properties, underwriting them, buying them, working with local contractors to renovate them, then refining out my capital and holding them and then getting tenants.

And so I had to build a team with that moonlighting process while it was working. I was seeing myself succeeding and I was literally deploying every single penny of my bonus and every single extra amount of my paycheck that I could into these assets. While that was all working, I found myself really running around the clock. I was running myself ragged. I didn’t like all the jobs that I was doing. I just knew that, if I just kept at it, I could eventually get there. Unfortunately, I found that it really wasn’t scaling. Every time I added a new property, I had to continue to churn and churn and it did take a toll. It took a toll and it wasn’t until I met what is my now wife that I made the decision to take a break from single-family rentals, so from buying distressed, renovate and holding.

She was actually there for my very last single-family closing in Chinatown in Los Angeles and we met at Starbucks with the notary and I said, “This is it.” Actually, it was the refinance. I was like, “I’m not going to do anymore, but let’s get married, right? And that way I can spend time together.” And that wasn’t the proposal, but that’s why I took the break. And it took two and a half years for me to want to come back because we got married in California and then Beijing and I found myself now as a contractor, which freed up some of my time during the day. I made a specific change during that period so that I could allocate and juggle my time better and I was working offsite now, not showing up 8:00 to 5:00, but that allowed me to then reset and think alternative strategies that would scale.

And that’s when we founded Invest on Main Street, which is a private equity firm that then accumulated large apartment buildings. And I was able to syndicate. I was able to partner up, so I wasn’t doing all the bad jobs, all the hard jobs. I was able to specialize work with people, partners that are local to the buildings in the target markets and so I didn’t have to be constantly on a plane. And I found the ability for me to balance work, investing in life in my wife and went very well for us and here we are. We ended up moving to Hawaii in the process. I think things have gone pretty well.

Eric Lindsey:

I would definitely say so. You guys are doing really great. You’ve got 5,000 units under management. You’re involved in diversification in all type of different funds. One last question pertaining to your beginnings when you had that W-2. Was there a certain dollar amount that you were aiming for before you exited that W-2? What was the goal? What was the plan as far as when it was time to actually leave and get away from the corporate world?

Patrick Grimes:

It’s interesting you say that. So when I switched from being a W-2 to a contractor, that was a risk, right? Set up shop as an S corp, which is more tax efficient and also being off site was a bit of a risk because you have a little less visibility about what’s going on. And so I made that step though, which obviously gives me a little more control to be able to work more professionally both in my investing career as well as my automation career, right? And so that was the first step. And I think it’s tough. Not everybody can do that, but it was necessary because when you start taking your investing career more seriously, you need to be able to have a little more freedom when other people that investing is their day job are working.

That’s not during the nights and weekends that you have available after W-2. It’s periodically throughout the day when they want to work, when brokers want to talk to you, right? All the supporting industries, supporting vendors, all those people want to be on the phone. So that was important step. The next step actually happened and it wasn’t as smooth as I traditionally was very personal. And throughout the whole single family journey where I was in the development, lost it, and then I did a whole bunch of single family homes, which I actually, I’m just finally starting to sell those off. They’re doing amazing, but I’m trading them up to different alternatives now. They’ve done incredible.

And then through the growth of Invest on Main Street, it was a very personal journey for me. I tended to be the engineer that would sit in the back room and I would analyze and underwrite and fly around and figure things out, but I wasn’t out there. I wasn’t on podcasts. In fact, I was a partner in over a thousand … I think almost 2,000 units before I ever did a podcast. And then it was when I finally told my story, I was told by someone, “Hey, you got to get your story out there. People will resonate with it,” which was challenging to finally tell. Because when I finally got out there and started telling my story that people in my automation career began to learn about and my friends and some of my family members actually all began to learn about my investing journey as well, which is scary for me. I don’t know why. I was a typical engineer, I guess, kind of reserved.

And it was through that period where even people in my automation was like, “Why are you doing automation still?” I was like, “Well, I love it. It’s a lot of fun and plus it creates a ton of income that I can repurpose.” And so it became over the course of a couple years, record years through COVID when we converted to doing automated assembly sales for COVID test kits. It was literally record years for us and automation for me personally year after year. And then post that, things slowed down and it made sense to make the jump.

Eric Lindsey:

Nice. That’s really good that you set a time period, you knew exactly when it was time to leave or exit and you made it out of there. And so you achieved that financial security, things went well and so that’s great for you and great investing. So if we can turn the page, let’s bring things up to speed as to exactly what it is that you do today. And so you are involved in multiple different alternative investment, so oil and gas, energy, real estate. Shine a light on exactly what it is that you guys are doing today and how you’re providing your passive investors with great investment opportunities.

Patrick Grimes:

Well, so our company, Passive investing Mastery, really has the mission of providing education for our investors to achieve mastery in the art of alternative investing. These are the types of investments that the people that I worked with, that I contracted with at Google and Lockheed and Facebook and Raytheon and some of the biggest SpaceX, those are the smartest people in the world, Apple. None of those people had any idea any of these alternatives existed. They were in their company’s stock, they were in their 401k IRA. Maybe they were buying a flip, but they had no idea that the instability and I had firsthand that that portfolio on the cyclic swing of the stock market, on the cyclic swing of real estate, the instability of what they were working towards.

And I found a way out myself and so I like to share and educate. So every two weeks, we do a mastery series on alternative investing strategies. We bring in different sponsors, different strategists, tax, asset protection. We’ve had every alternative investing on there from gold to gold mining to crypto to parking lots to laundromats. We bring in all kinds of different alternative investment sponsors and strategies and we talk through them every two weeks. And so blue ocean approach, helps to accelerate that knowledge, that intake, that awareness of how you can allocate.

And then we educate people on balanced allocation on how then do the wealthy, and if you look at any of our slide decks, we leave with that, “They don’t allocate 100% into real estate. It’s like 26% into real estate, but where else are you? There’s another 25% in alts. So what are the alts? What does that even mean? What does alternatives even mean and how do you select those?” And then we train people up on, “What is it to mean to be truly financially secure? It means you’re in allocations that don’t ride the same waves.” We call that correlated, non-correlated to each other.

So our investments that we sponsor are exactly what we believe is true to me in my journey in life, what I believe I need in my portfolio and what I believe our investors need in their portfolios. And that’s not just real estate, but we have opportunistic funds for real estate debt right now. It’s really strong cashflow and an opportunistic time and interest rates are high and banks are pulling back. We have real estate equity where we’re pulling incredible growth returns from a once-in-a-lifetime opportunity to buying commercial real estate right now. So we have two funds, an income and an acquisitions fund.

And we have all their alternative investments that don’t rise and fall with any of the other markets. Those are lesser known types of investments. And people have to … In order to find something that doesn’t go up and down with oil and gas, it doesn’t go up and down with real estate, the stock portfolio or the broader markets, you’ve got to look completely outside of those. And then commonly, you find those in things like education and healthcare or legal services. And we have crafted a litigation funding investment. These investments have been around since 1910 in America when American tobacco, some people contributed capital towards attorneys to go fight American tobacco because there were so many harmed individuals and then they won, but it took investors to lend to these attorneys so that they can work on contingency, a fee, not pro bono, but contingency based on success and they can take on these clients that can’t otherwise afford it and provide access to justice to them.

And so we’re leaning into attorneys, leading attorneys. It’s very similar to our debt fund in real estate. It’s just a lending portfolio into attorneys in the legal industry. And instead of appraising properties and getting liens on properties, we’re appraising their contracts, their fee agreements and we’re lending on those and getting a lien on those. And so it’s really just a diversified loan portfolio, but in a much more stable industry where legal services is just tried true over the years and all the others, the S&P oil and gas and real estate just have danced around it.

So that allows our investors to, as you said earlier, get true financial security, start allocating into something where they don’t have to worry about them losing their shirt all because of one market collapse.

Eric Lindsey:

That’s really interesting to hear that you guys are investing in attorneys and litigation funds. What comes to mind with me is are you guys taking a look at attorneys’ track records, how credible they are, how many wins they have? How are you guys going after that and do you actually have to be a legal professional to invest in a certain deal?

Patrick Grimes:

It’s a good question. So what’s interesting about attorneys is that it’s a very simple industry. They run on basically hourly rates and legal fees and filing fees. So it’s not very complex. It’s about the same, legal service is about the same size as the global airline industry, but keep in mind, the global airline industry is immensely complex and so there’s a huge supply chain there. In order to invest into something like the legal services where if you’ve identified, “Hey, this is a great place to invest because of the stability over the decades,” you’ve got to figure out how to solve a need. And so just in real estate, how we’re providing housing for tenants and legal services, we can provide access to justice for the harmed and we can do that by similar processes that we engage in real estate.

We’ll look at operators in the legal industry like we’ll look at operators in real estate. We’ll look at the projects that these legal industry attorneys are working on. They’re working on cases, right? Look at their track record, as you said, in the past. We’ll see how much skin in the game, how much time and resources and finances have they invested into this. Just like we do in real estate mostly, we want to see how long that they’ve been working, we want to see how viable this project is and how much they have invested into it. And then we’ll lend in a diversified portfolio. We’ll lend across a lot of different attorneys that are working on a lot of different cases and often thousands of harmed individuals, we’ll lend, that they’re representing thousands. So there’s a lot of diversification there.

And we work on cases that are very low-risk profile, very near settlement where they’ve already progressed to the point where, “This proof is in the pudding.” They call it causality and liability. The defendant’s already pretty much knowing that they have to settle and it’s more a matter of how much and when. And people think about litigation as a binary win/loss. Well, the reality is 90% of civil litigation is settled out of court, settled. Very few of them ever actually reach a thumbs up, thumbs down by the jury or the judge. So we tend to lend on things that are very low risk and we’ll take a look at the value of a third-party guy that values those dockets, the potential proceeds that this attorney wants to put up as collateral that we can get a lien against and then we’ll lend a small percentage on that.

Just like in real estate, how you’ll do sometimes … Our debt fund is like 55% loan-to-value. That’s really, really conservative. Most lending funds are 60, 70, 80, or 90+ loan-to-value on real estate. We’ll do 10, 20, 30 or 40% loan-to-value in litigation funding. So we apply all the same mechanisms and constructs, and as you do in real estate and any kind of asset-backed lending investment, all the same mechanisms and contracts, you apply those same things just to a different industry.

Eric Lindsey:

So on these litigation funds, what are the returns? What are the returns on these litigation funds? Is it pretty comparable to the syndication with commercial real estate or what kind of metrics are these litigation funds producing?

Patrick Grimes:

It’s an interesting question. So it’s very comparable in its structure and how it’s executed and controlled in its framework as a debt fund where you have a diversified pool of loans, right? And we are lending into legal industry, but what’s really cool about litigation funding is that the way that the funds come back, we’re not just stuck with principal and interest payments. In fact, we’re lending and we typically don’t take any payment. We’re lending to attorneys that are working on contingency fee basis, meaning they need capital to get these, to hire … They get additional clients on and then get those clients across the finish line. So we’re not getting back principal interest payments, but in exchange, we get back more equity-like returns, returns that look more like equity.

As the case does better, we get a higher return and we have essentially a waterfall type structure to where the borrower doesn’t get anything until we get at least our capital back plus a modest return and I get nothing, right? And then as the case performs, we’ll get a little less and then we’ll get a little less and we’ll get a little less. So we’ve structured these agreements to where we are at a very low-risk position to get our capital back, get a reasonable return and then participate and maybe a 2 or 3x on our return, but high, that really big upside, we actually hand back to the borrower. So we’ve play that lower risking.

What that means is that, yes, the returns are similar not to a debt fund, but the returns are more similar to what you might see in a real estate acquisitions-type syndication, maybe 20 IRRs, 30 IRRs versus the just principal and interest payments that you would get in a debt fund. So it’s like the security of a debt fund with the returns and equity.

Eric Lindsey:

That’s really good information. I just never would’ve thought that you could syndicate attorney situation, a civil situation and be able to secure funding that way. So that’s really good that you were able to identify that and put the structure around it to be able to generate income for your passive investors. If we could share with us a recent transaction that you guys have been a part of, I know that I was telling you initially offline that we’re always trying to learn a little bit more about operations and how other people are doing deals and closing on transactions. So if you could share with us a recent transaction that you’ve been a part of, how you located it and what the opportunity was, what the metrics were, just give us some high level details if you would.

Patrick Grimes:

Sure. So I don’t know if you’re familiar with Camp Lejeune. Camp Lejeune is marine base on the East Coast and it was actually the camp where some of our soldiers went to then get trained to go to war. And over the course of about 17 years, the DOJ actually became aware of water contamination that happened at Camp Lejeune, and unfortunately, they didn’t do anything to fix it. And so for a 17-year period, civilian families, sorry, military and civilians and their families as well as vendors were all exposed at this large marine base to this contaminated water. Now it has since been shown that the contaminants in this water directly linked to a bunch of very severe illnesses and there was a federal document that was actually produced to establish that these chemicals that were the contaminants caused this list of illnesses.

And then there was a lawsuit that happened in which the DOJ with discovery happened and it was actually established and that they were actually liable because they knew that these contaminants was in there and action wasn’t taken to correct it. So we call that causality and liability. An attorney then comes to us and says, “Look, I’ve got 2,000 individuals who have been harmed by diseases or ailments as a result of this water contamination. Here’s the proof on their medical records that they have the ailment and here’s the proof of their presence at Camp Lejeune that shows they were exposed. Here is the cases that have happened, the status of those cases where the government’s a bipartisan piece of legislation was passed saying, ‘Yes, we acknowledge reliable and we caused it,’ and here’s the settlement grid that the government has published saying, ‘Hey, if you were 30 days to a year based on how long and these elements, here’s your settlement amount.’”

And he said, “Look, I need help because I’ve got 2,000 individuals and I want to get more, but I’ve got 2,000 now. I need funding to help get these individuals across the finish line and get their settlement. And the lowest settlement is $100,000 and the highest settlement is $450,000 and it’s likely they’ll fall somewhere in between, but this is the early settlement grid. I would rather get some funding to get to through the next two years, so we get the larger settlement later because I don’t want them taking the early settlements.” So he said, “Hey, look, could you lend to me on a 10% loan to the value?” In other words, we get somebody in there to look at all of his clients, a law firm evaluation guy, Bill Brennan on our team, he’s a third-party guy that does this. He values law firm’s dockets.

“Tell you what, we’ll get that guy in here. We’ll have him, an independent guy, take a look at the value of the settlements. We’ll assign the lowest early settlement amount, 100,000 per claim to this entire docket. Then if you can lend on me 10% of that, 10% loan to that collateral value, then I’ll give you a preferred position on all the proceeds of that docket.” And so that is a piece of the initial funding that we are working on in our litigation fund. So it allows our investors to essentially provide access to justice for these harmed individuals that are dying of non-Hodgkin lymphoma, kidney cancer, Parkinson’s disease, all these things that are cause, these heroes of our society. And we get to help by funding the attorney, give these guys access, give their families justice, give the meaningful settlements, and in exchange, we participate in the attorney’s contingency fee.

The attorney gets about 40% typically of the settlement amount for doing it all for free, essentially up until settlement, 60% goes to the claimant. And then there’s an agreement. Our borrower doesn’t get anything until we get, in this particular case, a 1.3 equity multiple or a 26% IRR. They don’t get anything. And then above that, there’s several tiers where they then get some and then they get a little more and then a little more. But that allows us then to get a very low risk return of our investment plus a return and then it incentivizes the attorney to really get a lot of that upside. But if there’s issues, if there’s volatility in the valuation, like maybe we missed the valuation by 10 or 20%, it doesn’t really matter because we’re at a 10% loan amount to the total collateral value. There’s a ton of flexibility. There’s a ton of cushion for things to maneuver and shift and change in our calculations.

So that’s an example of a transaction that is a really great one that we’re working on right now in our litigation finance portfolio.

Eric Lindsey:

So is the whole time on this going to be two years or what exactly is the exit on this?

Patrick Grimes:

It’s a really good question. So with real estate and things like litigation funding, you’ve got to have the right timing for exit and that oftentimes you can’t control that, right? In real estate, there was a lot of that said, “Oh, we’re going to refine in three years and sell in year five.” Well, then interest rates skyrocketed and all those timelines got pushed down, right? So just like in real estate, there’s a little uncertainty as to the exit timeline, as to the settlement timeline for each independent case, which is in our case, why we work on what’s called late stage. Because they’re about seven year timeline on average for these kinds of large scale cases, and of course, for maybe decades before the harm was done. And then from the time that they combine all these cases and say, “Hey, look, we’re going to call it a mass tort and we’re going to put it through the cases. We’re going to put it through. We’re going to settle these together,” right?

From that period, it’s about a seven-year process. We’re usually five years. In the case of Camp Lejeune, actually they just were so late stage. They’ve already published the grid and they cut off in August of ’24. No new claimants can be added. So we’re literally to the point where almost very last dollar in and they can already settle today, could be one or two or three years until settlement for the higher amount that we are … Now again, we don’t need the higher amount to meet our numbers, but there’s likely higher settlements coming that are bigger than the early settlement offerings. And so that one in all of our cases and that one included, we’re looking at ones where they’ve settled cases like them already, they’re doing these settlements quickly, they’ve already established settlements, they’re already negotiating settlement amounts. Causality and liabilities are already established. We’re like one to two to three years out, which is why in our fund we have a diversified fund with thousands of individual lawsuits with many, many cases.

And so through that pool, we believe we got a statistical bell curve where we can conservatively say, “Man, with so many different lawsuits settling, we believe we’re probably going to ramp in year two, peak in years three and four and taper in years five based on the aggregate of all of these.” And so it gives us that kind of incentive of knowing that it’s not backloaded at five years, it’s middle loaded and maybe there’ll be some stragglers, but we can even cut that off and sell those if we need to and exit. But we believe we’re going to get the majority of our return back in the middle of this.

And so that’s how we control the timing. And keep in mind, the desire for investing in things like legal services is not to have control over the specific exit timing. And it also shouldn’t be in real estate because that’s a fallacy and that’s been proved once again in the last couple years. It’s to invest into a non-correlated investment. It’s to invest for security. It’s to invest, so your entire wealth isn’t on one sandy beach that can get swept away with one storm. It’s to have your wealth separated out on various beaches so that one storm won’t take you out. And litigation funding provides that where you can’t pinpoint exactly when each and individual one case will be settled across the aggregate of those. You have a pool of funds that are going to come back, but those, when they come back, the value, the return amounts can have anything to do with the other storms going around the globe, right? Does that make sense?

Eric Lindsey:

Yeah, that’s really good details and a great explanation on that. You’re diversifying, as you’ve been saying all throughout this episode. You’ve got several cases going on all at the same time and they’ve got exits or ending dates that’s going to end at several different periods. And so your load is carried through several different litigation cases. So I’m just curious as well, is there any cashflow in between. You may have already shared that, but what cashflow or cash-on-cash returns are these litigation funds throwing off?

Patrick Grimes:

There are very few litigation funds, if any, that are structured like ours where as a matter of fact, we’re the only one we know that is … My partner’s been doing this for 15 years and he’s allocated, he’s been responsible for initiating about three quarters of a million dollars and recovering billions of dollars through litigation funding efforts. And he’s worked for private institutions, hedge funds, sovereign funds, usually 500, $100 million dollars managing litigation funding and other asset-backed, credit-related lending investments. And so he comes from a really big background. We’ve specifically selected this structure because we believe this to be the best late-staged scenario in which you get strong returns with a limited risk, but our specific structure does not “cashflow” because the asset and the structure of our agreements inherently doesn’t cashflow.

So the attorneys that are coming to us asking for funding, they’re not providing housing for tenants that will pay them rents, right? They are providing access to justice for those who can’t afford it, so there’s no cashflow coming back to them to then pay us between now and settlement. So it doesn’t say cashflow. Now because we have a diversified portfolio, we believe, and we do have models to show, the distributions come through, but those distributions are buckets from the various settlements in the fund. They’re not cashflows being spooned out to you over time, right?

And so we don’t publish a, “Here’s your average cash-on-cash,” because that would be deceptive and it’s hard for real estate investors to differentiate cashflow from an exit where this is a thousand exits, right? I think we have over 3,000 claimants currently. We have term sheets with attorneys for almost 3,000 different lawsuits, individual lawsuits. Think of a lot of those exits. Those are going to come back as buckets, not as cashflow, but there will be distributions and it will be middle loaded, right? So it’s not all back ended.

Eric Lindsey:

So that actually makes a lot more sense to be able to provide distributions. So it’s going to be similar to receiving cashflows, so to speak, on the passive side, you’ll be getting paid out, etcetera. So hey, great explanation on that. It sounds like you guys have a really good opportunity going there. We’re going to turn the page and start wrapping things up, but before we do, we’ve got a portion of the show that we like to call our Moonlight Coaching Round. And typically, what we do is ask our guests a few questions. If you could hold your response between one or two minutes per question, that’d be great.

Patrick Grimes:

Fire away.

Eric Lindsey:

First question I have for you is, what do you think every new real estate investor or individuals that’s looking to invest in syndications should know before investing in syndications?

Patrick Grimes:

That’s a good one. It took me a long time to learn to partner and I think that was the key. It almost when I went from doing things all on my own to doing things with others. It took about two and a half years to warm up. And so I had to dig deep into the industry. I actually attended some events. I went through coaching programs. I read a bunch of books to try and understand what was the goals and the mindset. And so I think that it’s very important for them to really get to know their sponsor, to really study their background, understand their timeline for payouts, their timeline for exits, how financially strong they are. And do those all align with you? I see a lot of frustrated people sometimes that got into somebody who was just looking for a quick win. They weren’t looking for steady, long-term growth and wealth building.

And I think that that misalignment of investing with somebody that’s not in the same position or timeline or have the same goals as you do, that’s probably been the biggest challenge, but in order to do that, I actually had to dig into the industry a bit to learn how these sponsors are thinking, what they’re being told, how they’re being trained to really understand how behind the scenes what their business model and their plans are.

Eric Lindsey:

I agree with you, partnering is essential and it’s really important and it’s also really important to know exactly who it is that you’re going to be investing with, to align your goals or to be able to identify if you all have the same or similar goals. So that’s a great answer on that. Next question is, knowing what you know now, what kind of advice would you give a person attempting to get where you are within your investing career about balancing business and life?

Patrick Grimes:

Well, I’d say partner up. What I did was take an intentional approach at creating a business and then transitioning into this new investing business full time. And that requires entrepreneurship. It’s a bit scary. You’ve got to put some financial risks, especially with your family and you’ve got to abandon something you’ve spent your whole life getting good at doing. And in my case, something I love doing. I actually still today miss engineering. I miss going into new facilities and designing things. My general sense, if you talk to these people who train and coach on how to become a sponsor, there’s over a 95% fallout rate. There’s a 95% dropout rate in those.

And that’s because those individuals didn’t realize the sacrifices and the risks and they never were with the end in mind to transition away from what they do into this new thing. And so my general sense is learn how to partner. Don’t necessarily take the approach, “I’ve got to control it. I’ve got to do it all on my own. I’ve got to do all the jobs myself,” like I did and I lost everything once. And then when I did it with single family, I lost all my free time. What will happen is you’ll sacrifice the actual income job that is producing income that allows you to invest by taking all that time away, then you’ll sacrifice time with your family and your friends and your hobbies, overall quality of life. So try and keep that control.

So what I tell people is learn to partner. Like I said, it took me about two and a half years. Go first down the path at the best balance for you, and typically for high-paid professionals, that’s to keep your day job. Do what you do best, allocate passively, learn how to partner with the right kind of people because by investing into syndications, you can diversify across sponsors, across regions, across asset classes. You can build a more hyper-diversified, more stable portfolio, especially if you follow our webinar series because you’re going to get knowledge of all kinds of different strategies. So I recommend, before going at it yourself, learn to trust, learn to partner and learn to be a passive investor and a smart passive investor first.

Eric Lindsey:

Great answer. The next question I have for you is, if a person had minimal amounts of time, minimal money or experience, but they wanted to start an investment business like yours, what steps would you recommend for them to take to start and scale a business like yours?

Patrick Grimes:

Well, so the process that I did, it was in the single family, was to lose myself and all that and I felt like larger investments were too hard. The way that I did it the third time, which was when we set up Invest on Main Street and I knew that I didn’t just want to passively invest. I wanted to be active. I was one of those guys that was … I was committed to eventually being a full-time investor and I got there, right? I did that by partnering up. And one of the reasons why it took me so long to actually get into my first deal is because I sought after people who didn’t need my help, people that were doing really, really well, operators that had great assets, a great following and I wanted to find people that were really winning and then work with them.

And so I actually worked for free, as you could probably say, for years, traveling around doing due diligence walks, underwriting deals. I joined communities and I learned how to contribute to these investments and I kept offering my help. And it was interesting because the first deal I got into, I wasn’t doing any of the stuff that I thought I was going to be doing. Then, I thought, literally, the guy was just like way overworked, “I just need help. Can you help me do this slide deck? Can you take a look at the due diligence information? Can you help update the underwriting with this?” It was just random jobs and he just needed somebody you could trust to get things done. And most of the people walked up to him with their handouts saying, “What’s in it for me?”

And it wasn’t until I literally closed on my second deal with this individual that I even knew if I had a partnership percentage and what that partnership percentage would be. I was just excited to be in the game doing deals that I believed in, working with people that I could learn the right way to do things with. And that, to me, launched my career in the right direction. And so I think those are probably the tips I would give individuals, is learn how you can add value and give to the right people and it will accelerate your journey much faster than if you do it in reverse.

Eric Lindsey:

I hear that quite a bit, work for free and just get connected with individuals that know exactly what it is that they’re doing and learn from them. And so there’s a lot of people that’s too shortsighted that they can’t see the long-term ramifications or benefits that could come from working for free within individual that is very seasoned. So great advice. Last question I have for you, Patrick, is what are the best reasons to invest in real estate as a passive investor?

Patrick Grimes:

Real estate specifically?

Eric Lindsey:

Or just investing, investing in syndications?

Patrick Grimes:

I think syndications provides the ability to … As I said, we’re all about allocation strategies, not diversification in the sense of, “Oh, let’s just get into 10 kinds of real estate,” but allocating into lots of different asset classes. And by being in syndications, you could allocate some of your wealth into real estate, oil and gas, legal services, healthcare and truly be in non-correlated recession resilient industries. You can be geographically diversified, not hit by hurricane in Florida and be super hyperfocused geographically. And you could be diversified across sponsors. Sometimes sponsors don’t work out. They’re people and they go through things, right? And it’s important to be diversified across sponsors.

And I write a lot in Forbes. I’ve got whole articles that discuss the benefits of syndications versus joint ventures, why I don’t like REITs and how you can 1031 exchange, and I recommend Patrick Grimes’ Forbes if you want to hear extended explanations about various aspects around syndications. But that’s what I would say, is it truly gives you that ability to sometimes get a higher return than a sponsor, at least a preferred position on the return of the sponsors and then be diversified, building a much more stable foundation to your allocation strategy.

Eric Lindsey:

I love how you just keep mentioning diversification. It’s really important to be spread out to hedge some of the risks that you’re taking on within these different investments. So that’s great. I love that diversification mindset and mentality that you have. We’re going to turn the page and we’re coming to the close, but before we do, we always like to have our guests share a great personal development book or either a great business book.

Patrick Grimes:

Other than mine?

Eric Lindsey:

You can go at it once again.

Patrick Grimes:

My most recent, let’s see what is potentially … So probably EOS has been the one that’s been the coolest for us recently. I’m debating because Miracle Morning to me by Hal Elrod was just an incredible one. I actually grew up in the same town. We used to trespass on his property when I was a kid, used his ropes when growing up. But that Miracle Morning was just an incredible book for me because I run in every morning and being able to structure that time to myself in a more organized way was just incredible. The EOS just totally transformed and built our organization and got buy-in from a lot more individuals and really focused us on our goals and our rocks. And so I think that’s also a really great book.

Eric Lindsey:

That’s good to hear that you guys use EOS as well, and EOS, it provides value to larger outfits such as you guys, all the way down to individuals like myself with just one person and using some VA, but it is absolutely game changing. Hey, Patrick, thanks for coming on to the show. You provided a lot of value showing us exactly where you came from, how you got your start, and then how you began to get traction and all the way up to where you are currently with investing in litigation funds. If someone wanted to reach out and connect, is there a preferred method?

Patrick Grimes:

Yeah, so PassiveInvestingMastery.com, passive, investing and mastery, dot-com is our website. We have our three open investments there on the top of the page. If you go to PassiveInvestingMastery.com/book, and if you’re interested, we ship signed hard copy of this out and it’s my way of giving back. It’s Persistence, Pivots and Game Changers: Turning Challenges Into Opportunities. I did a chapter in here. This was an Amazon bestseller, Phil Collen, lead guitarist of Def Leppard, real estate, entrepreneurs, NFL, NBA coaches. It’s just really amazing book with some incredible people. I had such a good time. I tell my whole story, ebbs and flows, in and outs, losing it all, the successes, my failures. So happy to ship this out to you. If anybody wants to chat or make sure you go to PassiveInvestingMastery.com/book, but you need to put Moonlight Equities in the promo code.

If a bunch of random people fill it out and they don’t put some way to know where you came from, we may not ship the book to you. So Moonlight Equities in the promo code. And if you want to give me an email, it’s [email protected]. We have a calendar link on my website and one of the things that I love to do is meet with people. I like to talk about their goals, understand where they’re at and get them pointed in the right direction. And so I’m more than willing and happy to talk to anybody. Regardless of where we’re at in your journey, happy to chat and get you pointed in the right direction.

Eric Lindsey:

Well, Patrick, once again, thanks for coming on to the show. We’ll love to have you back.

Patrick Grimes:

Appreciate your time, Eric. Glad to be back again.