JF1624: From Homeless To Creating A Fund For The Masses To Benefit From Real Estate Investing with Pete Asmus
Growing up, Pete watched his Grandma own a lot of real estate and seemingly do whatever she wanted to do. He set goals to be the same way when he grew up. As life so often does, Pete was thrown some curveballs. He found himself homeless, joined the Navy, and then started working on a fund and platform that allowed anyone to invest in real estate and reap the benefits. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Pete Asmus Real Estate Background:
- High performance real estate investor with a passion for creating smart investment opportunities for anyone, no matter their financial status.
- Raised over $10 Million last year for high end flips and small business start ups
- Based in Los Angeles, CA
- Say hi to him at email@example.com
- Best Ever Book: The One Thing
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Pete Asmus. How are you doing, Pete?
Pete Asmus: Man, I am doing so good. How are you doing, Joe?
Joe Fairless: I’m doing very well, too. Nice to have you on the show, looking forward to it. A little bit about Pete – he is a high-performance real estate investor with a passion for creating smart investment opportunities for anyone, no matter their financial status. He raised over ten million dollars last year for high-end flips and small business startups. Based in L.A. With that being said, Pete, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Pete Asmus: Yeah. You know, when it gets into real estate – I’ve loved it for years. My grandma, when I go back to when I was a kid, looking at everybody growing up, I always wanted to be like my grandma. She owned every house around her, she owned commercial real estate… It just seemed like she could do whatever she wanted, and I remembered always wanting to have that goal, of reaching that level. Then I had bad things happen, I ended up being homeless, and as I came out of that, I joined the Navy, and through all of it I realized that I had to count on me, focus on what I could do. And I remembered my grandma, and I remember thinking I wanted to create eventually a platform that anyone could invest in, even that 18-year-old kid that didn’t know what he was doing. That’s really what we’ve created with Alchemy Kings. It’s a regulation A+ fund, and it’s focused on the best and most lucrative aspect of commercial real estate right now.
Joe Fairless: What is a regulation A+ fund exactly?
Pete Asmus: What that means is that we can go and — it’s for non-accredited investors. There’s a difference — back in the 1930’s when the stock market crashed, the government wanted to step in and start dictating “Well, this person can invest and do what they want, but this person we’re gonna watch out for.” And what we created was a platform that all of those people could invest in.
Joe Fairless: So it’s a public platform that anyone — and I’m about to put words in your mouth, so please correct me, what part I’m right and wrong…
Pete Asmus: Okay.
Joe Fairless: So it’s a public platform where anyone can go to your website and then invest via their computer, remotely, and into projects that you’re participating in – is that accurate?
Pete Asmus: Yeah. Think of a pre-IPO. That’s really what we’ve created. So you’re buying shares within the company, and as the company performs well, then you’re gonna get dividends, and our whole goal is to go public… But the bigger picture for me — not only is it a platform that anybody can invest in, but really how we shifted our focus. We own the largest real estate groups on LinkedIn. We have over 1.1 million members on there. So when it goes to looking at strategies that are out there, we wanted to find the best strategy possible, and we found the strategy of our lifetime, period. There’s nothing that can touch this. The only thing that comes close to the returns that we’re looking at in this industry is gambling, because when you look at what cannabis is starting to do across the united states, it really is like a green rush, California being the fifth largest economy in the world, legalized it a year ago, and it’s looking at — I don’t know if all the numbers are in, but it’ll be in the billions.
Overall, nationwide, we’re looking at about a six billion dollar industry, that’s legal; we’re looking at a 40 to 100 million dollar industry that is still illegal. As the federal government goes on, you’re looking at almost an 85% to 90% growth rate that’s gonna happen within the next five years.
Joe Fairless: Just to clarify – when someone invests in Alchemy Kings, they’re buying shares in your company, and then your company invests into other ventures, businesses, real estate or whatever. Then as those profits from those investments go, so do the shares of whatever the company is worth. Is that how the business works?
Pete Asmus: Yes, exactly.
Joe Fairless: Got it. So the types of businesses that you invest in – clearly, one is cannabis, because you’ve just mentioned that…
Pete Asmus: Well, it’s not cannabis. See, that’s the beauty of it.
Joe Fairless: Oh, okay. Alright, so what are you all investing in?
Pete Asmus: We looked at what were the golden shovels of the cannabis industry. Because when you look at prohibition — this is a product that was outlawed for over 80 years, and has grown exponentially. You’ve got over 250% usage has increased in 65 and over. You’ve got senior citizens that are turning 55, 10,000 of them a day, and that’s a quote that I know just from assisted living facilities, but the reality is all of those people also are taking a lot of medications, and now they’re starting to shift from wanting to take pills and things that are very addictive, to things that are more holistic, if you will. So your usage is up by 250%.
They did a study on some seniors, and 95% of them saw a 50% reduction in pain. The reason I’m sharing this is because it’s these personal stories that really starts to open up the conversation and start to make people realize that 1) cannabis is coming, and there’s really no stopping it. It’s on its way. So we look at it like the gold rush. And in the gold rush, the people that were making all the money weren’t the people looking for the gold. They were the people selling the shovels. So for us, it was “What are the golden shovels of this industry?” And there were two.
One, in order to get a license, you must have real estate. You have to. It’s the cornerstone of that industry. Because you can’t just grow this in your car or somewhere random. They wanna be able to come in and verify that everything is going according to plan, that you’re paying your taxes, that the permits are right… So it has to be associated with a piece of real estate, and it has to have a CUP (conditional use permit) allowed for that, on that specific land. In California, only 18% of the municipalities allow that, and you’ve got 57% of the raw land sold for cannabis was in Coachella Valley, which is basically Palm Springs to Indio.
So you have this little, tiny section of California that is really gonna become the heartbeat of California. Does that make sense?
Joe Fairless: Yeah, it does.
Pete Asmus: So we looked at it from that standpoint, and we were like, “Okay, so we’re gonna take on real estate.” It’s a way for us to get into the boom without getting into the business. We don’t wanna touch the plant, we wanna be able to talk to Wall-Street, we wanna be able to do other things, and we have a regulation deed that we did that with – purchase the land, we have 8,5 acres, and we’re building out 162,000 square feet. We literally just talked to the city and they wanted us to add a few more spaces, and what they said we could do is lift the other four buildings up and park under one of them, so we’re looking at that option, and that could add another 50,000 square feet to this development.
Joe Fairless: What are you developing?
Pete Asmus: We’re developing — basically, what they are is industrial condos. If you think of a condominium complex, we’re doing the same thing but we’re making them industrial condos. So they’ll be in 3,000 square foot increments, you’ve got a few buildings (like I said) that are two-story, but the key to the 3,000 square foot increment is this – in order to get a license for growing in California… You have three licenses – you have a 5,000, a 10,000 and a 20,000 square foot license. They all need at least 10%-20% of overage for office space. So the reason we sold 3,000 square foot increments is because that gives them that 20% overage; all they do is they buy two if they want five, they buy four if they want ten, and so on. It allows them the flexibility to grow over time as well, and it gives more people the opportunity to get involved.
When you look at the statistics, 55% of cultivators are actually mom and pop organizations earning less than $500,000/year, so they can’t afford a ten million dollar development to create a space for them to be able to grow in. Does that make sense?
Joe Fairless: Yup.
Pete Asmus: Alright. So we’ve talked a little bit about the first shovel, which is real estate, because it’s something that is required by law, period. You have to have it. The second requirement is testing labs. We’re focused on building out testing labs and becoming the largest testing lab for cannabis in America, and here’s why – there is a huge vacuum. Until 2018, California didn’t have anybody testing cannabis. You can’t test cannabis and anything else. So you’re left in this real juxtaposition, because not only can you not test anything else, you can’t do anything else in the cannabis industry. So if you’re a testing lab, you cannot grow, you can’t manufacture, you can’t create inedible, you can’t test water, unless you bought double the machinery. So what it does is some people have converted to cannabis because there’s a higher profit margin in it and they’re believing in it.
Obviously, if you were to become a testing lab back in January, it would have been a lot (if you will) sketchier than it is now. There weren’t any banks back then that were allowing the use of a cannabis fund, so you had people walking literally hundreds of thousands of dollars into a bank, and they permeated of cannabis. That money smells like weed for weeks. It’s insane, and I’m not even kidding. I took my camera bag into a grow one time, and when I got out it took me about a week and a half to get the smell. Everytime I opened up the camera bag, it smelled like I was growing weed in my camera bag. It was the craziest thing.
But when you looked at the testing labs, we realized — we had been talking to a few different people, and our goal was we were gonna do everything. We were gonna grow, we were gonna manufacture, we wanted the brands, we wanted that part of it. And when we talked to the third dispensary that had to throw product away in June, we realized that the biggest hole was in testing labs, and that it was the least risk out of all of them, too. We wanted to be very risk-averse. So when we look at the testing lab park, anybody that converted from normal testing to cannabis, left a hole in normal testing. Anybody that was coming on to test cannabis was brand new, and there weren’t very many at all.
So by us coming into this space, we had, if you will, a plan B. If cannabis were to go sideways, we still could test water, we could test other plants, we could test agriculture… If cannabis goes sideways, we could still own the real estate, we could convert it into different types of commercial real estate; it’s still industrial condominiums… So there’s a lot of different things that could happen, it wouldn’t just be done, like if you were having a commercial kitchen, or if you had a commercial grow operation, or manufacture, where there’s nothing else you can really do with the product once it’s been contaminated, if you will, with cannabis. Does that make sense?
Joe Fairless: Multiple exit strategies.
Pete Asmus: Yeah, exactly. Exactly.
Joe Fairless: With the testing labs you said your goal is to become the largest testing labs for cannabis in America. How many testing labs do you have as of today?
Pete Asmus: SEC just approved our fund, so we’re in the very first round, which will be starting on January 20th; we’ll start the first round of funding. So we don’t have any testing labs yet. What we’ve done is — I think we have three different testing labs that we have talked to and are working with on working on a deal to basically build out a franchise. My partner and I aren’t chemists (we understand that part of it), but we’re very good team makers. So for us it’s just about managing the team, making sure that the right people are in the right position. Me being in the top position of a laboratory is not the right position for me, because that’s not what I do. But hiring, or becoming a franchisee and having somebody else hire again the right person for the job, then that puts us in the right position. We can still run the company, we can still make sure that everything’s happening according to plan, but when it comes to the whole organization of it, we wanna make sure that we’ve got a solid system that’s already proven.
Joe Fairless: For Alchemy Kings – are these two ventures within the cannabis industry the only way that you all are planning on making money? Because you mentioned you own the largest real estate group on LinkedIn, 1.1 million members. When I introduced you during this interview, in your bio it says you raised 10 million last year for high-end flips and business startups, so I’m wondering is this going to be a combination of all that, or is this just laser-focused on these two things?
Pete Asmus: Yeah, we have shifted all of our focus. We basically stopped doing everything on businesses. The businesses shifted to cannabis, so that’s what we’re focused on – laboratories. That’s what we wanna invest in – companies that are thriving, that need capital for growth, and that wanna open up a second location that we can work out a good arrangement with.
The second part of that is when you talk about the LinkedIn group and all the members, there’s various things that we can do with that, but when it comes down to flipping high-end homes, we don’t wanna get caught in any of the downtrend that could happen come the next few years, when we know for a fact that cannabis will be on the rise for the next 5 to 8. So we just shifted everything into what we saw… Now, you could say that it’s a bubble; eventually, it’s going to hit fruition and it’s going to start coming back down. But right now, when we know exactly what’s going to happen — we know that the government is talking about legalizing it, we know that Trump is looking at putting that on his agenda, and I’m assuming it’s going to be one of the key running marks of the presidency. However, you’ve got Democrats right now that just took over that wanna try and federally legalize it prior to that, so it doesn’t become part of that, because I think Trump is gonna wanna make that part of his legacy… Because cannabis by 2028 will be the largest single contributor to our economy, period. Hands down. Here’s why.
When you look at Desert Hot Springs right now, 800 acres out there is being developed. Now, that sounds like a lot, but it’s only 4% of what’s needed for California’s raw land being converted. It’s only 4%. So it’s a drop in the bucket to what we need currently, and that’s not including — as we start to take over the black market, that number is gonna go up. So when you look at that, and now you’ve gotta talk about “Alright, great, you’re developing 800 acres. Well, what does that really mean?” What that really means is there’s zero infrastructure out there right now. There aren’t nice houses that people making over $100,000 are gonna want to live in, and you’ve gotta look at who’s going to be moving in.
You’re not gonna be having a lot of middle-aged people taking on this category; you’re gonna have a lot of younger people that have gone to college now, so you’re talking millennials. Millennials like different things when it comes to housing. So an apartment building or a condo building would be very good out there. You’re looking at a lot of infrastructure that needs to be built out in Desert Hot Springs, not just cannabis-related, but all related to the cannabis industry. Does that make sense?
Joe Fairless: With the eight acres that you mentioned earlier that you’ve got, how did you acquire that if the SEC just approved the fund?
Pete Asmus: That was acquired with our Regulation D fund.
Joe Fairless: Okay, got it. So how does that work? Does Regulation D lead into A? Will you just educate us on that one?
Pete Asmus: Yes, one of the things that I wanted to do with the A was I wanted to allow it to basically come in at the last minute and do the funding of the regulation D’s construction budget. So knowing that we’ve already got people that wanna buy the properties and we’re in a really good position, that ends up getting a really good return for that regulation A right off the bat, getting into a great deal at the last minute. So one of the things that I wanted to do with that was be able to lend.
The other aspect of it is keeping them completely separate, the regulation A can still go out and we can buy pieces of land and basically duplicate the same process that the regulation D is doing. So the whole point of the D is to give an example of what the results could be. On that fund alone, when we’re talking about the 8,5 acres, we’re building out ten buildings. Eight of them are gonna be sold, two of them we’re gonna be holding. We do have three companies that wanna buy the entire development, and if that happens, then obviously we won’t be holding anything. But just based on us holding two of them, we’ve got a great ROI already intact.
So you’ve got condos that are happening, you’ve got multiple exit strategies, and you’ve got an industry right now that is basically begging for property. The whole reason we found this property, which is really what I wanted to share with you, because I thought that’s where you were going, was we were about to buy two buildings in property directly South of it. When we put the money together to buy those buildings, basically they ended up selling them before we could do it, and it was within 3-4 weeks. And I was like “Wait a second, man… You guys have raw land, right?” “Yup, raw land.” And I’m like, “You just pre-sold your entire development?” “Yup, pre-sold our entire development.” “So you don’t have anything left.” “Nope.” I’m like, “This is crazy.” So I go “Okay, well then this is what we need to get into”, because if they’re able to pre-sell an entire development, you mitigate so much risk, and you’re getting 25% down.
When we started doing all the numbers, we’re basically at a 30% build rate to a 25% deposit rate, so we’re only really being exposed about 5%, which isn’t bad at all. Not including the fact that we’ve got about 30 people that already wanna lease the properties and we now have an investor that is coming in that wants to change it up slightly and wants us to hold it; because if we hold it for the next 2-3 years, it becomes federally legal. Now, once it’s federally legal, we can sell these at a better cap rate. And if we’re only at an 8 or a 10 cap rate, we’re looking at a 40 to 50 million dollar sale price. So it just makes sense, and it’s (again) the best opportunity that we’ll ever have in our life. Never again will they schedule one drug becoming off of that — nobody’s ever gonna say that any of those other drugs are good for you. Cocaine – no, it’s just not gonna happen. So we’ve got this small opportunity, because once it becomes federally legal, then private investors lose out, because now as a developer I can go get a traditional loan, I don’t have to go to private investors to raise money.
Joe Fairless: Taking a giant step back, based on your experience as an entrepreneur and real estate investor, what is your best advice ever for real estate investors?
Pete Asmus: Coaches and mentors. Gene Guarino is probably one of the greatest mentors I’ve ever had. I literally try to copy everything that he does, because he’s just a brilliant guy, and if you’ve ever heard him talk, he sounds just like a Bible school teacher. It’s just — man, the way he talks, and… I love that guy. And he’s always got great advice. Whenever I’m stuck, whenever I’m feeling like “Oh, what should I do…?”, he’s always a text away… And I think that having great mentors, having great coaches, and really having people that you can rely on is a big part of your success overall.
Joe Fairless: Coincidentally, Gene is going to be speaking at my conference in Denver, on the 22nd-23rd of February. So you can go to besteverconference.com and get your ticket and listen to the talk.
Pete Asmus: Man, do that. Go get that, because I promise you, when you hear him talk, it will be well worth your time. He is an amazing speaker. And again, he’s just an amazing guy, so just go hang out with him. We went to his RAL Nat Con and we met the most interesting men in the world, and it was so neat; I was on the outside, I was like “I don’t really need this picture”, and he was like, “No, come on, Pete! Get over here and sit down.” And again, he’s just such a great guy… So yeah, if you guys have the opportunity, make sure you go out and check out Gene at that event. And I think he even usually does an extra day or something, doesn’t he?
Joe Fairless: Yeah, he’s doing something else too, later in the week. That’s on the website too, besteverconference.com. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Pete Asmus: I’m loving it.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve recently read?
Pete Asmus: The one thing.
Joe Fairless: Best ever deal you’ve done that we have not talked about already on this show?
Pete Asmus: A mobile home deal.
Joe Fairless: Why was that the best ever?
Pete Asmus: Because it was super-quick, it was really fast. I went to one mobile home park, and the guy wanted to sell it, but he wanted a smaller mobile home, and I had just been at a different park that had a smaller mobile home. I ran back to the one park, basically secured it, bought it for a grand, and then ended up trading it to him for $10,000 value, and paying another five grand for his, and ended up getting like a $20,000 mobile home for about $6,000. Then I sold that in about two weeks.
It was just such a cool experience, and I was teaching people at the time, so I had a group of students with me and they all got to see it happen. It was just a really neat experience.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Pete Asmus: Trusting too much, and not speaking up when I should have.
Joe Fairless: Will you elaborate?
Pete Asmus: Yeah, I got into a deal where it was somebody I’d known for a long time, and I thought “Well, I’ve known him for a long time, so it must be real”, and it was really just a pipe dream that he had. All the numbers ended up not coming back, so I had to walk away from about 25k, and it was irritating, but it was a lesson learned – no matter how great of a friend they are, I need to make sure that I have the right people inspect the property and make sure that the numbers are what they are prior to getting involved.
Joe Fairless: Best Ever way you like to give back?
Pete Asmus: My daughter has alopecia, so she’s lost all her hair for about four years; it grew back, then it started to fall out again… We’ve become CAP (Children’s Alopecia Project) mentors for Southern California. We go to camps every year, and once a quarter we put on different events at bowling alleys and things to bring the kids together. We wrote a book called Queen Alopecia you can check out at QueenAlopecia.com for free. Just read the story, it’s all about how a monkey loses her hair to find out that it’s what mother nature chooses as her placing stone. It was something that people couldn’t fake, and that’s why Mother Nature made them lose their hair, so that people could see who should lead them. It was just a way to show how differences can make you great.
Joe Fairless: What’s the best way the Best Ever listeners can get in touch with you and learn more about what you’re doing?
Pete Asmus: They can google my name, Pete Asmus. They can also go to PeteAsmus.com, or they can go to greenzone360.com. I’m on Facebook, I’m on YouTube, I’m on everything. Just google my name, and you’ll definitely find me without a problem.
Joe Fairless: You are passionate about what you do, and it shows. I haven’t talked to someone who is doing exactly what you’re doing right now; it’s interesting to learn…
Pete Asmus: Thank you.
Joe Fairless: You’ve certainly had to evolve, or chose to evolve from what you were doing, from high-end flips to this, and certainly some parallels and some commonalities among high-end flips and also other real estate transactions, but it is a new industry… And it’s interesting to hear the different ways you’re looking to mitigate the risk from the investment. That’s what I found most interesting, the different types of exit scenarios and ways you could pivot should the winds shift directions.
Thanks again, Pete, for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Pete Asmus: You’ve been awesome, thank you so much.