JF2562: $7M in Less Than 2 Years with Jerome Maldonado

 

After running a business out of his house and noticing he wasn’t the most popular neighbor on the block, Jerome Maldonado decided to take the leap into retail buildings. Now, he’s done over 400 transactions with this being his biggest acquisition year to date. We’re talking with Jerome about his strategy for finding tenants, which asset class gives him the best returns, and the top 3 indicators that it may be time to start syndicating. 

 

Jerome Maldonado Real Estate Background:

 

 

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TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Jerome Maldonado. Jerome is joining us from Albuquerque, New Mexico. He’s a full-time real estate investor and has over 20 years of commercial real estate investing experience. Jerome has completed over 400 real estate transactions, and also has done development.

Jerome, thank you for joining us. How are you today?

Jerome Maldonado: I’m doing well. Thank you so much. Ash, I really appreciate you having me here.

Ash Patel: It’s our pleasure. Before we get started, can you tell us a little bit more about your background and what you’re focused on now?

Jerome Maldonado: Yes, I’ve been a self-employed entrepreneur since 1993. Kind of rode the roller coaster of business and finances back in the early ’90s. I found myself, in 1997, pivoting tremendously. Not by choice, but because the FTC had went in and regulated direct sales and network marketing companies, which is where I got my start back in the early years… And I found myself trying to figure out life again – finances, money, and business… And I kind of dibble-dabbled in construction, not knowing that it’d lead me to where I’m at today.

So here we sit, over 20+ years later, and it’s been a very promising career. Even with the hiccups and trials and tribulations that we’ve rode through 2008/2009, and the economic downturn, collapse of Lehman Brothers and everything else that happened, here we sit; and even through the pandemic, we’ve thrived. And we have this year, we’re excited. It’s been one of our biggest acquisition years in ever thus far, and we have over $50 million on the books just for 2021. So very enlightened to be here and very grateful for the process that we’ve traveled over the last 20+ years.

Ash Patel: Jerome, dabbling in real estate, to 400 transactions – take me through that journey, please.

Jerome Maldonado: So when you’re in business, you’re an entrepreneur, you’re just—you’re looking, you’re seeking for something that works. And I didn’t even know that real estate was going to be that thing. And in all honesty, I’ve never really considered myself a real estate “guru” or “professional” until recent years. I really invested in real estate as a means to own assets that, in spite of my efforts, grew financially, and I had something else outside of my traditional businesses.

I’ve dabbled in a lot of companies, I’ve owned a lot of stuff over the years. And in the process, some of them have been to help me in my real estate sector, and some of them have been just because I wanted to try different things to try to make more money. And I started out opening up a concrete company; not because I knew anything about concrete—I landed up meeting a gentleman who was making a ton of money, doing decorative concrete work back when New York, New York was built, and all that decorative concrete inside of it. And my brother-in-law, at the same time, was going through havoc with his company, who got shut down for tax evasion.

So I kindly went to go help him get his contractor’s license, and in that interim time, I was going through the financial heartache myself. So he didn’t show up for his contractor’s license, I did, and I ended up passing. And so I knew how to sell. I knew how to market, I had been in direct sales in network marketing for a good amount of years, and I was successful in the industry. It took me about three years to figure it out, but when I finally figured it out, I learned how to market, I learned how to network.

So I simply went out and started running a business, and I started acquiring contracts. And we were the company that Compass Bank utilized for all their tenant improvements when they came to New Mexico, back in 1998. We did a little over $1.7 million with them. So I learned a lot through that process.

So I started thinking to myself, “Well, let me start building some houses. Let me buy some land. Let me build some houses, since I already have the crews and the construction company. Let me do that.”

And on the side, I was buying rental homes, because I just wanted to assets that no matter what happened in business, I had something to show for my money… Because I didn’t have anything to show for my hard work in network marketing back in the early ’90s. I was dumb, young and I was spending money frivolously, I was buying expensive cars and renting big lake homes and doing dumb stuff with my money, just like every 20 year old does that hasn’t been educated financially.

So what ended up happening was I landed up becoming very successful in buying land and just building houses. We did three our first year, made just shy of $300,000 in net profits from those three homes in that first year, in addition to a couple of million dollars a year that we were already doing in construction. So I started deploying money into retail centers. In that same time, as we grew, my neighbors were getting frustrated because I was running my business out of my house. So I went and bought a little retail center, and it was successful; I packed my construction equipment in the back. I took a small little 800 square foot office, and I leased the other 8,000 square feet of building that I had, and so I had free rent and cash flow. And as we’re all taught, you get a job so that you can have insurance and all the perks and whistles that a job gives you, right? Well, that one building did that for me, and it still does today, that same exact building, I own it today. I paid $250,000 for that building, put about 50 grand into it, and it’s made me over $2 million in rental income over the last 20+ years. And it’s paid for my health insurance, paid for my life insurance policies, and it still does today. And because of the success of that first little building I bought, I started doing a second one, and a third. And I started building anew in 2002… And it’s just grown, it’s [unintelligible [00:06:02].27]

In 2008, I got stuck a little bit on some projects. I didn’t lose anything, but definitely a learning lesson, and it took us a few years to clean that up. I got a little conservative for a little bit of time, and then I decided it was time to really make the push. So in 2016, I really started pushing aggressively again. And, Ash, here we sit today, when it went from that little tiny start, to everything that we’re doing here now today.

Ash Patel: Jerome, a lot of residential investors don’t make that leap into commercial, especially retail. What pushed you to buy that retail center?

Jerome Maldonado: My neighbors. My neighbors did; they hated me. I was a young twenty-something-year-old punk kid making too much money, and I was pulling in big giant tractors down a dirt road with a bunch of homes that were a bit more affluent. And I had a lot of mature neighbors that were in their 50s, 60s, 70s, and they hated me, because I’d create dust with the equipment as I pulled it down the road, parked my work trucks. At [6:30] in the morning, every day, I’d have a fleet of guys come to the house picking up trucks. So they hated me.

They took me to court with the city municipalities to kick me out of running my business in my home, and they were successful, and I knew they were going to be. So I was pressed to go buy that building. So before the court hearing, I went and started looking for commercial real estate.

And where I really got my start, Ash — and I was in direct sales. I couldn’t make a living for the first three years through my distributorship in network marketing. But we used to run our business out of what we call training centers. So we would lease an office, and then we would lease desk space to other distributors, where they would put a phone line, we’d run ads in a newspaper, and we’d recruit distributors in for interviews, and we would do meetings every day.

So I found a way that I could lease an office for $1,500 to $2,000 a month, get 10-12 distributors and there paying me 500 bucks a month for desk rent. So I would make a living off of desk rent. So when I was forced to go buy a building, I took that exact same concept. I said, “I’m not going to pay for this, for the building. I’m going to get other people to pay for it for me.” And that simple, stupid little strategy that I used in direct sales and network marketing to fill my offices to make a living – I utilized it to buy commercial buildings. And I just started leasing to other people that needed commercial space, and it was successful. And because of the success of the first one, it gave me courage to do another one. And so much so on the third one, I decided to build it from dirt, from ground up. So we started doing new development from dirt up back in 2002.

Ash Patel: What advice would you give people that are hesitant about getting into commercial? And when I say commercial, non-residential commercial.

Jerome Maldonado: Non-residential investing? You know what – it’s like everything in life, Ash. Everything that’s new in life is scary, right? People are afraid of change, and it’s what holds most people back. I know that you’ve probably been in a position, and people that are watching, you’ve probably been in a position where you tell them that there’s a ton of money to be made in a certain sector, and then their answer to you is, “If there’s that much money to be made, why isn’t everybody doing it?” Right? It’s because the mass majority, 97% of the population – they’re scared, and they just lack in knowledge.

So what I tell people is; one, “Get some knowledge from people that have a documented track record. Don’t just jump off a cliff.” Even though it’s kind of how I did it, I just kind of jumped off a cliff and I went for it. And my philosophy was, “God will put in front of me all the tools I need as I move forward.” And I’ve always just practiced that in faith, going, “Okay, look, I’ve never been left astray. In my 47 years on this earth, I’m here, and I’ve never been left astray. The information I’ve ever needed on anything I’ve ever done, has been presented in front of me when the time comes, as long as you’re pushing in the right direction.”

So I tell new people, I say, “Look, you’ve got to practice a little bit on faith, knowing that if you’re pushing in the right direction, you’re surrounded by the right people, the answers will come. But you’ve got to take that move. You’ve got to make that leap of faith to push forward in something, in spite of fear.” Because I’ve woken up many mornings with a pit in my stomach, scared. But at the end of the day, I figure things out.

So I think people understood that if they get some wisdom and knowledge from the right people that have documented track records – that’s why they’re watching this podcast, right? In lieu of that. So they’ve got to be able to take that leap of faith and move forward, and know that the answers will come. The answers are out there, the people are more willing to help you than you realize. But you’ve got to push forward on it. You’ve got to make a decision, and once you make the decision, you’ve got to parlay forward.

Ash Patel: Yeah, that’s great advice. I’ve tried to convince a lot of residential guys to go into retail or office or other commercial properties. What were the numbers on that retail center, if you remember? Was it fully occupied or was there some vacancy?

Jerome Maldonado: No, it was 100% vacant; it was a distressed asset.

Ash Patel: Wow.

Jerome Maldonado: I bought it from a gentleman who inherited it from his dad. His dad was a real estate guy, and this guy was an engineer. He worked for the laboratories up here, for Sandia National Laboratories. And so he was a computer nerd, nice guy. He just didn’t know anything about real estate; it was just never his forte, never had any interest in getting involved in it… So when his father passed away and he inherited the building, it was just boxed up; had residential ugly doors on the front of it, it was built in the early ’50s… But it was sitting on Route 66, on the old historic Route 66, and it was a good area, just down the street from my house. And I saw a “For Sale” sign, and I drove by, talked to the broker… And I didn’t have a lot of credit at that time; I ruined my credit going through everything I went through in 1997. So one of the big things was I was looking for somebody that was willing to finance the property for me. So I asked him if they’d be willing to owner finance it for three years, and he agreed to it. And he didn’t have any debt on it, because he inherited it from his father, who I think was the original owner of the property… And it hadn’t been leased in quite some number of years. So it was built out of block, so that the structure of the building, the bones of it were good; it needed a roof, and it needed to be cleaned up.

So I went in and I bought the building for—actually, it was $225,000 that I bought the building for; not $250,000. It was $225,000. I put about $10,000 down on the building. And then he financed the building for me. We went to title, we had an escrow company that we hired to take the payments and facilitate the owner financing terms… And I told him I needed three years so that this way I can stabilize the building. But my goal wasn’t to make payments out of my pocket. My goal was to stabilize as quick as I can.

So I went in and I started renovating it. It was just simple stuff. And it made sense to me. I thought, “Okay, it’s a retail center, right?” I thought to myself, “What do I think of when I think of retail establishment?” I think of commercial-grade glass, the commercial doors, all the galvalume framed doors. So that was my first move, was I said, “Okay, I’m going to rip out these residential doors, make this place look like a real retail center.” I took all the glass out that were wooden, a lot of them were broken, single pane glass, and I just put in aluminum framed metal windows, the most inexpensive commercial grade doors and glass that you could buy. But they looked professional. That alone changed the footprint of the entryway on that alone.

It had a pocket roof. And if someone doesn’t know what a pocket roof is, it was a flat roof building, but it had a pitch that came down with a little roof over the top of the porch in the front. And I just had that reroofed with some nice metal, steel roofing; it really set the building off, I restucco-ed the building all the way around on the exterior, reroofed it, and just did a simple roof on it. And in fact, we’re due for a new roof now, but that same roof is on there still today. We bought that building in 1999/2000. So we got 21 years out of that roof that we put on there.

Ash Patel: How did you find tenants for that building?

Jerome Maldonado: I just started marketing. I put For Lease signs in the windows. And then I ran them in the newspaper at the time, because the internet was still new, so people weren’t really on the internet. I just ran ads inside the Sunday paper. And I just put “For Lease” ads in the Sunday paper, and I posted signs up in the windows, and that was it.

Break: [13:40] to [15:41]

Ash Patel: It’s very hard for somebody to be the first tenant in an empty building. Did you have to make any concessions for that first tenant? How did you convince them?

Jerome Maldonado: I was the first tenant.

Ash Patel: Okay.

Jerome Maldonado: So I had my construction company in there. So I put the sign up, I was the first tenant in my building. And then we also at the same time opened up a dance school for my wife in there at the time. So she was my girlfriend at the time, we opened up a dance school, and we opened up a coffee and juice bar. So we had our construction company, we had a coffee and juice bar that we opened up in there, and then we also had my wife’s dance school. So we had three tenants in there initially, and then we leased the rest of the property. So we landed up getting a beauty salon in there, she was my next tenant that was brand new. Then we got a company who was a Native American Reservation that sold cigarettes, and they used it as a distribution location for all of their cigarette distributions to the grocery stores, Costco; so they stored them in there. And then we got a little sandwich shop in there, that was called Sandwich Time, and he went in there and created a little Deli-style deal, and he did catering to all the schools.

Ash Patel: And did you find that once you got tenants in there, the momentum filled the rest of the spots?

Jerome Maldonado: Yeah, I never really worried about that. I was very assertive. So here’s how I filled it, Ash. I was in direct sales; my confidence was high when I was young because I had little pieces of success, and little success moves big milestones. So when people called me, I’ve always had this little innate deal in my mind, that registers with me from my mentor from the early years, that, “When someone picks up the phone to call you, there’s a reason; they have money, they have your money in their wallets, and your goal is to get your money back from them.”

So when people would call me out of that one app, I’d go, you don’t want, if they’re calling you, they’re in need of something. I just had to figure out a way to bridge that gap. And I still train my sales reps today, exactly like that. I say, “Okay, if that phone rings, they need something. How do I fulfill what they need? And they’re willing to pay a certain amount. In their mind, they have a certain dollar amount that they’re going to bring to me. And it’s lower than what they really can afford, because obviously they want to negotiate. So how do I maximize what I can get out of it?”

In the beginning, because I bought the property for such a good price, I didn’t mind giving somebody a good lease rate. I just wanted to appreciate it to a point in the beginning. And so these were simple little sales skills that I learned in my early years, and it was really my sales skills that gave me that confidence. And I think that that’s what people lack a lot in business and in real estate, is sales skills. I think it’s an important skill that people need to train themselves with. It’s not that savvy Zig Ziglar-type sales approach. It’s fulfilling a need, right?

So you find somebody, they call—they pick up their phone and they call you, they have an outreach for some purpose, and that outreach is your job to figure out. Once you figure out what that outreach is, what they need, then you figure out how to fulfill it. Now, how do I with what I own and what I have, fulfill their outreach? And how do I create that bridge? How do I bridge that gap to make it work?

So every single person that I had come into — and it was like a challenge to me, so I told my girlfriend so, “I’m going to lease this thing,” because my dad showed up and I was real proud to show my mom and dad this building I bought. But my dad’s a pessimist by nature. I love him to death. He’s an accountant for 32 years, but he’s not a businessman and entrepreneur, right?

So he shows up, and the dad being the dad he is, he comes in he goes—he looks at the building and he goes, “Yeah,” he looks around and I could tell the marbles were going in his head, and the first thing out of his mouth when he finally said something was, he goes, “So what happens if you can’t lease this space?” And I just sat there and I looked at him and I go, “You know, I never really thought about that, dad. That wasn’t really an option for me, it’s going to lease.” And he goes, “Well, how do you know?” I said, “It’s going to lease.” I never programmed the what-if-it-doesn’t? And that’s what most people do program their head, is “what if it doesn’t?” I just think of “how am I going to?” So everything I do is more proactive, in the fact that I don’t have a choice but to make it work. And I put myself in that position because if you put yourself in that position to think like that, then it works. But if you start running negative shit through your mind, guess what happens? All that negative shit starts happening. So I don’t even put that in my mind. So when my dad said that, I just exited that as “not an option” in my brain and I said, “No, it’s not really an option, dad. It’s going to lease.” And I just always exercised it like that.

Ash Patel: That’s a great mindset. Can we roleplay, if I’m trying to lease space from you?

Jerome Maldonado: Sure.

Ash Patel: So I call you up, I’m like, “Hey, tell me about the space that you have for lease.”

Jerome Maldonado: So I’ll say, “Ash, what’s your goal? What are you looking for? Tell me a little bit about your business. Tell me a little bit about what you’re in need of, and where you’re at now, and what you’re looking for, ultimately. Where do you want to be with your business in two, three, four or five years from now?”

Ash Patel: So I run a boutique store where I’m just looking to sell some merchandise and make some money.

Jerome Maldonado: Great. Where are you currently located at right now?

Ash Patel: Out of my house.

Jerome Maldonado: So right now, out of your house. What type of revenue are you producing? What type of rent are you hoping to get into? What type of terms are you looking for?

Ash Patel: Yes, so I’m making a little bit of money, but I’m looking for something cheap, $600 to $700 a month at the most.

Jerome Maldonado: Okay, do you know how much square footage you need?

Ash Patel: I don’t know, maybe 20 by 20.

Jerome Maldonado: 20 by 20, 600 bucks a month. You know what? I’ve got a couple units you should come look at. I think once you look at them—I mean, the best thing to do is come look at what we have available. Because once you look at it, you’re going to know better if it’s going to fit your business model, and then maybe we can kind of sit down and work out some terms, so that we can find something that’s going to be successful for you.

Ash Patel: Yes, I love those probing questions; thank you for doing that. I love that approach.

Jerome Maldonado: Yes. So the biggest thing, you want to find people’s goals, right? Most people just exactly like you’re talking about, they don’t even know; they’re in their house, they’re trying to do an outreach for their business, small retailers and stuff. So it’s your job to help them succeed. So the [unintelligible [00:21:16].13]  a lot of brokers do is when they call in, they’re disengaged, they’re finding for reasons not to lease to you, instead of lease to you, especially amateur ones…

The biggest thing is when someone calls in, you want to be engaged with them; you want to give everybody the benefit of the doubt, because I was taught early on – “Those you think will buy, won’t; those you think won’t, will.” So don’t pre-judge anybody, just get them all in, because it’s a numbers game, right? And if you can find somebody reasonable and you can bridge that gap, you’ll succeed. Don’t kill your clients before they get there; get them there. You need people to show up, that’s the goal. You need people to show up.

Ash Patel: Yes. Again, I love that approach. So you’ve got this retail center, and it’s getting leased out… What’s your next move?

Jerome Maldonado: So in the same time that I’m doing that, I’m buying land. I bought my first piece of land, all at the same time. I got my construction company rolling, I buy this building. And I buy this piece of land… And it’s funny, the first piece of land I bought, my mom and dad had bought it to build themselves a house. And they decided that they didn’t want to build again; they went through that process once before, and it was exhausting for them. They were getting little older… And they decided to go buy a house that was already pre-constructed. So I asked them what they were going to do with the land; I liked the piece of land they had bought, and they said they agreed to sell it to me for what they bought it for. So I bought it from my mom and dad.

So I started looking into the land, it was a one-acre parcel. I went and talked to the county, and the land had a lot line in the middle of it. So I went down and talked to the county. I asked them, “Can I subdivide this? What’s this line up and down the survey?” And he said, “Oh, it’s a lot line.” It ran horizontal though. And I said, “Well, that shit isn’t going to work like this, because the road’s over here.” I said, “Can I move the line and turn it this way?” And they said, “Well, yes. But you’ve got to go in and do a lot line adjustment.” I said, “Okay, I don’t know the process of that.” So I went to the survey company and the survey company tells me, “Yes, you’ve got to do a full application as if you’re subdividing to turn the lot line from horizontal to vertical to make the lots work.”

So I paid $2,500, hired them to assist me with it, and they did. I bought the lot from my mom and dad for $35,000, there was a little tiny ugly house on it, I tore it down with some tractors and some dump trucks, hauled it off to the dump… And we grated out the lot really clean. In the interim time, working on the subdivide, and I was going to build two houses on it.

And I ended up having somebody come by and not making me an offer on the property. They asked me, what I was going to sell it for. I told them, “$80,000. If they wanted both lots, they can have them both for $80,000.” I ended up netting about $35,000 on that land, so I never got to building the houses, but I still wanted to. So I took that—

Ash Patel: So you sold your parents land?

Jerome Maldonado: I doubled the money, so my dad was like, “You owe me 50% of that.”

Ash Patel: Alright, so now you’re looking for a new plot of land for your parents?

Jerome Maldonado: Yes. Well, no, no. My parents went and bought a house. I got them out from underneath the land. They were going to sell the land. I just curiously decided to buy it from them for what they paid for it. So it was a win-win deal for them, because they were able to get out of the land without the hassle of having to put it up for sale again, and they were able to take that money and go put a down payment on another house. And I was able to get creative with it.

So when I made a $35,000 profit, my dad was like, starstruck, because he was doing my accounting. He goes, “You made $35,000 on that land, you doubled the money?” And I said, “Yes, I did.” And he goes, “You owe me 50% of it.” He was just joking, he never took anything. But I took that money, I bought a $35,000 lot with that profit, and I ended up building a $350,000 house on it, made about $80,000.

I saw a guy driving around on a Harley—we were pouring concrete for a client, because that’s what we were doing, we had a full concrete company… And this dude kept driving up every day on a Harley-Davidson motorcycle, head shaved bald, he’s wearing these rings, cool-looking dude, just a cool looking biker dude. And he had this cool European accent. I got to talk to him one day, and I said, “So what do you do? You just build these houses and that’s all you do?” And he goes, “Yes, I just come in and I build these houses, and I do about three or four a year.” So I asked him how much he made, he goes, “I make between $80,000 to $100,000 on a house.” And so I said to him, back, “You’ve got to be shitting me.” So I bought a lot next door to where he was building, right next door, and I built a real similar home to what he was building, and I made about $80,000 on my first one.

My dad and I sat down, we did a spreadsheet on Excel, and just going through all of what we thought [unintelligible [00:25:22].10] build the house – the foundation, the plumbing, the framing, and I built the house. And so when I made $80,000, I bought two lots right away again, and I did it again, I duplicated it. I did three of them in one year. And that turned into 12 houses a year. I still buy land and build houses today, it’s been our cash flow, it’s been a great business. And now what I do is I deploy all that money into multi-unit real estate, into apartment complexes, little retail centers, office buildings and warehouse space that we own… And now we have a portfolio all over the United States; we own real estate all over the United States.

Ash Patel: What asset class currently gives you the best returns?

Jerome Maldonado: Class D.

Ash Patel: Apartments?

Jerome Maldonado: No.

Ash Patel: So retail office [unintelligible [00:26:03].22]?

Jerome Maldonado: So distressed assets give me my best returns. Value-add projects. And when I say Class D, I’m joking, because it’s Class C—A, B, and C, and if I say D, it’s financially and physically distressed assets. I’ll give you an example – right now we have a project going on in the Phoenix metro area. We bought a property that had been on the market for over 1,200 and some odd days, so a few years. No one was looking at this old office building. A wholesaler put a call out to us and asked us if we had any interest in it. So like always, I always consider every project, we ended buying the property, and in lieu of turning it into an apartment complex. Obviously, there was some due diligence we had to do to make sure that the zoning would approve it, the fire marshal’s office would approve our designs, and we were successful in doing so.

So we took a property that we bought for $1.6 million, we converted the existing office into 50 units of apartment complexes, and then we built out another 60 units of brand new apartments on the same property, because the land was free; we already owned it, right? So we got 110 units on this property that we’re facilitating construction on right now. And that project is a $16.5 million project. So it comps out at $16.5 million. We’ll walk away with about a $7 million profit, and the whole project turnkey is going to take us less than two years. So—

Ash Patel: Where does the funding come from for that project?

Jerome Maldonado: So we raised some capital; we raised about $1.3 million is what we ended up raising through investors, doing syndication. And then we got traditional financing, got a construction loan on it, we acquired the property, got a construction loan on it. And then once it’s stabilized, we refinance and get long-term stabilized financing, draw a little bit of our money back out, and then hold on to the asset. We’ll keep that project, we’ll keep those 110 units in the Phoenix metro area. They’re selling in that area about $155,000 a door. In 10 years or less, that thing will be worth over $250,000 per door. So we just keep those assets, and we’ll just get long-term financing on them, let the property pay themselves off, pull all our capital out tax free… And the money that we put in from buying land and building houses, I deploy it into these projects. We take accelerated depreciation on it, and we’ll end up paying almost zero in taxes. That’s the big deal right there, is how you make that money and not pay taxes on it.

Ash Patel: Right, which on your home building business – you’re getting fully taxed on that.

Jerome Maldonado: Yes, we’re getting fully taxed, but we’re a Sub S Corp, so it’s all pass-through entity. And this is elevated-level stuff right here, but I’m going to say it anyways, because it’s important that people hear this, even though they may not quite understand it right now… But we have Sub S corporations, and then all my properties are owned under LLCs. So when their owned under LLCs, you get the K-1s on them, they’re also passed through entities. So it all calculates down to your personal taxes at the end of the year. So if I have $2 millions in profit from one entity and I buy an $8 million asset, and I take an 80% depreciation on it, I take $6 million depreciation on it, or I only take what I need, but then I land up with that $2 million, I can deploy into a long-term holding, take that depreciated asset, I can depreciate that asset, and I pay nothing in taxes. So that’s a big deal, is being able to make that type of money, deploy it into an asset that you’re going to have for a long time, and you pay nothing in income taxes.

Now, there is a revolving door to that – if you ever sell that asset, you have to capture those gains again, right, and pay them. But if you’re going to keep the asset, then you just pay the taxes on your cash flow. So it’s not that you never pay taxes. At some point in time, you’re going to pay taxes. But if you keep the asset and you live off the cash flow, then you never pay the taxes on it.

Ash Patel: That’s a great point.

Break: [29:35] to [32:35]

Ash Patel: Jerome, your investors – you said you’re going to hold this property for 10 years, are your investors okay with that? Or do they want less? Do they want you to sell sooner?

Jerome Maldonado: When you do a syndication, you can call the terms, right? So that’s what most people don’t realize, you build your own terms with your SEC attorneys. The investors have to be able to agree upon your terms, right, and you want to make them as favorable for the investors as possible. But like on this particular one, we just raised debt; we gave up to 14% on debt.

Ash Patel: Okay.

Jerome Maldonado: We didn’t give equity. So we were able to bring people in, and then we just pay them back once we stabilized the asset. And once we get our long-term financing, we just pay all the investors off and then we own the asset.

Ash Patel: Got it. And, Jerome, at what point in your real estate career did you take on syndications?

Jerome Maldonado: 2018 was the first time. Everything that I ever did — I did over $100 million in transactions myself, with my own in-house financing, traditional lenders, not raising a penny from anybody but myself. Started looking into it 2016, took me about two years to learn enough about it that I felt comfortable doing it, and in 2018, we pulled the trigger on raising capital with other people’s money.

Ash Patel: And who is “we”?

Jerome Maldonado: When I say “we” – it’s my company called Quad J Capital Holdings. When you have asset protection attorneys, they teach you how to talk, right? So you never want to say me, me me, because if you get into litigation or lawsuits, you never want it to be you, you want it to be your assets, your team, everybody.

Now “we”, as I do have partners now. So in 2019, I started doing an outreach for partners, which has been good, we’ve never done that, I’ve never had partners before. So I work with multiple people; Kyle Mitchell, he’s an apartment syndicator. He was in the golf industry. He’s been syndicating apartments for about four years. He’s a great asset manager, and we partnered up on that Phoenix metro project. I’ve got Rayman Dabs up in Seattle. He runs the construction on our development project up in the Seattle KirKtland area. And I’ve got David Carbajal down in Palm Springs area, where we’re running a development up there and we’re actually getting ready to start building out an apartment complex down in the Palm Springs area. And then here in New Mexico, I don’t have no business partners. Everything that we do here is done internally through my companies that I started back in the 90s.

Ash Patel: Yeah, so Jerome – for so many years, you did all of this on your own, was it a difficult transition taking on syndicators?

Jerome Maldonado: Oh yes, it is. It’s a mindset, but I’m getting older, Ash, and I recognize my limitations. You’ve got to be honest with yourself at some point in time. We had done well, and my wife and I sat down talked about it, we said, “We don’t work ourselves to death.” And that’s really what it came down to, is we were limiting our growth by doing 100% of it ourselves, and we were overworking ourselves. We were literally going to work ourselves to death. So at some point time, as our kids started growing up, I said, “You know, I want to be available to them when they go into college. I want to be able to travel freely and flexible without having to be tied down to being at home, dealing with employee issues and running a business,” right?

So I started recognizing that in 2016, and I started looking into what we’re doing today. And it’s taken us that long to put all of this together. And it was hard to even find people that you could trust to do business with.

So through ongoing networking, events, business deals, lunches, dinners, I met Kyle, I met Aimez, and you start to understand/learning people’s characters, you start watching and seeing what they’re doing on their own. And it was very hard; it was very hard to go and trust people, and understand. And now, I’ll tell you, Ash, it’s one of the best things that we’ve done. It splits off a lot of work. Our partners are incredible, all three of them that we have. I’m partners also with Tai Lopez and Dr. Alex Mehr, the minority partner in all the big brands, RadioShack, Pier 1 Imports, DressBarn, all the big brands that have been purchased… I deal 100% of all the real estate my company does. I sit as the CEO and chairman of ESR, which is E-commerce Supporting Real Estate. Tai is not a bad partner, it’s just that we take on 100% of the responsibilities, because he’s busy with the brands, so it’s kind of an understanding that we have. So all of our partners have been great partners. And it’s been a great move on our part, and I’m grateful that we made that move several years ago.

Ash Patel: What advice would you give to people that are on the fence, whether they should syndicate or not?

Jerome Maldonado: When they’re on the fence, they need to look at a couple different things. These are the things that I look for, Ash; do I really know how to manage this asset? I didn’t want to take anybody’s money. I’ve been successful with my own money, and I wanted to treat other people’s money as if it was mine, because we had been successful with our own money, and I felt like if I respected their money as much as I did mine, we’d be successful. So it took me two years to feel comfortable on doing that. I could have pulled the trigger in 2016 if I wanted to; I had enough experience. But I didn’t have enough experience syndicating, I didn’t have enough experience working with the people , I didn’t have enough experience with SEC laws.

So my first advice is, one, educate yourself with the SEC laws by getting an attorney, consulting with an attorney, understand what asset management really is, what’s your responsibilities, what your role truly is as an asset manager… Because you’re taking other people’s financial livelihood in your hands, right? You need to make sure that, one, you can project manage, and you can stabilize an asset if you’re doing value-add to it, meaning that you’re doing renovations and adding value to that project… Do you have the means to be able to facilitate that construction? Do you have the contacts that you need? So first and foremost, educate yourself, that’s the first thing.

And then once you know what syndication really consists of in regards to your responsibilities, figure out what it’s worth on your time and make sure when you do it, that you write the terms in favor of you, for your time and what you feel you should be compensated for, but then also never forget who you’re doing it for, right? You’re doing it on behalf of the people that you’re raising capital from, your investors. So they’re number one in line; your investors come first.

Then, number two is the bank. Number three is you; you’re always third in line, so you get paid last. So if you make your investors, number one, and you make them somebody, which means that you make them money first, and they’re successful, then you’ll always be successful and there will always be money in the bank. If you always make yourself first and you’re the only one that’s important, then you lose because the more successful you make them, the more successful you’re going to be.

Ash Patel: Right. Great advice. I love it. Jerome, what is your best real estate investing advice ever?

Jerome Maldonado: Get started, you’ve got to invest. People that are scared, you’ve got to take the leap of faith and get working with people like myself, like yourself, Ash. The biggest thing is, the best advice I could give you is get started, because I can guarantee you one thing, the only way you’re going to lose is by never getting started. You’ve got to get started, even if you have some trials and tribulations in the beginning;  just get started. Even if it’s something small. Everybody wants to get these big deals. Why? Just get started, even with a small deal. Learn the game. Get Started. That’s the best advice I can give people, is that get educated and get started.

Ash Patel: I agree, 100%. Jerome, are you ready for the Lightning Round?

Jerome Maldonado: I’m ready for it.

Ash Patel: Let’s do it. What is the best ever book you recently read?

Jerome Maldonado: Most recently, I would say — the best book of all times that I’ve ever read is going to be How To Win Friends And Influence People by Dale Carnegie. And number two behind that is Rhino Success by Scott Alexander. Those are two books I’d recommend that all people that are in business and entrepreneurship should read.

Ash Patel: What was the second book?

Jerome Maldonado: It’s called Rhino Success by Scott Alexander.

Ash Patel: And what was your big takeaway from that?

Jerome Maldonado: It’s the mindset takeaway on that one. He utilizes the analogy of a rhino and most people being cattle… How they herd together and how you separate yourself as a rhino, and how he used that animal to depict the ultimate perfect business person. They’re calm, cool and collected; they’re vegetarians, they’re very mild animals. But if you piss them off, they’ve got that big horn and they will use it, and they’ll jack you up; but they’ve got thick skin.

So in war days, soldiers used to use their two-inch skin as shields, back in the days. So the little things in life don’t bother rhinos; the mosquitoes, the flies, the little things in life, they don’t bother them. So he goes through the whole concept of how the rhino is the typical animal for success, and if you can model that, as an individual, that’s how you’ll become successful, and it starts here.

Ash Patel: Jerome, what is the best ever way you like to give back?

Jerome Maldonado: Well, I’ll tell you, I just created what’s called the Aqua Academy. And giving back is something that I haven’t done enough of; I don’t think any of us do enough of it. It’s one thing that my wife and I talk a lot about. And I think we’ve been very selfish in so many ways. I give a lot of my time to people, probably more so than I should. My wife tells me that a lot, she goes, “You’re way too giving of your time,” so that’s one way I give back.

But really, there’s a bigger picture out there, right? There’s a world out there that has problems, that those of us who have done well in life need to extend ourselves. And so the whole vision for the Aqua Academy is one, yes, to learn how to invest in real estate. So it’s an academy that I put together, we’re launching it next Tuesday, we have a webinar that’s going to go up… And the bull with Aqua is really, it’s a community-based program that we put together.

And back in the 90s, I was involved with a company called Equinox International. Our slogan was ONE EARTH ONE SKY ONE OCEAN ONE SOLUTION, EQUINOX. And we were an environmental health company back in the ’90s and we were doing extraordinary things when environmental awareness was very, very low. And we were able to be a part of head dances to save the oceans campaign. We did some stuff with the Parker Foundation back then. Went to Hawaii, did the celebrity golf tournament in lieu of taking care of homelessness, and Earth Day and a lot of different things that were awesome.

But in 1997, when the FTC shut us down, all of that came to an end. And so one of the big things that I’ve wanted to do since the 90s, was have my own something, just like what we were doing in the 90s. And that’s what Aqua is built after, I’m modeling it after that.

Our goal is to have 2000 members by this time next year, not only people that are going out making money through the means of real estate, learning how to buy land, build houses and have long-term holdings, but being able to deploy that and utilize the wealth that we create as a group of solid people, going after a cause that we can go out and make a difference on this earth. Because imagine what 2000 people that are making strong six-figure, seven figures and eight figures could go out and do in the world, that we can’t do individually.

Ash Patel: Yes, what an incredible way to give back. Jerome, thank you so much for being on the show today. You shared your journey, from starting out in network marketing, to the construction business and now developing a $50 million company. Thank you for sharing all your advice on mindset and how to keep moving forward. So we really appreciate having you on the show.

Jerome Maldonado: Ash, thank you. I appreciate your willingness to have me on the show, and I thank you for making this podcast worth–

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