JF2600: The Financial Advisor’s Guide to Passive Investing with Jim Pfeifer

Jim Pfeifer spent most of his professional career as an educator before becoming a full-time passive investor. Now, he helps educate others on how to do the same. Jim is sharing his four-step sponsor screening process, today’s hottest asset class, and red flags you may not recognize at first glance. 

 

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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, Jim Pfeifer. Jim is joining us from Columbus, Ohio. He is a full-time passive commercial investor and has invested in over 60 passive investments. Jim is the founder of a community that educates people about passive syndications and offers networking with other like-minded individuals.

Jim, thank you for joining us, and how are you today?

Jim Pfeifer: I’m doing great. Thanks for having me.

Ash Patel: It’s our pleasure. Jim, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Jim Pfeifer: Sure. I kind of had four different careers; I started out in business and then I transitioned to becoming a high school teacher, teaching finance in Inner City, Columbus, and then became a financial advisor, and now I’m a full-time passive investor running the Left Field Investors community.

Ash Patel: That’s quite a career there.

Jim Pfeifer: Yeah, it’s interesting. I’ve kind of been looking at this, and everything I’ve done has focused on education, really. When I was in business, I was a mentor and was helping educate people on how to get into the business I was in, which was reinsurance, and then I was an actual teacher… And as a financial advisor, you’re educating also. And so that’s one of my passions, and that’s why my community now, we’re just focused on helping people get into this passive investing in real estate syndications, to help people build wealth; that’s kind of my focus now.

Ash Patel: Jim, I’ve had the opportunity to interview a lot of financial advisors that have, later in life, found real estate. Why is it that financial advisors don’t push real estate investments?

Jim Pfeifer: That’s easy. Two reasons; one, not licensed for it; number two, you don’t get paid for it. And my focus was, I was always wanting to invest in the same things my clients were. And when I figured out finance, which I thought I had figured out before, and the more I learned as a financial advisor, the more I learned about money, the more I realized, paper assets weren’t where you make the money. And that’s when I decided it was time to go, because I couldn’t put my clients in the investments I was doing… So I decided to leave the field and go full-time real estate investing.

Ash Patel: And that’s the same answer I’ve gotten from all the other people that I’ve interviewed. It’s amazing. It’s a shame there’s not a way to bridge that gap. But being creative, why can’t you figure out a solution where financial advisors can get their kickbacks that they do from all the other investments on real estate?

Jim Pfeifer: I don’t know, all the other stuff is so highly regulated. And Wall Street kind of drives the bus, right? They’re the ones that are paying the advisors to bring clients to them, and real estate – everyone calls it alternative investing, right? They think it’s more risky. And to me, it’s completely the opposite. And that’s why, the more I was trained about finance and money by my financial advising firm, the more it pushed me into real estate. I don’t know why they haven’t figured it out, how to make money off of that, but they just haven’t.

Ash Patel: It sounds like a task that you should take on. Did you have an a-ha moment where you’re like, “Okay, I’ve got to get out of this finance industry and just dive into real estate”?

Jim Pfeifer: I did. I was an accidental landlord, like many people, and we had a home we couldn’t sell, so we rented it out. And I hated it. I didn’t like managing it. And slowly, I was going to just sell it once the market got better. And I went to my real estate agent and said, “Let’s sell it,” and he said, “How about this? I’ll manage the rental for you.” And he knew the house was paid off. And he said, “I’ll find you two more. Just get a loan on this property, I’ll find you two more rentals.” And that’s when the light bulb really went off, right? Because I had a real asset was producing income, no matter what I did. I didn’t have to do anything. I didn’t have to work. I didn’t have to put time for money; income kept coming in, and that’s what the light bulb went off for me.

Ash Patel: And now you’re focused on educating others on passive investments. Tell me more about that.

Jim Pfeifer: Well, what I did was I built a community. When I was an active real estate investor, I wanted people to talk to about real estate investing, so I started a meetup. And then when I went to passive investing, my plan was to do the same thing. I wanted to develop a community so I could become a better investor. And we started a group, it was going to be real small, in Columbus, 12 people go out to dinner once a month. The pandemic happened right when we were starting up, and we went online to Zoom, and it’s just grown. And the more I find that I connect with people and build a network, the better at investing I become. So it’s a little bit selfish, right? I’m trying to help other people and show them—because people don’t know about investing in syndications. Most people don’t. They only know what Wall Street tells them. So I tried to spread the word a little bit, and the more people I talk to, the better I get at investing, the more opportunities I’m exposed to, and then I’m able to help others while I’m helping myself. It’s really kind of just circular that way.

Ash Patel: How big is that community today?

Jim Pfeifer: At the end of 2020 we had about 40 members, and now we’re up about 420. We’re not trying to grow super fast; we’re trying to grow, and we have really quality people, it’s a group of people. It’s like a large mastermind, where you find your people… And we’re just adding people slowly, who are interested in building wealth through passive investing.

Ash Patel: Are the members of the group—do they fit into some sort of niche? High net worth, high earners, full-time jobs?

Jim Pfeifer: Yes, no, it’s all of it, right? There’s people that haven’t invested in their first deal, and there’s people that are in 60-80 deals. And there are some people that are high net worth and they can invest 50 to 100 grand at a time, and there’s others who are just starting out and building their wealth. And we use a company called Tribevest to do group investing, where they can get into a deal for much less than the minimum because they’re investing as a group. So the only thing that binds our group is an interest in building wealth with real assets.

Ash Patel: And you can take non-accredited investors?

Jim Pfeifer: Yeah, we have both; we have accredited investors, we have non-accredited investors… I think that’s a big hurdle for some people. When they hear about passive syndications, they think you have to be accredited. And we had some of these smaller groups that were investing $150 a month into this fund that we were going to go out, and that’s when I really thought, “I’ve got to find some non-accredited sponsors.” And some of my favorite sponsor, they take people that are not accredited. So it’s not a hurdle anymore.

Ash Patel: What are the typical returns that you make on these investments?

Jim Pfeifer: Well, it always changes, of course. I don’t think the next 10 years are going to be like the last 10. But typically, you can expect during the course the investment to get between 6% and 9% cash on cash return. And then you can expect a 1.7 to 2.2 multiple over 5-7 years. And that’s what I’m hoping for going forward. I would expect those numbers to be a little bit lower, just because things have been going so great in the multifamily and other asset world that I expect that to be a little bit worse going forward. But most of that return is going to be tax-free if you do it right.

Ash Patel: And Jim, you’ve invested in over 60 passive investments. Is that as an LP or a GP?

Jim Pfeifer: LP.  I’m only an LP. Our group, we just provide networking and education. We don’t GP on any deals. We just did a one-group deal with some of our members, but that was a special case. We’re not recommending syndicators, sponsors or deals. We’re just helping people learn about it, and then we’ll always tell them, “Hey, here’s kind of our favorite sponsors,” but we want to be as non-biased as possible. We’re not incentivized to push people to one syndicator or another.

Break: [08:03] to [09:36]

Ash Patel: Jim, you’re from the finance industry and things work a little bit differently out there. How do you get compensated for all of the work that you’re doing?

Jim Pfeifer: Well, to be honest, that’s something that we’re still working on. We do have a membership group to our Left Field investors, where we have some tools to help people out; we have a forum and it’s just kind of a tighter group and we do charge for that membership. Of course, that is basically just to cover the cost of developing the tools, and the website and all that.

Really, the way I get paid is through connections and networking. I am exposed to a lot of people, which means I get exposure to a lot more deals, deal flow, better sponsors and things like that. We really haven’t monetized this network or community yet. Now, we’re always looking around for ways to do that, but we want to maintain our neutral role as just helping people learn how to passively invest. That’s our goal. And like I said, the money will come eventually, when we figure that out, but right now we’re just trying to build an awesome community.

Ash Patel: Alright. Forgive me for poking, but I’m going to ask this question; it’s going to be blunt. Do you not get any sort of kickbacks when you get a number of investors in on a deal?

Jim Pfeifer: No, absolutely not. Sometimes I get a Yeti.

Ash Patel: Jim, your ex-finance colleagues are not going to be happy with this business model.

Jim Pfeifer: Look, I didn’t start it to have a great business model; I realized that we’re not monetizing this properly. Again, we will at some point, but it’s hard to figure out how, because I don’t want to be stuck only recommending this sponsor or that sponsor. I want to all of our group to make money. And really, this community has given me so much. I am 10 times better at investing now than I was a year and a half or two years ago, and it’s thanks to this community. So I’m going to make money, just it might not be from the members of my community, and I’m okay with that.

Ash Patel: Jim, you’ve earned my respect; that is an incredible approach – build an altruistic community that grows organically and then the money will come later. So I commend you for that approach.

Jim Pfeifer: Thank you.

Ash Patel: When you qualify all of these syndicators or passive investment operators, what criteria do you use?

Jim Pfeifer: Well, this is also ever-evolving. So one of the things now that I’m trying to do is, unless they’re referred to me by somebody that’s invested, then I’m probably not interested. Because these are long-term investments. They’re extremely illiquid, and the sponsor is probably the most important part of it. You have to find someone that knows how to manage an asset. So once you invest with them, you’re not going to know for sure, for five years maybe.

So there’s a few things I look for. Communication is number one. If you’re not going to communicate with me efficiently before I send you a check for 50k, then you’re certainly not going to do it afterwards. And I want to make sure that you’re sending the reports, good or bad. If the investment is not performing, I want to know right away, and if it’s going well, I want to know. And then also to check distributions, to make sure that they’re coming in at the same rate and amount that you said they would in the pro forma. Now, if something happens, something changes, and you can explain it, I’m fine with that. But again, communication is the key. That’s really the main thing.

I also look for experience, someone that has been around for a while, preferably before 2006-2008, that’d be great. But there just aren’t that many of them. So as long as you have the experience in real estate in something in the asset class that you’re investing in, that’s another screen for me.

Ash Patel: And in terms of asset classes, are you open to multifamily storage, non-residential, commercial?

Jim Pfeifer: Yeah, all of it, you name it. As long as it’s a hard asset, we’re interested in it. We also do a little bit in speculation stuff, too. But investing and speculation are two different things. Investing to me is where you have a real asset that’s producing income for you. And speculation is when you’re investing in something else, that all you’re doing is hoping that someone else would buy it from you for more later. That could be the stock market, that could be Bitcoin, that could be a ton of stuff. But we’re focused on investing, and then a little bit on the side, we do our speculation.

Ash Patel: Would a startup be considered one of your speculative investments?

Jim Pfeifer: Yes, absolutely. And I do invest in those. We don’t talk about that a whole lot in our group yet. We’re moving there. We’re focused kind of on the real assets, producing real income thing right now. But I think that’s going to be more a part of it in the future, because that’s where you can really kind of get your 10-20x that will really build you some wealth. But really, we’re focused on a get-rich slow scheme. It’s not anything that’s going to happen fast. But the more you’re investing in real estate, the more that snowballs, and that’s our focus.

Ash Patel: Well, I have to imagine you bear a lot of responsibility, because if there’s somebody coming in to pitch a startup, and you have a non-sophisticated investor who just thinks “unicorns, this could 10x in the three years”, you have to reel them in a little bit, right?

Jim Pfeifer: Yeah, and that’s where we haven’t figured it all out yet. I’m very clear about that. We aren’t recommending specific investments to anybody. We’re just providing access. And right now, the startups and those riskier things – we have discussions about them in our group, in our forum, in our group meetings, but we aren’t really recommending things. Now, I think the group will grow to a point where maybe we offer more exposure to some of that speculative stuff, but that’s got to be a very small part of the portfolio of any person, right? That’s just 5% maybe on the side.

Ash Patel: For a more sophisticated person, yes. But you have those other investors that just want to shoot for the moon. Is it the group that kind of reels them in? Are these pitches in a group format, in-person?

Jim Pfeifer: Yeah, we don’t really have pitches even. We do have monthly meetings where syndicators usually come in and talk to us. But those aren’t the startups and all that riskier stuff; and that is just kind of conversations in the forum. We’re not presenting any of that to people. And we talk a lot about chasing the shiny object and squirrel where you’re chasing something… We’re trying to just focus on real assets that produce income, and that’s what we’re talking about in our groups, and that’s what we’re talking about in the forum, for the most part.

Ash Patel: Got it. And the reason I probe into that a little bit… I started an investment club years ago, where it’s just a group of high net worth friends, and we don’t focus on real estate, we focus on startups only. And I’m guilty of it, where “Oh, my God, this thing could blow up.” But in that room, there’s a people that are a lot more experienced than I am and collectively, we kind of reel each other in and ask questions in front of the group to really evaluate each investment. So I would imagine with your group, it’s more of a collective Q&A type thing that helps evaluate each investment?

Jim Pfeifer: Yeah, someone will post a new deal in our forum, and everyone will comment on it and give feedback, and then that person may or may not invest, others may or may not invest. But it’s just conversations, and that’s kind of how it goes, and it’s kind of like crowdsourcing the expertise there. We’re trying to get input from everybody, and we do reel each other in. And because like I said, the shiny object syndrome, that happens all the time. So there’s different groups within our community that kind of bond together and they might be talking about some of those things on the side. We just had a big conversation about Bitcoin and we were very careful to say, “Look, who knows where this is going? But it might make sense to put a very small part of your portfolio in there if you can invest it, and you don’t mind losing it, because you don’t know what’s going to happen with some of the speculative stuff.”

Ash Patel: That is a great model. I would imagine you do a ton of education for new investors. What’s your hurdle when you’re trying to teach somebody about passive investing for the first time?

Jim Pfeifer: Well, we just did a masterclass where we just did; what is a syndication, what is passive investing, from basics, right? Because we get a lot of new people, because part of what we’re trying to do is expose people to what they call alternative investing, which that’s a word that drives me crazy because it’s not alternative. It’s where you live, where you rent your house from, where you go to work, it’s all property, right? It’s all real estate. So we try to educate from the very beginning and give the people the tools so they can go out and do it on their own. And then we also use Tribevest again, that’s just group investing, they help you invest as a group. And that way you can pair yourself up with a bunch of other beginners and you can learn together, and then some of the more experienced people in our group will mentor and help those newer investors along.

Ash Patel: Yeah, that is an incredible model. I commend you for doing that and doing it altruistically. Jim, what is your best real estate investing advice ever?

Jim Pfeifer: My best investment advice ever, I think is to really make sure you know the people that you’re partnering with. Anytime that I’ve gotten into trouble, it’s when I haven’t really known the people that I was investing with. Because we’re talking about passive investing, I’m not managing assets, I’m managing people really, I’m evaluating people and investing in people and then they’re going to go out and manage the investment. So to me, it is critical to vet the people that you’re working with, understand them, get to know them, so that you can get to a place where you know, like and trust them, and those are the people that I’m going to invest in. I have learned the hard way that you don’t invest with people that you aren’t confident in.

Ash Patel: What were some of those hard lessons that you learned and what’s an example?

Jim Pfeifer: Okay, so one is there’s a company that did turnkey single-family homes in Dallas. That was awesome, but then the Dallas market got too expensive. They weren’t making money on turnkeys anymore. So they said, “Okay, we’re going to do office buildings and we’re going to buy some CBD equipment.” And they didn’t know anything about office buildings, they didn’t know anything about CBD equipment. And I just thought, “Well, they did great at the other stuff, I’m sure it’ll be fine,” and I invested some money, I lost some money, we’re still kind of working that out. They blamed it on the pandemic, but they lost it well before the pandemic.

And the key is, I’m not going to invest in somebody who’s trying something new. So I learned that, right? And then there was another syndicator, who was multifamily, and they decided they were going to get into self-storage. I learned a lesson. The first thing I did was I said, “Where’s your expertise?” And they said, “We just hired a guy who’s been doing self-storage for 20 years.” So I said, “Okay, I could see myself maybe investing with you a deal or two down the road once I kind of see how it goes.” But I’m never investing again with someone who does something for the first time. I’m going to let them test it out on somebody else.

Ash Patel: Yeah, great advice. Jim, in terms of communicating, how often should a syndicator communicate with their investors?

Jim Pfeifer: They should communicate exactly as often as they promised, or more. So if you tell me, you’re going to send me monthly reports, send me monthly reports. If you say quarterly, send me quarterly reports. Most of the companies I deal with, they send them monthly or quarterly, and the deals that I’m most frustrated about, the deals that aren’t performing, there’s a few of them that they don’t communicate at all, and that’s a no go. I will never invest with those people again, regardless of how the investment turns out. So I require you to communicate in a timely fashion, and at least as often as you promised.

Ash Patel: Yeah, I’ve had a similar experience. I invested in some mobile home parks with who I thought were experts, and their communication was just horrible, distributions were non-existent. And like you said, regardless of how much money I make on this deal, not happening again, because it’s not my job to teach you to communicate with us investors.

Jim Pfeifer: Exactly. And you know what? It’s a mobile home deal, so we might be in the same deal.

Ash Patel: Ah, I think we were, a buddy of mine and I, were the only investors in this one.

Jim Pfeifer: Oh, well, then maybe not. But mine was a disaster. And they finally came out and promised better communication. And, of course, it didn’t happen. So you can’t make promises that you’re not going to keep or at least attempt to keep.

Ash Patel: Same here. So we’ll talk offline, it might be the same operators. Do you want to see financials too?

Jim Pfeifer: Yeah, I do. It depends, I guess, I would say. So there’s a couple of syndicators that I’m in more than 10 deals with them and I know how they operate, I know their pro forma. So when they send stuff out, I’m probably not digging into it. But if it’s a new sponsor, yeah, then I do want to see it. I want to see it beforehand, the pro forma, and then I want to see how it’s progressing after the fact.

Break: [21:37] to [24:17]

Ash Patel: Is there a particular asset class that you’re chasing or that’s hot right now?

Jim Pfeifer: I think self-storage is really doing great. We have a few deals that are going full cycle in less than two years and their pro forma is six years, but they’ve accomplished their goals. So they’ve given us their capital back and going forward again, and then mobile homes, both those are becoming really popular. So I think we might be at the spot where it starts to turn a little bit. But I think both those asset classes are pretty strong right now.

Ash Patel: Do you do any retail office?

Jim Pfeifer: No, I don’t. Not at all. I don’t know it. I’m not confident in it. And after the pandemic, maybe it’s a good time right now, but I got burned in office with the one sponsor I was telling you about. So I’m okay with the other asset classes. I’m not in those at all.

Ash Patel: If somebody came to you with returns that were much higher than the norm, would that set off a red flag?

Jim Pfeifer: Absolutely. In fact, we have a deal analyzer tool where we put the metrics in and anything that is kind of outside of our metrics, it turns the cell red. And one of those is if they’re promising higher returns than we generally expect, then that’s a red flag, and I definitely ask questions about that.

Ash Patel: Are there also metrics where, let’s say, there’s a waterfall clause, do you want a minimum of that return or are you flexible deal by deal?

Jim Pfeifer: I’m flexible, I just want it to be fair, I know different asset classes are different. I know some of the self-storage and mobile homes now some of them used to be 80/20 splits in favor of the LPs, and now they’re 20/80 in favor of the GPs, and those deals, I’ll probably keep looking. But in the end, if the net return to the LP is satisfying, then I agree those guys need to be paid. And if they’re doing an awesome job and they’re getting paid a ton, I’m fine with that, as long as they deliver returns to me.

Ash Patel: Yeah, Jim, are you ready for the Best Ever lightning round?

Jim Pfeifer: I certainly am.

Ash Patel: Let’s do it. Jim, what’s the best ever book you recently read?

Jim Pfeifer: The Hands-off Investor by Brian Burke, absolutely must-read for anybody who’s going to be a passive investor.

Ash Patel: What was your big takeaway from that?

Jim Pfeifer: It was just so thorough. I don’t have one single takeaway, but it’s the book I go to whenever I have a question. It starts from scratch and just goes really deep into how to analyze a deal, how to analyze a sponsor, all of that. It’s just so comprehensive.

Ash Patel: You know, that’s really trending right now as people’s favorite book, and that’s coming from both passive and active investors. So I’m going to put that on my list and I’ve got to read that.

Jim Pfeifer: Yeah, it’s good.

Ash Patel: Jim, what’s the best ever way you like to give back other than this incredible networking forum that you’ve started?

Jim Pfeifer: I think that really is my passion. That is how I give back; just to educate people, and help them get exposed to this. So not just in the community, we’re building, Left Field Investors, but also outside of it, because when I was a financial advisor, everyone thought, “Okay, I’ve just got to cram money into my 401(k) and then someday, I’ll retire hopefully, with his one income stream.” And my passion now is to just help educate, regular people can do this, too. You don’t have to be wealthy, you don’t have to have any special skills. If you have just a little bit of interest and you’re ready to learn, then you can do this too. So the way I like to give back is to just try to show people, whether they’re in my community or somebody else’s, you can do this multiple income streams, that’s the best way to protect your financial situation and build wealth for the future. So that’s kind of my passion and that’s how I like to get back is just helping regular people get into this.

Ash Patel: Have you been able to convert some of your former colleagues into real estate?

Jim Pfeifer: A few, there’s some that are finally getting into it a little bit. But for the most part, they know their thing and they’re experts in that and they keep slugging away. But I think in a few years when they see me being independent and they’re still slugging away, they may come calling.

Ash Patel: Yeah. Jim, how can the Best Ever listeners reach out to you?

Jim Pfeifer: The best way to get a hold of me is to go to our website,  www.leftfieldinvestors.com or you can send me an email direct to jim@leftfieldinvestors.com.

Ash Patel: Jim, thank you so much for sharing what you’re doing with the Best Ever listeners. I think it’s incredible that you’re out there just educating people with no expectations of anything in return. Again, it was a pleasure talking to you today.

Jim Pfeifer: Thanks. It was great seeing you.

Ash Patel: Best Ever listeners, thank you for joining us and have a best ever day.

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