022: Jeremy Roll's Investment Strategies: From Corporate to Cash Flow

Jeremy Roll [00:00:00]:

One of the metrics that I used at the time. I was just above a two X cash flow versus cost of living. And that to me, was very important because I'm very conservative. There was some stuff that was very heavy in cash flow, a little more risky, some of it wasn't as bad and more like real estate opportunities. It was a mix of a bunch of stuff that I eventually, once I left the corporate world, specifically had to de-risk over time. I didn't have a plan and design for this whole thing. So it's not like what a lot of people do.

Christopher Nelson [00:00:28]:

Welcome to Tech Careers and Money Talk. I'm your host, Christopher Nelson. I've been in the tech industry for 20 plus years, and after climbing my way to the C suite, working for three companies that have been through IPO and investing my way to financial independence, I'm here to share with you everything that I've learned and introduce you to people that can help you along the way. Today I am super excited to introduce you to Jeremy Roll. Jeremy Roll is considered by some to be the godfather of passive investing in the modern era. He is a full time passive investor for cash flow. That is correct. He invests in private equity.

Christopher Nelson [00:01:06]:

We're talking real estate, we're talking businesses, we're talking different types of assets that provide him cash flow. Today we're going to hear how he learned about this, even in the pre 2012 Jobs Act era. You want to learn more about passive investing, private equity? Go back to episode 20. I break it all down for you in the second half of the episode. You're not going to want to miss this because we're going to be asking him what he is seeing in the market and also where would he place $500,000 if he had it today? With his type of investing, Jeremy always breaks it down. I'm super excited to introduce you to him. Let's go to Jeremy now. All right.

Christopher Nelson [00:01:47]:

Welcome to Tech. Careers and money talk. I'm super excited today to be able to introduce everybody to Jeremy Roll. Jeremy Roll started investing in real estate and businesses in 2002 and then left the corporate world in 2007 to become a full time passive cash flow investor. He's currently invested in more than 60 opportunities across more than 1 billion worth of real estate and business assets. As the founder and president of Roll Investment Group, Jeremy manages a group of over 1500 investors who seek passive managed cash flowing investments in real estate and business. And he's also the co-founder of For Investors by Investors, a nonprofit organization that was launched in 2007 with a goal of educating and facilitating networking among real estate investors. Jeremy also has an MBA from Wharton and is an advisor for Realty Mogul, the largest crowdfunding website in the United States.

Christopher Nelson [00:02:44]:

Welcome, Jeremy. Excited to have you here.

Jeremy Roll [00:02:47]:

Yes, thanks so much for having me on. I very much appreciate it. I hope this is helpful for everybody.

Christopher Nelson [00:02:51]:

Well, it will be. Our listeners are technology employees, and many of them are. I find that their portfolios tend to have a lot of equities, have a lot of venture investing, but they don't understand this world. And so this is our opportunity to interview you, who you've had a huge influence on myself. Being able to start transitioning to private equity and passive investing is the opportunity to share with them your journey and then also what you're seeing in the market today. So I would love to start off with when I think for myself, I started getting into private equity passive investing in 2013, sort of post jobs act where we started seeing a lot more information. What I'm really curious about is for yourself, starting in 2002, how did you start learning about private equity and this type of investing to begin with?

Jeremy Roll [00:03:46]:

Yeah, absolutely. And just for everyone out there, I'm not a financial advisor, investment advisor, accountant, attorney, everything's my perspective as an investor. So just FYI, definitely not investment advice. So what happened with me is for those people in Tech who are old enough, after the.com crash back in 2001, I was just kind of sick and tired of the stock market for two reasons, and it was really a personality mismatch for me. One is that the volatility was not the right fit for me. So watching The Market go up and down 30% a year was the Wrong fit for me. I'm just a really low risk, kind of like slow and steady guy Mindset. And the Other was a lack of predictability of where my retirement account would be in 1020, 30, 40 years, given that volatility.

Jeremy Roll [00:04:26]:

And So what I kind of concluded was that the stock market wasn't the best fit for Me. And So I started to look at different ways to invest and I came across the concept of focusing on cash Flow potentially through real estate, also through other assets. And So I started to Learn Back in two by a combination of networking. And I was also very lucky because longtime Friends of my Family, who I literally grew up with since I was four or five, their Father had been Syndicating Properties and buying these types of Assets already for 1020 years at that point. And so I started to invest. So it was in Canada. So I'm from Canada, I grew up in Montreal, spent half my life There, half my life in the US. Where I am now.

Jeremy Roll [00:05:08]:

And I started to invest in Canada, but from the US. Where I was living because I had a very good long standing relationship with them and I thought I could trust them, but also I'd be able to learn from Them to a different degree than an average sponsor. So that's how I started to test the waters. And then I started to network. And of Course, as you alluded to before back then, especially, like, the Internet, apps, Jobs, acts, so many things have happened in the last 20 plus years. It was a totally different landscape in terms of what you had to do to learn and to find opportunities than it is today. And it's a lot easier today.

Christopher Nelson [00:05:41]:

It is a lot easier. And so when you started doing this, what were some of your resources that you learned, used to learn underwriting and vetting and those types of things? Or is it really just trial and error?

Jeremy Roll [00:05:55]:

Yeah, well, it's a good question. And so to me, one of the best ways to learn if you're brand new is what I call opportunity exposure. Yes, there are select courses. Some of them are better than others, et cetera. But to be able to take like ten or 20 opportunities in one asset class, call it multifamily, just because a lot of people know that, and put them all side by side. And you can not just learn about the underwriting, but even, like, the investor structure, whether one has a preferred return, let's say nine out of ten have a preferred return, one doesn't. Why not? And what is the difference? Is that one better or worse for you? Right? So looking at everything that stands out and all the commonality, you start to kind of learn the averages, what's standing out, what you should be getting as an investor. And the same thing goes with the underwriting as far as certain expense ratios and assumptions for rent and inflation increases and all this type of thing.

Jeremy Roll [00:06:38]:

And so I'm a very big fan of that. Now, back then, I had to go and find individual opportunities. I had to network in person with people. There was literally no other way to do it. You couldn't really do it online. And so I was very lucky because I lived in Los Angeles, being a big city, there were a lot of meetings going on at meetup.com. And that time I didn't have kids, and if I wanted to, I had the time to put into it. So I was driving to two to three meetings, on average a week to learn all this.

Jeremy Roll [00:07:05]:

And yeah, so this is over a course of like five years. And so it was a lot of work. Today you can log on to a crowdfunding site if you want to download literally ten multifamily opportunities in your pajamas in an hour or less, and then print them all and have them side by side and never go anywhere, literally. So you just have a cup of coffee next to you. So it's a totally different landscape right now than it was back then.

Christopher Nelson [00:07:27]:

And it sounds like reverse engineering. Understanding the math was critical. But we also know that there's a big component of this that is relationship as people. And that's where I'm sure then you got that from that perspective. Because I think sometimes people miss out on that today. And I always try to go back and understand how people learn something because it sounds like that's where you really got grounded in the basics of I'm going to go there, I'm going to shake hands, I'm going to ask a lot of questions and I'm going to sit down and understand the math.

Jeremy Roll [00:07:59]:

Yeah, and that's a really good point you're making. And I hadn't thought it through, but it used to be that this was 100% in person relationship based or referral based from a friend of yours who may have seen a deal. Right now it's a very high percentage, potentially even marketing based, right? Whether you're listening to a podcast, you hear somebody and then you go access them or see what they're all about, whether it could be a referral still. But it could be crowdfunding, it could be so many things and it could be that crowdfunding sites are marketing to you. And so there's a lot of, unfortunately to your point, it's much easier to get caught up in being able to access deals much more easily and do a lot less work or in person work or even just due diligence work on them because a lot of stuff is handed to you more on a silver platter. And again, I'm not trying to pick on any individual website or whatever, but for crowdfunding in general, for example, a really good option for some people, not as good for others. But you can log on and you get an entire summary of projected returns, IRR here's, ten documents you could download, et cetera. And theoretically it does accelerate your due diligence, but it's also handed to you on a silver platter and some people will potentially take for face value what they're getting.

Jeremy Roll [00:09:08]:

So let me give you a really good example of what's going on in my mind back in 2002. If I were to find something and it was a city I may not know, right? So let's say if I find something in Dallas, Texas, I've never been there before for argument's sake, and it looks like an interesting multifamily deal. Well, now I've got a business plan and it may have a little bit of demographic and business information, but I'm going to automatically in my mind go on there and research it, right? I'm going to go look and see if this person used data from the government. Is this private data matching up on employment, average household income, et cetera, right? The problem I find today is that because the presentations are so much more buttoned up, there could be videos associated with it, et cetera. People are taking that in and probably not doing the same degree of due diligence and maybe not even cross checking things, for example, because it's just being fed to them so much more easily in a way that you can digest so much better rather than holding this physical document. And so to your point, it's a different game today, which could lead people to end up moving forward much more quickly and actually in a lot less effort. Right. So if you're putting the time in to then drive to a meeting, meet a sponsor, get to know them in person and then look at their deals, it's a whole different ball game than just logging on and actually investing through a crowdfunding platform. Never even talking to the sponsor, for example.

Jeremy Roll [00:10:30]:

Right. Which is a reality of some of reality today of how some of it happens. So each person is different. I tend to be a very thorough person, so it tends to match my personality well. But it is easy to fall into the trap of the marketing traps that exist today.

Christopher Nelson [00:10:43]:

For sure it is for you. As you started going through and learning this from the ground up and realizing, okay, I want to do due diligence, I want to meet people face to face. And I know that you're very much of an onsite person. Let me go on site. If I'm going to be investing in something, I'm going to be walking the grounds, I'm going to be doing everything. What are some of the other skills? I mean, if you were to list and say, okay, here are some of the skills that I really built back then that I think are important for people to still leverage today if they want to do due diligence to the level that you do, what would some of those things be?

Jeremy Roll [00:11:19]:

Yeah. So a few things come into mind. First, I have a hard rule. I don't care who it is. I always do background checks on the managing members of the manager entity and anyone who's a managing member, basically. And that has saved me a whole number of times. I feel like it's funny. I don't ask very often to the other past investors I know, do you do background checks? But it's really rare that I hear someone doing a background check or even asking me where I do them.

Jeremy Roll [00:11:45]:

It just doesn't come up often. So that's, number one, absolutely critical that I find is not discussed very much.

Christopher Nelson [00:11:50]:

And can I ask you a quick question? What are you looking for in the background check?

Jeremy Roll [00:11:54]:

Yeah, you're looking for a few things actually. And this actually is what the second theme I'm going to bring in, which is the first thing I do is I actually perform a test on the sponsor and I say, look, I need your name, date of birth and home address. I'm going to run a background check. And I'm not going to run a credit check, but I'm going to run a background check. So it's not going to your credit. It's not going to impact you anyway at all. But I need this information so I can actually make sure it's you, especially if you have a common name. Even if not, I'll just say I need to be 100% sure that it's not messing it up and bringing me up some other Jeremy roll.

Jeremy Roll [00:12:23]:

Right? And so some people are hesitant to give their home address. I don't necessarily need their home address, right? I just need their name and date of birth and maybe a state or a city. But I ask for that to see how open they are going to be. And then the more important piece is I say to them, is there anything you want me to know before I run your background check? Like, anything you want to explain up front? Totally fine. Now, what's interesting about this question is it's a definite test? Because I've had people who've been bankrupt ten years ago who say, no, there's nothing you're going to find, because they think seven years later it's off their credit history and it's gone. It's never gone. I can find it in the background check.

Jeremy Roll [00:12:58]:

And they purposely didn't tell me. I mean, I doubt they forgot to tell me something that important, right? But on the flip side, I've had very interesting situations where somebody said to me, for example, once it was a long time ago, you might find that I got stopped by the police and there was a gun in my trunk, okay. And I wasn't supposed to be transporting it, but I have a license for it, et cetera. And so in case it comes up, just so you know, that's something, right? It's easy to jump to conclusions. I always give the person some type of option to explain something, but it's much better if you're getting the explanation. So if there was a bankruptcy ten years ago and someone didn't tell me about it, they're pretty much going to be off the list because I feel like God knows what else they're hiding from me, right? But if something comes up that's a little questionable, that's uncertain, instead of jumping the gun, I ask them at the same time if they're obviously hiding something. And it's a really good test. And so that hiding something is a second point I was going to make, which is I'm very big into reading between the lines and even asking some questions to the sponsor where the answer doesn't matter at all.

Jeremy Roll [00:13:58]:

It's actually how they answer it. You understand who you're making a bet on, right? To be clear to everybody, who you're making a bet on, in my opinion, is more important than the actual property itself. It's a very close second, the property, but who you're making a bet on is very important because you're giving someone control over how they're going to run everything. Let me give you a good example. I might say to somebody, I noticed that there's two different ways you can phrase this. So one is, okay, they're assuming 92% Occupancy, but the current Occupancy is 97% at the property, but their assumption is 8% vacancy, right? So 92% Occupancy, I'll say, hey, I noticed that your property is currently 97% occupied. Why is it that you're underwriting 92% now? I could stop and actually not care about it, because that just seems conservative to me. Right, but it's good to hear.

Jeremy Roll [00:14:50]:

They might say, look, they may give you really good information. Oh, there's some construction happening that's going to block the road and we assume it will be lower. Now, there's a whole risk you didn't even know about. Right. They could also say, oh, we think this is going to continue. It's been 97% for the past four years. We like to be really conservative, so hopefully we're going to under promise and over deliver for you. Right.

Jeremy Roll [00:15:10]:

But I also see the opposite. I've seen people at 97 assume 96 or 97 and then you say to them, well, why are you assuming such a high Occupancy? And their answer may be, Well, I'm not picking on anything, but we're in Austin, it's been booming, and we think it's going to continue to boom. And so we're underwriting that. Well, that's someone who is using very aggressive projections, right. Sometimes it's obvious as to why it's in there and sometimes it isn't. That's why I was giving that example. It's really important to dissect that, but also to understand how they're thinking and who you're making a bet on, because the number one thing I'm trying to do is assess, based on the documents and my discussions, am I making a bet on someone who's conservative and is looking to under promise and over perform right. To build long term relationships with investors? Or am I dealing with someone who's a good marketer, who is aggressive in their numbers, who is actually probably going to over promise, under deliver, but doesn't care because they have such a good marketing machine, they're going to go on to the next investor.

Jeremy Roll [00:16:04]:

That's one of my main goals. And you have to do that by reading in between the lines sometimes. So that's another piece that I would say is very important. I also have a hard rule that I won't invest with someone unless I've met them at least once in person, and that is because of a gut check. So I find that beyond the background check, the gut check, it's interesting because there's been times where I've gotten on a plane and I've said, based on my conversations, I'm just not sure about this. But then meeting the person in person, it's got me over the line because of the positive gut check and then, of course, negative gut check, which can go the other way. Right. But the point is, in my opinion, the gut check is really critical.

Jeremy Roll [00:16:40]:

I feel like it's definitely helped me a lot over the years. And of course, that's intangible. There's a whole bunch of things that are important that probably aren't obvious and that it's not just about taking the business plan, reading it and making a decision. If you want to try to optimize. There's more to it for sure there is.

Christopher Nelson [00:16:54]:

And I think some of those key skills and really focusing on the operator I think is a huge, huge takeaway because ultimately when you have economic headwinds, when you have challenges, it's going to be the operator that's going to have to navigate this asset, this business plan through these things. So that's where that's the priority. I also know that going through the math, the underwriting and vetting all of the assumptions. Right. Because ultimately the math is driven by the assumptions. And I think this is where I've seen some people get it wrong because they're like, oh, let me look at the end result. Okay, let's back up and go, what's driving the end result? It's usually a core set of assumptions as you just called out. And that's really the rich conversation to have with the operator is understanding what are those assumptions and why? And then I learned this from you. Then you double check and you say what are different sources of data that can back up that math? That's going to give me a level of comfort that that's the truth.

Jeremy Roll [00:17:54]:

Yeah, but even how you dissect the assumptions is important. So for example, because it can tell you, again, intangible things. So some operators will say, okay, I'm using a 3% expense inflation. And what they'll do is they'll take every single row of expenses and they'll just multiply it by 1.3. Right. Easy math. But some of them will say, okay, I'm using 3% expense inflation except medical health insurance was going up at 8% a year so I'm actually going to adjust that line. Right.

Jeremy Roll [00:18:21]:

And snow removal has been going up at 5% per year. Now they'd still keep certain things at that 3% level because those are the standard ones. But they'll go in and actually make all these tweaks that tells you, okay, I'm dealing with someone who is more detail oriented and when they're going to be on the ground running the property, they're going to be more detail oriented. Right. So it's not just a question of taking an expense ratio and saying, okay, I'm investing in apartments at 45%. It looks about right. The expenses. Right.

Jeremy Roll [00:18:45]:

Just the bottom line looks right. Everything looks like it's reasonable. If you really want to optimize, you have to get into the real nitty.

Christopher Nelson [00:18:51]:

Gritty of that, that's right. To understand. Because ultimately the devil's in the details. Meaning that how that operator is going to operate the property is going to be in that level of detail. And the reason, and this is where I think it's important for people to understand, is this portfolio is your income. And so the reason that you are so conservative is because that's going to be the check that pays you. And so you are ultimately this conservative and your focus when it comes to real estate, private equity investing is on cash flow. You're not investing, for appreciation for anything that is in this core part of your portfolio.

Jeremy Roll [00:19:34]:

Yeah, and that's a really good point, because I tell people, look, there's 1000 ways to invest, none of them are wrong. It's a question of personality fit, frankly. People who invest in literally land deals or just ground up developments, I've never invested in one, ever. They may do better than me long term on a return basis. Right. But I'm looking for that predictable cash flow because I literally want to go to sleep tonight, wake up tomorrow, not much has changed because I live off the cash flow. And so that's my profile, and that's what makes me be very specific about how I'm reviewing all these things.

Christopher Nelson [00:20:01]:

Right, and so for you, as you got started in this, what were some of the key indicators that you saw, wait, I can actually do this full time?

Jeremy Roll [00:20:12]:

Yeah, well, it's actually funny because there's a lot of people I talked to in the corporate world, and I was in the corporate world for over ten years. Just, you guys know who is listening. My last two jobs were at Disney headquarters and Toyota headquarters. So I've worked with some big companies. And my intention in going into this type of investing was never to get out of the corporate world and never to generate the cash flow to get out of the corporate world. It was actually to have the W two and the more predictable retirement side that was growing. So I didn't actually have a plan to get out. I didn't say, okay, it's a five year, ten year plan, like a lot of people do, which is fantastic. I actually had a last-draw moment with my manager when I got promoted into a new division, and I just couldn't deal with this whole new situation.

Jeremy Roll [00:20:50]:

And so I actually had enough cash flow built up to live off of if I wanted to use it, but it was being used to reinvest and et cetera. And so I kind of took a risk and left the corporate world as a result. I will tell you that one of the metrics that I used at the time was I was just above a two X cash flow versus cost of living. And that to me was very important because I'm very conservative. And so if some of it stops, you're still okay. Right. And there were other aspects to it as well. There was some stuff that was very heavy in cash flow, a little more risky, some of it wasn't as bad, and more like the type of real estate opportunities we're talking about.

Jeremy Roll [00:21:26]:

It was a mix of a bunch of stuff that I eventually, once I left the corporate world, specifically had to de-risk over time, because now that I was living off of full time, but I didn't have a plan and design this whole thing. So it's not like what a lot of people do.

Christopher Nelson [00:21:40]:

Got it. So I want to get back to those two X. I think that that's really interesting because then with the two X, because I think some people, they start calculating, they say, what do I need to live off of? I want to replace the paycheck. Then they get there, they replace the paycheck, but it could put strain on the system because there's no margin for error number one. And then there's also no additional cash flow to continue to invest, right? Because ultimately the engine becomes more stable and you're continuing to expand your base and your output of cash flow when you have additional cash flow to invest. So I think that two X numbers is really interesting.

Jeremy Roll [00:22:23]:

Well, the two X does give you some cushion, right, because it gives you the one X cushion. So if it goes as planned, it does give you that additional amount. But one thing we really haven't discussed is two things. One is that theoretically, over time, it's interesting. If you look at the map, let's say that someone assumes 3% expense inflation and 3% revenue or rent inflation, there's a gap, it starts to widen because it compounds. So that it's not like you're earning the same amount of cash flow at the end, it's actually increasing because your expenses are only X percent of your revenues. So with the math, your cash flow is going up over time, hopefully keeping up with your living expenses, sometimes it could exceed it. The other thing we haven't talked about is that even though I don't invest for appreciation, what ends up happening is that because I try to go into more conservative scenarios that have like fully amortized loans, not necessarily like ten years of interest, only in the loans, et cetera, and they're longer term loans.

Jeremy Roll [00:23:13]:

If I'm in a deal for ten years, very often what's happening is over ten years you have two things happen that are positive. One is that you've actually paid down a bit the mortgage over time, which can build up equity. And two is that you often have a property that's worth more after ten years than not because of inflation, general inflation. And so once that exists and you have to reinvest it, you're now starting at a higher base and then you're optimizing what you're earning off that equity so it can kind of work and compound over time. As long as you're at one X, that could be a challenge. And to me the ultimate is three X. To me the goal was always three X, because to me, at three X, it's not just about the reinvestment, it's just about the cushion of certain things stopped. That's my bigger concern, frankly, in the short term, than anything, right, to cover the cost of living.

Jeremy Roll [00:24:03]:

But at three X or more, you're in a really great place where you can have a quarter of your stuff stopped, you're still at a nice margin and you still. Have a lot of cash flow to reinvest.

Christopher Nelson [00:24:12]:

Oh, that's great. I do want to try and take this to the next concept, which is really around thinking about how do you structure and build your portfolio, because portfolio construction is essential when you are looking for this to live off of. And so how did you start? Obviously you had somebody that was in some level of multifamily syndication. You started there. When did you start branching out to other assets and how does that impact what assets and proportions that you leverage in your portfolio today?

Jeremy Roll [00:24:53]:

Yeah, great question. So this is a very personal decision, so I'll answer the question, but it doesn't mean it's the right fit for anybody else necessarily. I was so turned off by the stock market that I literally rotated all my money from stocks and bonds into cash flow between two and seven. And so meaning that by the end of seven, I had no actual public shares. And so I would say the exception is I may have invested in one startup that IPOed or whatever, but I don't even really count that because it's not what we're really thinking about here. So I was and have been 100% into these eliquid type investments and cash flow focused stuff. 1% of my portfolio is in higher risk, like startups. It's a side thing I do. It's very little.

Jeremy Roll [00:25:34]:

I'm not looking for rent, it's people. I have to make a bet on who I know. It's not like me going and looking at deals coming to me like that. So I'm pretty much 100% into this eliquid situation. I don't necessarily recommend that. It's probably, frankly, theoretically not the smartest thing, but I always felt like because I was doing this full time, that I can maximize my overall long term return by being in this type of stuff. Meaning I think that this outperforms the stock market. And so by being 100% in this, I'm very comfortable with that concept because I'm highly diversified, which is critical.

Jeremy Roll [00:26:05]:

I'm in over 60 different positions at the moment. That's overdone, but it still gives me a lot of comfort. Right. It's not something I would recommend for people either, and it's not normal. And so most normal people, I suppose, will have some more liquid assets like stocks and bonds and more of this eliquid piece. But I think to answer your question, you've got to take into account the fact that the illiquid portion of your portfolio can have challenges. Right. So one challenge I have is that because I have 100% illiquidity and a lot of these K One tax forms with depreciation, my income is completely out of whack, and when I go to get a traditional loan, it doesn't work.

Jeremy Roll [00:26:43]:

So it's frustrating. I have to get a nontraditional loan because the banks get confused that even though I earned $100 from this property this year with depreciation and expense flow through, it shows negative five. Right. I literally tried to submit for a loan and they told me I make negative income and I was like, okay buddy, whatever you say.

Christopher Nelson [00:27:00]:

Right, and that's a good thing. That's a good thing from a tax perspective. But look at the income line. Yeah, that's funny.

Jeremy Roll [00:27:06]:

I know but it's still extremely frustrating, right? So it was crazy the way they calculated anyway. So that's one thing for sure. Another thing is that when I get older and I'm still relatively young I'm just turning 50 right now, but probably in the next ten years, I'm going to start to diversify out of this 100% illiquid focus, because I think liquidity is going to be important when I get older. And so I'm still okay with it today, but there's a point at which it won't be okay based on my age. And so my point in telling you this is when I started I was very young and that wasn't really an issue for me at the time. Okay. So there's a lot of factors that have to be thought about. So I can't really recommend it. I think the more important thing I can say is that whatever piece of this portfolio you create for yourself, whether it's 5%, 10%, 30 or 100, whatever it is, please be diversified.

Jeremy Roll [00:27:55]:

I cannot stress the importance of diversification, whatever that means to you. Most people tend to do ten or 20 deals to get properly diversified. It seems like that just seems to be the average that I've seen. I'm much higher than that for comfort level and also because I do this full time. My philosophy on diversification is that when I am investing passively into these illiquid investments, I'm trading control for diversification. So I actually get the benefit of diversifying into a lot of stuff by not putting a huge chunk of money into buying this one house or whatever it is. Right, right. But when I'm going to get to diversification I need to be diversified across asset classes, geographies and operators.

Jeremy Roll [00:28:35]:

That's my own opinion. And so if you're only going into two or three or four deals then all of a sudden now I want to be clear, your risk is higher by investing in these things because you're giving control to somebody else. You do not have control. You cannot decide to refinance, sell, get a certain type of mortgage, you have no control over that. You may have a very tiny vote but it's typically going to be a very small percentage and not very consequential. So in order to reduce the risk of giving someone else control, you have to diversify. If you only go into two or three or 14 things, you now increase your risk by being in these types of investing, giving someone control and you've not diversified, your risk back down. So you're even higher risk than you could be because you're not diversified properly.

Jeremy Roll [00:29:14]:

And the best example I can give anybody is a made off type situation. If you put 100% of your money with one person or one thing, you can lose it all. And so diversification is absolutely key and you want to help to reduce your risk as a result of being in these things that are illiquid where you're giving someone else control.

Christopher Nelson [00:29:30]:

Yeah. I even read a heartbreaking story of that meltdown that was in Houston recently, when they interviewed somebody who was an It professional, which I came from, so it really struck me hard. But this person knows a million so roughly half of their savings into a single.

Jeremy Roll [00:29:53]:

I hate hearing that for many reasons. But the thing that always kills me about that is that it was completely not preventable in that you couldn't prevent the fraud from happening, but it was preventable in that the person who put the money in didn't have to expose themselves like that. They had the choice. Right. And so just please be careful with your choices in this because no matter what, there's always 1%. Like if you said to me, Jeremy, tell me how this perfect deal that I see on paper can go bad. I can give you 20 ways that I call 1% risks. I'm just going to rattle a few off because some people don't think about it.

Jeremy Roll [00:30:24]:

There's fraud. Mismanagement Ponzi scheme. There is stuff that is not fraudulent at the beginning that turns fraudulent or mismanaged or Ponzi scheme. Right. Ponzi schemes sometimes are completely legitimate up front and they, you know, property burnt down due to a fire, insurance companies won't pay it out because they say it's suspicious. You're spending four years in court trying to win and you don't win. And now you've actually had money out the door on top of it all to actually be able to afford the lawyers. I mean, I can go on and on about things like earthquakes, floods, just stuff happening, right?

Christopher Nelson [00:30:56]:

It does. Do you remember the story? I remember you telling the story of I think you shared this. We were at a conference over lunch one day. As you said, you had this perfect deal. Everything was going well, but it was on sort of an island and they started doing construction on this bridge.

Jeremy Roll [00:31:12]:

Yes. It wasn't that it was an island. That was a senior housing deal. I could tell the story if you want.

Christopher Nelson [00:31:18]:

Yeah.

Jeremy Roll [00:31:19]:

It's the only foreclosure I've ever been in, actually. So that was in 2012 when it got foreclosed. So I invested in a 303 unit student housing apartment building. Right. First property across from State University campus. And this was actually in January 2008. It was a loan assumption and it was a really good deal because of that. And I thought there was going to be a recession.

Jeremy Roll [00:31:41]:

But I said to myself, this looks interesting. Very experienced sponsor. They own 17 other properties. People tend to go back to school back then during a downturn if they lose their jobs or whatever, or they're trying to get into the job market, they're maybe going to go and get that additional education. So that was my theory. Theory held very well. We were like 100% occupied for years, through the recession, everything. So in the beginning of 2012, the loan is due.

Jeremy Roll [00:32:06]:

In the fall of 2012, the beginning of 2012, the owners and all the residents get a letter from the city, and they say, look, this is a cold climate. We have to fix the bridge to campus that you get to campus with during the summer. But don't worry, it's going to be done in time when you get back from school, like we promise. So a lot of students were like, I don't know if this is going to be okay or not. So we went from a 99% occupancy or 100 or whatever to like 65% occupied, right? So that was domino number one, right? Because often in these more stabilized deals, it takes several dominoes to fall. Like a plane crash. You don't have a plane crash from one problem. It's like multiple domino systems problems, typically on a newer plane, let's say.

Jeremy Roll [00:32:46]:

So that domino fell now. So then we knew we were going to be well occupied the year after because they were going to fix the bridge. And then we didn't really do well in the renewals for the season, but then it was going to be fine next year. So then of course, the loan happened to be due that fall. That was domino number two. Just bad timing with when the loan was due, right? Completely unforecastable. Number three, domino that fell is that the lender would not extend the loan for a year. I guess they wanted the property back because they kind of knew what they had.

Jeremy Roll [00:33:16]:

Right? So three dominoes fell in what seems like a perfectly stable scenario in a matter of months, and there was nothing that could really be done with it. And so the property got foreclosed. Interestingly enough, the outcome of that was even though it got foreclosed, I didn't lose my equity, which I know sounds weird. So the sponsor happened to transfer all of the investors out of their own equity into another deal. First property across our state, university campus, another state. And that process took a year. It was legal and accounting and tax and all this. So no cash flow for a year.

Jeremy Roll [00:33:55]:

I'm still in that deal today, and it's still doing really well. The one I got transferred to. And actually, honestly, there was a partial recourse loan that the operator got hit with, and they came out of pocketing for all the equity from the investors that were in there. And the reason this, because they own most of their properties themselves without investors, and they felt really bad. So they had the net worth to do it. And what's important to learn from that, it's very unusual. But first of all, they had no legal obligation to do it. They had the net worth to do it.

Jeremy Roll [00:34:22]:

But just because those two things were the case, it doesn't mean they actually were going to do it. Right. Because even though they had a net worth, it doesn't mean they were going to do it. Depends on their personality. So that's why assessing a personality and obviously that was some luck on my side. But assessing personality is really important for multiple reasons. And actually, all things being equal, it is always better to invest with someone with a higher net worth because they can choose to provide loans, short term loans, low interest loans, cover problems rather than doing a cash call if they ever come up, they can make that choice. Sometimes they won't choose to do it, but sometimes they will.

Jeremy Roll [00:34:55]:

It depends on their personality. So there are a lot of lessons there. I'm sorry, it was a long story, but again, it's a 1% risk. There's no way to forecast when the bridge is going to close and be repaired, and there's no way to forecast it's going to happen at the same time as when the loan is due and that the lender won't extend the loan. But these things can happen. So these diversification pieces are really important.

Christopher Nelson [00:35:14]:

Right. And that's why I felt like it was important. I just remember I got a lot out of that story. I thought it was really important to share that, because, again, what I think we're trying to say is the 1% thing can happen, number one. And number two is doing your due diligence, understanding who the operator is, who's sitting across from you. I mean, that made all of the difference. That could have been a goose egg for you. Okay, great.

Christopher Nelson [00:35:38]:

I'm well diversified, but I lost on that one. But now it sounds like it turned into a win because you also had the right partners on the other side.

Jeremy Roll [00:35:48]:

Yeah, it was a little bit of luck, too, because you never know what someone's going to do until they're really pressed to do it. Right. That's right. But again, the real takeaway there is what you just said, both who you're making a bet on and a diversification piece, which I can't stress enough. Great.

Christopher Nelson [00:36:03]:

Well, so we're going to transition right now from the first half of the show, understanding a little bit about how you got here. I really want to take the second half of the show and really focus on what's going on in the market today.

Jeremy Roll [00:36:16]:

Right.

Christopher Nelson [00:36:16]:

I know that you're an active investor. I know that you go to a lot of conferences, you go on site, you're managing all of your investments. What are you making in this high inflation, high interest environment today?

Jeremy Roll [00:36:29]:

Yeah, so we're recording this September of 2023. And it's interesting because there's been a lot of talk in the media about soft landing, no lending, economy is fine, jobs are high, GDP growth looks good. In my opinion. If I just look at all the traditional charts and markers of how long it normally takes once the Fed starts to raise rates, until there's worse employment and when there's a recession. How long it takes since when the yield curve reverts until we probably get a recession or what the time range is and so many other factors how long it takes since when lenders start to tighten, and when that really takes its full effect. Everything is converging into the next three to six months of a high probability of recession. Starting in that timeline could be longer. And then of course, we layer on stimulus.

Jeremy Roll [00:37:16]:

Fed itself has a report saying that they believe that the excess stimulus savings is actually going to be done in September with consumers completely out. Yeah, there's other factors too. So everything is actually really nicely aligning almost like a textbook that in the next three to six months we will likely have a recession. How bad it'll be, all that, I couldn't tell anybody. I just know that when you have a recession, some things typically happen. And that is you typically have more unemployment. People losing jobs, they either have to from an apartment perspective, I always like to apartment. It's just easy.

Jeremy Roll [00:37:51]:

Most people understand it. We could talk about any asset class, but just take that one. People lose their jobs, they either have to take on a roommate or they have to kind of go live back home or downgrade. So you have higher vacancy, which ends up reducing rents. And if you do reduce rents, your net operating income, your profit goes down. But what's very interesting about this particular time is that we have this happening at the same time where inflation is still very high and will likely continue to be high for a while. And so you're going to have your net operating income go down by lower revenue with increasing expenses at the same time. And then you're going to combine that with the fact that the Fed likely isn't finished raising rates according to Wall Street and the ODS, which I agree with and believe we have just at this exact time, and we start to see inflation is starting to tick back up.

Jeremy Roll [00:38:39]:

Regular CPI just went up. In the last CPI report yesterday, it increased substantially from, I think 3.2 to 3.7% if I remember correctly. Huge jump. Part of that has to do with oil. Oil is going up. It's heading up. It's at 90. It's probably going to head towards 100 because of some fly constraints.

Jeremy Roll [00:38:57]:

Russia, Saudi Arabia, they just extended oil cuts for many more months that they said, so oil is going up, which contributes to the cost input of a lot of things that we so and another thing that's really critical is that if you look at inflation in general, a lot of the media is focused on CPI. The general CPI which has come down. But what the Fed is focused on is not CPI, it's actually focused on what they call core PCE. And they actually even more specifically core PCE minus housing. And so that has actually been literally flat the whole year, between four and 5% jumping up and down the entire year since January. They've gotten nowhere on that from their perspective. And that's why they're still focused on raising rates. That's actually the primary motivation along with the fact that the job market is still so strong.

Jeremy Roll [00:39:44]:

So to me, we're lining up in a position where interest rates are probably going to still trickle up. And these are all probabilities, that's what I have to work off. So probably interest rates going up, probably recession, probably job losses going up, probably revenues coming down on most if not all real estate. Probably lower real estate prices in the next twelve months because of a combination of a recession and revenues coming down, expenses going up and interest rates going up are actually going to reduce the multiples even more in terms of property values. We're going to have a compound situation of net operating incomes down, while the multiple that you're going to get on your property is also down. And so that to me means lower asset values in the next twelve months, which is why I'm mostly on the sidelines except for your very unique situations waiting for this to happen. And so that's where I land with where we are today. But to me, from where I stand and the amount of reading I do every day, it's a textbook.

Jeremy Roll [00:40:36]:

Very high probability of recession in the next three to six months.

Christopher Nelson [00:40:42]:

And again, I know you don't have a crystal ball, but I mean, are you seeing this as a potential reset for some real estate prices and a potential buying opportunity in the future?

Jeremy Roll [00:40:53]:

Absolutely. I mean, that's what happens at the end of cycles. We've already seen a lot of assets go down 20 plus percent in value just because an interest rate increases, but we haven't seen the second domino yet, we haven't seen the recession effect yet that will likely reduce property values further even at the same multiple. If you argue the multiple staying the same, which I'm not arguing that, but if we are arguing that, then your net operating income has a high probability of being lower in twelve months than it is today. That building is likely going to be worth less on the same multiple in twelve months if we have a recession, which is the high probability scenario. Right. So yeah, that's probably what's ahead. And so that will potentially bring some good opportunities to investors who are being patient.

Christopher Nelson [00:41:34]:

And so I know in conversations and hearing you speak that you've been on the sidelines when it comes to multifamily except for different special deals just to bring it to light for people. There are different tax abatement deals where you're actually getting a large decrease in taxes because you are providing affordable housing and other things. These create some different economics and those are special deals. But I'm talking about the bread and butter because when we think about private equity, the bread and butter, the meat and potatoes, whatever you want to call it right down the middle. Asset class that I think people really understand and get into right away is multifamily. Do you see that as an asset class that could be resetting and an opportunity coming in the future? And when do you think would be what are you going to look at as indicators? Because I know let's talk about not guessing in the future, but what are you looking at as indicators to say, okay, now I would start looking at deals.

Jeremy Roll [00:42:36]:

Yeah. So first thing to note is that apartment values are down about 20%. I'm just averaging the past year or two. So there already are some significant discounts. But the challenge I have is, again, that's the first domino to me, the second domino is what's going to happen during the recession and how much more that's going to impact the values, plus increasing interest rates still. And so here's what's interesting. Apartment rents are down already just under 5%, 4.9% in Vegas and Austin, and they're down, I think 3% in Atlanta, some major cities that had a lot of a big boom and are typically more cyclical. They're also down, I think, four or 5% in Phoenix.

Jeremy Roll [00:43:16]:

And so these are the leading indicators for us because kind of like San Francisco on the housing market side is always a leading indicator. It's one of the markets that goes down the first because it has such a big run up and it tells us that everything else is probably going to come down at some point. We're seeing the rents already go down in some of the leading indicator cities that are more volatile. That tells us that the rents are eventually going to follow. This will be even before a recession in most of the other markets. Right? So even in multifamily, I think it's very much at risk of, again, reduced revenues at the same time of multiples going down. You have a compounded effect that's going to reduce the value of properties. So I do think if you're patient in that on the bread and butter deals, I think you're taking a lot of risk right now.

Jeremy Roll [00:43:59]:

And what's so fascinating about the current timing is that if you agree there's a high probability recession and starting sometime in the next six months call it or let's say by the second half of next year, does it make sense to go into your bread and butter deal today? Or does it make sense to wait just a small time and get much more predictability of what's happening? Right. And for me it's always going to be the latter because I'm low risk. It depends on your risk tolerance.

Christopher Nelson [00:44:24]:

So what are asset classes that you see? I want to ask this question in two ways. Number one is what asset classes do you see weathering the storm well and what asset classes would you consider investing in today?

Jeremy Roll [00:44:40]:

Yeah, well, weathering the storm well is all relative because you have to assume rents are down in most asset classes during a recession. You can make exceptions. You can make exceptions. For example, at senior housing, certain types of senior housing, if it's private pay, high end, you may not take too much of a dip, especially in a low supply, it's even if it's public pay, which is like Medicare, you may not take a dip because that's being paid for in some type of inflation increasing environment. You do have a problem of your expenses continuing to go up, et cetera. And you may have a problem with finding labor and there's all kinds of issues in that asset class, but that's one coming to mind that may weather things decently. There is an argument to be made that student housing across from very large campuses that have big demand will continue to fling even a recession, especially if you're very close to campus and you're more in demand. It's all about the demand versus supply, right? And so some of those could do well.

Jeremy Roll [00:45:32]:

I will say that I am a little concerned about student housing because I normally get into a longer term ten year fixed rate loan and that's just for my predictability. I don't know where demand for universities is going to be or colleges in ten years from now given the trends that are happening, the cost, the online education, people trying to get creative about reducing the cost by going to community colleges, et cetera. So it's not a good fit for me, but for someone willing to take the risk, it may weather the current short term storm very well. They're just less predictable in the long term. Right? There are some asset classes that are the exact opposite, right? You have hotels which during a downturn, people tend to travel less for personal reasons and business travel goes down because budgets go down. You have to assume that's not going to fare well. Right. Office, some companies are going to close, you have to assume the vacancies are going to go up in office space.

Jeremy Roll [00:46:25]:

Not a good asset class, right. Retail, some retailers are going to close. Again, not a fantastic asset class. And there's some that are just in between, like self storage depending on the market and supply because that's very important. Mobile, home parks, apartments, those tend to be more midground that they're going to fare better than, for example, office and retail, most likely, but they may not be quite as obvious as student housing or senior housing. But the problem is that the prediction is so short term versus long term, right? Because in the long term I'm very bullish on apartments in the right location with the right operator. I'm very bullish on mobile home park demand, but in the short term I'm not as bullish. Right.

Jeremy Roll [00:47:04]:

And they may fare the recession better than some asset classes, but I'm not looking to just fare it better, I'm just trying to be careful and sidestep some reductions in cash flow. So I'm waiting.

Christopher Nelson [00:47:15]:

Right. What do you think about some of these private equity businesses that you can purchase? So I know ATMs are an asset class. I think of it more as buying a business than you do buying a real estate asset, laundry, mats and some of those things as well.

Jeremy Roll [00:47:37]:

Yeah, that's a great question. So I think you're asking me because I've been investing in ATM opportunities since 2008. So I have over 15 years experience in that particular space. I've been very fortunate, I've done extremely well. If you had to ask me, my single best cash flowing long term average annualized return, it's ATMs. But the problem is that when you're investing so ATMs are depreciating assets, right? It's literally a computer. It's a computer chip, a screen, a bill feeder, a keyboard and a case, right. And so it's depreciating to almost zero like a computer would.

Jeremy Roll [00:48:10]:

And so when you're making a bet on those types of businesses, you're making a bet on a cash flow stream as opposed to an asset backed cash flow stream. Right. And so it's a business based cash flow stream that has higher risk because you can't just fall back on the asset values. You have to assume they're going to depreciate unlike a real estate property, which may appreciate over time.

Christopher Nelson [00:48:29]:

Right, right.

Jeremy Roll [00:48:30]:

And so I think those could be the right fit for the right people. Depending on your risk profile. I tend to layer them in as a blended risk for myself, but it depends on the scenario. In terms of what we're looking at. Some of those businesses can do very well with the right operator. Some of them are very sustainable. During a downturn. You mentioned laundry, I think.

Jeremy Roll [00:48:52]:

I've not invested in it yet, so I don't know how it does during a downturn. Is there quite as much demand for it? I could tell you with ATMs in 2008, I experienced about a 15% revenue reduction in the ATMs on average that I was in. But because there's so much margin, it wasn't really a big deal and so that was fine. But I do think the timing is challenging though, because the best time to buy a business or get involved in the acquisition of a business is the lowest multiple, right? And the worst time is at the highest multiple. The lowest multiple is going to be in the middle of a recession when everyone's scared and there's less money actually investing into these deals. So we're about to be at a time where it's going to be interesting to look. At those, but I would still tell people to wait at the moment.

Christopher Nelson [00:49:32]:

What about debt funds? Is this the time that you see as an opportunity to get into the debt side, especially from cash flow? Now, I realize you're not holding an asset, so you're going to need to get your depreciation or something from elsewhere. But from a core cash flowing asset or cash flowing investment, where do you see debt participation?

Jeremy Roll [00:49:53]:

So just to be clear, I don't normally invest on the debt side and debt funds. And the reason is because I target the lower risk spectrum of equity and because I'm already in low risk, because a lot of people kind of debt is synonymous with reducing your risk. You're in first position, you could take over an asset. So the risk is reduced, especially if it's not at 100% loan to value, for example. But if I'm going to invest in something that's already got a lot of predictable cash flow, it's existing cash flow going into it already exists and stabilized. I'd like to have the upside potential as well on top of it. And you don't get that on the debt side. So just to let everybody know, I don't normally target debt funds myself.

Jeremy Roll [00:50:25]:

That being said, what I have seen happen in the last twelve to 24 months is people have realized that equity is risky right now and they've shifted to debt and they think that that's reducing their risk. And in some ways it is. Here's the problem, two problems. One is that I've seen some hard money funds in the last two, three, four years. They were projecting ten to 12% returns and I see some of them projecting six to 8% returns and they look pretty similar when you dig into it. The difference was that the hard money funds were taking on leverage on their own debt. They're actually leveraged. In fact, it was much more common to find that because it was hitting that 10% double digit marketing number to investors than to find the six to 8%.

Jeremy Roll [00:51:06]:

And most people I knew were choosing the ten to 12% instead of the six to 8%. Right? But trust me, a lot of times I ask people, do you know if there is leverage in that fund? And they say, I don't know. Even though they invested in it, they don't know. And so you have to be very careful in these debt funds and make sure there's no leverage on those funds. And if there is, understand the risk because that can really blow you up. That's number one, that happened a lot just to be able to juice returns because the returns until interest rates were increased were so low that they weren't attracted enough to really get a lot of investors. So that was the solution that operators took. The other thing I'll say about debt that's critical is I think a lot of people tend not to think ahead enough.

Jeremy Roll [00:51:45]:

Let's say this recession and what happens in a recession? Rents go down, the expenses still going up, NOI goes down, blah, blah, blah, right. Value of the building goes down, a compounded effect. Okay. Do you want to be the lender on that building right now? Maybe if it's at a 30% loan to value, yes. If it's at a 75% loan to value, which was highly common a year or two ago, no. And furthermore, if you're going to look at a debt fund, be very careful, because the fund may have been open for two or three years now, and you're investing in all these assets that originated during pricing, that's actually happening too. And so if you said, I'm going to get into a debt fund that's launching right now, we're not going to go above 60% loan to value. It's going to be first position only.

Jeremy Roll [00:52:29]:

It's going to be NIA, specific cities, et cetera. That starts to become interesting. But there's a lot of very grayish stuff to consider out there. If you're looking at an existing debt fund, be very careful right now. The best time to invest in debt is the beginning of a cycle. When you have the equity values increasing, the worst time is at the end of a cycle. The cycle hasn't reset yet. So you have to keep that in mind.

Jeremy Roll [00:52:49]:

Be very careful right now.

Christopher Nelson [00:52:53]:

I have a question for you. We're talking about risk, and one of the things that comes to mind is we've been seeing some of the challenges in the Southwest when it comes to water. How do you think that some of this environment is going to play? I know you have a long term view of investments, know larger metros like Phoenix and Southern California.

Jeremy Roll [00:53:15]:

Great question. I love this question because it forces people to think long term, and I suspect a lot of people investing in some of those markets right now are not really considering it too heavily. I don't have much an opinion on it because I don't invest in Phoenix, typically, where I know that's kind of a very big I don't typically invest in Vegas, which from what I've actually the little research I've done, it seems like Vegas has done a fantastic job at mitigating the future water problems. I don't think there is one at the moment, even though you think there might personally. So I look for predictability, right? And if I don't have ten years of predictability to make me confident I won't be in that market, it's just that simple because I can look at other markets. So for someone like me, knowing that there could be a problem in five or ten years is already enough to make me just look at another deal. So that's how I would handle that challenge myself. If I can't get 100% comfortable with that long term possible lack of predictability and whatever it is, then it doesn't make sense for me because of my risk profile.

Christopher Nelson [00:54:09]:

Got it. So one of the questions that I know, I let some of my friends know that you're going to be at the interview today, and they said you got to ask Jeremy this question, which is, if you had $500,000 to place right now. And you can place it anywhere, whether that's liquid ill will, liquid what have you. Where would you place that? $500,000?

Jeremy Roll [00:54:30]:

Yeah. Okay, so first thing I would do, if you handed me cash instead, what are you going to do with today? You have to do something with it right now. What are you going to do? First thing I'm going to do is I'm going to go buy shorter term Treasuries on the secondary market, three to four months, which is actually what I'm doing in my own cash. That's what I've been doing for about over a year now. And yeah, I think it was last summer I started and I laddered them so that they're all coming due at different weeks. And there's about three, four months of laddering. And so I'm constantly buying new Treasuries every couple of weeks. Basically, I'm having to turn them every couple of weeks.

Jeremy Roll [00:55:01]:

So that's number one at the moment. You're at about, like 5.48% on those right now. It depends on the day at the moment. Okay. That's going to vary every day. And by the way, I always get this confused, either state or federally tax free. I think it might be state tax free. I don't know one of the two.

Jeremy Roll [00:55:23]:

So it's also a tax advantage. Then what I would do is start to look for two different types of opportunities, which is what I'm personally doing with that cash at the moment, or I'm on the sidelines. One is very unique opportunities that can give me so much padding that I can get comfortable with the idea of the asset value decreasing, that I think I'll be okay even in a downturn, and I think it's still going to perform well in a downturn to cash flow. Probably what it's projecting. Okay. Within plus or minus a couple of percent. So that's vertical number one you mentioned before, tax abated deals are a fantastic example of that. Without getting too complicated in too much detail, you're buying an apartment, asset at market rate, normal deal.

Jeremy Roll [00:56:03]:

You're converting it into tax abated in order to provide, say, 50% of units to a certain affordable client. And in exchange for doing that, you're reducing your taxes by about effectively 85% in a lot of these deals. So all of a sudden, your building is worth so much more because your profit is much higher. Because in the way that it's done, if it's done correctly, rents don't go down, expenses are down by like, 40%, and then it just hits the bottom line directly. And now your building is worth a lot more by the time you actually close on it. This is all while it's under contract. So it creates a ton of padding from the start to make it worth so much more that if the value goes down, the multiple goes down. I'm very comfortable.

Jeremy Roll [00:56:46]:

Okay, that's number one. And there are unique opportunities. That doesn't have to be that particular one where if someone gets such a screaming deal on a price for some unique situation, whatever it is, then it might be worth looking at. Right? Number two is investing in stuff where you don't have to worry about the asset values decreasing. You have to worry about whether it's going to perform well during a downturn. So the ATMs are a really good example. I'm still investing in ATMs today. I expect them to depreciate if they're worth a little less than a year from now because of the recession.

Jeremy Roll [00:57:14]:

I don't care. They're going to almost zero anyway. It's like computers, right? So what I care about is what they're going to do in a recession. I've been through the previous recession with them. I know they perform well enough that I think my cash flow is going to continue very well and so I continue to invest in them. There are other types of opportunities out there that are like that. So you don't have to worry about the asset value decreasing and it's probably going to do okay in a recession. That's something else to consider.

Christopher Nelson [00:57:38]:

Wow, that was a lot. And I know that we've been going for almost an hour now, and this is a power hour, I think a lot for people to consume, but I think it's just important for people to understand that this is the way that you strategically approach private equity, real estate investing, and cash flow investing. This is it.

Jeremy Roll [00:57:59]:

Yeah. I was going to say the question you asked me about: what are you going to do? Literally, I just gave you what I'm doing personally and my situation with the cash I have.

Christopher Nelson [00:58:07]:

I have a question. Do you look at all private equity funds? Like micro? PE, I know, is standing up where they're investing in cash flowing businesses. A lot of them have that. They've been around 20 years, owners fading out, they're bringing in processes, technology. Have you looked at some of those?

Jeremy Roll [00:58:28]:

Very interesting to me. Not something I've built enough of a network in to have like a huge amount of deal flow come to me if you take a step back on this cycle for a second. The cycle started in 2009, call it, and this is a record long cycle we've just had. It was extended because of pandemic stimulus. It was supposed to end probably in 2020 based on all the recession metrics and stuff. It still would have been a record long cycle at that point. And so I stopped looking at risky stuff probably in 2015, certainly in 2016. So I didn't have a big enough network back then even to really be able to dive into like a bunch and try them.

Jeremy Roll [00:59:08]:

They become more interesting to me over time. But the timing has not been good. And I think the timing still isn't good because of those multiples. I think the multiples are going to change and that's when you want to get into those. So I will be looking at some of those. If I can find them down the road. I'm not a good person to give you feedback on them because I've not been in them yet.

Christopher Nelson [00:59:22]:

Got it. Have you looked at any I think some of the interesting things that are coming up are more luxury real estate, asset investments. I saw one today of car storage for people who've got cars. But I mean thinking about asset classes that are now moving as you do see a wealth divide and you see, okay, now there's this class that is actually investing in. I've seen RV storage, I've seen now sort of luxury car storage. Is that anything that you look at or have thoughts on?

Jeremy Roll [00:59:56]:

Well, so RV storage in particular I'm concerned about because there was a huge RV boom where a lot of stimulus money was spent on buying RVs, certain maintenance costs, they tend to break down, et cetera. So I'm a little bit bearish on where we're going to end up with supply and amount of RVs in the next twelve months. Will people still be storing them or will they be selling them? Right. But I have been in self storage facilities in the past that actually have parking on site or an adjacent lot that was like a combined self storage and a parking lot for RVs or buses or boats or whatnot. Well, if you take a look at higher income areas in Florida like Naples, I was actually invested in a self storage facility that had parking and people used it for boat parking for six months of the year because they went back up to their home in New York. Right. And then they came back down. That's probably going nowhere if someone is really wealthy and has that money.

Jeremy Roll [01:00:45]:

Right. Boats are worth a lot of knowledge. And so you have to really look at every deal on a case by case basis to analyze it. You just have to be very careful with the recession coming. I mean, that's always going to be the number one thing on my mind for the next few months.

Christopher Nelson [01:00:58]:

Great. Well, let's wrap it up with the fire round. I have five questions here for you. There should be quick answers. How do you keep learning?

Jeremy Roll [01:01:07]:

I read literally about two to 3 hours a day across many different sources and watch videos all combined. I have to keep learning and I have to keep on top of the macroeconomic news so that I can stay away from the landmines and especially today. It's a very dynamic environment. Prices are changing, distress is increasing. I have to keep on top of what's going on. So I do that very proactively every day.

Christopher Nelson [01:01:29]:

Do you have one or two sources of news that you trust?

Jeremy Roll [01:01:34]:

I purposely use a cross section because I want to combine mainstream media and non mainstream media more, just charts and stuff, because I do want sentiment to be very important for the mainstream media.

Christopher Nelson [01:01:43]:

Right.

Jeremy Roll [01:01:44]:

And so I can rattle off a whole bunch of them if you want. There wouldn't be one. Like I really like zerohedge.com, because 50% of it I tell you to ignore. It's like very conspiracy theory and stuff, but it's Wall Street guys who started in eight and who were just trying to really parse the data and tell you what's really going on when you read the unemployment report, not what you're reading in the media. They're very good at that. So that's one, if you want, just straight out charts with very little commentary, just a little bit calculatorskblog.com is really good. It charts out a lot of the data that's released every day. And if you want to just take a step back, no one's telling you any opinion about it, just look at the chart and make an informed decision yourself.

Jeremy Roll [01:02:24]:

That's a really good place to go. Those are just two examples.

Christopher Nelson [01:02:26]:

That's great. What do you do to recharge your batteries?

Jeremy Roll [01:02:31]:

Yeah, probably not enough. I have two kids, they're 16 and 13. I don't really have time to recharge my batteries. I'm on the StairMaster every day, seven days a week for about 40 to 50 minutes. So that's helpful. Unfortunately, during the week I'm often on business calls while I'm on the StairMaster. So once in a while I go for a drive. I'm a car guy, so that can happen also.

Jeremy Roll [01:02:50]:

But I'm guilty of not recharging my batteries enough, for sure.

Christopher Nelson [01:02:54]:

Okay, we'll ask you that next time. What's advice that you would give your younger self starting out to invest?

Jeremy Roll [01:03:02]:

I would say two things. One is to think long term. That is absolutely critical because I've lived through it and I see the compounding over time. Slow and steady wins the race. That's number one. And number two is debt is going to make investing the public debt, the federal debt, is going to make investing much more challenging for predictable cash flow in about ten years or so, probably going forward, not for the next ten years, but after the next downturn is my main concern. So learn this investing. Get good at it if you can, but beware of the fact that you may have to pivot out of it into the medium term.

Jeremy Roll [01:03:40]:

Got it.

Christopher Nelson [01:03:42]:

What's the best investment of time that you've ever made?

Jeremy Roll [01:03:48]:

Investment of time. So do you mean what I spend to prevent time use?

Christopher Nelson [01:03:53]:

No. If you think of I went and spent two or 3 hours here, that was the best investment of my time. Like where you go and you actually spend time doing something, whether that was at the meetups or reading. What's your best investment of time?

Jeremy Roll [01:04:08]:

My best investment of time is literally reading the financial news and trying to stay on top of it because it helps me so much to people. Talk about a soft landing. No, this is the data. Right? And I only know it because I've done all the reading, and so I can come up with my own opinion that has nothing to do with what CNBC is telling me or any other source is telling me, because I've done all the reading. And that is how I'm maximizing my long term potential as an investor.

Christopher Nelson [01:04:34]:

Okay, and last and final one. This is always a favorite, which is what's the worst investing advice that you've ever received?

Jeremy Roll [01:04:44]:

Oh, investing advice? I would say anytime at the end of a cycle that you hear, like, you're a taxi driver or your barber doing something. It's not that it's advice. It's just an indicator that you may not want to do that. And, I mean, that happened in the last downturn. It happened in this downturn bitcoin and all that in the last downturn, I was flipping homes. It's very obvious at the time if you really pay attention to it, and that's some of the worst advice you can get.

Christopher Nelson [01:05:13]:

Got it.

Jeremy Roll [01:05:14]:

Just from a timing perspective.

Christopher Nelson [01:05:16]:

Well, Jeremy, thank you so much. I know you're super busy. I really appreciate your time. Thank you. And thank you so much for sharing time with us today.

Jeremy Roll [01:05:24]:

No, absolutely. Thanks to everyone still on here. Thank you for listening. I hope it was helpful.

Christopher Nelson [01:05:29]:

All right, we'll see you next time. Thank you so much for your time today. I have one ask: and that is please go on to Apple, Spotify, Amazon, wherever you happen to listen. And my ask is, please leave us a review. Because we are a growing new podcast. Your reviews help us understand are we on target? Are we serving our audience? Or are there other things that you want to do? So thank you so much. See you next time.