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I have $8 million of my own money in the fund and I actually take the first loss on any bad deal or bad decision that we

make. A lot of investors, a lot of GPS would say, “Oh, we’re co-invested 1 2 3 5% of the fund with you. One, I’m the

largest investor, but two, I individually will take the hit first up to my entire 8 million that I’ve

invested. We will take the first loss on that entire balance before an investor gets touched. We think that model is is

fair because we’re taking people’s retirement dollars. We’re actually like putting our money where our mouth is and

you know and and suffering in a very meaningful way if we get it wrong. Warning, exposure to the Alternative

Investing Advantage podcast may result in increased financial confidence, independent thinking, and a desire to

invest beyond stocks and mutual funds. Subscribe if you’re serious about taking control of your financial future.

Hi, and welcome to another edition of the Alternative Investing Advantage podcast. My name as always is Alex Perie

and today we’re very pleased to welcome on Samir Patel with Trophy Point Investments. Uh many things uh are true

about real estate and true about investments. Uh but one thing that u is always going to ring true is that it’s

not cheap, right? There’s always going to be a component where you need to figure out how to fund a deal. You need to figure out where the capital’s going

to come. Because even if you do have everything and you have dollars in the bank account, well, why plug in

everything into a deal when you can use debt leverage and things to have four or five deals for the same amount of

capital you have on hand? Uh, and through that through that process, there’s many different ways of looking at it. And if you want to invest in debt

or you actually need financing, things come up and you’ll come across things such as debt funds. And I think they’re

a very key component with looking at ways to invest in different assets that offer exposure to the stability of

investing in the debt side of the equation. You know, think about any retail bank, right? You know, their

their primary business is operating as a lending institution. Um, and people

often wonder, hey, well, you know, if the banking institutions are so big and robust, you know, how maybe can I invest

in a similar fashion? And debt funds certainly do offer an intermediary to that. So, we’re very pleased to welcome

on [clears throat] um Samir today. An interesting anecdote about our guest is that he bought his

first hotel when he was a junior at West Point, which I’m surprised that uh being a cadet at West Point, you even had time

to even look into doing anything investing. I would imagine they are biding you pretty hard at the uh at the

uh Army’s uh Army College. So, again, very pleased to welcome on Samir today. If you wouldn’t mind, maybe kind of give

us a little bit of background about yourself and uh you know, how things at Trophy Point Investments kind of came to

fruition. again. Really appreciate you being on this. Thanks for having us, Alex. I appreciate it. Glad to be here. Um,

we have many clients actually with Advanta uh to begin with. So, we appreciate um the the care you take of

our of our clients that we send your way. Um, but anyway, I you know, like you said, I got my start very early on

actually in 2007. I bought my first hotel when I was a cadet and I always

knew I wanted to own assets like probably many of your listeners. I realized early on the value of owning

cash flowing assets and this hotel opportunity came my way and I was able to co-op some people to join me in that

journey, you know, that had more dollars than I did at the time, but they trusted my sort of read on the deal itself and

we went ahead and did it. Um, and like anything in real estate, if you do one deal, more deals come your way. It’s

it’s like magic. I can’t explain it. Um so I got I got lucky by starting very

early on and and I started actually right in the onset of the financial crisis and that actually accelerated my

journey into real estate um in ways that I would not have benefited from in any other time period um over the last 30

years. Uh that hotel I bought didn’t make any money for seven for five six years actually. So I learned the hard

way of what happens during a recession uh to real estate especially to c to operating businesses as well because a

hotel is both real estate and an operating business at the same time. And um I gained a healthy appreciation for

how I want to do deals, how I want to structure things and how I think about risk. And so throughout my career I just

started you know building on top of the momentum of the hotel. Then I bought a debt collection business that collected

debt on behalf of HOAs. through that I was able to find a lot of distressed housing especially in Seattle in

Washington state you know this is 2010 111 um and around that same time you know being a borrower of money I became

a lender of money as well um because I felt like that was a much better fit for my my style and the way I wanted to do

things again from a risk risk adjusted basis or perspective and so I’ve been in

private lending for 15 almost 17 years now in addition to owning real estate assets and around 2020 uh I kind of had

this shift where I just wanted to get out of all my operating businesses and become a lender um and consolidate all

my cash and become an asset manager and a lender. And so that’s what I did, you know, I I we just started out lending

out our own money and I partnered with my two West Point classmates, Nick and Dave. And we just started lending out

our own capital initially. And then the momentum was quite intense actually because we actually got our start

lending only to West Point grads who were army officers flipping houses outside army bases. That was a niche we

started with and we continued that for about a couple years through 2022 and then around 2023 and today we just

started broadening larger and larger and larger. um still doing good deals with good operators, but you know, getting

less and less military folks. Like they haven’t gone away. They’re just a smaller percentage of our portfolio

um today. And we’re we’re managed about 130 million now in size. And we’re considered a top 100 private lender

based on volume count actually in the country as of as of last quarter at least.

Nice. Yeah, it’s always, you [clears throat] know, interesting to hear, you know, there’s always, you know, kind of two basic camps of the

real estate world, right? you know, people that buy and people that lend. And one of the interesting things I

found in it kind of in my career, starting back, I started a little bit later than you in the uh in the space. I

came in right at the end of 2011, early 2012. Uh but was really, you know, I always kind of had the impression like,

hey, like you want to make money in real estate, you’re buying, you’re flipping, you’re sell, and you’re rent, but it’s really not the case, right? There’s one

of the things I love about real estate or kind of this alternative space in general is that there’s so many ways to

make money. And surprisingly enough, the more creative things that I saw happened

in the debt side of the equation. Um, I know kind of probably more of the the esoteric uh lending structures and crazy

things probably aren’t too much of what you probably get into, but I really kind of opened my eyes to just how creative

you can get with, you know, two pieces of paper, right? A note and a mortgage. Like who to think that that can be

anything other than about as black and white or binary as you get but man there are some really cool stuff and really a

lot of uh money that can be made in the space. uh you know what and to your point like you know there’s

a billion dollar multi-billion dollar market of just trading notes to begin

with right and there are a lot of IRA investors that I even know of that that

just go ahead and buy note like they originate a note and they sell it off to somebody else and their IRA benefits from the appreciation if they sell that

note at at a premium. um but the buying and selling and trading of notes and

many investors I know buy notes for their IRA as well that come with a healthy coupon or discount rate or

interest rate with it and um I you know one of the things I actually learned and

the most profitable things I learned especially during the recession and I hope we don’t ever have another recession like 2008 to be perfectly

honest but I was buying notes at 20 30 cents on the dollar in 2010 and 11 from

failing banks actually now I didn’t do it from my IRA Okay. But the concept still holds actually that um you can

make a lot of money uh relatively I wouldn’t say easy but easier than than owning direct assets outright.

No, absolutely. I mean you’re looking at you know the you’re looking at the borrower, you’re looking at the paper, you’re looking at history. You don’t

need to get a termite inspection, right? You know, there’s some things you have to deal with tenants and termites um on

the uh on the note side. I mean to an extent, right? you know, you hope termites don’t come and eat the thing down to the foundation. But, um, again,

just the the aspects of, you know, what can be done with these things. It’s not just, you know, sitting on it. There’s markets for buying and selling and

trading these things. I mean, think about it. If anyone’s ever purchased a home, right? You know, rarely, you know,

rarely do you ever make that first payment, you know, pass that to your originator, right? You know, it’s like, hey, I I did it with XYZ Mortgage Corp

and now I’m making payments truest, right? Like these things get, you know, bought and sold constantly. And that

concept bleeds into, you know, the, you know, the more investor market, the more hands-on market. So, it’s always

interesting to, you know, have that echoed not only by me as a talking head and what I’ve seen, but also, you know, other people that professionally do just

these things as well. So, you know, kind of looking at it from the perspective of, you know, where you got your start

in in lending, right? You know, focusing on kind of a core focus of what you knew, right, which was

uh military adjacent housing, right? you know, the people that wanted to buy and sell, you know, within these kind of uh

micro markets that surround any major military base because, you know, if you think about it, there’s a large need

there. You have a ton of people and, you know, while military bases do have housing, right? Like there’s much more

people that work and operate there than just what lives on base, right? They, you know, want to have a family, they

want to, you know, 32 with a white picket fence. They’re not going to necessarily just uh live in the army barracks, if you will. So

we call it yeah we we call it velocity right? So any if you’re trading if

you’re especially on the debt side you want to enter into a market where there’s transactions happening. Mhm.

So, it’s not so much the it’s not so much the dollar value of the houses you and they do fluctuate obviously, but

what I actually care about is that things are actually trading, meaning there’s velocity, there’s price discovery, and you can actually, you

know, adequately tell what the value of your collateral from a lending perspective is because I we’re not going

to lend on something where the comparable and comparables is, you know, the typically the way we value the

collateral uh comparable sales within a reasonable short period of time, recent period of time. you know, if it’s if

it’s a property in Wyoming, which we don’t lend in, unfortunately, you know, places in those areas don’t

trade that often, right? Like the the last comparable may have traded or sold a year ago and in today’s interest rate

environment, like that might as well be 10 years ago. Yeah. Um and so we really care about velocity and

so military bases, you know, to what you’re saying, benefit, military markets

benefit a lot from from velocity of people coming in and out. And it’s not even just military members, it’s contractors, it’s the supporting cast

that, you know, holds a military base because the average army base, at least as I know it, you know, has anywhere from 15 to 50,000 people on it, right?

And a lot of support staff, contractors, employees, civilians in addition to the

military and reserveists even that are going in and out of it. Um, all that supports, you know, velocity of of um of

single family homes at least and multif family for that matter. Yeah. And and looking at it from that velocity play, I mean, there’s a few

different things to break down, right? You know, you have people that are coming in and uh certainly buying, right? But also from the perspective,

you know, where did you like to kind of find the niche? Were you trying to lend to the people that were going to be, you know, were you lending to the owner

occupant or were you lending to the investor that’s going in there flipping it and then making their money um that way? Like which part of the equation

were you focused on lending to or has that changed over time? We are strictly and those from the very

beginning a business purpose lender or you know buying a property for

investment purposes which you could either flip you buy it fix it up and flip it or you know our borrowers were

buying it putting a tenant in there and then refinancing out of our debt into a longer term mortgage.

Okay. Gotcha. So you were mainly focused on the the you know short term. You really I mean it was primarily all all

short term. You really didn’t did you bridge that gap into doing like DSCR stuff or like where did you kind of draw the line on what you were actually

focused on the loans for? Yeah. I mean we don’t underwrite anything any loan under than under more

than 12 months. Okay. Meaning you know DSCR type of loans which are known as debt service coverage

ratio loans which is contingent on the rent income. Those loans you can get for 30 years at you know anywhere from six

to 9% basically. And there’s a market of people that want that. We’ve we decide and we try to dabble in DSCR, but we

decided and there’s some challenges with that. We decided that our highest and best use of our time and our ability to

serve our clients has always been on just like the short-term bridge or, you know, fix and flip lending or RTL

lending if you want to call it that. Um, and we originated, you know, about 100 million a year actually just on that

basis alone. So, we we may do DSCR at some point in the future, but right now

we’re we’re uber optimized for helping people, our lease our clients find

helping them close, you know, up to even a million dollars within 10 days. Okay, great. And that’s one of the great

things about, you know, you know, the private outfits, right? Of the uh the ability to do things fast, right? If

you’ve ever had the uh distinct displeasure of dealing with the uh institutional lending uh institutions,

it’s uh you know, maybe that’s the nicest way to put it. It takes a long time

and that’s why we earn a premium, right? Because typically you’re going to earn you want to earn a higher rate of yield

from your debt fund. Let’s say mine or some other debt fund where you you know we issue you a note or an investment

inside our fund. You know you typically want a higher yield and that’s what we market is that we do have higher yields. Well, we

realize the higher yield because the borrowers are paying us a premium for the speed and the simplicity that we

that we offer. Now it’s a delicate balance, right? Because the faster you go, the more likelihood there are of

mistakes. Mhm. And you know that’s why you know we as managers you know we have to convince

our investors of the fact that we are we’re better at it or we can mitigate the risk uh differently or more

effectively because we’re you know we’re lending fast but we’re getting paid higher for it. The way my fund actually the way I actually do this for my fund

and I don’t I’m surprised more people don’t do this is I have $8 million of my own money in the fund and I actually

take the first loss on any bad deal or bad decision that we make. So, it’s a

lot of investors, a lot of GPS would say, “Oh, we’re co-invested 1 2 3 5% of the fund with you.” One, I’m the largest

investor, but two, I independently will individually will take the hit first up

to my entire 8 million that I’ve invested, and Nick and Dave are part of that 8 million, too. Um, we will take

the first loss on that entire balance before an investor gets touched, right? We think that model is is fair

because we’re taking people’s retirement dollars and we’re not slinging it or we like to think we’re not just slinging

these slinging these money all over the country in these loans just to earn fee income for ourselves. We’re actually

like putting our money where our mouth is and you know and and suffering in a really meaningful way if we get it

wrong. No, absolutely. And it’s always good to, you know, I recommend when people look

to, you know, any type of private investment, especially in the real estate space, of looking at what kind of, you know, skin in the game that, uh,

the the managerial aspect or, um, you know, the the operational team has,

right? It’s one of the kind of downsides of the large social media ecosystem,

right? is this whole concept of hey like with none of your own skin in the game you can do x y and z which again I I

don’t think is great for a lot of reasons but not to opine on on my opinions on that too much but uh you

know you know looking at the operators and who’s going to be stewarding capital and and kind of focusing on that I do you know definitely echo that one thing

I did want to kind of uh transition back to was the the basis of the loans that are being made now obviously it comes

down to you know making money right like it’s all well and good to say hey here’s what we do. But when it comes to the

aspects of how these loans are packaged and maybe how they’ve changed over time and I’d like to get into kind of the investment side here um after we kind of

flush a few things out. But when it comes to the actual loans, right, um you know, have you always kind of had a

prototype, right? you know, again, 12-month loan, again, you know, interest only, I’m assuming, points up front along with a balloon payment, or have

things with the actual packaging of the loan changed, or have you done other loan products like construction draws,

or do you really only focus just on the already existing fix and flip 12-month balloon? Like, let’s talk about a little

bit about the actual, you know, where it comes to making the loans and how that is done and maybe how it’s changed over

time. Yeah. So if you’re you know there are various flavors of this and we have we

have I wouldn’t say dabbled but we have honored those all those flavors actually

we’ve tried various things so we do ground up in certain cases based on the experience of the borrower um the

pricing hasn’t the pricing has changed a little bit I would say that this may be the biggest sort of recent bit of news

if you if you consider one to two years recent um you You know before you know lenders

like us you know I would say 10 years ago were enjoying lending money out at 13 15% type rates.

Now our space is becoming very popular like billions and billions of dollars enter our space every year if not

quarterly because we are an excellent the space the industry as a whole is a great place to earn yield. It’s safer

because there’s some collateral real collateral and it’s the type of collateral that people want which is housing.

um and that it’s a type of collateral that if you had to take over, you could cash flow immediately by putting a tenant in there if you had to. Our space

is a variety of attractive features. So, it’s attracted a lot of money and a lot of interest um from institutions and so

the pricing has gone down. So, you know, we we now lend the industry as a whole

lends between 9 and 11%. Um for the sort of the middle of the road type of

borrower that you have. Um the activity has not changed. the the flipping of houses or the rehab and refurbishment of

houses for sale later or putting a tenant in there that has not changed. And I think it’s in some ways accelerating. I don’t know if you knew

this, but the average house in America right now is about 40 years old and most houses were built to a 50-year lifespan.

So, we’ve got a a problem in America where there’s aging aging stock. And

then also, as you probably know, there’s a lot of not in my backyardisms where

municipalities and cities and neighborhoods and counties are very

city councils may be pro- housing, but then the residents themselves uh oppose housing because they’re afraid of

congestion. They’re afraid of, you know, so much supply that the value of their homes go down. And those are some legitimate concerns, but we have not

been building houses the way we should be uh in order to meet demand in America. And you know, we’re paying now,

you know, younger generations are paying for it because housing is more expensive. And the idea of a starter home is depending on your market is is a

laughable idea. Um I don’t think there’s anything such as a starter home in California anymore. Um

right. And in Atlanta, there’s no such thing as a starter home unless you’re going 30, 40, 50 miles out of the city

limits. And well, then how do you get a job, right? I mean, how many how many jobs actually exist that far out? So

you’ve got these problems here. And so we as an industry are necessary to rehabing houses that these older houses

that are either abandoned or you know somebody died in them and they were never they were sort of neglected as the

person aged and and ended up dying. We’re there to kind of pick that up and reintroduce that house back into the

market. Yeah. Yeah. And I think you’re also looking at kind of the precipice of a, you know, at least in the next, you

know, let’s say 10, 15 years of a lot of inventory between the baby boomer

generation either moving, downsizing, or dying. That is going to really really shine a light on that because again with

constricted cash flows, a lot of these people aren’t rehabbing their homes. They’re not, you know, updating them. Uh, you know, a good example is that my

my grandfather um still going strong, 93 years old. uh you know, finally had to move into a more assisted um you know,

living community and uh we’re helping him uh get his house marketed and sold and he you know, he bought it in the 70s

as new construction, still had the same kitchen, right? Um so I drove by, you know, about a week ago and I saw a bunch

of tile and stuff, you know, coming in and doing the work to get that thing brought up to uh get it back out of the

market. So again, I think there’s, you know, a lot to be said for that and kind of where does that market get driven

from? Well, it’s going to be from the capital that’s going to be infused for people to go out and do that work, right? To get out there and actually

turn these things over to bring in new fresh housing um that can hopefully again drive into the needs of the

market. But some concerns I would be having about that and you kind of alluded to it here and I’d like to get your kind of you know viewpoint on it is

that with the more institutional money coming in and seeing the attractiveness of kind of the yields and security with

the type of collateral right you know desirable collateral um you know it’s there’s there’s not all collateral is is

good collateral uh but you know [clears throat] you know it’s like hey great you know collateral is a stock portfolio it’s

like well that’s great but that’s also So, a big unknown. But again,

we’ve done 1500. We’ve done 1500 loans. I have so many stories to tell you about collateral and all the things that

happen. I mean, no house is the same. Oh, yeah. For sure. So, when it comes to

the paradigm of saying, hey, like, you know, we have something really good, but you know, our pricing hasn’t been able to really kind of keep up and has maybe

gone down a little bit because of the additional players and capital in the market. How do you see that kind of playing out um over the next little

while? Do you think people are going to pull back or is it going to do you think be a whole net positive for your business just by volume being able to

make up for the reduced pricing maybe that’s coming in? H I I think it’s a two-part question.

Like if you’re asking are lending, you know, sort of private lending hard money

rates, if you want to call it that, are going to stay between 9 and 11 right now? I think so. I think they’re going

to be like that for a while. um

you know because the institutions are driving a lot of this right I mean if you’re a well-qualified borrow borrower

and you’re doing it in the right areas there’s no reason why you can get you know a 10%

um 9 and a half% type of lending rate. Now you do it does matter like who you do business with because we do

construction draws as well to go back to your other question. We specialize in construction draws and we fund 100%. you

know, we’re that type of lender that’ll fund 100% of the construction draw. Um,

there are some customer service aspects that maybe delineate between rate a little bit, but it’s not more than one

or two percentage points. Um, the institutions love the space, I think.

And, you know, a great example of this is securization. If you’re familiar with with that concept where you know

originators like us even we don’t sell loans but many people do in this industry where they originate a note and

then they sell it into a $300 million security like a package and then that package is bought by investors on Wall

Street and then they enjoy the yield that that $300 million package does. And so there’s so many feeder funds now that

feed loans into these securizations. Um whether they aggregate it or just or

they’re securization originator themselves directly. Um I don’t think

that activity is going to go away anytime soon unless Wall Street somehow sour you know to all of this. And it took it

took the industry about 10 years to get to this point. So a lot of investment a lot of scrutiny was done over it and

it’s been going okay I think for the last five years. Yeah. Well, I think to that point, I mean, I think some of the to kind of go

back again a little bit farther and look at it, right? You know, you have, you know, the products have been there for a

long time. I mean, you know, collateral collateralized debt obligation CDOS’s um which again kind of made famous by, you

know, the movie The Big Short for people that, you know, aren’t familiar with this space. But that’s kind of what, you

know, Samir’s talking about right there. And I think from the perspective that you know by virtue of things like

DoddFrank coming into it and getting a lot more constrictions on it those types of products really kind of dwindled and

people started you know getting a little bit scared of it from the institutional side. Now that markets have rebounded, you have, you know, basically a very

robust, very valueheavy market in real estate. They’re starting to come back together, right? I hope they’re going to

be done and underwritten correctly and that the products out there aren’t going to have the same problems. I think more,

you know, by by large a way, I think that we’re probably not going to have the same types of problems we had. Not

to say problems are going to creep in. They always do. We’re human. They’re human products. They’re going to be [snorts] issues. But from that

perspective, I think that [clears throat] some of these things, especially on the like more of the hard

money that you’re focusing on, I think is going to be inscary from that, right? With the high turnover of these things, they don’t necessarily fit so well into

large CDOS, right? Um, but again, where do you kind of do you see that kind of

being the case or do you think there is a a use case for these type of shorter term or hard money things to be kind of

gobbled up into financial products in the future? Yeah, it’s already happening now

actually. Like Yeah, I mean there are I think if you

just do a Google search, you’ll see that many like large platforms like uh

Fidelity Schwab even are now opening up um a platform at least for alternative

investments. And then the president or I think he signaled it. I don’t know if it’s actually law, but even 401ks now

would be subject or you could invest in alternative assets um like ours with

401ks as well. Yeah, it was it was an executive order and it was more focused on crypto. Um

there’s I could speak for hours on the issues with that as it as it pertains to Orisa and qualified plan asset rules.

Um, again, I think from that perspective, um, you know, not I try to be very apolitical, but it was it was

more posturing than anything else on on that one. Um, it’s it’s one of those things where it sounds great on paper, but you know,

how is it going to be applied? There is there is legislation going back to the 70s that would need to be augmented and

changed and [laughter] it would take years to flesh out. So um

I think I think the industry is pushing for for a bigger pocket of alternative investments in general because I don’t

know if you saw the latest news that um that the change of the definition of changing the definition of an accredited

investor is also being modified. You know as you know it’s traditionally 1 million net worth excluding residents

plus or two or 200k if you’re single of income or 300k if you’re married.

Now, you know, I think there’s a motion on the House floor, if I’m not mistaken, that your professional designation also

now qualifies. So, you’re a CPA, lawyer, doctor, you’ve got some sort of qualified degree that allows you to

invest as an accredited investor. I think that’s

Yeah, there is some stuff in basis for that. Um, if you have a series 7, um, you’re exempt. Uh, so yeah, there there

already is some stuff in in the books for that. I think that as far as kind of opening this stuff up um uh to alts you

know definitely is uh you know in the space right I feel like that that change is coming just from if you look at the historical yields of alternative

investments in general um again you know there is a I would say you know if you

look at the beta and the alpha alpha the whole thing right there’s there’s big numbers on both sides which kind of average out to you know a modicum of of

reasonable risk tolerance um but just people aren’t used to kind of doing all their own research and having to dig in

and find the data as opposed to just looking at a Morning Star report, right? But even places like Morning Star,

Moody’s, and S&P are starting to get into some of that financial analysis um of these spaces. So, you we’ll kind of

see how that plays out. But I think the pinch I mean, financial advisors are now like even touting, you know, alternative

assets should be 20% 20 25% of your of your portfolio. Yeah, it’s uh that’s also an interesting

one because they did redefine the fiduciary rules um a few years back. So, uh looking at how that relates to

valuations that are required um and different things, it’ll be interesting to see how some of that kind of plays

out from a professional standards point of view. Um but not to get too much up on a tangent of uh people’s pension for

making money, especially in alternative ways on the alternative existing podcast. Um but it’s kind of interesting

to look at kind of the you know the drivers of what are going to really be uh you know profitable for you um in the

future. Now looking at kind of again you said you do construction and uh the single family uh fix and flip. What

avenue do you think is really going to be the big um you know revenue center for you at least in the you know near

term? Do you think it’s going to be more people to your issue about housing availability, more construction or more

rehab with kind of my point of people issuing out and getting out either dying, downsizing, um, or you know,

going into some other type of living situation? You know, the the short answer is I

don’t know. I I wish I did. I think if I

knew that like I would probably redirect our marketing dollars.

I would say it’s gonna be a com probably more likely it’s gonna be a combination of all of that. Um

definitely the the angle of you know we’re gonna probably hit I wouldn’t say a wave or a cliff but we’re the

acceleration of older Americans passing away. We’re we’re getting there. I mean

you’ve heard the the statistic 10,000 people are turning 65 every day. And you know the average

lifespan of an American is like around 77 78 80 years old. So that also tells me that more and more

people are turning 75 78 you know that sort of range and that dramatically increases their you know

mortality rate or dying death rate and you know it’s kind of morbid but I think that’s going to have some effect. I I

don’t see how it cannot. Um I think rehabbing is going to always be there

because I just don’t see the not in my backyard type of mentality going away. I

think those neighborhoods that are entrenched will not allow more housing to come in.

They might allow more multif family housing to come in and that and they love multif family housing when when

they’re put in the right place in the right spot in the city or municipality. And we are becoming more and more urban

too, right? So I think that actually the urbanism is is definitely affecting it.

But, you know, I say these things and then I see inflation is going up 4% headline rate and then it’s probably

even higher. I think it’s actually probably five six%. Um, for the average American actually

I I see these things and I’m like, you know what, maybe urbanism will be in decline actually. Like people want to

not live in the city and they want to spread out and they want a simpler lifestyle, especially as they all age,

right? And so it kind of reverses the whole thing I was just talking about where older people now want refurbished

houses out in the outskirts which is where we also lend. I mean we don’t lend in like you know shanty towns but we

lend in MSAs with at least you know 200,000 people. So that that that little

floor for us kind of tells you what we will we will lend in Toledo, Ohio. We will lend in St. Louis, Missouri or the

outskirts of St. Louis, Missouri. um in the outskirts of, you know, San Antonio

um or Dallas or things like that. And so we’re landing in all these other areas that are not major cities. And if that

data is to be believed, then maybe, you know, maybe it’s not about the cities and towns. I I just don’t know. But we

what we do know is that the number of operators that get in this space,

they’re having a tough time at the moment. Um, but they’re still finding deals and and our volume has increased by 25 30%

every single year for the last four years. I mean, last year was 80 million or last year was 100 109 million. The

year before that was like 80 million and the year before that was 50 million and the year before that was like 25 million. So, we’ve we’ve been

we’ve been funding we’ve been funding people along the way in spite of some of these challenges, but I just don’t know what is to pinpoint it what is actually

driving it. Yeah. And it’s I [clears throat] think I think you’re right. It’s not necessarily there’s not one thing, right? And that’s

true with, you know, a lot of things in real estate. It’s not just going to be one thing, right? It’s going to be a combination of a bunch of factors that,

you know, all aggregate together to create this total market effect. Now,

you know, looking at, you know, obviously where the, you know, the benefits and everything come in, where do you think some of the biggest pain

points, at least or that you’re experiencing, as you mentioned, some other operators are feeling like, again,

not everything is is perfect. So what would you say are some of the biggest uh pain points and things that kind of you

know are the friction uh in the system for you know operating in real estate and lending at the moment? So for our

borrowers or our clients, it’s, you know, their volume may be diminishing or they’re having a harder

time finding sellers of real estate because a lot of sellers are maybe enamored with 2022, 2023 type pricing,

um, thinking their house is worth more than it actually is, right? Because, you know, you have to when you’re flipping a house or buying something for investment

purposes, you you almost have to buy it at some sort of discount relative to market value in order to realize a

decent return. Um, so there’s that. So there’s a little bit

of there is a lot of that depending on where you’re at. Uh, interest rates also matter. Now

it ma So interest rates have gone down which is great for borrowers but it also

they’ve gone down a little bit actually. So it’s weird. So interest rates have gone up or relatively higher for the

consumer purpose mortgages but they’ve come down for business purpose lending. So getting into a loan is not as hard, I

think. Um, all else being equal, but then you’ve got to think about who you’re selling that property to in the

future. Yeah. And so when you have an a median sort of house house purchase price in

America at 400 grand and you do the math, you you put a six and a half percent mortgage on that at 400 grand,

you know, that mortgage comes out to I don’t know, doing math in public is tough, but that’s probably like a 5,000

four is the $5,000 mortgage payment probably. Yeah. When you factor in PITI, sure,

right? Yeah. the that’s that’s $40,000 to $80,000 of of mortgage payments you’re

going to have to make. And if you apply traditional mortgage underwriting standards to that,

you got to have an income of at least $150,000$1 to $150,000 to afford that

type of price. Well, then you got to ask yourself, how many Americans actually as a percentage actually make that kind of

money? It’s not everybody, that’s for sure. You know, the med income in America is, I think, 50 60k now. um average is

probably maybe a little bit higher or lower, maybe a little bit higher than that. Um there’s an affordability issue

then of who you’re who you’re selling the property to. And so getting exiting

from the deal also is challenge. And we’re also noticing that borrowers are staying in properties a little bit longer than than they would like. Right.

If the average deal three years ago for us was six months, it’s now about nine months.

Yeah. And I think I think there’s something to be said too for, you know, just the the the delta in and in and

interest rates, right? I mean, you have like a 300 bip spread between what people were locking into in 2022

um and 23 to when everyone was buying everything to what we have right now, right? So that holding cost is going to

be significantly less. So what kind of pain are they actually really seeing for saying, “Hey, I want to get this price.”

Well, I’m going to be unrealistic and just hold on to it. eventually they’re going to come to their senses because

even if it is cheap, it’s still money out the door, right? They still have that holding cost and they want to get rid of it. Okay, fine. I’m going to sell

at that discount. But really kind of looking at it’s like how long can people afford that, right? And I think the pain

pressure from inflation might actually be a good thing. Um again, you know,

full statement from that clip, like not a good thing as any metric would say, but a good thing from the from the

pressure that it would put on sellers that again have that kind of lofty expectation of what they can get for it

to sell to the discount to get it into the pipeline of where you like to lend where the people that your investors are

consuming that product at. Um, but again, who knows? I mean, it was basically free money. I mean,

personally, I refied unfortunately didn’t get the exact lowest point. Um,

but I think my total APY is something like 2.5 house. Like, it is

dumb. Like I I just I was signing the documents to refi it and I’m just like how like I keep expecting Ashton Kutcher

to pop out and be like psych. I’m like how is this even possible that a lending

institution is being like sure cool we’ll do this. I’m like okay. Um so I

mean again like I could realistically hold that property for perpetuity. Yeah. Then that’s the you’re you’re

absolutely right that there’s a challenge. I mean, I I try to keep up with the stats as much as I can, but I think like

30 to 40% of mortgages right now in America have a rate lower than three or

4%. Mhm. Which implies like you’re saying like almost free money at that at that sort

of rate. Um, who would want to sell if they can if they can avoid it now? But, you know,

life happens. You know, death, divorce, job changes, all that stuff that’s slowly

slowly cracking away at this. Um, maybe harder because of remote work and people can work anywhere now. Uh, depending on the job.

Um, but yeah, that’s that’s a challenge. I think over time though things will will be will be okay.

Um, yeah, I mean, you have long enough time horizon, right? Like again like I could

you know re and like that’s kind of one of the things my wife and I talk about you know personal anecdotes are always great like it’d be foolish kind of us

for us to sell the property right like it’s you know we put something else in like it’s now it’s kind of looking at

okay if we want to move somewhere now we just turn into a rental right there’s really no point in doing that like if I

can if if my high if my savings my cash high yield savings account has a higher

interest rate by like again a 100 bips from my mortgage age. Yeah.

It’s just okay. I can just eat the spread and still come out on top. It’s just it’s it is kind of mindboggling.

And I try to tell so many people back then like, “Oh, this is so great.” I’m like, “This is actually really bad for a

lot of reasons.” Like, how there’s no money to be made, right? Like, and the inflationary aspect of why these things

are that cheap is not great. Again, I’m not opposed to taking advantage of a situation when it’s presented to me, but

it’s uh it is interesting to look at how that’s actually going to kind of affect again, you know, to use myself example,

how it affects that and how it affects again that inventory shift that we, you know, need to see in the future to

continue on having a robust thing, especially for this kind of um you know, operations that you’re doing. Now, I’d

like to transition a little bit because it’s, you know, I really like to, you know, talk about the core of what debt

funds are, right? like, hey, like here’s how we generate the returns to investors. But when it comes to like

an investor saying, hey, look, like that’s great. Like I understand the market now. I’m not going to go out and

do it. I’d like someone to operate and do it for me, if you will. Again, that’s one of the beauties of private equity is

that there’s so many different things you can get involved in without having to be hands-on by investing with operators. But, you know, when it looks

when you look at this, right, let’s talk a little bit about kind of how that is done with this. There’s a lot of

different ways debt funds can work, right? Sometimes you come into a debt fund and you invest and then you have

assigned notes and mortgages and collateral that is attached to your underlying basis of it. Sometimes you invest in more of kind of an evergreen

structure. Um, so talk a little bit about, you know, the structure that you operate in, why you like that for, you

know, your operations and your investors. So there’s there’s definitely different structures out there, right? you’ve got,

you know, GPLP type traditional structures where you’re like an equity owner in the fund actually and there’s

some sort of profit share with the the managers. I took a different approach. Um, this is my third fund actually and

the first two funds I kind of had that approach and there’s some things I didn’t like about that. Um and I really

oriented this fund toward giving the investors what they really want which I think most investors want certainty

uh at this b for this particular product and in the way we in general real estate lending. So you know our model is that

of like a private bank. So we take investor money offer a seven and 8% coupon uh to them. It’s actual debenture

promisory note like almost like a CD like or like a bond and it’s paid

quarterly and then we take your money and we lend it out at higher rates obviously like you know 9 10 12 13% sort

of annualized type rates and then we the fund managers myself primarily earn the

fee the spread I don’t charge the investors any sort of fee but I just earn the spread from that activity and

then I have my you know $8 million of my own money that I’ve put in a first loss position of the investor saying like if I lose, there’s any bad decisions or bad

loans or whatever dumb things that I do, it’s going to eat me up first completely before you’re touched. I think that has

resonated a lot with investors because there’s a lot of games, you know, believe it or not, there’s a lot of games that fund managers could play when

it comes to equity type arrangements. For example, you know, are fees that

char are the ancillary fees like origination points are they are they paid into the fund where the investor

resides or that is that only all all kept by the fund manager.

So the incentive in that particular case you know which is what we don’t do everything is pulled in one one vehicle and then you know the in all of our all

of our income is used to pay ob obligations to investors first and then I get some money at the end of the year

and we only pay ourselves once a year anyway. But some fund managers opt to keep that

origination fee when they make that loan. So they yeah they may make a 10% 12% loan and they may come with a 2%

origination fee. Does that go into the fund for the benefit of investors or do the does the fund manager keep that?

Some fund managers do keep that. I find that like it really messes up with incentives. So I think you know if

you’re evaluating a debt fund and I think that’s where you’re going with the question. If you’re valuing a debt fund structure, you really ought to look at

the incentives because this space could be is can go wild and I’ve seen it where

the fund managers incentivized by structure to just make as many loans as possible.

And we’ve heard and I’ve I’ve personally witnessed debt funds collapse because

the other thing is they ra they may raise like let’s say $50 million$100 million or even a billion dollars up front, right? It may take them a couple

months, but they raise all that money, big chunk of money up front. Well, what’s the problem when you raise a

billion dollars quickly? You gota

you got to go out and it [clears throat] you got to lend it out, right? To justify your fee and justify some sort of investment activity to your to your

investors and GPS. And what happens when you lend that kind of money out quickly?

You pay a lot for marketing to get borrowers. So there’s already uh a direct headwind in front of you. Two,

you’re probably going to relax your credit standards going in because you got to get originations out the door.

You probably hired a team to, you know, satisfy such large demand to have a a

bunch of money because it doesn’t make sense to raise only 15 million bucks because the fees you earn on that are

not enough to to really do it correctly. So you got to raise a lot of money upfront in order to justify the at least

the fee income you would get from it to justify, you know, the operation. So like there’s this dichotomy, like this

weird dichotomy where you’re going to you’re setting yourself for bad decisions or debt fund is setting yourself up for bad decisions if it’s

relatively new. So I I would look for funds that have slow growth behind them

as a question in terms of what are what is their history. In our case, we just started lending out our own money first

for the first year and we slowly gradually raised money as the demand came in. So there was no headwinds of of

risking money I have for money I don’t need actually like we just we grew with

the demand. We didn’t have to engineer or manufacture false demand or false you

know volume or compromise on our volume u in another put to put it another way

to to earn a living. Sure. Yeah. And it’s uh there’s definitely something to be said for you

know not just necessarily the length of time someone’s been doing something but also coupling that with how that has

actually translated into the growth of the underlying you know investment pool or the size of the investment fund. It’s

all well and good to say, hey, look, these people raised all this money to do something. Well, how are they going to do it? And are they going to be

deploying it quick? Like, it doesn’t really make sense to raise that billion and then take three years to deploy it

all in a nice gradual fashion. Like we said, there’s, you know, kind of a meeting in the middle of that like raising capital as it’s needed to be

utilized with enough to again grow the business, but also not have to the point where you’re just, you know, sacrificing

on one of the core elements of what this is. And you kind of hit on that, right? uh you need to have solid underwriting

standards in the market that you’re looking at, right? You know, if you’re going to be focusing on DSCR, if it’s

just fix and flip, if it’s construction, making sure that the under underwriting standards are tight and again tightly

followed is what is going to kind of drive success as a very academic way of

saying it, right? There’s always the, you know, the the nuance of everything. And that’s kind of where the devil’s in

those details of talking to operators, figuring out how they work and asking questions and then, you know, verifying

and validating those those answers against the results that are, you know, being being put out there. So,

I tell our team, like to your point, I tell our team that any idiot can send money out the door. It’s the getting

paid back is the true measure of of the of the GP or the manager, the lender.

So, you know, if you’re going to invest in a debt fund, you really want to take a look at what is the manager’s ability

to get the money back, right? Obviously, good underwriting is the first line of defense and getting money paid back. If

it’s a good loan, probably with good collateral, you’re going to get paid back relatively, you know, easily, but the manager also has experience has

to have experience in foreclosure and disposition and managing the assets um

to get investor money back as well, right? And that requires a legal I would say not maybe a legal background but it

requires experience with lawyers. It requires experience with you know redirect rehabbing of properties

yourself because you’re typically having to pick up the damage from from a bad borrower and you’re going to have to

finish the rehab yourself and what does that look like and what’s your disposition plan around that. So um it’s

a fun world. I I personally love it. I think I think the best lenders are the ones that own property to begin with at

scale because you I don’t know if you can be a good lender without being a good owner of assets. Well, I think it’s the people I’ve seen

that were most successful in the lending space are the people that hated owning real estate. You know,

yeah, they they went through it and realized that they did not like owning real estate, but they liked real estate, right? It’s um you know, one of the one

of the most successful you know, clients that I’ve ever seen. Has a very uh interesting niche of where he operates

in South Florida. And he started out as a as a construction manager and building houses down there and realized that it

was too much work. Didn’t like it, but that he made a lot of money. He’s like, well, let me just lend people to do the

work that I don’t want to do. And I mean, mill there’s a lot of zeros in

that account, let me put it that way. And he’s done extremely well um for himself. and he only focuses on lending

now. That’s all he’s done for at least the past 14 15 years I’ve been uh here. It’s all he’s ever done. And again, one

of the larger accounts that we have and all he does is lend. And that was again to kind of kind of bring it full circle

to the beginning of this when I said, you know, one of the more surprising things was in real estate was how people

make money. And you know, looking at notes and mortgages and seeing how much money people can make. That’s a good example of it. You know, found out

learned the real estate side of it. did the did the debt side of it because now he also understands what does it take to

bring that in like if this thing goes belly up like is this deal something that I want to have on my books right

and I think that you know from from identifying and partnering with uh operators in the debt space right you

know they have to have experience in that because if you don’t know how real estate functionally operates if you have to

take it in which no one bats a thousand right you know Pete Rose best hitter ever you know didn’t break 500 100. So,

[clears throat] you know, looking at that perspective, you know, you have to have faith in the operator to say, “Hey, look, if we take this in, do we have

enough basis and knowledge to have underwritten that deal, not only financially, but also in the unlikely event hopefully that it comes back to

us, do we know how to dispose of it at that point?” And that’s another trope that I tell our

team as well is like, would we want to own this if we had to at the price or lending basis that we’re at?

Um, and so we we’ve structured things, we try to where our borrower’s worst

behavior becomes our best outcome. So, like an interesting fact like we’ve

we’ve had to foreclose on about 30 40 properties out of the 1500 loans that we’ve done. We’ve actually, believe it

or not, on a net basis, made money uh on at least of today, we’ve actually made

money from from the disposition ultimate disposition of those assets, right? So,

like our job is not to like make money from foreclosure. We’re not a loan to own type of lender. But but it’s kind of

shocking like I mean not shocking, but very I’m delighted that you know if they

want to not pay us, you know, our underwriting is is decent enough. We’re like, fine, that’s actually good for us

because we probably end up banking more money. We took a we $2.6 million to to a

borrower who had a portfolio of houses, not just one. Um, it ended up it ended up not working out

with the loan. We ended up forclosing. It took us nine months to get there. And we had to rehab it a little bit, but we

ended up selling for 3.4 million. Yeah. Exactly. Yeah. Making sure that, [clears throat] you know, if the worst

comes to worse, are we still going to be able to make money? And I think that’s one of the cool things about real estate

specifically and and lending, I should say, lending specifically, is that even if things don’t go well, you have the

ability to still make money, right? You know, if you get in over your head, overleveraged in the real estate deal,

you lose the property, right? And all the money that you put into it, that’s gone. Lending, yeah, you might have lost

the basis on what you lent them, but you have a very clear pathway forward to make yourself whole and ideally make a

profit. Um, which is again one of those kind of unique situations that’s again

very unique to investing in debt is that you don’t have with equity plays, you don’t have with, you know, ownership

plays is that you have this, you know, dichotomy of ways to make money in debt that is very unique to the space.

Well, you know, you made a a point probably 20 minutes ago regarding valuations that make it tougher with

alternative assets. Well, the good thing about debt notes, whether you know you invest in a fund, it may a little

tougher if you invest in a fund, but if you own notes directly inside your IRA, well, the valuation is relatively easy

because the note has a basis and if that notes current, that’s the value pretty much.

Exactly. Yeah, it’s it’s real easy to determine the value of it, right? And and again, the nice thing too from that

point of view is kind of like why owning cash flowing assets is great. You can kind of invest a little bit price point

agnostic, right? like, okay, it’s with that, but it’s cash flowing, right? We’re still making our returns on it,

right? Like, you might not get the huge amount of upside on an equity play, right? Like, you own the property, it

goes up by 100%, great. But there’s a big risk that it went up by 100%, go down by 100%. The market directly

affects that. Investing in something that has a contractually obligated rate of return over the long run will

probably be, you know, make you more money if you do the, you know, law of averages over anything. um which again

why why debt especially if you don’t want to go out and do that investing in debt funds can be a you know very attractive uh you know avenue for a lot

of people. So, especially if it’s a retirement account where compounding matters,

right? Like, you know, the the worst thing you can do to interrupt compounding is lose money,

right? Where you have loss of principle. And so, you know, debt funds play a unique role, especially for retirement dollars and which is what you guys do. I

think you have I I imagine debt must be the highest segment of of allocation for

SDA. Uh, you’d be surprised. I would say it’s probably not as big as you’d think it

is. just from the simple fact that people bought so much real estate when it was so cheap um with IAS um or other

alternatives. I would say that it’s probably not as big of a chunk as you

think, but it probably would be um one of the larger, you know, top three, right? You know, it’s [clears throat]

not not not buried down there, but you know, I wouldn’t say it was over half. I’d say maybe somewhere in the 25% range

or so um for that. The other attractive thing too is that especially investing in the debt side of things, you don’t

have issues that crop up with like um uh uh UDFI taxes. If you’re investing in

like a an LP structure that’s going out and buying stuff and raising money and having debt having debt service to worry

about, you don’t have to worry about that, which is also nice. Um uh to that point. So, uh, to kind of wrap things

up, you know, I always like to make sure if guests have any, you know, kind of, uh, parting thoughts or anything that we didn’t get to, uh, now is your time and

also make sure people understand how they can, uh, get in touch with you if they’d like to learn more about your operations or any other opportunities

you might have. Yeah. Well, thanks. I mean, our fund is called Trophy Point Capital. Um, Trophy

Point’s a monument on West Point where I graduated and, uh, we named the fund after that. So, trophyoint capital.com.

Hit us up, check us out. Um, fantastic work. Yeah. Great. And then you know I guess the parting thought

since you asked I think it goes back to what I said a few seconds ago which is compounding is the point of investing

and you want to compound your wealth at least retirement dollars maybe not you know other bets but when it comes to

retirement dollars I feel like you want to compound safely and consistently because you need some degree of

certainty around your your retirement and your you know your livelihood and you know putting a 100 grand into

something earning 8% on for 20 years, 30 years, like I think that is that is the

way to go now. You can and you can achieve that absolutely with with debt funds and and and and owning notes.

Absolutely. Well, again, Samir, really appreciate you being on with us today. One of our most valuable assets we all have is our time because we can’t make

any more of it. So, really appreciate you being on with us today. I encourage people if you’re interested in learning more, please do reach out to Samir.

Again, this has been another edition of the Alternative Investing Advantage podcast. My name’s Alex and we’ll see you on the next