Updated: Mar 20
Meet Magnum an investor with Peoples Capital Group who is only in his early 30s. Today on the Passive Cash Flow Podcast we talk about how magnum found his way to passive investments and what it takes to make it in real estate.
Aaron Fragnito: All right, ladies and gentlemen, welcome back to that Passive Cashflow podcast. This is episode eight, and here we have Magnum.
Interviewer: Mr. Roach. All right. Magnum's one of the younger investors. He's pretty established here. I'd like to bring on people that are getting started because they can really relate with other people who are getting started. Magnum, just talk a little bit about where you're from and what you do.
Magnum: Sure. I'm actually from Union County and I grew up in Middlesex County, [unintelligible 00:00:50] and then I moved over to Union where I reside now. I am right now a serial entrepreneur but by trade, I am an IT. I'm starting to build businesses on the side and actually start investing in real estate and investing with Peoples Capital Group.
Interviewer: Very cool. We've been working with Magnum for a couple of years here. I think we met at Aria at a real estate networking event. Did you come to one of my networking events? Is that how we met?
Magnum: Yes. I think I did. I did come to one of your events. I think you were doing an event about how to leverage your 401K and actually invest in properties.
Interviewer: Sure. Was that in Morristown or was that here? Where was it?
Magnum: That was actually, I think, here.
Interviewer: Yes? All right, cool.
Magnum: Yes, at the headquarters pieces.
Interviewer: Look at that. The headquarters, PCG headquarters.
We got guns out. It's a protected place. It's very, very cool. It was a moment or a book you read that turned you on to real estate at all or how did you find that was one of your passions?
Magnum: I think everybody is turned on by the purple book out there, Rich Dad Poor Dad.
Interviewer: Purple book.
Magnum: I call it a purple moment. [laughs]
Interviewer: Yes. That's interesting.
Magnum: I read the book and I listened to podcasts and- BiggerPockets, of course. You start realizing how much the result there and when you start having a paradigm shift of the things that you start realizing and seeing, then you open up your mind for multiple areas and opportunities.
Interviewer: That's true. The purple book also is the way I went and I didn't even know that. I feel like probably every third episode I bring up that book, I feel like I should start getting a part of this.
Magnum: You should get some money. [crosstalk]
Interviewer: I just solved it. I'm going to call Rich Dad Poor Dad, like, "Listen, buddy, I've been promoting your book for years." He's such a part of my story and people I interview, it's such so commonly a book that's brought up. I remember I made a PowerPoint presentation one time, how I got started and one of the first slides was just that book and his face, a quote, and the feedback from people when I was telling it in the office before I presented it, was like, "You're promoting the book too much. It looks like you're actually trying to sell Rich Dad Poor Dad books. I had to change the PowerPoint to make it less focused on Rich Dad Poor Dad. That is such a part of my story that that was what the PowerPoint was about and I was like, "Actually, I have to make it more focused on what I'm doing." It's such a good story.
Cool. 401K and so you self-directed your 401K and your IRA, and then you subtract your IRA.
Magnum: Yes. Then as you explain to us all this and you self-direct it and pretty much you have to have a custodian place. From the custodian, you can actually have your own LLC and from there you can invest in multiple avenues in which I did. Right now we're working on an apartment building and it's going to go find a way to look into force appreciation and then probably in the first, in three to four years, we're going to refi and get the lump sum.
Interviewer: Yes. Exactly. What Magnum was talking about is the a refi cash out. He has an investment with us. We're moving into a property. We're buying an 11-unit right now and we're going to buy this building. We're going to reposition it. About half the tenants are paying way below market rent and the units need upgrade updating. We're going to work out a repositioning of those units and move the building into a very profitable scenario there. It's great. There's a lot of upside on the building. There's a lot of room to get the income up. I'm looking forward to the investment and just trying to get the deal closed right now. It's tough getting cooperation with the seller and all the parties.
The thing about private real estate transactions, sometimes we were doing-- We found a seller that the investment that Magnum and I are doing right now together, just to shed some light on it, I'll talk about this deal here. We found a seller through direct mail marketing, which is a great way to find discounted properties. The building appraised at 1.1 we're buying it for mid nine. It's really a great investment. We're making about 150 grand in equity off the bat. Dealing with sellers that are not working with brokers is difficult because there's no middle person. There's no broker pushing the deal along, who's not going to get paid unless the deal closes, who's going to make sure the deal closed- the glue of the deal.
A good broker really is so important in a deal. I have to say shout out to brokers and realtors for a second. In some of these transactions- because we're talking about this private deal we're doing, this 11-unit, and then I'm talking about a 25-unit also that we're buying right now. The last video I did or two videos ago was about three buildings we're buying. I think one of them was the 11-unit. The other building is the 25-unit. Now that building is being bought through a broker.
At the end of the day, it's easier to work with a transaction to complete a transaction generally when there's a broker involved than when there is not. Some people might think the contrary, but no, I think always when there is a broker involved, a transaction is more likely to close. It's more likely to be less of a pain in the neck. At the end of the day. I do like working with good commercial brokers, the experienced broker is very important. This deal, we're buying off-market. Seth is crushing with a seller. We are trying to wrap things up on it and I'm looking forward to closing.
At the end of the day, you self-directed your IRA, and before that, you really were headed in stocks. You were working with the stock market. What do you think are like some takeaways you had from investing passively?
Magnum: I think for everyone it's a good experience. It's all about mindset and getting your foot wet out there because it was underperforming, and when I lost my job, I had the money in there and I didn't know what to do with the money. I was like, "You know what? I can self-direct it to an IRA or leave it there on the market," or I can try experience something new on the investment side. I was like, "Why not real estate?" That's one of the things that I learned, and not only that, the value add that we can gain from it for you to coach me and teach me certain things and the network that we build in together, it's unbelievable because this way we can actually learn from one another.
Interviewer: That's one of the things I really value with my job is when I don't just send my investors a check, but also lots of knowledge, the updates. I try to give you a lot of details there so you really know what's going on and you feel comfortable with the investment in the progress and the investment. That's nice to hear that you enjoy learning about the process of repositioning apartment buildings and taking buildings that are mismanaged or pissed off tenants or maybe buildings that are just dangerous to live in and making them safer, nicer environments. It's something that I think we can feel proud of. It's nice to see that change in cities that you live by. It's more fun than being in a stock or something. You can't see the change.
With your IRA at a young age too, you're good. By the time you can actually pull from your IRA without getting taxed, that's going to be a really nice investment. You're going to be in a good spot. You know something-- I mean, you're a young guy. I could see us actually. Let's say we buy this 11-unit. We reposition it. We get the rents off the properties, make a lot more money now. In four to five years later, we do a refinance. We split up a big lump sum of cash. Then four to five years after that, we refinance again. We execute level two of the reposition and we get into a cash-out refinance again. Then 15 years down the road we could sell the building.
Obviously, we'll see where the market is. We make a judgment call at that time, but eventually, between 15-year marker, so around there, we're going to look at selling the building and doing a 1031 tax difference. Then we're going to trade into a bigger building. Let's say we identify a 50-unit or something whatever. Maybe a not that big but something much bigger. We trade into a similar like building that's bigger and now we're getting twice the cashflow, and again, we reposition the building, we force the value up on the building by getting better net cash flow and rinse and repeat.
We basically do that and we could trade-- Listen, you're a young man, you're right around your-- You're on your 30s, right?
Interviewer: Look at that. You can pull the--
Magnum: You look young too. [laughs]
Interviewer: Yes. Thank you, my friend. Me and you both, we're going to grow together.
Magnum: That's it, yes.
Interviewer: You think about 30 years down the road, who knows, right? You could be-- Take your investment 10 times or whatever. Who knows what will it be?
Magnum: Well, the purpose is 10X at everything. [laughs]
Interviewer: Yes, 10X. 10X baby. Was that a Grant Cardone's hat, you're so stupid? [laughs] Stupid. Is he selling hats or what? Is he selling investments? Come on.
Magnum: I know.
Interviewer: He's all right. He's inspiring. Grant Cardone, yes. I guess we all want to be like him.
Magnum: Uncle G. That's what they call it.
Interviewer: Uncle G.
I wish he had TEDx hat. That'd be cool. That'd be really cool, man.
Magnum: Yes, totally. Listen, I want to turn the table around now. I want to ask what's next for Peoples Capital Group in 2020?
Interviewer: Well, we're reading the market right now. The flipping business is getting tighter, the profits are getting squeezed. We're in a seller's market phase two right now, in North Jersey. We had a good run. We made hay while the sun shined. We did very well as the market went from a buyer's to a seller's phase. We flipped lots of houses. We wholesaled lots of houses. We were a resource to investors to buy property at cheap prices and also to end-users to buy renovated homes. Now we are reading the writing on the wall and we're seeing how hard it is to get a good fix and flipper, a good wholesale deal, and the profits are a fraction of what they were back then.
We are transitioning into commercial buildings, apartment buildings right now. We feel there's a lot of activity in the apartment building space. A lot of people are talking about them. A lot of people are doing syndications. We recognize that. That's not necessarily a good thing but it's not necessarily a bad thing either. That means it is a good space to be in. Obviously, other people have recognized that. Fine, you're going to have competition. We have a nice little niche carved out here where we manage everything in-house and we control the building. At the end of the day, there's not that much bandwidth. We're not hiring out of state management companies. We're not really taking too much risk with construction right now or ground-up development. We're trying to really stay within what we're really good at here, which is buying mismanaged apartment buildings and managing them better, and then repositioning them and refinancing.
If you're good at something, stick to it. We have the resources, we have the infrastructure to take on more buildings. We're taking on about 34 units in the next 90 days, hopefully. We are also looking at taking another 76 units. We're meeting with family, offices, and discussing that. There's a lot of activity here at PCG. We want to get to 65 million over five years. I think we can do it. We might even far surpass that. Who knows what the future holds?
Right now, investors are reacting nicely to our service. You've been working with me for a number of years. I think when we first met I was still building- I'm always building, of course, but I was really getting the blocks in place to develop a good investment company, and I was taking my hits in the flipping business. You have your wins and your losses there. As the market develops here, I think the apartment building space is huge. We look at the inner-city areas like Newark and Paterson, really, we've done amazing in those areas for years and we still see opportunity there. You just got to know where to look, know who to talk to. Everyone's always going to need a place to stay at mid-level housing, mid-level apartments, my friend, that's it.
Interviewer: I totally agree.
Magnum: Not the fancy stuff, not the cheapest stuff, middle of the road, affordable apartments, two bedrooms near a train station that gets into Manhattan. That's where I'm putting my cards right now.
Magnum: I love it.
Interviewer: That's what we're putting on our cards.
Magnum: That's a great vision for PCG for 2020.
Interviewer: That's it. I see a lot of growth. America is doing good right now. I'm great.
Magnum: Yes, totally.
Interviewer: As a small business owner, I'm optimistic. I'm feeling good.
Magnum: Nice. It's really good. The economy's booming. I think unemployment rate's the lowest within the 50 years. I think I saw that somewhere. I was like, "Wow." I was astounded. There's investments out there. There's a lot of opportunities out there for you guys. It's just all about getting the mindset right and going out there and making it happen. Interviewer: Yes. That's cool. It's a good plan. I like the space too. I've always had a passion for it. I'm glad you do as well. It's fun to see other people that share the passion. There's a lot of people out there that are doing it.
All right, so Mr. Magnum, any words of wisdom or things you'd like to promote to the people here on the PCG Passive Cash Flow Podcast?
Magnum: Just be persistent and follow your dreams, because that's all it's all about. That's what I'm going for. That's what this man is going for. He believes in me. I believe in him.
Interviewer: Thank you, my friend.
Magnum: All right. Let's make this happen.
Interviewer: Absolutely. All right, very good. Thanks a lot for listening, everyone. Go to peoplescapitalgroup.com, learn more about how you can get qualified to invest in one of our upcoming buildings, and if you have any questions about how we do this, how we work with the buildings, get into more depth. Today we're just talking about-- Well, I don't even know what we were talking about today, tons of different stuff. Go to peoplescapitalgroup.com. We got tons of information there. We just updated the site. We have our podcast there, other episodes, of course. Again, that's peoplescapitalgroup.com.
Have a good day.