Breaking Barriers: Jim Lee’s Journey from Jobless Graduate to Real Estate Syndicator

Patrick (00:23)
Hello and welcome to the Active Commercial Real Estate Investing Show brought to you by the one and only school of commercial real estate investing. I’m Patrick.

Noelle (00:32)
And I’m Noelle.

Patrick (00:32)
And today we are joined with Jim Lee. Jim received his bachelor of science degree in economics from UCLA in 2010, and started his career as an inside sales representative for LoopNet CoStar. By being the top sales rep and winning a $50,000 sales incentive bonus, he used that savings to purchase his first two bedroom, one bath condo and learn the importance of having multiple streams of income. Now through real estate syndication.

He’s invested in over 600 units in the past two years, where he’s participated as a general partner and limited partner. Jim, welcome to the show and thanks for being here.

Jim Lee (01:09)
Thanks for having me.

Patrick (01:10)
Absolutely. Well, fantastic story. We’re excited to dive into it in more detail today. And we’d love if you could just kick things off with a background about yourself.

Jim Lee (01:19)
Yeah, absolutely. So just like you mentioned, I graduated from UCLA back in 2010. Now, as many of your listeners might know that that’s right after the 2008 subprime mortgage crash followed by the 2010 European debt crisis. So it was a really difficult time to find a job. At the time, I was jobless for about a year and a half due to…uh, this recession and, um, my parents, you know, just coming from an Asian culture background, they wanted me to go back to school for, to get a PhD or MBA. But all I wanted to do is get some work experience. So I was pretty stubborn about getting a job. That’s why it took me a while, but, uh, eventually I was fortunate enough to lend an inside sales job, uh, working at Loopnet and CoStar. And from there, I just never looked back. I was hungry, I was motivated, I took the job very serious and, uh, excelled and won $50,000 bonus and, um, use that money to start investing in real estate. And from, and, and I did inside sales for about seven years where I finally, um, uh, like what I, what I’d started by investing in real estate. And then I’d kind of transition from a W2 employee to become a realtor and then eventually to become the, what I always wanted to do to be an entrepreneur like my dad, by starting off my real estate syndication business.

Patrick (02:53)
Okay. So what was it, when you were working at loop net costar that started to get you into the mindset of, of wanting to invest in general?

Jim Lee (03:04)
I think just having the luxury of being able to talk to real estate investors, you know, property managers, lenders, you know, all kinds of insurance brokers, just all, you know, all these different pieces of the puzzle of what you need, essentially the team that you need to acquire to be able to manage your, real estate portfolio. And so, just by talking to these people on a daily basis, you can kind of understand that, okay, so this is how the rich get richer, is by using their money to make more money. And you see that everywhere on social media that nowadays it’s like, why would I spend money to buy material when I can spend money to buy asset that makes money for me to buy material? So the concept is easy, it’s always been there.

Um, it’s just a matter, you know, I just, I was just, like I said, fortunate enough to be able to work at a, at a co-star to be able to learn from that.

Noelle (04:10)
I love that. And I feel like networking is one of those things that so many people talk about, but so many people won’t put the effort into. But I love that you have the experience with where you are working to be able to have that natural network component of it, to be able to talk to people that are already in the game and doing the game a little bit differently than you are as you were getting off to starting and letting you say, “Hey, I’ve got this big chunk of cash. Let’s go ahead and invest and…make sure that we can make some money too and build wealth for myself and not just watch all these people around me building that wealth.” So that’s really cool that you had that opportunity. I know for listeners, one of the things that we try to talk about is get out there and talk to people, talk to the people in those positions, whether it be lenders, brokers, investors, realtors, you know, to help with feeling confident in going and making that deal.

Jim Lee (05:00)
Yeah, yeah, absolutely. Everything, everything helped. You know, I had a, I had a great manager that taught me everything about sales. Cause you know, this is my first job out of college. So without any, any experience at all. So I definitely learned a lot from that job and I took away probably the most. And, uh, and, uh, and you know, I also worked my butt off. I, I put in 10 to 12 hours a day and, you know, sometimes I take my work home as well. So, that’s how serious I took it because, you know, just being, going through that recession, going through the hard times, you never want to go back to that place again, you know? And that’s something that I always search for, that fire. That just keep burning and just wants you to get up and just continue to push forward.

Patrick (05:50)
Yeah. So once you got that two bedroom, one bath condo, where did you go from there?

Jim Lee (05:56)
Um, so I got two beds and one bath after being laid off the second time, um, on my second job, that’s when I realized that, okay, you know, I can’t just depend on my W2 job. Um, I got to think of way to create passive income for myself. And that’s how I referred back to my, um, first job, which is real estate. And after I acquired this two bedroom, one bathroom, I started to seek other opportunities, other real estate opportunities. Cause now that you’ve done one deal, you’re kind of hooked to it, right? You’re like, okay, I can do this. I can add more to it. And so I got, uh, made a decision, got my real estate license thinking that it would be easy for me to find my own deal, but it’s not that easy. It’s like what Noelle was mentioning earlier. It’s all about networking. It’s all about building relationships. So it’s all about who you know, and who trusts you, who thinks that you have the ability to close for them, right? Because essentially it’s all, you gotta think of way to mutually benefit each other for the relationship to work, right? So, yeah, so, and that was also a learning process for me. Being a realtor, I tried to make a career out of it, but it just wasn’t a good fit, and that’s why I transitioned to become a real estate syndicator.

Patrick (07:18)
Yeah. And I think the mutually beneficial component that you just mentioned is very important. And I will also mention that you definitely practice what you preach because when I reached out to you about being a guest on the show, your first response was, “Well, if it’s helpful for you and it’s helpful for me, like, let’s do it. There’s no reason not to, you know?” And so I think, you know, finding those win-win situations is definitely a great way to navigate life in general. So thank you for practicing what you preach there.

Jim Lee (07:47)
Yeah, yeah, absolutely. I, I’m a big fan of, um, what is it? Uh, Rich Dad Poor Dad you know, that’s the, that’s, that’s the one book that changed my mindset from savers mentality to kind of the investor mentality. And on his show— I used to listen to them, though like five years ago— on his show, he used to talk about that practice what you preach and follow those people that practice what they preach and don’t follow the fake gurus out there. So, that’s something that I still hold to my heart to this day.

Patrick (08:17)
Yeah. And can you talk a little bit more about that savers mentality that you used to have and where that came from and how that impacted the earlier part of your journey?

Jim Lee (08:26)
Yeah, absolutely. So I grew up in an Asian household. I was born and raised in Taiwan. And I came here when I was 11 years old as an immigrant. And so everything that was taught by my parents, it’s in Asian culture, debt is slavery, cash is freedom, that’s how we think. And so, you know, we work very hard to save pretty much every dollar that we, you know, we can save possibly.

And it’s a good mindset to have, but it’s kind of like, you know, it can work for you, but it can also work against you, right? And that’s something that I didn’t realize growing up because it’s just what my parents kind of instilled the belief in me. And so I thought this is the right way. This is the only way to do things. And then eventually, you know, as I started to educate myself, just like all of us, through reading books, podcasts, networking, just constant learning about “How can I make things better?” Shortly after I bought my two bedroom, one bathroom condo. That’s when I picked up the Rich That Poor Dad, wanted to educate myself. Because I realized how much I didn’t know about real estate after you actually take action and acquire your first building. And having to deal with tenant toilet trash, right? So you wanna just make it as easy as possible for yourself. So you educate yourself. And so that’s when I realized, okay, I’ve been doing this all wrong this whole time, because my first deal, it was, I paid everything in cash. I thought that was the only way to buy property. And I saved up like for…years and years of savings to be able to do that. And then I realized, oh, you know, you got to use debt, you know, it’s the best, it’s your best leverage, you know, so, it’s just a little bit of education.

Noelle (10:28)
Yeah, but I love what you said there because there’s two components of that. There’s the component of, you know, how you’re raised and having a certain mindset, you know, and trusting those, like you trust your family. You want to listen to your family. And then also going into real estate and just trusting what the box says that you should do. But I think what you said is important, like educate yourself and start to look outside that box, start to think about the other alternatives and the other things that could help you and advance you where you want to go. I mean, you said it yourself. You’re like, I don’t want to be working or relying on this W-2. I need to find another way to do that. And part of that was taking action. And you learned from that first deal of, “Okay, so maybe I didn’t use debt in a very smart way, could have done that better.” But when we think about practicing what you preach and looking where you’re at now, like you’re not relying on your W-2. You’ve learned from those. You’ve educated yourself and now have plenty of other deals. And I know we’ll want to get into talking about maybe one that you have like a latest deal that you want to talk about and kind of dive into a little bit. But I want to stress that because I, Patrick and I especially are finding as we are opening up our networks and as we are talking to people about these like, “What do you mean I don’t have to put 20% down?” “What do you mean I don’t have to do X, Y or Z?” And this is more people that are coming from a residential side of doing house hacking. But

I think it goes so far of like, look into all of the potentials and it’s going to take a little time to read the books, to look up the articles, to listen to the podcasts, but you’re going to be so much better for it. And you’ll be so much better for learning from people like you, Jim, and learning from people who are spreading that knowledge and talking about all of these different ways to go about taking the same actions.

Jim Lee (12:13)
Yeah, absolutely. Well said. I mean, just I think in general, I think there’s no, there’s no, I wouldn’t say, I don’t think there’s a, like a right answer to everything. I mean, we all are in, in our own little path. They’re all journeys getting to where we want to be at, and the journey is all going to be different because we’re all going to experience something different, right? So, um, I can only speak of from my experience.

I can’t speak for everyone else, but I think that’s what makes you unique. That’s what makes all of our lives unique, right? In our own way, we can share our story and still be able to reach the same conclusion, same destination. So I like that a lot. And going back to what you said, I think looking at things in different angles always helps. We can’t be too biased sometimes. That’s my opinion.

Patrick (13:07)
Yeah. Now back to your story, you know, picking up on the timeline here, you’ve got the two bedroom, one bath condo. You’re starting to look at more real estate deals. Did you invest more in residential or did you start to make the shift to commercial shortly after that? And what, what made you make that pivot?

Jim Lee (13:29)
So, um, my mindset was stuck on residential for the longest time. Uh, cause I didn’t think that doing commercial was possible, um, by myself. And that was the wrong mindset, right? By myself, because I didn’t know that, um, in the commercial world, especially in the hundred unit plus buildings, it’s always through partnerships. It’s always through a team collected effort.

Very rarely will you see someone that just outright buys the whole building on their own. Unless you’re like Bill Gates or someone, you know, if you have that kind of capital, but typically it’s owned by, you know, multiple partners, and that’s something that I had to learn. And I think that’s how I transitioned from being from residential to commercial is that, again, it’s just constant education right?

In 2020 during lockdown, I couldn’t do anything as a realtor. So I started to educate myself about other ways of making money through real estate. And that’s how I came across syndication. And they said that in syndication, it doesn’t make sense to syndicate you know, something that’s like four units or, you know, maybe five to 50 units. But if you’re, if you’re thinking big enough, then it makes sense because you can bring investors on board, you can bring other partners on board and everybody can have a little piece, of that big overall pie if, uh, this property is being managed, uh, well, you know, so, so that’s how I, I started to think everything was possible once I discovered syndication.

Patrick (15:03)
Yeah. But that’s still a pretty big leap, you know, to go from the residential world to the commercial world, especially straight into buildings that are over a hundred units. What were some of the mindset hurdles you experienced personally as you started to make that transition?

Jim Lee (15:20)
The biggest mindset I had to overcome was that, um, I can’t tell, I don’t know if you guys can tell, but I’m like, I’m a big introvert. If I, if I, um, if I can just stay home and not go out and face it and meet people, I, I would not, this is, it’s not something I like to do, but that’s something that’s, that was the biggest hurdle for me, right? Because being a realtor, how can you say that? Like, how can you tell yourself that you don’t like to meet people, because that’s your bread and butter of your business, right? And when I became a syndicator, I realized how much more of that I need to do, even more than being a realtor. So the biggest mindset shift that I had to do, I had to go through the struggle during the pandemic was really get out of my comfort zone. Like once I started educating myself about syndication, the next step was to go out and put myself out there and continue to learn from other syndicators.

How can I do that by just staying home. I gotta put myself out there, go out, travel, network, join mastermind groups, volunteer for real estate meetup clubs. So that’s basically what I’ve been doing, you know, to try to get myself out of the groove and trying to get comfortable doing it. And then everything is just, you’re like trying to progress and trying to build on top of what you’ve already achieved. Right? So…

I’m doing all this stuff to kind of practice for myself to eventually start my own podcast show just like you guys. And then also start my own local real estate meetup club where as I can host and have a guest speaker come over to my community. So it’s all just like little stepping stones to reach your, you know, your dream, your end goal.

Patrick (17:04)
Yeah, that’s well said and a very intelligent path forward and framework to put around all of that. As you started looking at your first steps into syndication, you just mentioned a slew of actions that you took and that you’ve been taking, but you founded Formosa Investing. Can you give us a background of how that came to be?

Jim Lee (17:29)
Yeah, sure. So during my two years of being a syndicator,

I basically spent about a year just constantly putting myself out there and eventually met my business partner. And then we decided to, uh, do a deal together and we did it a year later. So, that’s why it took me two years to finally syndicate my very first deal. As an entrepreneur, you either stay stagnant or you take action. All these little things, the little actions I’m taking.

It’s not getting the results I want yet, but, um, it is working towards something that we realized that, okay, we need to be building our own brand awareness, individually first. And then once we reach a certain level, then we can, you know, merge. Cause we’re, we’re looking at other businesses who are like, you know, three to five years ahead of us, what are they doing and how do they get there? You kind of just analyze, because my business partner were like very analytical people. So I think that’s where we kind of decide that, yeah, okay, it would make sense to just build a brand. And I created Formosa as my brand, because Formosa, it’s like a nickname for Taiwan. Back in 1600 Portuguese discovered Taiwan They just call it Formosa because it’s the beautiful island. So that’s how I came across that name. Oh, thanks. Yeah, it’s nice. It’s something that we’re Taiwanese are very proud of. When you mentioned the word Formosa, we’re like, yeah, that’s Taiwan.

Noelle (18:54)
I love that background. That’s awesome. Well, and I think something else you said is important. We, depending on your bubble, if you’re on social media and what your phone’s picking up and serving you with, I feel like so many people get started with these overnight success stories. And I think what you said there is important. It takes patience and it took two years for you to be able to find a partner, get the right deal. But, you are still taking action. Like even though it’s not the immediate gratification in doing a deal every month for the whole year, like five deals a year, or five deals a month, I mean, like you are still making progress towards that goal, even if it’s a little bit slower in your mind than you would like to. But I think it’s still important because the analytical side, Patrick can attest to this, I’m very much the like, let’s go go, and Patrick’s like, let’s sit down and let’s like analyze things and make sure this is right. You know, and there’s obviously a good balance to that, but it is, it’s important to find the right person, A, so taking the time to find your partner is very important. And then you wanna make sure that you are thinking about that deal, especially getting over the hurdle of that, oh my gosh, I’m taking a huge jump. What is this going to do? How are we going to make this work?

So I really appreciate that you said that, and I appreciate that you put value in the analytical piece too, because I do think it’s important. And sure, at some point in your journey, because like you said, everyone’s journey is a little different, things might speed up, but it’s okay if they’re not full speed ahead right now all the time.

Jim Lee (20:43)
Right. And that’s something that I have to remind myself, like, almost every day, or maybe every week, that be grateful and be proud of the progress you’ve made, you know, and then give yourself some time, you know, don’t like, put too much pressure, you know, and stress on yourself for no reason, you know.

Noelle (21:01)
Yeah.

Yeah. When we do our annual goals, we like to start off with looking at the successes from the previous year, even the small things like, you know, we kept our daughter alive. Hooray. Like that was a success. But because you’re right, it is important. Count those successes because, you know, you would use the word fuel and fire earlier. It’s like that helps set the stage for that fire, for that fuel, for that motivation. If you can count all these successes, even small ones, it’s going to help you keep going because that’s the content you’re giving yourself is.

Patrick (21:05)
Yeah.

Jim Lee (21:16)
Yeah.

Noelle (21:34)
I’m making progress, I’m making successes, and I can keep this going. Not to take us on a tangent from your story, but I just, I really like these tidbits that you have as a part of your journey as well, because I think it resonates really well for Patrick and I individually, and I think it resonates for the people that are hopefully listening and getting value out of this right now as well.

Jim Lee (21:38)
Yep.

Yeah, absolutely.

Patrick (21:55)
Yeah, so you found your you formed Formosa, you spent a while looking for the first deal… What did that first deal look like?

Jim Lee (22:07)
It’s a 200 unit apartment building in Orlando, Florida. It’s residing in a Class A neighborhood. It has like convenient shops, it has Chick-fil-A down the street, it has a mall, it’s a good school district, but it’s a building built in 1970, so it’s a Class C building. It has a lot of deferred maintenance.

Yeah. And when we took over the project, there’s a couple hundred work order back, backed up work order that we had to fix. So it was definitely something that we didn’t, a lot of things that we didn’t foresee coming, but that’s part of about owning and managing real estate, right? There’s always problems.

Patrick (22:50)
Always, Yeah. If you expect otherwise, you’re setting yourself up for disappointment for sure. Well, that’s great. That’s a hefty size building to get into for the first deal. What did the capital raise look like for that one in particular?

Jim Lee (22:53)
Yeah.

Yeah.

So it’s a $50 million deal, including CapEx renovation costs. And so out of 50 million, 30 million was loan, and then 10 million was private equity, and then we had to raise 10 million from retail investors.

Patrick (23:27)
And what was your process for going about the retail investor side of that?

Jim Lee (23:34)
So for me, since it’s my first deal, no experience, really tough, tough. And they always say like doing your first deal is going to be the most challenging. Well, tell me about it because when we closed this deal, it was July of 2022. I don’t know if you guys recall, but that’s when the market shift. It was between April and July. Yeah, that was when the interest rates started going crazy on us. So. a very, very tough time to raise money. So the only people that really contributed towards my raise was my family and my best friend. And I’m pretty proud of it because, it’s my first deal. And even though, just the people that, I would say they trust me more than they trust the deal. They just trust me because, I’ve been, they know me, they know what kind of person I am. I’ve raised $200,000 for that deal, for the first deal. And I’m learning a lot. It’s just behind the scenes, asset management, and then be able to manage the property managers who is managing 200 units. So there’s a lot of moving pieces behind the scenes. So it’s a great deal.

Patrick (24:51)
Yeah, I’m sure that Noelle has a few questions about the operations perspective of that deal in particular.

Noelle (24:59)
I mean, 200 units is a lot. Obviously, not something that you want to be managing. You want to hire professionals to manage. How did you figure out who the best property management company was? Was that already a part of the purchase or is that something that you went out and had to find who the best partner would be for that?

Jim Lee (24:59)
Mm-hmm.

Right.

So, you know, we thought just, you know, like everything was linear. Obviously it doesn’t, business always don’t always play out that way. So we just thought, okay, um, we’re going to hire the best of the best, right? You know, Res Prop I don’t know if you guys ever heard of them, of them, but they manage, they have over two or $3 billion of, uh, commercial real estate asset under management. So they’re pretty huge nationwide.

Unfortunately, we made a mistake because they got on board and they spent, I believe, a little bit less than half a year. They still had all these hundreds of work orders backed up. And we realized the real issues, why things are not moving along the way we want it to move is because they don’t have any local presence in Orlando. They sure they might be one of the biggest national property management out there. But you gotta make sure that they have local presence in the area that you’re serving, right? They had a branch in Miami, but the people from there are not gonna come to Orlando to help us out. So we switch property management company. And that was a risk we didn’t see coming, you know?

We just thought that hiring one of the biggest would serve us but no, it was not that easy.

Noelle (26:41)
Well, like you said, nothing is ever easy in your first deal, right? Um, but that’s a lot. I mean, transition period wise, was there any other big hurdles that, um, you ran into for property management in particular with making that transition from a large national firm to one that was, I assume still large, but locally based. And again, that’s a great piece of advice. Like if you don’t have a maintenance staff, a cleaning staff, people that are.

Jim Lee (26:45)
Yeah.

Thank you.

Noelle (27:08)
local that are able to make it to the property within the 24 hours that I would assume in a Class A neighborhood people expect to be taken care of, you know, in their residence. What was that? What was that like in transitioning?

Jim Lee (27:22)
Yeah, yeah, absolutely. So when you say transition from the old owner to us, right? The new owners, okay, so yeah. So the biggest breakdown would just be what I was telling you about is that when we took over the project, we did not foresee this coming. We didn’t think that, okay, there are literally 300 work orders backed up. Apparently like the property management company that used to service this building for the previous owner,

they didn’t give us any of this information and they literally just terminated their work, like I believe seven weeks before taking new ownership. So they just left everything behind. The seller wasn’t, I guess like the seller didn’t have good relationship with this property management company. That’s why the deal wasn’t performing optimally, right? Because the seller,

He’s out there. They’re also from California. So they’re managing it away kind of from out of state. Whereas within our team, we have local presence. We have investors. We have one of our general partners lives in Orlando, Florida. So we have boots on the ground, so to speak. And that’s very important, right? It’s always, if you’re going to invest out of state you got to make sure you got to have a good team, people you can trust, boots on the ground to kind of help you out with that type of stuff. So 300 backed up work orders, and then we found out later that a property management company wasn’t doing much about it. And that’s when we started to realize, okay, we need to switch this property management company because we need to get the occupancy rate up because when we took over,

Occupancy was at 92, 93%. Upon taking over, it dropped to 84, 85%. So typically, once you switch owners, tenants tend to leave, eventually it dropped down to 74% because of all those backed up work orders, backed up maintenance, backed up all this, you know, just a lot of things and people started to leave and so Yeah, so there was a big challenge entering into this deal Yeah, but we were but our asset management team our GP team have done such a wonderful job that they went from 74% Occupancy to 98% now. So we’re doing

Noelle (29:27)
Hmm.

Yeah.

Jim Lee (29:47)
We’re doing things to the best of our ability.

Noelle (29:52)
That’s a great occupancy on 200 unit building. And I mean, that just goes to show too, you don’t know what you don’t know and due diligence goes so far. You can ask so many questions, but if you don’t know to ask for something like, like who would have ever thought to ask for something like that in your first deal if you’ve never had to worry about that before? So, oh my gosh, that’s tough. I can’t imagine being in that position. I hope to imagine that one day, but I can empathize and sympathize.

Jim Lee (30:12)
Thank you.

Noelle (30:21)
with that and going through that in the moment.

Jim Lee (30:24)
Yeah, I think a lot of us just got excited, right? Like how did seven or eight GP of us miss that? You know, like the more people you have, the less risk you should have. Technically, you should be able to mitigate more risk. But I guess we’re all just excited. Yeah, we’re gonna get this to the finish line during economic downturn. So that’s where we’re like more focused on. And then the problem started to occur.

Patrick (30:52)
Yeah, yeah.

Noelle (30:52)
Yeah. Well, and sometimes when you have so many partners too, I experienced this in my W-2 job, it’s you think someone else is thinking about it.

Right, and I’m sure you guys had very diligent paths of who was doing what, but there are some things that are inherently going to get missed or not thought about in terms of who’s checking on what or it’s a, okay, well, surely someone else has thought about that. I know exactly what to think about. So hear you there. But things get missed. That’s life. And that’s part of the learning process.

Jim Lee (31:01)
Right, right.

Mm-hmm.

Patrick (31:26)
Yeah, and glad that you were able to work that out and definitely stabilize the property. Moving forward then, I know that you’ve been doing a handful of deals since then, but you mentioned one at the beginning of our call that you’re particularly excited about that’s a little bit unique. So, we would love to dive into that and hear what you have in the pipeline right now.

Jim Lee (31:50)
Yeah, so this is a perfect transition because the new deal that I’m raising money for is actually the deal I just told you. So that’s what makes this story unique. Would you like me to explain a little bit for your audience or…just go right into my deal. Okay. So typically in a real estate syndication, it’s basically where investors pull money together to buy one commercial property. And then the profits, the rental income generates, gets split amongst other investors. It’s like a win-win for the syndicator, the operator and the investors. So typically in these, um, Class C apartment building that we go in, we purchase, we add value.

Patrick (32:05)
Please do. Yeah.

Jim Lee (32:30)
We project five year hold period. And what that means is that after five years, we sell the property, we can 2X your money back. Now let’s use a easy number as an example. If you invest a hundred thousand, you can expect 200,000 back once we sell the property. Now on top of that, every year you can also expect 8% preferred return, which means that every year, if you invest a hundred thousand, you can get 8,000 of passive income to you.

And so that’s the benefit, right? Like that’s the type of return you can see from this type of deal. Now for our deal, we closed this July of 2022. So it’s been almost two years since then. And let’s just say the first year you’re owed 8% of your $100,000 and we don’t end up making distribution to you as an investor. Well, what that means is that preferred return it gets accumulated to the following year. So if we only pay you 1% the first year, we owe you 15% in the following year and then so forth. It does accumulate and when…

When you do get paid out your preferred return, that’s when whenever we have a capital liquidity event, such as cash out refi or selling the property, right? So that’s typically how it works. Now if you are on a variable interest rate right now, you’re getting crushed. And that’s what’s happening in the syndication world. A lot of us, we tend to like to use what’s called bridge loan. So bridge loan is where you bridge the gap, you pay interest only typically, and then it’s only good for three years. Reason why we love to use this product as a syndicator is because we can, you know, use up all the cash to renovate the apartment, to add value to the apartment.

Right. And that also explains why our current investors for this deal have not received their distribution, even though it’s been two years, because we’ve been just using the first year, second year’s cashflow to renovate our building, which is already 90% renovated. 180 units, 185 units out of 200 units have been renovated and rents have already been to market value.

Um, we’ve re increased our net operating income since taking over a project from $70,000 to $200,000. So the deal is performing optimally and even so we still had a capital call. Now, for those that don’t know what a capital call is, it’s basically: Deal is not doing too well due to whether it’s not being managed well, or whether it’s market condition in our situation is just market condition. That the interest rate has gone through the roof for us, but also insurance costs have gone through the roof because we’re in Orlando, Florida, where there’s hurricanes and stuff like that. And so even because of all these rising costs, it’s put us upside down, we’re in negative cashflow, even when our deal is performing optimally. So that’s the deal that I’m pushing out because I’m in the works of talking to my lease sponsor.

Um, we had a capital call. We were successful with our capital call, but we needed $2 million, but we were short by, I don’t know, $400,000, $500,000, I think. But that is good enough for us to be able to refi our current debt, which is variable interest rate into a fixed rate loan. And so that’s why we need the capital for.

And I was talking to the lead sponsor and he wants me to just push this out and see if any of my new investors would be interested in this type of deal. And I said, “Wait a second, are you telling me that they’re able to just, you know, invest and have the same basis as the, the first group of investors that they would get the same benefit?” And he’s telling me, yes, it might be a slightly different, but yes, because

You know, this is a, it’s a very unique deal because you get to invest, you get to come in when we’ve already mitigated a bunch of risk for you, you know, whether it’s through switching property management company, changing from variable debt to into fixed rate debt, um, just all the stuff that we’re, we’re going through. So, um, yeah, so that’s what I’m raising my capital for, for this deal. And, my lead number of sponsor was telling me that, you know, the more capital that we have to get this to the finish line, the better, you know, just, just for safety measure. And so we just need to see this deal to 2025 and we should be good.

Patrick (37:13)
Yeah, well, thank you for sharing all of that because I think this is the type of information and detail that’s often not necessarily publicized, but it’s really important for syndicators and investors to be aware of because, you know, the more you can learn about scenarios like this, the more you can prepare for them in the future. So to quickly recap, you purchased this for, it was a $50 million deal, originally, correct?

Jim Lee (37:40)
Yeah.

Patrick (37:41)
And you said that the initial NOI was about $70,000. And then you have since done renovations on the vast majority of the units, which has bumped up the NOI to, $200,000. Okay. So $70,000 to $200,000. Thanks for correcting me there. And for newer investors, that’s important to note because the value of the property

Jim Lee (37:52)
200.

Patrick (38:04)
is primarily based on the NOI. So by increasing the NOI, by more than doubling it in a short period of time, Jim and his team have drastically improved and increased the value of the property overall. So that is phenomenal. And then what Jim was saying is that some of the debt in the debt stack was variable rate, which comes with some risk.

And then there were some unexpected costs that arose from things like insurance and being in a more extreme weather area that were not necessarily expected. And I know there have been a lot of headlines recently, especially around Florida and just insurance rates across the board rising rapidly there. So that’s just an example of something that you might not be able to predict until it’s standing right in front of you and you have to address it. So now you’re going out and you’re raising some additional capital to be able to refinance all of the debt into a more manageable fixed rate. Is that correct?

Jim Lee (39:14)
Correct.

Patrick (39:16)
Wonderful. And the newer investors, I think this is also pretty neat, the newer investors are walking into a more stabilized asset with less risk in the grand scheme of things for a similar return as those early investors.

Jim Lee (39:30)
I believe in this deal and I love the team. I love what we’re doing. And so this is something that I am excited to tell people about it because I feel like I have my own money in this. So does my parents, like I mentioned earlier in this episode, right?

We put in, I put in 75, my parents put in 75. And then during capital call, we also put in another 50. So total we have 200, both my family and I. And so, you know, we are a big believer in this deal. I’m pretty much like basically just telling my investors, whoever wants to join, let’s make some money together. Because this is how much I believe in this deal, you know? Of course, there could still be risk. Any investment, there’s risk, right? But, you know.

Well, I’m pretty transparent about everything we talked about, you know, all the risk, all the all those challenges, all the things that we had to fix to get to where we’re at today. And that’s why I can speak confidently and about the deal.

Patrick (40:33)
Yeah. Well, and thank you for being so transparent about it because I think there are a lot of great lessons to take away here. And I love the perseverance of you and your team to continue to see it through and take the challenges head on and continue to look for a successful exit. So thank you so much for sharing that.

Jim Lee (40:51)
Yeah, yeah, it’s unique because my lead sponsor, he’s been in this business for 20 to 30 years. He, back in 2008, he scooped up 200 homes. Yeah. and he realized how it’s not scalable. And so he is transitioning to multifamily syndication. And, you know, and then he’s surrounded by very, very successful people. This team, you know, they’re all very, very smart. They’ve all been in the game for a very long time. And so I always try to think about like, even though I’m just a little small fish in a pond, how can I contribute to this team? You know?

And this is the only thing I can work on, right? Because when they first put out this deal, they’ve already raised all the capital from the passive investors. Now that they’re going through capital call, they’re definitely not going to be putting even more money. So that’s just the reality of it. And so with me, with the position I’m in, I’m just trying to figure out how can I continue to add value to the team. And so since I have new investors, since I’m…brand new starting out, this is an opportunity I see for myself and for my investors.

Patrick (42:03)
And that’s a great way to look at it is where, can you add the value and how does that end up being something that’s mutually beneficial for all parties involved? So thanks for sharing that mental framework and outlook because I think it’s incredibly helpful and very important.

Jim Lee (42:15)
Mm-hmm.

Patrick (42:19)
Well, Jim, thank you so much for taking the time to meet with us today. Any parting words that you would have for investors who are either brand new or have some experience in the residential space, but are looking to transition into the commercial space?

Jim Lee (42:39)
I think my number one tip to new people starting out is really know what you wanna get yourself into. First of all, figure out what interests you. What are you passionate about? Are you passionate about whether it’s just having a certain amount of residential and just be okay with…

a certain amount of passive income. I think that’s the first thing, right? You got to figure out what is your end goal. Like how big, like how much passive income do you want? How many houses do you want to manage? Do you want to manage a team? Do you want, you know, you kind of have to figure it all this out, like the biggest, you know, my end goal is, let’s just say my end goal is 10,000 units, right? Well, how do I get to 10,000 units? I’m not going to be acquiring four units one at a time. That’s gonna take me forever.

You start with your goal and then you figure out as you go along to reach that goal. So I think that’s the very most important. If you want to get into residential for what? For Airbnb or is it for assisted living or is it for something else? You want to get into commercial, you want retail, industrial. So you got to be very, you got to figure out what is it you want, right? And then you start from there and then you continue, you start to educate yourself, start to go to meetups.

Then you’ll start, you’re going to start to see people that can help you reach your goal, right? By putting yourself out there. That’s how I’ve been, I’ve always been just working, like just continue to take these little small actions. Cause at the end of the day, I know that real estate takes time, right? It takes a lot of patience, a lot of work, but if you grind it out, good things are going to happen to you.

Patrick (44:30)
Yeah, wonderful. Well, thank you again. And really quickly, where can people learn more about you if they want to connect?

Jim Lee (44:38)
They can visit my website formosainvesting.com and they can also connect with me on social media Twitter Instagram Facebook LinkedIn at Formosa investing

Patrick (44:52)
Yeah. And we will be sure to include all of those links in the show notes. So, reach out to Jim, if you’ve got any questions, or if you just want to connect and even participate in the deal that he’s working on. Um, but Jim, thanks again. It’s been a pleasure having you and, uh, best of luck with the rest of this, deal raise.

Jim Lee (45:08)
Thank you. Thanks for having me, Patrick.