Conventional vs. Non-Conventional Investments
On this episode of Next Level American Dream, Abigail and Sean are joined by Shawn Winslow. Shawn is a financial advisor turned multifamily syndicator. He gives us his take on how conventional investments, like stocks, bonds, and mutual funds compares to nonconventional investments, like real estate.
Key Topics
What are alternative investment solutions
What are alternative investment securities
How to value alternative investments
Why use alternative investments
Why should you invest in alternative investments
Connect with Shawn:
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SUMMARY KEYWORDS
Multifamily, people, investors, investing, real estate, portfolio, investment, Shawn, stocks, depreciation, S&P, capital, conventional, provide, cash flow, return, stock market, diversify, lost, correlation
SPEAKERS
Sean Thomson, Abigail Thomson, Shawn Winslow
Abigail Thomson 00:00
Welcome to The Next Level American Dream Podcast brought to you by Thomson Multifamily Group. Your hosts, Abigail and Sean, will discuss how you can take your American Dream to the next level through real estate investing, business practices, and personal development. Join us as we share our experiences as a father daughter duo who are trying to accomplish our goal of financial freedom. We hope you learn more about how to define and achieve your American Dream. Here's another episode of Next Level American Dream. On today's episode of Next Level American Dream, we will be discussing conventional investments such as stocks, bonds, and mutual funds in comparison to alternative investments like real estate and more specifically multifamily. To give us more insight on this topic, we will be joined by friend of ours Shawn Winslow. Shawn is the Founder and Managing Partner of Greenberg Capital Group. He has an aptitude for investing in multifamily apartments, providing his clients with significant passive income and generational wealth creation. His passion is helping his investors achieve financial freedom by reducing their dependency on conventional income and investments such as stocks, bonds, and 401k plans so they can pursue their own dreams. In addition to pursuing attractive risk adjusted returns for his investors, Shawn strives to enhance the life of every tenant, team member, and individual that comes into contact with Greenbrier and its partners. Prior to founding Greenbrier Capital Group, Shawn worked with one of the top 10 largest investment firms in the world. Through his passion for helping others pursue their own financial goals, he was able to bring in over $1.5 billion in assets. This is all to say that he has had hands on experience in both realms of financial investing. We are excited to tap into his knowledge and share it with you.
Sean Thomson 02:01
Hi, Shawn, how are you doing?
Shawn Winslow 02:02
I'm great, thanks! Thank you guys for having me. It's an honor to be on.
Sean Thomson 02:06
Yeah, thanks for being on the show! We appreciate it. You've come from, as everybody heard in the introduction, a financial background, working with one of the top 10 financial institutions in the country. You brought in about $1.5 billion in business for them. What was the transition from that background into what you're doing now? How did that work out?
Shawn Winslow 02:31
Yeah, so I got out of college and I started at the previous firm, I worked for, the financial services industry, where we provided products such as ETFs, mutual funds, and smart data to our clients who would then turn around and provide them to their investors to grow their nest egg. So, I got into the business to help others build that nest egg so they can live a comfortable and dignified retirement in life. I thought that's what I was doing for a while and then finally, I saw the light. These products, they're not cost effective, they're not tax efficient, and have a lot of hidden fees. The volatility essentially erodes your portfolio. So I saw the light, and I decided to make the change. I always knew that real estate would be my end game. I think maybe from some limited mindset that I just kept pushing that off thinking like, "oh, I need to get more experience, I need to learn more, and I need capital to do this." Eventually, I just saw the light and realized, no, I can do this. Now other people are doing this. I, then, quit my job and went headfirst into the Multifamily game.
Sean Thomson 03:44
So, you saw that the conventional Wall Street financial instruments were rigged in favor of the house, not necessarily for the customers they were serving? Right? Is that kind of what you were thinking?
Shawn Winslow 03:59
Yes! It's like a casino, essentially a legalized casino in every state. They're out for themselves. There are hidden fees that no one would really know about unless you really dig in. Sometimes even when you dig, you can't find where these speeds are going, you know, there's revenue sharing with firms, essentially, that's like pay to play pairs. The fees just trickle down the lines and gets them. It's just eroding at your return. On top of that, you have no say even though they say when you buy a stock, you have ownership, but you don't have any say unless you're a big institution. That's a whole different game. There's only 5% of that stock. But like I said, that's a whole different game. So yeah, I just knew it's not the place where everyone should put all the capital. Don't get me wrong, I'm not here to say you shouldn't be in there, but you need to diversify into alternative assets.
Sean Thomson 04:52
Well, there's a whole world of non-conventional investments that people can make that just don't get the airtime or the play that you get from the stocks, bonds, mutual funds, and the traditional stuff. That's the space you're in now that you've decided to go into multifamily investing. Tell me why that was the direction you chose? Or why is that the vehicle that you think is most suited for what you're trying to achieve?
Shawn Winslow 05:22
Yes. So, when I knew I needed to make a change, when I knew what I was doing wasn't the best solution for people, I started to do research. I knew in the back of my mind that real estate was always there, like I said earlier, but I wanted to see what successful people were putting their money into, and what their plan for retirement was. I looked at both successful people that I knew, and people I didn't know. The majority of the time it came down to the fact that these people were building a real estate portfolio on the side, if that wasn't their main gig already. So, if they owned a company, or they were successful in some other profession, their side portfolio was real estate. They were basing that to be their retirement. For instance, my grandfather was a very successful businessman. He's also very successful in the stock market. I think he would be laughing or going over his grave now that I've given the stock market a hard time. At the end of the day, he always told me his retirement was his real estate portfolio. He kind of had had the same thinking, and that's such a common thing. When you're looking at successful people, they know the power of cashflow, appreciation, the taxman that comes along, so you can protect your hard-earned capital, while trying not to give it all away. The fact that tenants are paying down your mortgage on top of leverage, that's just really powerful to build legacy wealth that you can not only pass on your kids, but your grandchildren, and also give back to the community, which is very important to me.
Sean Thomson 06:53
Yeah, so it's an asset that gives you something tangible to hold on to. It gives you something you can leverage against, it gives you depreciation tax benefits, and a multitude of wealth building strategies that you just don't get from a conventional investment portfolio. In terms of wealth creation, real estate is an excellent tool. I guess that's what you think is the best path for you, right?
Shawn Winslow 07:22
Yeah, that's correct. If you look at stocks, you're essentially just on paper. At the end of the day, if everything goes bad, kind of like the situation we're in right now, what is that paper doing for you? Nothing. We currently pay our bills monthly. So, if we want to pay our bills, we have to sell stock. Then at a time like this, where you've lost 30%, 40%, or even 50% on an individual holding, and you are forced to sell, you just lost a lot of money. Whereas in real estate, it spins off cash flow, which you can pay your monthly bills with those cash flows. If you're operating correctly, you're not forced to sell. That's very powerful. You can weather the storm.
Sean Thomson 08:07
Just to give a side note here for our listeners, the time that Shawn is on the on the program with us, we're all in a shelter in place order from the government, and its local city government, and state governments. The stock market over the last 10 days, really 12 days, business days has lost a lot of ground. What is it? It's probably almost 50% now. So, they've recovered a little bit today. However, we're at about 40 to 50% losses right now in the in the Dow.
Shawn Winslow 08:35
I think the Dow is a little over 30. Yeah, you're right. It's clawed back. I think the last time I looked today was up four or four and a half percent.
Sean Thomson 08:44
Yeah, so the volatility in the markets right now. It's just, crazy. You know, I know we've lost a lot of net worth with my wife's portfolios. I don't have any stocks, bonds, mutual funds, and basically everything I do is in real estate. However, my wife is into those things. Her net worth just tanked. I keep laughing at her, you know, it's not really funny, but it's funny to me because my real estate is doing fine! Anyway, so that's kind of just a side note so that people have a frame of reference up to the time period that we're in. No one knows where the floor is or what's going to happen really next with the stocks. Tell me what you are doing now with your non-conventional investing. I guess you've also started your own business and you're working with people to facilitate their investments in non-conventional investments, right?
Shawn Winslow 09:34
Correct.
Sean Thomson 09:35
What is it that you're doing? What steps have you taken to do that? You're also looking at Multifamily deals, that kind of thing?
Shawn Winslow 09:44
Yeah, it's Multifamily. As you know, this is a game where you partner with a lot of people, whether that be other operators, brokers, or investors. My main focus has been to cultivate those relationships primarily on the investor side. I've been building out my investor pool, I was actually going to have an investor come up here. With the situation, that you referenced, it had to be put on hold. I've just been focusing on building those relationships to find the capital, and you have got to find the deal. So that's primarily what I've been focusing on.
Sean Thomson 10:21
Right. So you're really bringing an education to people that are looking for an alternative to conventional investing, and you're sort of putting that in front of people and saying, "hey, look, there's another way to do this, so that you can have a successful retirement", right? That's kind of the process you're going through now. Right?
Shawn Winslow 10:41
Correct. It's, really powerful to talk about it today, too. Think about it, if someone had just retired at the beginning of the year, or planned on retiring it sometime this year, they can't do that. Now, if they were planning on living off a 401k in an IRA, unfortunately, that's not going to happen. They're going to have to go back to work or find another way of cash flow, which is going back to work. So, it's a great time to share what we do with people and let them know. If they had some exposure to this asset class, they probably wouldn't have to go back to work because cash flow might get thin in the coming months. With what was just announced in terms of Freddie Mac, and some of the other agencies that are going to be forgiving some mortgages for a time, cash flow is pretty strong. We're also going to see opportunities in next month to acquire properties at a lesser value than we would have just two weeks ago. I think it's a very important time, though. Anybody who is a syndicator operator should be really hitting home these points to their investors.
Sean Thomson 11:56
So, if you're if your portfolio is primarily in stocks, bonds, and mutual funds -- those conventional tools -- you don't know when it's going to recover. You have no idea, and it's entirely out of your hands. It's up to the institutions that set those rules on Wall Street. I mean, it could be a year before you get any sort of traction in your portfolio. Again, with a multifamily property, it's going to be a blip with cash flow initially, you know, tenants may not be able to pay because they lost their job through this whole process, and those sorts of things. That stuff, once you work those things through, you can see a recovery timeline in your business, and an apartment building operates as a business. You can kind of predict based on who's paying you and who isn't paying you, right? Also, how long it's going to take you to recover from that. So, you can kind of see here, a horizon of recovery in a Multifamily type investment. Whereas with Wall Street, it's just whenever those guys get around to making things more valuable, right?
Shawn Winslow 12:52
Right. That company could close up shop or, you know, do it a number of things that you have no control over. It couldn't be admitted, the recovery could take a lot longer than in terms of the stock market. I don't know if you want to get into volatility, but if people don't realize yet, the market was up 30% last year, in 2019, which was great, everyone was happy. Now that the market is down 30% people don't realize how the power of volatility erodes your portfolio. If you want to get into that, I'd be happy to talk about that. It's something that I feel everyone should know.
Sean Thomson 13:33
Yeah, I mean, it seems like on Wall Street every 10 years or so, they make you a ton of money, and then they lose it all for you, right? So, if you're looking for long term investments, the stock market, to me, it's a little bit like gambling. So, if you bet on the right horse, you're going to win. If you don't, you don't have any control over it. So, in a non-traditional investment like we're working in, it works a little differently. You have some say, or some controlling, and how things are going to go. Talk to me a little bit about how the sort of the non-traditional investments that you're working with now, what is the structure? How is it? How is it beneficial to investors? How can people benefit from being involved in a non-traditional, like a Multifamily type deal? How are the structures of non-conventional investments going right now in your mind?
Shawn Winslow 14:35
Yeah, so the structure is a private placement -- "Reg D" under the securities law. We specifically do "506B's," which means we can have both accredited and sophisticated investors, which I think is important because you get to provide these investments in to people that you normally wouldn't be able to invest in real estate and I think that's powerful. The benefits did it. This asset class and investing this way is you actually investing in an asset, it's not a piece of paper, it's an actual asset that provides you not only cash flow, but forced appreciation because we can go in and we can add value to the property, whether that be on the exterior, or the interior, or raising rents, and we can force appreciation. On top of that, at the end of the day, you also get another powerful thing, which is depreciation. So, the way we structured deals is we give our investors 50% of depreciation, and through cost segregation analysis where we have engineers that go in and break down the entire structure. So, think about, you know, like your drywall, your carpeting, your wiring plumbing, they get that all of life, that you depreciate at a different rate. With the recent tax law, you get to do something called "bonus depreciation", we used to take that all up front. It's just very powerful. Last year, an investor who invested $100,000, in deals on average got $40,000 in depreciation, and that's so powerful. I know, there's investors out there that solely invest just to get that depreciation.
Sean Thomson 16:08
You can use a depreciation against other income too.
Shawn Winslow 16:10
Yeah, other passive income, correct.
Sean Thomson 16:12
Yeah, it's good for all your taxable income that you're reporting to the IRS for that year.
Shawn Winslow 16:16
Right. And if you don't have enough passive income, you can roll the remainder of that depreciation on to the next year in the next year.
Sean Thomson 16:25
So, tell me about what you have in terms of your company and what you're doing. You know, for us, a big part of what we do is when we start a company, or when we are doing any projects, we sort of look at what is our value proposition, you know, what are we what service or what are we providing, that is a value to our customers. With our residents, we try to provide them with excellent housing that they are proud to live in, and that they feel safe. With our investors, we're trying to provide them with safe investment vehicles that they don't have to worry about losing 40% overnight, like they do in the stock market, and that they can get good returns on reasonable returns. Those are our values, when we're looking at what we're doing. So, tell me how you approach your value proposition with your business and with your customers.
Shawn Winslow 17:15
Yeah, so for our investors, it's two things: return of investment, and return on investment. What I mean by that is that return of investment, which is our number one focus, is to protect your capital. We want to give that back to you in full, at all costs. So, we're very conservative underwriters and investors. Then, return on investment is we want to provide you a consistent return. So, consistent cash flow meant that mailbox money that you can rely on. And then in terms of our tenants and apartment communities, we're there to provide them a place that they're proud to call home. Part of our investment strategy is to find properties that have no deferred maintenance and management. We're looking to find places we can add value and provide a community where these people are proud to live, and where they feel safe to live. They want to stay with us for a while. It's a great feeling to be able to walk on a property and people are thanking you for improving the community. So those are kind of the value props from both an investor standpoint and a tenant standpoint.
Sean Thomson 18:31
Yeah, I think I'm convinced that if you provide residents with some place, they feel safe, and they'd love raising their family, that the rest of the business just sort of is smooth sailing from there. That's really kind of one of the things that drives me anyway, if you can do that one thing by providing the people that live in your communities with a really nice place to raise their families, I think the rest of this stuff is kind of easy. You know, it's just operations really at that point. I think that's the cornerstone of everything that we do. So, tell me, the value proposition, is that something that motivates and drives what you do and how you run your business?
Shawn Winslow 19:18
Yeah, definitely. Part of my company's mission, well, first and foremost, is to provide my investors fiduciary obligation to protect their capital, and also provide them a consistent return. On top of that, we want to give back to the community. We donate, we have a goal to donate 10% of our profits to local communities. Then also we want to take care of our apartment communities as well. So that definitely drives us and what we do every day.
Sean Thomson 19:47
Right, it gives you a vehicle to give back to local community as well, right? Yeah, we do the same thing. So we've talked a lot about investments. So, what is the one thing, Shawn, that you thought of when you were coming on the show that you want to make sure that everybody walked away with "the gold nugget," of our talk today? What do you think that would be?
Shawn Winslow 20:09
Yeah, it's actually twofold if you don't mind. People are talking about how the market you know, it's, falling off a cliff. There's this thinking of, " oh, buy, buy, buy, this is the time to buy." As Warren Buffett says, "be greedy when people are fearful and fearful when people are greedy." I do agree with that, but there's a caveat to that you shouldn't be putting all your eggs in one basket, which I think people forget about that. It seems like they forgot about that pretty quickly this time. So, you need to diversify a portfolio. And I know what financial advisors would like to say is you diversify through different stocks, different geographies, and different industries. If you look at risk metrics, when you do that, standard deviation is the big one. It doesn't change that much. The more you add, in that sense, sure, diversification isn't just an alternative investment, like we've been talking about. And the way you can look at that is through correlation. For your listeners that aren't familiar with correlation, it's very powerful tool that you should look at when you want to diversify. Simply, it is just a relationship between two variables and the degree in which they move in relation to one another. So, a correlation of one means that they move in tandem, and a correlation of negative one means that they move in opposite or premier directions. A correlation of zero means they are uncorrelated, and their movements are unrelated. So, you want to look at investment that's as close to zero as possible when you diversify. When we're looking at correlation between the S&P 500, Multifamily has a correlation of .13%. So that's fairly uncorrelated to the market. So, when you want to diversify, I feel that Multifamily is a phenomenal asset class to be in. Then the second thing I want your listeners to walk away with is kind of what I briefly mentioned earlier. That would be the power of volatility and how it erodes your portfolio. What I mean by that is if you had an investment on stocks, say the S&P 500 ETF, and dropped by 10%, it would take more than a 10% gain for you to get back to hole. That just erodes at your portfolio. So, for this podcast, I decided to take a look at the last, you know, 20 years, from 2000 to 2019. So, there's two portfolios here. One is an S&P 500, and then one is a portfolio that has the same return every year. One that is similar to what I'm sure you're giving your investors in Multifamily, you know, a preferred return that's consistent. So, if you look at these two portfolios, the S&P 500 returns, on average, 7.68% over the last twenty years from again, 2000 to 2019.
Sean Thomson 23:02
So, is that like an S&P index fund?
Shawn Winslow 23:06
Yeah, correct.
Sean Thomson 23:07
Are you accounting for manage fees in that? Or is that pre fees or at post fees?
Shawn Winslow 23:13
Assignment fees. So, if we wanted to enter that in your lap, it would be less.
Sean Thomson 23:17
So that's what I'm saying. What is it? You said 7.68?
Shawn Winslow 23:22
Yes. That's just the S&P 500. That's just the index.
Sean Thomson 23:26
Depending on who's managing that index fund for you, there could be additional fees on that.
Shawn Winslow 23:31
There wouldn't be, more than likely. If you're just looking at the S&P 500, say, in some amazing world, you're able to get into that without any fees. The average return is 7.68 over those 20 years. So, if you had a portfolio of Multifamily that also averaged 7.68 per year in return, and they invite an average, it literally gives you 7.68 every year. Whereas, the S&P 500 portfolio, it's up 10%, one year and down 20% in another. So, if you look at those two portfolios, you would think they would have the same dollar value amount at the end of those 20 years, wouldn't you?
Sean Thomson 24:12
Right? Yeah.
Shawn Winslow 24:13
Well, they don't, if you look at the S&P 500, at the end of 2019, if you'd invested a million dollars at the beginning of 2000, you would have $3.24 million. So, if that's too big of a value, if you invested, less than that, you know, 100,000 you'd be at around $324,000. Then if you look at the Multifamily at a million dollars, with a consistent return of 7.68% you would have $4.4 million. That's over $1.2 million in difference. It's crazy people don't realize this, but it's because it's the relationship of compounding interest and what happens when you take an average. It's just looking at the average of each number, not what happens in between. So that power of volatility, it just erodes your portfolio. I think that's something that people have to be very aware of.
Sean Thomson 25:19
Yeah, and the volatility really ruins your traction with real estate. I think maybe it's Grant Cardone, or some or somebody like that. It says, "it's not get rich quick, but it's get rich, for sure." Real Estate is just that consistent, it just kind of chugs along and does its thing. You don't have those big swings, you just don't have those big ups and downs, you know, the biggest problem you have with real estate in the marketplace, generally, is just the availability of debt or credit to buy more properties, really. For an investor, it's very consistent. People are always worried about losing money in the real estate market, but if you look like you just said, historically, it stays very, very consistent. Those are good points too, Shawn, for the listeners to kind of soak in. Tell me how can people get in touch with you? We'll be sure to put some links for Shawn down in the comments. Tell us where can people reach out to you and get in touch with you if they want to discuss any of this stuff?
Shawn Winslow 26:24
Yeah, so Greenbriar Capital Group is my company. And the website is greenbriarcg.com There's also a group on Facebook: Greenbriar Capital Group. You can find me on all the social medias. I also have a podcast as well called, "Millennial Millionaire," which has a website as well, millennialmillionairepodcast.com. You can find me on any of those, I'd love to chat.
Sean Thomson 26:58
So, people can also listen to get more information from you, as well as more knowledge on your Millennial Millionaire Podcast. Okay, great. That's wonderful! Well, thanks, Shawn. We really appreciate you coming on the show and sharing your knowledge with us, as well as giving everybody something to think about. This is an interesting time that we're in right now. It's going to change of course, and we'll get back to business as usual at some point, but it's fun to talk about. I'm glad you're able to come on and give us some insight. Appreciate it!
Shawn Winslow 27:26
Well, thank you for having me. I love what you guys are doing, and now you're going to do some great things in the coming years.
Sean Thomson 27:34
We hope so. We're trying!
Shawn Winslow 27:36
Thanks so much. All right have a good one!
Abigail Thomson 27:38
Thanks for joining us for another episode of Next Level American Dream. If you would like to learn more about what we talked about today, want to contact the team directly, or are interested in passively investing and being a part of our deal room, head over to our website at www.thomsonmultifamilygroup.com. Before you go, please leave a review! Your comments help us create more episodes for you to enjoy.