Working Capital The Real Estate Podcast
Investment Fund Secrets for Real Estate with Bridger Pennington|EP51
Apr 28, 2021
In This Episode
Bridger Pennington is the Founder of Bridge Black Holdings and an Investment Fund that has done 300 deals in the last over 3 years. Bridger runs Investment Fund Secrets, which helps others launch their own funds without Ivy League credentials or Wall Street experience.
In this episode we talked about:
- Bridger`s background.
- Challenges while raising money
- Syndication vs Private Equity
- Operating a real estate company
- How profits are distributed
- His YouTube Channel
- Fund Structures
- Investment Fund Secrets
Jesse(0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time.
Jesse (23s): My name is Jessica gala and you’re listening to working capital the real estate podcast as is the usual thing. Here we have a special guest on his name is Bridger Pennington. Bridger is the founder of black bridge holdings and an investment fund that has done over 300 deals in the last. I’ve just heard this. Now over three years, Bridger has started helping others launch their own funds through investment fund secrets, an online program to help people start investment funds without working on wall street or having an Ivy league degree. Bridger. How’s it going?
Speaker 0 (53s): Hey, well, good to be on. I’m excited to be here.
Jesse (57s): Awesome, man. Yeah, it’s great to have you on, I, I keep seeing your YouTube videos pop up in my feed and I’m like, who’s this guy I got to get him on.
Bridger (1m 4s): So sorry about that. So my guy he’s trying to get it. Yeah,
Jesse (1m 8s): It’s my guy. No, that’s great. I, I, what I liked about them and for those that don’t know, just, I mean, Google Bridger, you’ll probably it’ll probably come up or bridge your real estate. What I really liked about them is you kind of, you go into a little bit more detail than the average person, I think on private equity, real estate syndications, and the like, and I’m hoping that we can definitely talk, talk about all that today, but I guess first we do this with everybody. We kind of take a step back and ask our guests real estate.
How did you get into it? You know, what was that light bulb moment? If there was one for you to kick off that direction of your career?
Bridger (1m 47s): Yeah, that’s a good question. So I, I was like a lot of people and got to college was very ambitious. Wanted, you know, I was looking all these YouTube has aligned. I started six businesses. My first two years of college, I did, I was selling essential oils for X trading. I did website building. I actually wholesale two houses. So you’re asking about my first deal. It was, I wholesale two houses made five grand. Each one, I was like, this is sweet. This is awesome. You know, and eventually my in my, I grew up in a very average kind of household and feel free to cut me off whenever you want.
But I, my dad was an entrepreneur. We did. Okay. Right. You had an old K life kind of just average. And my dad finally grabbed with Bridger. I want you to go meet with one of my business partners. This guy is very successful. He can help you. You’re kind of like a chicken with your head cut off. Let’s let’s have him help you say, okay, set this meeting. And I drive up to this dude’s house and I pull up gated community. I pull through these beautiful mansions. I mean, it was incredible. I pull up on the top of this Hill called a sack. He’s got this gorgeous home. I parked my car. I’m like, dang.
I’m like, who is this guy? It’s my dad’s business partner. Like who like who the heck? Like, wow, like, how was, you know, how did I, how did they get in business together? Anyways, I knocked on the door and we sit down, we start to chat and we start talking all sorts of stuff. And he, I finally get to the point. I asked him, how did you get all of this? Like, how did you do this? Right? Like you’re I kind of pointed at the house and the cars and the pool in the backyard had a basketball court in his basement, like the whole thing. Right. And he kind of laughed and he goes, what? Bridger? I was a lot like you in my twenties, I had done a number of businesses actually made a decent amount of money.
But then he goes, then I figured out the secrets of the ultra wealthy. And I kind of leaned in. I was like, what do you mean the ultra wealthy? And he says, what I mean is the Vanderbilt family, the Trump family of the Romney family, the Rockefellers, this is what they all do. And they’ll have their kids and they get them into the best schools possible. And they hope they can go work in investment banking and then eventually get into private equity, hedge funds, real estate funds, or come back home and run the family office. And he goes, this is the world of investment funds.
And I’m sure most of your listeners know what a fund is, but just pooling capital, other hedge funds, private, they’re all structured, actually very similar. They’re almost all the same structure. They just invest in different things. We’ll dive probably to that in a minute, but I was very intrigued and he goes, a number of years ago, I met a guy who ran a private equity fund. He’s one of the most wealth cupbearer Matt and I set a goal. He said, I set a goal. I didn’t care how long it took me. I didn’t care if it took me one year or five years or 20 years, I was going to figure out what a fund was, how to start when and how to go. And I was like, I was really treating.
He goes, that’s what we did. And he goes, me and your dad launched a fund about six, seven years ago. And he goes, currently today we manage about $8 billion of multifamily real estate. Wow. And I was blown away. I was like, w I was just struck like a billion dollars to put that in a perspective, like Cardone capital, I believe managed just about 2 billion of multi-family real estate. Yeah. That’s about right.
Jesse (4m 46s): Depends on the lawsuit, how that goes, but yeah. Yeah, yeah. We’ll see. That’s a great point. Yeah. We’ll see. We’ll see what it all shakes out.
Bridger (4m 54s): Let’s say they claim, at least that’s where they’re at. At the time they were $8 billion. And I believe today, they’ve just hopped over 25 billion under management it’s properties. They’ve, it’s a value, add investment funds are buying them up, you know, buying BC class, apartment buildings, renovating them and flipping them essentially. Yeah. I was blown away and I said, I, I want to learn this. And I, and I’ve always heard find mentors, find coaching. Right? You hear that forever. So I said, Hey, I wonder if this guy would be my mentor. So I asked him like, Hey, can you mentor me? I’d love to get into this. Can you kind of coach me through this? He goes, Bridger.
He goes, go talk to your dad. Your dad knows about this way more than I do. And I said, I was like, Oh, no way. No, my dad’s poor. He drives a crappy car. You’re rich. Like, can you mentor me? He goes, Bridger. Me and your dad make about the same amount of money. And my chin about dropped to the floor. And I, I left the guy’s house. I drove straight to my dad’s house. I was like, dad, what the heck? Like you’re making all this dough and you haven’t been sharing it with all, like, what’s going on? Like, why haven’t I been able to order dessert at dinner last 12 years?
Because it’s too, you know? Yeah. Well, like what’s going on anyways? He kind of laughs. He goes, well, Bridger. I like to save and invest my money. And my partner likes to spend and kind of show off his money. But yeah, he goes, yeah, we run these investment funds and sorry, I was getting a little long-winded here, but I, and feel free to cut me off. But this is, that’s how I kinda start to learn about funds. And he sat down for the next six months. And every, every time I was around him, we sat on the whiteboard. He taught me about funds, how they worked, how we talked about Luxembourg funds, Cayman Island, funds, blocker, entities, parallel funds, how to find the capital, all the stuff inside of fund that I was super intrigued on it.
And about eight months, nine months later, I had an opportunity. I was at a, at a company I was actually working at and a lot of clients were coming through this company and they needed funding for their businesses. And I thought, Hey, this might be a great opportunity for a fund. And so I went and talked to my dad. He loved the idea. I talked to the owners of the business. They love the idea. And I was like, I’m gonna start a fund. We’re going to do this. And so I put together the kind of organize the documents, got things together. My dad helped mentor me and look through everything. And I finally got to the point like, okay, I need to raise money.
And I kind of overlooked how hard that would be and how daunting of a task that would be. Right. I’m 22 years old at the time. And I remember thinking, well, I ha like my dad is rich. He doesn’t spend his money. He likes to invest. I’m his son he’s told me he loves this idea. He would probably love to invest in this deal. Yeah. And, and so I remember as a late Sunday night, I went and went into my dad’s kind of home office. I sat down with him and I said, dad, and my best pitch, voice possible, dad, how would you like to be our first investor to our fund?
And I kind of showed them the whole pitch deck and the whole thing. And he, he kind of laughed and he goes, Bridger. He goes, I have the money to invest. But if I invest in your fund, I would ruin the experience of you raising money on your own. And he goes, this will be a crutch that you’ll never be able to recover from. Your first investor is the hardest investor to find. And if I’m the first investor, you’ll never recover from that, that’ll be, that’ll be your story, the rest of your life. And he said, no. Hmm. And it was a big, tough love moments when me and my dad and he kicked me out and he said, go do this on your own.
And I took him up on the challenge and I kind of walked out with my tail between my legs a little bit and took him up on the challenge though. And after weeks of pitching anybody, I could, I raised a whopping $49,000 for my first. It wasn’t even a fund. It was a syndication. And which is, if you guys know anything about funds, that’s probably the smallest possible fund you could possibly do on the planet. But it was enough to get started. The loans we were doing were small. They were two to $10,000 loans, each small, quick turn.
They were four to six weeks long, high interest rate loans. And we did these loans and our first group of investors, they got back at 64% return on their money. They were thrilled, small dollar amounts, but good return return. And so we said, let’s scale this. So we lost a second fund. And in our second fund, we’ve raised the point millions of dollars. It’s gone really well. We’ve done, we’ve scaled a lot. And then right now we’re launching a third fund actually in real estate. So we’re buying a big box stores, Kmart shop CO’s best. Buy’s doing value added now. And we’ve raised about software is about 18 million so far right now we’re actually just finished our documents.
We’re raising 50 million for that fund. Awesome. So that’s the quick story, sorry. <inaudible> the story of how I got into this game and where we’re at.
Jesse (9m 19s): No, that’s great. So first of all, I wanted to ask you and you answer 22 years old. So you’re doing that. It’s hilarious because it just reminds me a lot of a very similar story for me, where, when I was on BiggerPockets, the first time I was on their podcast was like six years ago. And it’s the same story, except I was doing student rental properties. I went to my dad first and he was like, no, and it was the, almost identical to this because we’ve talked about it on the show. It’s the zero to one, right? That’s the really hard part. Not that one. Plus isn’t a is just easy.
It’s just getting that first one and then really kind of getting investors in your case and building that. So the first one wasn’t real estate. So was that a, was that, were you selling notes on that? Clarify that for us.
Bridger (10m 4s): Yeah, we were doing, and I totally agree with the zero to one thing, by the way, that’s so hard. Your first dollar is such a big step to get, to make $1 in revenue is huge. I think raise
Jesse (10m 15s): $1, make $1,
Bridger (10m 17s): Whatever it is, that’s huge, right? The first dollar. But yeah, our first two, two, I guess, syndication and fund, we were doing notes too. They were doing debt consolidation inside of there. We did some hard money loans as well on real estate. And then a lot of it was debt consolidation for small businesses. If they had lots of debt on credit cards, other places, we consolidate it down in a short period of time, it helped their credit scores go up and help them get more access to capital. And then they could pay us back in four to six weeks. And usually they’re getting 60 to a hundred thousand dollars in capital that they could pay us back on.
That’s kind of what we’re doing.
Jesse (10m 50s): Yeah. Very cool. So if you fast forward today, like you said, you’re, you’re launching a fund. That’s a, it seems like good, good anchor tenants in large, a large big box stores. I’m curious for those that don’t know, or haven’t followed you, you know, you don’t just jump into a fund. A lot of times it evolves from a friends and family syndication and then evolves into committed capital that can be used at your discretion. Talk about that journey from that first one, which sounds like an asset specific or investment specific entity syndication and to where you’re at today and the structure of that fund for the, for the real estate.
Bridger (11m 27s): Yeah. It’s a it’s I I’ve seen tons of videos during, I did the journey as well, and probably a lot of people listen to your show and I was the same way are stuck in what I call the syndication loop. And it’s where you, how slipping is a great example. You find a great house, you love it. Okay, we’re going to flip this house. You go call up your investor pool. Hey, you want to put money in this house and get hard money loans. And how are we going to finance the property? And then you make an LLC or a special a vehicle. You put money into that vehicle. You go flip the house and then you restart and you find another house.
You’ve got to find new investors and you got to send it, you know, and then that investor this time, Hey, sorry, I don’t, you know, my bonds, I’ve got to do something else. I can’t put money in. You’re calling around. You’re trying to drum up capital and then you go and you do the next deal. And eventually, you know, some people get to the point where they just have enough capital themselves. They can just fund deals themselves. But a lot of times they’re stuck doing a certain deal size. And actually, as I mentioned, my dad, really, this is where they were at. They were doing hard money loans and they were doing syndications on all of them. But, but these loans were, were bigger. They weren’t doing house up. They were doing two, five, $10 million loan sometimes.
And they’re syndicating from 10 to 50 investors on some of these. And he said there was one deal. They had, it was on a Friday, they were sort of close on a Friday or they already had some money that was hard. And one investor didn’t wire in their money and they lost the entire deal. And it, it tarnish their reputation. They lost the hard money and they lost the deal. Yeah. Their reputation was tarnished. They were, they lost the deal. Right. And they said, we can’t do this anymore. We can’t do this syndication loop where we’re depending on investors.
And we’re just scrapping for cap every time. And we want to get into bigger deals. And that’s why most people that are in that loop event, most people that are good at financial products or things that eventually end up in the fund model because it’s so scalable and so lucrative. So for people that don’t know a ton about the fund model, just in a top level sense, what it does is it allows you to go out and you raise capital. Once you set up your legal entities once, and then you can go do as many deals as possible, depending on how you set up your fund, it’s going to vary quite a bit.
But for example, we have one guy in our group, good friend of mine, his name’s Brent. He last two. So two years ago, flipped two houses. He’s a house flipper flip. Do you know, two, three houses a year? Did, okay. He just set up a fund. This year is flipping 72 homes. I think he’s like halfway through those flips right now and is doing the other, you know, 30 or 40 in the second half of the year, because the fund allows them to have a capital there. He can close with cash in hand proof of funds. He’s not trying to scrap it together and, you know, grab hard money. He just, he can close. And that’s a bit about funding then the final thing that’s so just amazing about funds is you have a hundred percent control over what happens.
There’s a great scene. Have you seen the big short that show? Great scene in the big short with Michael burry. So Michael burry he’s, he’s played by now. He’s kind of autistic and he’s listening to loud music. He’s got the glass I, that guy. And so there’s a great scene in there. His fun, he like writes on the whiteboard, they’re down like 17% or something. His investors come into the room and they’re yelling at him right there. Screaming, you got to sell your position, get out. And he just says, no, sorry. No. Yeah. And that is the most beautiful thing about funds.
That’s the reason eight guys and gals on wall street can manage billions of dollars. And do you have your biggest investor come to you? And they let’s say they’ve invested a hundred million dollars with you and they say, Hey, you know, Jesse Bridger I’ve, I’ve got some taxes. I gotta pay. Can you guys sell some of the properties earlier the positions to get me out? Cause I gotta pay some taxes and can you help me out? And you go, no, right. The, the properties, the assets are not see, they’re not ready to sell our fiduciary responsibilities to the fund as a whole.
And yeah, you can pull out, it’s a 50% penalty. If you want to pull out or you leave your money. And that’s the most beautiful thing about funds is the control that you have over what goes on in there. Yeah.
Jesse (15m 30s): And you know what, when we recently had Brian Burke on the show for a second time, and we were talking about the comparisons between entity specific syndications and funds and obviously pros and cons with, with certain things. One of the pros of the actual entity specific syndication is that the LPs, if they’re not as sophisticated, you know, they can technically walk up to a building, hit the brick and be like, this thing exists. Whereas he said something really interesting about the funds side. It’s that it’s a trust vehicle. So you don’t just start with a fund, right. You have to develop trust with whether you’re the connections that you’ve done in earlier deals or people know that you’re a thought leader.
So why don’t you talk about, you know, let’s talk a little bit about how you get to that point where somebody is trusting you with what seems to be somewhat of a blind, committed capital type of deal rather than entity specific. And then maybe we can talk a little bit about the generic structure or like let’s call it the vanilla structure of the fund, the GPLP, you know, just kind of the Cole’s notes there, but, but yeah, first it’d be great to just hear how you get over that trust curve for investors on the fund side.
Bridger (16m 36s): Yeah. A hundred percent. And we just had to go, syndications is a great way to go, right? That’s a, an excellent route to go to build yourself a track record or your team, a track record, but another great way to go about it is partnering with someone who already has the track record. Right? You can easily, if you’re sitting there like, okay, well I’ve got to build a tracker now myself. I have, I, as you can tell, I’m not a seasoned real estate investor. I don’t claim to be. Yeah. We’re launching a $50 million real estate fund raised 18 million so far. Not because of my tracker that I have two incredible partners that have done real estate for 25 years that I partnered with.
And they, I, they have the great tracker. They partnered with me because I understand funds how to put them together and how to raise capital. And so we’re a good team together, right? Actually, my, my dad, I tease him all the time. My dad actually doesn’t know that much about real estate. I really, I really ask him, I’ll ask him, Hey, what, what kind of cap written do you offer on that? What would you do? And he’s like, I don’t know. Right? Manage $25 billion of ads. Like what are you talking about? And he goes, well, no, I think he goes, my partners know how to do it, but I, I don’t everyone. So I would say, number one, you can do syndications and build a tracker, but number two, also partner people.
But I’ll give it even a, I don’t know for me, I, I was, I started out my first one with zero track and zero partners. Right. On a phone syndication though. How do you even get money on the first invitation deal? Number one, I believe is finding great properties in great deals. Yeah. And you probably talked about this show a lot, but pitching the deal over yourself or your degree, I think goes a long way. And I can go into more in depth on that, but it sounds like you’re agreeing already on that. So that’s how, that’s how I we’ve gone out and raised our capital as well.
We say, Hey, we’re, we’re obviously smart. We think we’re smart people, but look, we’ve already identified three properties. We’re going to buy in our fund. GOCE here’s all the paper on it. You’re smart. You’ve done real estate. Bring on your friend, poke holes in the deal. Yeah. As much as you can, if any, if you can’t poke all the deals, Hey, can we put you down for 500,000, our commitment to our fund. Yeah. And we still use that model in it. Real estate is really great because we can identify properties. And these are the ones we’re looking at and we’re going to put them under contract right now, or they are under contract. We want to get in quickly.
It’s a great way to an investors. A lot of times they’ll look past a Harvard degree, if you have a great deal in front of them and they can get into
Jesse (18m 57s): Yeah, well, we had a, you know, it’s, it’s all a blur in terms of like the past guests we have on. So I can’t, I don’t know who to credit with. It wasn’t me, but it was somebody talking about the three trust curves when it comes to real estate investing or real estate, private equity. And for initial investors, it’s that you have to have somebody that believes in the asset class to a certain extent believes in you and believes in the deal. So I think you, you touched on it right there with the deal. And like there’s a lot of times the deal can speak for itself. Obviously, you know, you have to bring expertise to that in your own capacity, but it sounds like what you’re talking about is whether it’s raising funny, raising money for production of a movie, raising money for real estate, the expertise is in that raising capital, which leads me to kind of the next area.
So you talked about having an operating partner, having somebody that’s an expert in that field. How does, how do you structure the fund model? When, for instance, there’s already potentially your operator in a GP LP arrangement, are you now a fund of funds where you’re taking capital and you’re coming in as a co GP or as an outsized LP. Could you talk a little bit about that?
Bridger (20m 5s): And you’re saying specifically investing into operators or partnering with operators.
Jesse (20m 10s): Yeah. Well, I, it sounds like when you say you’re partnering, I’m assuming you’re a code GP on the deals, but maybe that’s a bad assumption on my part.
Bridger (20m 17s): Yeah. Well, there’s that you can, you can, the great thing about funds is you can structure it however you’d like, whatever makes sense. That’s the best thing about funds? The way we’re doing it is one of my partners is actually he’s a property manager has managed properties for 10 years. His company will be outside of the GP and they are going to give us below just right below fair market value. And so, and we, and we kind of, they’re technically, it’s not, in-house, it’s not part of the deep events of part and kind of a sister company with us. And we said, Hey, we’re going to be operating running these companies, a partner entity, that’s giving us below market value.
Jesse (20m 52s): They’re coming in almost like you’re coming in at, I assume it’s that it’s a nav or net asset value where you’re coming in with a little bit of a discount and then your, your security net position. So you’re, you’re basically profiting on the initially right away, right by, by, in virtue of connecting at that, at that discounted rate, is that right?
Bridger (21m 11s): I, the way I’m talking about, I’m talking about a property manager, so once we acquire the property, they’re going to help manage the property. But for, in our case, we are going to be the ones, but we’re not co-investing with anybody else. We are going full in buying the GPS or the out, excuse me. The limited partnership is going to go and buy the entire asset. And then we’re going to hire a F R you know, a sister company to come and help lease,
Jesse (21m 33s): Sit up and renovate and fix it up. That whole thing. Yeah. So you haven’t, you haven’t gotten to, and maybe you don’t want to, you haven’t gotten to the point where you’re vertically integrating all of that into one business, you’re going to have third party property management, and then continue to do this, doing this with different opportunities. It sounds like,
Bridger (21m 49s): Yeah. It’s, it’s my business partner’s company. So it is we’re, we’re starting to get to that point. It’s our, this is our first fund in this asset class. So we’re keeping it separated at least currently. Yeah. Well, the plan is to integrate all those together in an offering as well. Now, what you mentioned earlier, though, having a discount rate, we’re going to do that as well. So people that come in, you know, investment that come in in your first close, they get preference over investors that come in in a second close or a third close because they’ve risked their capital longer. So you can, yeah. And if you’re coming in earlier, making money on those second and third closes though.
Jesse (22m 19s): So for, for listeners, let’s talk a little bit downstream. You have somebody that wants to invest. What does it look like for them from a promote standpoint, a preffered turn standpoint. Talk a little bit about that.
Bridger (22m 32s): Yeah. And by the way, I’m not pitching my fund. That’s examples here, not legal advice, not legal advice, but this is what we’re doing. So we, we decided on our first, but now we debated this for a while. What to do, how to incentivize, especially on, I ran two funds in different asset classes, right? This is our first time. How can we drum up a lot of money and capital very quickly and easy way to do that is with your fees. I’ll give you two examples. Number one. So my dad’s first funds, they paid out, they did a 0% management fee and they paid a 16% prep.
Wow. Which is, this is 2005. So they would say essentially, what that means is we’re taking zero match. We don’t make any money unless the investor makes 16% first. And then above 16%, I believe they split 50, 50 until 20%. And then the G the GP would take a hundred percent after that. And they did it on the APY. So annual percentage yield on the yield and they were doing hard money loans. So, but to put this into kind of an example is they were doing loans that were, let’s call it, you know, a couple points, 10% interest, whatever.
Let’s just say, just round numbers one month. And they make back 10% or 10 points on the loan. In one month, they were doing very short term lumps. Your yield on that, your APY is 120% because it’s annualized number. So investors they’d say, great. Yeah, we’ll pay you the first 16%, 50, 50. And then they were taking the next hundred percent right. Return on that loan. Well, that’s, you know, and investors were happy as ever, Hey, we’re making 16%. This is awesome.
And they didn’t know they were leaving this huge chunk out there, anyways, entry structure. But in our fund, what we’re doing, we’re going to do a 2% management just as typical. It’s very similar to in 20 models. So 2% management fee, we’re going to do an 8% pref. So first 8%. So preferential rate of return eight first 8% goes to the investors we’re then going to do a 2% catch-up. So the ninth and 10th percentile will come back to the general partner. And then from there, we’ll do 80, 20 split, 80% to the limited partners, 20% to the F the general partner.
Jesse (24m 46s): Yeah. And for those, for those that don’t know, I don’t know if it’s come up on the show before, but the catch-up is, it’s a mechanism that is used to make sure that after the pref return is paid to the limited partners, that the general partner, depending on how you structure the documents, we’ll get a catch-up or they will get a disproportionate share so that they are compensated on the pro-rata investment. If that makes sense, in terms of the, I’m always curious about this, and again, we’re talking in the abstract, when you guys do these types of deals is your philosophy to have the general partner be a 5% investor, a 10% investor.
And then if so, are they investing arm in arm with the limited partners or separate share classes?
Bridger (25m 33s): So, yeah, we are, the general partner is 2% into the limited partnership. So 2% of all funds raised cats at a million dollars.
Jesse (25m 43s): Got it. That’s what you meant by two and 20, sorry.
Bridger (25m 46s): Yeah. So we’ll put 2% capital in as well. And the limited partners we’ll put the other 98% into the limited partnership and the limited partnership or the fund will be the one that goes and either sets up an SPV or just acquires the property we’ll most likely set up SPVs, and then they will go acquire the property out of that SPV all through the fund. So we’re not co-investing or anything that it’s all dumping into the fund, the limited partnership that’s then going into a holding company and in that they’re going and buying those assets.
Jesse (26m 17s): Okay. And that’s what I wanted to kind of move to now. So talking about the fund structure, first of all, you know, I can’t shut out your YouTube channel enough because I’m a visual learner and you see the whiteboard here. I see the whiteboard in your videos. I’m like, perfect. Talk a little bit. I’d like to talk a little bit about structure and without getting too much into the weeds, you know, your typical structure for, for instance, something like the real estate, again, just generically, if you’re doing a real estate fund, how are you typically setting that up?
And what type of time horizon are you discussing with, with investors? Because we get a lot of questions about you. They see, you know, at least in my personal experience, you know, they see eight year horizon, 10 year horizon. And a lot of times is if we get an amazing offer in year three, we wouldn’t be doing our fiduciary duty to you unless we really considered it. So maybe you can talk a little bit about that.
Bridger (27m 12s): Yeah. There’s a, the first thing about funds is there is a lot of options and that’s what I actually, our channel. We try to walk through the options, right? And if you understand the options, it’ll save you in your, your, your dollars paid to a lawyer. You’ll save a lot of time because lawyers will love to walk you through all these options and bill $500 an hour while they do it. And it’s just, they love it, right? It’s their favorite thing to do. And so we try to walk people through your options. So a few options I’ll kind of go through the most common, and then there’s a thousand ways to do it.
But the most common filing, at least in the United States is under regulation. D five Oh six B gets just a filing number and a five Oh six B fund. You cannot publicly advertise, and you can actually go through a few exemptions below that you can raise unlimited capital and you ha you can raise from 35 non-accredited investors and unlimited credit investors. Okay. That’s a five Oh six B fund. And that’s how 99% of all capital on the planet is raised through a five Oh six B fund offering.
Jesse (28m 17s): Sorry to interrupt, interject on the Canadian side. That would be, if those are viewer interested, national instrument, 45, one Oh six that’s that’s our exemption, similar to your five Oh six B and C to a certain extent, but yeah, sorry.
Bridger (28m 31s): No, and that’s, that’s actually great. I probably need your, I need help on learning Canadian funds better too. Cause I, I know U S funds really well, but yeah,
Jesse (28m 37s): Canadian so well, you guys have a scarier securities and exchange commission, for sure.
Bridger (28m 44s): Yeah. I know they they’ll come after you, so you gotta set it up. Right. There’s a lot of exemptions steps. So that’s not getting to them as weeds. You can do a five Oh six B in United States or a five Oh six C and then by was exceeded in public advertises, a few other things there and then underneath there. So once you pick one of those, there’s then a number of options as well. So you can do, <inaudible> a three C5 at Friesen seven fund. There’s a few of those, the most three most common for real estate fund specifically though three C5 is a great exemption for real estate funds.
So it’s a, so if you’re just remember, it’s hard to remember about five Oh six B or C and then three C5. You’ll get great exemptions for real estate. You have to own, I believe you might know the number it’s like it’s 80 or 85% of your portfolio needs to be real estate inside of a three C5 funds. And if you do that, you get exempt from a lot of clauses. You don’t have to have in certain licenses, it’s actually really great and useful, but there’s a ton of options that we probably don’t want get into them, but you can run regulation, aid, funds, regulation, CF bonds.
You can do crowdfunding. I mean, there’s a lot of cool things you can do there, but that would be the most common for real estate funds. But back to that, that’s probably confusing there. But to the structure of things we mentioned, you know, general partner, limited partnership structure. A lot of times in the United States, you’ll set up a third entity and that third entity will be your investment advisor or registered investment advisor. And so, and that usually is owned by the same people in the general partner. So your general partner, your investment advisor, the same, that’s just your management team.
This is us that are running the fund, your investment advisor or registered investment advisor. And the United States, if you’re over $150 million, you fall into the sec rules that the national level, and that’s over a hundred million dollars. If you’re under $150 million, you fall into the state level where your primary office located. So if you’re located in Spokane Washington, you will be under Washington securities laws. If you’re in Utah, I’m in Utah, I’m under Utah securities laws in my state for there. So you have to just look out for that. And it just depends on the fund type that you’re doing as well.
And then we can, if you want to go deeper, I mean, we can talk about parallel funds, blocker entities, if you’re raising money from international. I don’t know if you want to get into that, but
Jesse (30m 60s): Before, before we do, it’s, it’s definitely, it’s fascinating to see the different structures. Cause as you said, there’s many of them, what’s what I think there is parallels, at least for the Canadian and the us is that there is the GPLP, there is an entity typically that actually has title to the property in the States. That usually is an LLC in Canada. We have no LLCs. Those, we don’t know what those are. So we have corporations and corporations take title to the properties, or you have a nominee Corp. So very similar. And even when we invest in the States, oftentimes it’s done in a us LP for Canadians it’s.
I think it’s a, more of a preferential tax entity, but without getting too far into the weeds in terms of the exit strategy. So when you’re talking to investors, obviously we’re talking funds here. So it is committed capital, I guess, two questions, one on exit and you know, talk a little bit about how that works and how you talk about that with your investors. And then the first one is on entry. And, and what I mean by that is when somebody asks you, Hey, Bridger, I’m giving you a $200,000, how much runway do you have?
You know, if it’s a really tight market and you can’t find deals until something’s got to happen with my money, how, like how long can it sit in a bank account? Yeah.
Bridger (32m 17s): Great. Yeah. Great question. Thanks for getting me back on track here. No worries. So, yeah, and you, you obviously have plenty of experience in funds. You can add on to this as well, but again, it depends on you can decide, which is great. We can do, but also typically what funds do you have much? You mentioned that seven to 10 year horizon is a typical horizon for the entire life of the fund. Usually first 12 to 18 months, we’re going to be raising capital and starting to deploy that capital into deals if we deem fit. And then hopefully, you know, in the best case scenario, we’re deploying capital by year three, maybe four we’ve deployed all of our capital and now we’re seasoning the properties.
And hopefully by year, you know, five, six, seven, we’re starting to exit a few properties. They usually will set a longer timeframe just in case we go into a crazy recession or something. You don’t want to be forced to sell because if you told an investor seven years and you know, you’re at now, you’re at seven years, the bottom of a recession or depression, you’re like, Hey, can we extend or not? A lot of funds will just give themselves a us, you know, 10 years at the max and they’ll time the market. Right? But I think most managers that I talked to are saying, Hey, we’re trying to get out of these properties in six to seven years as, as our primary target.
Now you mentioned capital committed. So a lot of times an investor, if we’re raising $10 million, we’ll get commitments for that. We don’t actually take the money yet though. It’s literally just pieces of paper that say we have certain undominant $10 million committed that we can draw down in Watts. We identify a property. We will issue. What’s called a capital call and we’ll say, Hey, we’re going to, we’re buying a million dollar property. We’re going to draw 10% of the capital down. So if you put, if you committed, like your example, $200,000, you would commit 10%.
So $20,000 you’d have, you know, 10 days or 14 days to send a wire into my bank account. And then we would go and acquire that property there through a capital call. A lot of funds that I see typically will have a timeframe of maybe two to three years. And they’ll say after let’s call it three years, we cannot call capital anymore. So on that $10 million fund example, let’s say after three years we only deployed, you know, $6 million. We just couldn’t find enough deals that were good enough.
A lot of times you’ll send a letter to your investors saying K, but the last 40% is you’re released from your capital commitments. You actually do not have that liability more to fulfill.
Jesse (34m 44s): That makes sense. Yeah, no, that’s a great distinction on, on the fact that it’s callable capital. I’d love to, to do this again. I want to be respectful of your time here. So just coming up to the end here, and we’ll talk a little bit about how people can get in contact with you, but we typically ask all our guests for questions. So if you are a, if you’re down in game for that, I can kick the kick us off
Bridger (35m 5s): That let’s do it. Yeah. All right. What’s something
Jesse (35m 7s): That you know now that you wish you knew at the beginning of your real life.
Bridger (35m 12s): Oh man, it’d be nice to have. That’s a good, good question. Number one, have good attorneys and a number two to get into real estate. Like for me forever, I was, I’ve been in and out and I’ve got to time the market. Right. And I’m going to, you know, Oh, I’m going to wait just to the perfect time. And it’s like, nah, just get in. Like just stop waiting for things to, it’s just, life’s going to pass you. Just get in, you know? And even if, even if it’s the worst time ever in the history of the world to get in, get in traditionally real estate over time has, you know, you’re going to make money over time.
It’s just get in even, you know, that’s, that’s something I wish I knew.
Jesse (35m 51s): Number two, what’s a resource that has your attention right now that you’d like to share with listeners that can be a podcast. A book.
Bridger (35m 59s): One of the things I’ve been loving to, to read is Ray Dalio. So Ray Dahlia runs Bridgewater associates. One of the largest private equity funds in the world. I mean, Ray’s a legend in the industry. I look up to him like he posts incredible articles on his LinkedIn and too is, you know, he kind of points everyone there. He’s written a few books, but he has been constantly just banging on this longterm debt cycle. He believes he has a lot of theories on what’s going on with monetary policy on kind of a macro view. I love macro economics. I just finished I’ve I love reading books.
And they, sometimes they get a little too far. I don’t understand everything, but yeah. And he does a great job of making it simple and actionable of what’s going on in the world right now. It’s actually, man, it’s, it’s a Princi. So I’ll point you guys there, you can’t go wrong. Listen to Ray Dalio.
Jesse (36m 44s): That’ll have to be the topic of the next, the next podcast, because I’m a huge econ geek and just his idea of the long cycle and what he’s doing now on LinkedIn reminds me a lot about what Howard marks has been doing for the longest time of the kind of writing. I think it was monthly or weekly now, but anyways, both are, are great resources. Mentorship. What does it mean to you? How important is it to you?
Bridger (37m 9s): I, I am all in on mentorship. I’ve spent $80,000 in the last 12 months on mastermind groups, coaching and mentors, because I know every time I, I give a mentor or a coach, a dollar, I get back three, $4, $5 in return. Yeah. And so I remember the first time I joined a program for like a thousand bucks and I just go, that was like, Oh my gosh, I’m freaking out. And like three months later I’d made, I made like 2,500 bucks. I signed a client and I, whatever. And I was like, Whoa, like that worked.
You know? And I was like, this is a cool investment. Like you think about return on investment. I have seen it time timing again. Every time I pay a coach, a mentor, not all of them are perfect, but a lot of them are actually really good and really quality information. My business, it grows our business in a certain way. And, and, and I wouldn’t have, it’s just, you pay for shortcuts. You’re buying shortcuts. I’m all in on mentorship. And I put a lot of every year, I just budget. Like I budget a certain dollar amount, like, okay, like this month, this amount is going to just mastermind groups and mentors this year.
Jesse (38m 7s): Like the PST cheat codes back in the day where you just buy that. But yeah, I mean it hearkens back to the zero to one piece, right? It’s like until you do it and see that, Oh my God, I should have done this five years earlier. Last question. This is my law, my favorite Bloomberg first car make and model
Bridger (38m 25s): First car make and model. It was a, I love it. Ford expedition, 1999 had about 230,000 miles on it. Beautiful. I love that. That’s a lot of miles. Oh yeah. It was good, man. The old Ernst was his name, but yeah.
Jesse (38m 41s): Yes. First car I’ve ever owned. Right? Yep. First car make and model. I’ve always stolen that from masters of business. One of my favorite podcasts on Bloomberg bridge work in people, aside from an easy Google search, you’re going to pop up everywhere. Is there somewhere that you would point to people or something that you’re promoting now that you’d like listeners to know about?
Bridger (38m 59s): Yeah. Easy spot. Our step is called investment fund secrets. So investment fund secrets, we go in and teach people about fund. We try to go through it and map it out. My brother’s a securities attorney. My dad, honestly, he just actually just retired, but co-founder of a $25 billion family of funds and myself. We try to just make, make it simple. So it’s called an investment fund secrets, investment fund seekers.com our YouTube channel, Bridger paints. And I love whiteboards, like you mentioned. So we try to whiteboard stuff out there, but as they’re trying to do there, and we have, we have coaching and mentorship stuff and all that kind of thing, but just investment funds seekers.
We’re trying to just give out as much free information as we can on funds, just to help people understand this world better. And what’s going on and just kind of pull back the curtain.
Jesse (39m 41s): My guest today has been Bridger the investment fund guru, Pennington Bridgewood. Thanks for being part of working out.
Bridger (39m 48s): Thank you so much. It’s been fun.
Jesse (39m 59s): Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.