[00:00:01] Speaker A: You're listening to PTC point of view brought to you by preferred trust company, the preferred custodian for all alternative investments. We're here to provide retirement savers like you with the tools you need to succeed. Need a confidence boost when it comes to investing outside of the stock market? Do you want the power to build a tax sheltered nest egg that will last through your golden years? You've come to the right place. Turn up your speakers and turn off cruise control because we're taking you on the alternate route to investing with your IRA.
[00:00:39] Speaker B: All right, we are welcoming Gary Lipsky here with us today. He is the president and CEO of break of day capital. Welcome, Gary.
[00:00:48] Speaker C: Thanks for having me.
[00:00:49] Speaker B: We really appreciate you joining us today. And the main reason why we're having you here today is preferred trust company is always looking to interview and find out all the different investment types that are out there and more specifically, investments that are offering to their clients the opportunity to invest through qualified funds. And at preferred trust company, we obviously offer that option to your clients to be able to invest in. But most importantly for our clients out there that don't know who you are or what you do, let's start with who you are. Let's go a little bit into who you are because I think when you're investing in these types of products, it's sometimes more important to know who's behind the scenes versus all the fun details of what types of investments you're investing in. So give us a little history about yourself.
[00:01:35] Speaker C: Yeah, and I totally agree. It's you really have to get to know the operator. It's you're betting on the jockey. Not as much of the deal, but I've been an entrepreneur my whole life. I owned a, we shoveled driveways in high school and auto detail cars. I own a restaurant delivery service during a summer of college and then after college, kind of like a door dash, I co produced three independent films in my twenties. I started a company where we ran after school programs, outdoor and leadership development. I started a nonprofit and during this time I had been investing in real estate on a very small scale and got into it full time when I sold the business at the end of 2016. And really the first year was just about education and just devouring it everywhere I went. I started investing in other people's deals and then started doing my own deals. So what I was able to bring when I got, when I started my company was the skill sets of owning several different businesses. And from the creative side, from the business side, when you're doing real estate, you've got to be able to put together deals very creatively. Because of my skill sets, my background.
[00:02:42] Speaker B: Absolutely. What you just said to me was, you got a degree in business administration and business management and really navigating people, and probably most important people, the skill set of navigating through all of those processes, I read a little bit about, if you don't mind, I'm going to go off topic for just a second. About two organizations that you started from the nonprofit perspective. I believe one was Ark.
[00:03:09] Speaker C: Well, Arc's a for profit, but it's a for profit core. It's a for profit nonprofit world, but core is the nonprofit.
[00:03:16] Speaker B: Talk a little bit about that for just a second.
[00:03:18] Speaker C: So, AHRQ, again, it was the after school outdoor ed leadership development, and we wanted to be able to serve more kids. And so we started a nonprofit, and we got grants from the Lakers organization, State Farm, on and on. But we were very small nonprofit, and those are hard to really, you either need to grow big or dissolve. So we did. We had 16 great years. I think it was 16. And then eventually, two years ago, we just had to put, you know, close it up. But.
But some really interesting programs that we had for the kids, and these were at risk kids. These were kids that didn't really come from much. And we had a program that we took them rock climbing, and eventually they led a rock climbing expedition for other people. And through that, it wasn't about being a really good rock climbers, about stepping out of their comfort zone, leadership skills, marketing skills, communication skills, and, you know, I'm really, really proud of the work that we did there and the effect that we had on so many kids.
[00:04:29] Speaker B: Yeah, that's really amazing. Rarely do I have an opportunity to interview individuals where they've come from a nonprofit into a profit arena.
The leadership and the skill sets of those individuals are like nothing I've ever seen. And just giving you a little history. Before I got into real estate, I was also on the for profit, nonprofit side. I was responsible for ensuring that we were giving funds as a for profit company to nonprofit organizations where we were truly making an impact. So while everybody else in the gaming industry was giving to what I will call the easier charities, the children, et cetera, I wanted to go the exact opposite direction and focus on seniors. And it really was the demographic of gaming, and nobody really wanted to go down that path because it was harder. Right? It was harder, but it was very eye opening for me from the leadership side of things and putting groups and people together for a common goal and really having a significant impact. So I always like to hear when I am able to speak with peers of mine and have those types of conversations because I think it really generates a really strong leadership structure into the companies that we're running today.
And that's why I took you back a little bit, just to find out a little bit more about that, because that's something that's always near and dear to my heart as well. And giving back is so important, which kind leads us down the path of what break of day capital does and why you do it. I've had an opportunity to read a little bit about you and your website and your company and kind of what you stand for, but let's kind of dig into break of day. Why did you decide the asset class that you decided? Why did you add the bolt ons to your overall and overarching system of what you're developing? Give us a little bit more details about that.
[00:06:25] Speaker C: Well, multifamily workforce house.
They don't build it anymore. They build, you know, luxury class A types. So there's, I think over 50% of the population in the US live in these, you know, class c, class B apartments. So the only, and a lot of them are, you know, dilapidated or haven't been taken care of. And so we like to create win win scenarios for our investors and for our residents. We want to improve the resources, the community. We want to make it safer, we want to make it nicer. We want them to feel proud. And in return, we're going to bump rents up a little bit to what the market allows, and that it's good for our investors. And most of our residents do end up staying because they really like what they're getting. They feel they're getting a lot more value out of our communities than other communities.
And we do community events. It's really important that this is their home and respect that and treat it as that and do events and make it, you know, make it where they feel really proud. And that's really important. You know, it's really good to have, you know, transparency with our investors, integrity, work with our residents, and these are values that are instilled within all of our team members, inside of our company and outside of our company. We want to work with people that believe in the same thing that we do. You know, there's plenty of money to be made for investors and there's plenty of good that we can do for the communities.
[00:07:59] Speaker B: Absolutely. Couple those two together and look at our backgrounds. Right. I mean, this is the heart of who we are and what we do, and we're executing that now through another business model. So give me an idea about the methodology and the strategy of assessing these investments. What kind of goes into that?
[00:08:18] Speaker C: So first we want to pick a couple markets that we can be experts on. Those markets. We're not chasing deals throughout the country.
We really want to know the market. And so we are very focused on Arizona. We've done the bulk of our deals in Tucson. And so when a property is coming on the market, you know, broker will send us a deal and, you know, we'll look at many factors, we'll walk the comps. But in selecting the markets, we want to be in an area with really good population growth, above national average job growth, rent growth, low cost of living. These are tailwinds so that, you know, when a Covid comes around, when the economy isn't going so well, you're still going to have all these factors that have, have, you know, helped. That gives us a much greater advantage than some, some of the other companies. You know, there's, you could, you could find a good deal anywhere, I think, if you underwrite it correctly. But we want to be in markets with really strong tailwinds and, and that's one of the reasons why we like Tucson so much. Phoenix, Albuquerque and Vegas as well.
[00:09:27] Speaker B: Now the acquisition of these properties are being done through investor capital. Is that correct?
[00:09:32] Speaker C: Yep.
[00:09:32] Speaker B: Okay. And how do you raise investor capital?
[00:09:35] Speaker C: Yeah, so we'll syndicate the deal. So we'll put together an investment summary. We'll schedule a webinar, we have an email list, and people will invest through self directed iras, cash. They could do a 1031 potentially, if they talk to us on the front end. But having a really good self directed IRA partner is really important to us because it makes it easy for our investors.
They have available capital and they could put it to use. We have investors that keep just rolling it back. When we sell a deal, they just roll it back and it just makes it a nice, smooth process. And, you know, deals go pretty quickly. Once we, once we find something, we're very selective. It's about quality for us. It's not about quantity. We don't, we don't have goals. We don't put down like, oh, we want a billion dollars on our assets or two, 2 billion. It's, it's about quality first and we'll get there. But it's not, that's not our driving mission is how many deals we can do.
[00:10:40] Speaker B: Absolutely. It's finding the right ones at the right time for the right money and sometimes with the right tenants. I mean, if you can capture a deal that's already cash flowing, that's a big deal too, while you're making the improvements to make it into something that they never want to leave. I mean, and when you do that, they treat it as home ownership. They truly do if you take the time. I mean, I've learned that lesson through my punches through real estate. You definitely have to take the time for that. So the types of investors that you're looking for, are these offerings typically set up as a regulation D offering? Are they accredited, non accredited or a blend of both?
[00:11:19] Speaker C: So we've typically done 506 B's so we can have up to 35 sophisticated investors.
We've done 1506 C and we'll probably do a little bit of both as we go forward. I know you can actually start with a 506 B and go to a five.
Start with a 506 B and go to a 506 C as long as you like, turn the faucet off for them, you know.
[00:11:45] Speaker B: Yep. So timing there, it's all about timing.
[00:11:47] Speaker C: So that's something that we can do. But, you know, high net worth are individuals.
You know, we've had, you know, a ton of referrals that have come in over time. You know, as people get to know us and like us invested with us, they bring their friends, which is great, you know, so, you know, this is just real estate and specifically the workforce. Housing is such a great way to invest your money. We don't have those crazy swings that the stock market has. You know, it's a fixed asset.
[00:12:19] Speaker B: There's realtors collateral behind it.
[00:12:21] Speaker C: Yeah, yeah. And we have leverage and tax benefit. So, I mean, I've taken all of my money out of the stock market and they're in real estate. I mean, and they've done phenomenally well. So I put my money in every single deal. I've done very well and my investors have really appreciated what we've brought to them.
[00:12:42] Speaker B: Yeah, talk about the tax benefits for just a minute, if you don't mind. Because I think, as I would agree with you, I have a significant amount of my wealth in real estate as well. I am collateralized well in my funds. I still have a little bit in the market because from time to time it does perform and when it does, it's good. Still, there's the steady eddy that's out there in regards to that. But let's talk about the tax benefits of investing these types of investments.
[00:13:11] Speaker C: So we do a cost segregation study on all of our properties. And so what that means is you don't. Everything has a life. And so maybe an appliance has ten years, carpet five years, the air conditioner may be twelve years. And with bonus depreciation, you could front load that, uh, that depreciation. And so instead of, you know, over, uh, 27 and a half years, or 29 and a half, I always forget which one you, you front load it. And so we may raise 9 million and we might get seven to 9 million depreciation on the first year. So right off the bat, if they invest 100,000, they might get 80,000, $100,000 loss in the first year, which is phenomenal if you could take advantage of it. Not everyone can. Um, but if you can, that's phenomenal. Now, in 2023, if there was a $100,000, 100% bonus appreciation on a deal that goes down to 80%, and the following year 60, and then 40, now, I'm guessing that they will change that, you know, in a year or two, but certainly I've benefited tremendously, and so many other real estate investors have out there, and there's nothing else like it.
[00:14:29] Speaker B: That can get close to that. Yeah, there's only one other investment type. I'm not going to mention it because it's not real estate, where I've been able to utilize that as well. But, yeah, that's definitely something worth telling our listeners about.
[00:14:42] Speaker C: And I'll add one more thing. So when you sell, also, you can also do a 1031, which is we could take our pool of investors from one deal and put it in another. And there's no tax with that. You're just kicking it down the road. And there's also the Oz fund.
It really needs to be a development deal, and that's something that we haven't done. But. But if you invest in an Oz fund and you hold it ten years, you could take the sale from anything and put it in. And it's just a phenomenal way to minimize your tax burden.
[00:15:16] Speaker B: Yeah, you explain that so much better than a tax professional. Do you have any background in tax?
[00:15:22] Speaker C: Heck no.
[00:15:23] Speaker B: Just. Yeah, but trial and error, right. Learning from all the individuals that you surround yourself around, to be able to offer that option to other, to others is huge because most have no idea about it. So thank you for taking the time to kind of go over that a little bit with us. As far as your business plan of execution, I'm going to kind of take what you said we have the assessment that is occurring, your due diligence, your negotiation, the acquisition, now, what happens after the acquisition with an investor. My money has now been placed with you. What should we expect? What should we expect as a return? What should we expect for property management? Do you stay on? Do you handle that as well?
What should I expect for the next year? Two years? How long am I in this deal?
[00:16:10] Speaker C: That's a great question. So when we close, we send an email to all of our investors explaining everything that's going to happen. And that includes their statement of real estate owned. They're going to get a monthly newsletter, I think it goes out on the 19th or 20th of every month. We upload financials to our investor portal on a quarterly basis.
We have a semiannual call to go over our performance in all of our properties. But we're always accessible. Quite honestly, investors really don't reach out because we give them plenty of information. In our newsletter, we show performance pro forma, you know, what we laid out in our investment summary to actual and the difference. And each month there's always going to be a little difference. And hopefully we're really outperforming our performance. That's always our goal to under promise and over deliver. We talk about any struggles that we may face and let's be honest, thing goes perfectly smooth. So, I mean, there are obstacles that we face and we lay out, okay, this is what we're facing and this is what we're doing to overcome it. We have a capex tracker so they could see the improvements that we're making on the property. We'll share pictures of events and of the capex stuff that we're doing on the property and anything else that's pertinent to them as far as distributions or whatnot. Like, hey, we're going to have a, you know, per our investment summary, we are on track to have a distribution coming next week or whatever is very pertinent. And this way they are informed of what's going on. Now, when Covid struck, we doubled down our communication. People are a lot more nervous. The newspan is getting shrunk and so we want to make sure that we're communicating if something's going wrong. So we give every investor all the tools they know to feel comfortable in their investment. And again, and we're just a phone call, an email away, and occasionally people will ask, hey, I had a question about one thing in the newsletter.
[00:18:06] Speaker B: And, you know, so, yeah, over communicating is definitely, it's unsung hero right there. If you over communicate. And I say over communicate. I'm not saying give them more information than you think they can absorb, but give them enough information so that they know what's going on. There's nothing worse than being nervous about your investment. If an investor gets to that point, I mean, the phone's ringing off the hook. And so I like to hear that you are, you know, you're communicating with them in that way. What should they expect as far as a return? And I know this may be a loaded question, because every deal is different. We know no deal's the same. We know there's risk in every investment. So give me an average of maybe all the deals that you've done since 2017 till now. What would the average return look like for an investor?
[00:18:53] Speaker C: Well, this is going to be past performance doesn't equal future performance because we've. We've really killed it on our deals. And it was a lot of buying. Right business execution, and just the market has been insane. So I think our average IRR is over well over 50%, but we'll typically, you know, underwrite 15, 18%. IRR and IR, for those that don't know, is taking an account time value of money. So when you get that money, is equally important as how much cash flow on our deals typically are going to be a little light because of our value add model. So it might be zero to 2% the first year, two to four the second year, three to five the third year. But again, you're getting those tax benefits, and a lot of our investors are looking for the equity multiple. So we're, you know, the last deal we did was. Was over three x in under 20 months. We're looking for that bang. We're looking. That's that quality of product that we buy and the timing and the right market and all these different factors, and that allows us the opportunity to hit a run, hit a home run if there. If there is, and if not, then we'll do very well. Yeah, we're not always going to hit a home run, but we want to give ourselves the greatest chance of that happening.
[00:20:18] Speaker B: Yeah. What would you expect in a normal environment? And I say normal because I think we're kind of rounding the corner to what the norm's going to be for the next couple of years. What would that look like?
[00:20:29] Speaker C: Yeah, absolutely. I mean, we'll underwrite to more of a, typically a five year hold. All of our deals have sold within two years, and I think you're going to see deals getting held a lot longer. So I don't know, three and a half, four years maybe, but at least it gives us some, again, margin for error. That's always, that's how we underwrite. That's. We always want to have some margin for error, not have a gun to our head to, to sell a deal or to anything so that we can maximize the return and sell during a frothy time, preferably versus a time where, where it's just not a good time to sell. Yeah, but so, you know, like I said, so probably around 15% to 18% irr. So we look to two x people's money in five years. That's our goal.
[00:21:16] Speaker B: Yeah, I know you say you're not out there just lending on anything, but what does 2023 look like?
[00:21:23] Speaker C: Yeah, so it's quiet out there right now. As far as deal flow, we just wrapped up NMHC, the multifamily housing annual conference, and brokers typically release a lot of deals at that time. And, I mean, I would say, you know, every broker has one or maybe none deal right now. It's just slow.
Sellers don't want to sell unless they have to because they're not going to make a lot on their, you know, on their, on their deal. Some, some sellers will have to sell because they bought, they got a deal with floating debt and that debt has gone up, and now they are not able to meet their, their debt service. So they may be squeezed and they can't refinance because they had so much leverage that they're not going to get now.
And now selling it at a cap rate that's much higher than what they bought it at. So there'll be some opportunity for that. It's not going to be this wave of opportunity. And I think as interest rates start coming down and maybe towards the end of the year, you'll start seeing a pickup and people get more comfortable, lenders start lending more at a lower rate. And so I think deal flow will start picking up third quarter, fourth quarter of 2023 and really get going in 2024. There's a lot of dry powder out there that wants to be put to use.
So it's just a matter of sellers and buyers getting on the same page of what the right price point should be.
[00:22:57] Speaker B: No, absolutely. Absolutely. All right, so hold period. Here's what I'm hearing. Hold period.
Let's call it three years. Let's be conservative here. A three year hold period.
You know, irr on that. Let's be conservative. 20.
[00:23:15] Speaker C: No, I say lower. Let's say 15. Sure. Yeah, 15 under promise over delivered.
[00:23:20] Speaker B: Still great. Still great. I'm just trying to grasp this as a listener saying, huh, is that something I would be interested in? Is that something that I would want to investigate a little bit further?
You have my interest piqued. I get the opportunity to sit and talk with lots of sponsors out there that are looking at real estate deals. And some are more conservative, some are not. I like that you kind of have a flow. I mean, 17, 1819 were great years, right?
2020 probably took a little turn. We're like, what's going on here? And quickly we got right back on track. I can say that from a real estate investor.
But now we're like, okay, we're kind of in this limbo land a little bit a hold, if you will, while everybody's trying to figure out what's going on. Ironically, the name of your company, break of day capital.
Irony of that. For my last question is, how did you name the company that and why?
[00:24:22] Speaker C: It's funny, I get that question a lot. So I was transitioning out of the business. I sold and created this new company. And one, I'm an early riser.
I like to seize the day. And, you know, what I envision is a sun and just, there's some health components to that and just being active and just integrity. There's a couple different things that I kind of mishmashed together and came up with the name. And it seems to be odd enough that it resonates with people.
[00:24:58] Speaker B: It does. It does. The first time I heard it, I was like, where did that come from? I immediately had a bunch of different thoughts that jumped into my mind. None was early riser. I appreciate the early risers out there, but I am not one of them. I am the night owl. So you will see me in the office late at night, but not early in the morning.
I'm seizing the midnight oil, I guess you would say. Maybe that should be the name of my company, right. But anyways, is there anything else that you think the listeners should know about you, your company, what you stand for? I mean, we've gone over a lot of information here today. If they have more questions, where do they find out about you guys?
Leave us kind of with the last. What you think everybody needs to know about you or your company?
[00:25:44] Speaker C: Yeah, I think the big differentiator for us is quality over quantity. Big into asset management. I actually wrote a Amazon best selling book on asset management. And I have a podcast on asset management. And, you know, so we're not just chasing deals and then moving on to the next deal where we want to operate and execute correctly. We want to do things the right way, people first. And that, that goes for, you know, my team, my investors, my residents, they're all part of the mix, you know, for success. And that's how we look at it. And people can reach out. They can go to our website, breakofdaycapital.com dot. We have a, a free e book on there. It's real estate investing made easy because we wanted the process to be easy for all investors, no matter how they invest, through self directed IRA or cash whatever.
And we put out a lot of education so they could go to our YouTube page as well and connect with us.
We're happy to answer your questions and get to know you because we want to know what your investment goals are, and it's, you're not a number with us.
Every single investor is very important to us.
[00:26:55] Speaker B: Perfect. Thank you so much. I appreciate you coming in today.
[00:26:58] Speaker C: Thanks for having me. Appreciate it.
[00:27:00] Speaker A: Thanks for joining us. For another episode of PTC Point of View, where retirement savers meet alternative investments. Know someone who's struggling with their retirement strategy? Tell them about our show. Can't wait for the next episode. To learn more, visit our
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