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Alternative Real Estate Investing Options with Mike Zlotnik

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Gary Pinkerton interviews Mike Zlotnik, CEO of Tempo Funding LLC and founder of TF Management Group. Mike shares that you can make money by owning real estate or by lending money for real estate. They talk about the investment opportunities of Mike’s fund and how people can utilize funds and opportunities of a similar nature, even if they aren’t an accredited investor.

Announcer 0:04
Welcome to the heroic investing show. As first responders we risk our lives every day our financial security is under attack. Our pensions are in a state of emergency. A single on duty incident can alter or erase our earning potential instantly and forever. We are the heroes of society. We are self reliant, and we need to take care of our own financial future. The heroic investing show is our toolkit of business and investing tactics on our mission to financial freedom.

Gary Pinkerton 0:39
Hello, and welcome to Episode 98 of the heroic investing show where we focus on those challenges unique to members of the armed services, veterans and the first responders, those firefighters, police officers and EMTs across the country that lay down their lives and go in harm’s way 24 seven for those the rest of us. So the weekend focus on what inspires us and spend time with our family feeling safe, that we can do what we’ve been called to do in this great nation of ours. But we also focus on those issues that are common to all investors, many of us out there are working w two jobs that are not our calling. Sometimes there are those of us that are lucky and are doing exactly what we would have been doing if no one was paying us anyway. But most of us are working a W two job to another goal, right, we’re paying the bills, but we have a desire to focus on something else where we’re uniquely gifted to add value to the world. We’re also interested in doing some travel and spend some time with our family. So this is all about helping you with ideas about how to put passive income in place. And my guest today is a dear friend Mike Zlotnik. And he’s a New Yorker has been living there for about two decades now. And Mike is going to bring to us an alternative idea about getting passive income. That’s not specifically direct ownership. You know, there’s all kinds of passive ways, of course, to invest in real estate. There’s also, you know, things like royalties and other ways to get passive income, perhaps from a business that you’re not you don’t go to every day.

But many of our listeners, of course, are interested in real estate. But some of us have some challenging schedules, you know, the military members travel for six 810 months at a time, you know, those who actually go home every night, you know, the first responders, perhaps they still, you know, are working 24 hour days, several in a row, you don’t have the most dependable schedule in the world. And sometimes managing a property yourself or dealing with property managers isn’t achievable in that world. And some of us are looking for a lower barrier to entry, but still getting the amazing multi dimensional process that is real estate investing. So Mike will bring us one solution of that. And I think you’re gonna really like that I personally love it. And I’m excited to be getting involved with it myself. So Mike’s a real estate investor from back, you know, starting in around 2000 got about 10 years on me on that. So he’s got, you know, a 20 year history coming up on 20 years. He’s also a mathematician, certainly, as you know, he beats me out in math, no doubt, no doubt. I’m an engineer and have done a master’s in and and I’ve spent a lot of time with math, but in my nuclear power world, but I don’t hold a candle to my he’s a proud father of some very busy kids up in the New York City area. They’re big ice skaters. But they’re just in general, incredibly busy family. He’s a great father. Mike’s forte is private lending, private financing, before coming into his company that he owns now tempo Fund Management Group, and he has several funds that he has successfully led over the time, and we will probably get into those. But before that Mike spent 15 years in the information technology field, and dealing with risk business intelligence, and you know, quality of complex systems, software and processes. So obviously, there’s a lot of math involved in that. But Mike is now exclusively running funds and his own real estate ventures. And he’s taken his expertise in that and really done incredible things with it. I first met Mike now, about four years ago, when he joined three years ago, I guess he joined the venture Alliance mastermind and had some incredible conversations every time we get together. I always say Mike, how can I achieve this? And in about a minute or two, he he gives me some creative solutions, half a dozen of them that I’ve never thought of and make my head spin. But I continue to ask that question so that eventually, this nuclear engineer will figure out what the mathematician is talking about. Mike, thank you so much for joining me here on the heroic investing show.

Mike Zlotnik 4:40
Gary, thank you for a gracious invitation. I very much appreciate coming here. And I have to say that you’re my favorite submarine captain. I don’t know anybody else. But I am a big fan of Tom Clancy. I read every single novel if you set out The Hunt for Red October is my favorite book. So every time I Think a little bit about this. You remind me, I guess you you commanded a sub there was a hunting Russian boomers. So yeah, if you read a lot of credit and a great appreciation for the work that you’ve done for the service and the I’m grateful to all the servicemen, well, the United States Army in a US citizen refugee from the communists, I ran away from them. And yeah, and all the men and women of New York City, the firemen as much as New York City, but all the country, firemen, the policemen, emergency ambulance services, I remember 911 that was a terrible experience hurts my heart, I had some friends who perished. And just to remind that the freedom is not free. We have to defend the freedom. So that’s a great service that US Armed Forces and policemen and firemen and EMP workers do. safe and secure.

Gary Pinkerton 5:53
Yeah, you know, I appreciate you highlighting that, again, we, you won’t find a bigger patriot out there. Someone who appreciates American democracy, freedom, rule of law, things like that, then Mike does and he’s very much centered and focused on that. And I bet you your kids probably have as much respect for that or more so than my kids do. And with respect in New York City is really surreal. And it’s awesome that Jason asked me to join in hosting the heroic investing show I mean, it’s a good fit based on the military side. But from the first responder side I really have just been blown away by the impact has had on on my outlook on my interactions here in the New York City area. You know, every year you sponsored thankfully our in our graciously and I appreciate it, soothing myself and the kids participating in the our second version of the tunnel, the towers race, which happens every fall, put on by the siller Foundation, and they give all of the proceeds to build homes for catastrophic Lee wounded warriors, as well as help people learn, you know, all of the recent hurricanes that have come through and this is a great organization, very well supported. But in the city of New York is just amazing. You you run this race right through the battery tunnel into, you know, right past the the Freedom Tower. It’s an incredible day. But the most amazing thing is that the closing ceremonies when all of the firefighters and police officers 1000s of them will will join in this parade and full dress uniform with the bagpipes. It’s just a really proud afternoon is a great time and I’m I’m blessed to participate in in in any of you out there that want to go back and listen to my first podcast with Jason on this in the in the 40s somewhere in like 46 or 47. I did it with our local coordinator here, Kathy Cunningham. And so it’s a great episode if you want to go back and learn more about that or how you can help participate in upcoming years. But Mike, what I wanted to talk about is your investing history. And then we’ll lead into like what you may offer the listeners for more of a passive approach to real estate investing true?

Mike Zlotnik 8:03
Well, I got started in real estate in 2000 with my first apartment in Brooklyn, but many more since I’m actually president, while Co Op, I still own number of apartments in a co op and I love real estate I have discovered passion to real estate through that first purchase. So I bought my first apartment where I lived with my wife and kids for number of years. And then we move to another apartment in the same building. And then ultimately, we bought a house here in Midwood, Brooklyn. But that got me started. And I realized that spending 15 years in software development, running complex systems, kind of growing my career all the way from entry level to being VP, lead technologist in a company. I love that work. But it was tiring, exhausting, and the lifestyle was difficult. So nothing wrong with that field. Just real estate provides freedom provides ability to have passive income and to build your life around your family. Not necessarily the other way around. I’m going to crack a joke on this, you’ve probably heard of this joke. This is the wrong way to live life. I was told that this so most of us have priorities in life. So what’s the priority? Number one, it’s supposed to be God for your order. Number two, supposed to be family burden. Number three supposed to be work. But the joke is we pray to God that the family understands that the work comes first. That’s what we used to say in the software development. So I want to live like that.

Gary Pinkerton 9:34
Yeah, no, I get you. I agree with you.

Mike Zlotnik 9:38
So real estate is freedom. It provides an opportunity why because most of real estate, not all of it is passive but fundamentally you can make an investment in real estate is probably most advantageous asset class because of high leverage. You can get a great mortgage, you can get depreciation, Phantom expense, and you get a cash flow and you have also The tide that raises all boats is the appreciation. So all those things aside, real estate is extremely simple, very predictable. That’s what I love about real estate from addition, predictability is probably the number one requirement per se, not guaranteed, but it’s predictable in what I have to say that you’re in this podcast with Jason, Jason is sold many, many, many, many investment houses. And that’s a phenomenal asset class, turnkey investment property is the most basic, most fundamental class, what we do is a little bit different. It’s a complimentary way to make money in real estate. But I wanted to give your audience a little bit of a different angle. Yeah, so you could make money by owning real estate, you could also make money by lending on real estate secured by the mortgages. So part of the business that we do about a half, maybe 60%, of what we do, we do hard money loans. Those are mortgages secured by the real property, earning high interest rate. And they are very specific, that bridge loans for projects that have a specific exit strategy, like a fixer flip, or fix and refi. And half the country has been watching these flip that house type of shows, right. And as you know, it’s very popular. And we work with a bunch of people who do this. So that’s essentially part of the business that you could lend money and get double digit returns. And you don’t have to worry about the ownership responsibilities. So that’s just a little one of the angles of real estate investing is by being a lender. And this is very different from giving somebody a 30 year mortgage, we give folks six months mortgage for fix and flip projects. That’s sort of I wanted to mention that as an alternative asset class, especially today in the age of the stock market volatility.

Gary Pinkerton 11:44
Right. And so you’ve had a few funds and your most recent one or the current one, that’s the new one, I guess, I would say is tempo, opportunity fun. This one, you’re designing that one a little bit different than the other ones, and it’s very appealing to me, would you go into just a little bit about how you’ve adjusted it. And you’re kind of a leader in the industry with respect to not charging managers fees or as much and things like that. Can you talk a little bit about that?

Mike Zlotnik 12:07
Yeah, Gary, appreciate that. So we have, we spent years in harmony lending from 2009. Until now we continue to do that business. We know that business, we realized that a lot of complimentary opportunities come across through the network of folks that we work with. So people come to us with equity deals and phenomenal equity deals, not just the deals, so we invest in long term deals. So instead of buying a single property or lending money with single properties, we’ve worked with other funds where we put some forces together, we’ve invested into larger projects, sort of syndications equity syndications, we own part as part of the fund, we own parts of the Self Storage Facility, multifamily complexes, some redevelopment projects, all mesa is being redeveloped into self storage. One example. We also invest in the some ground up construction for the today’s is an age of short supply of housing. So roundups are good opportunities today. And so the asset classes were basically diversified between maybe 50 to 60% of hard money loans. And now they’re 40 to 50%. We invest in the equity deals through the network of opportunities that come across. So we diversify that way. And you mentioned a little bit about the fees. So this whole industry is rigged with fees. If you go to Wall Street, the wolf has, I mean, with all due respect, but the Wall Street is generally speaking, regular fees, the whole model is charging for everything. As a fund manager, I thought about this, as you know, I have a book out. The book is called How to Choose a smart Real Estate Investment Fund. It’s available on Amazon. In that book, I spent a lot of time thinking about the funds, the fees, they charge, the underwriting they do the asset classes. So when you combine all things together, the fund that charges smallest amount of fees, and does the same investing as a fund that charges a lot of fees, it’ll come out and up. It’s the same concept as the index funds.

Gary Pinkerton 14:07
Sure, like the vanguard fund, right? lowest fees. Yeah, exactly.

Mike Zlotnik 14:10
So in this fund, what we do is an opportunity fund, we charge hard money, make hard money, loans, we charge points of interest. So all the points flow to the fund, not to the manager. In other words, we charge three points 12% interest, the three points go to the fund, and then they enhance the returns to the investors. That’s the one of the biggest difference. I don’t see too many fund managers doing this. And then what we do as equity deals, we don’t charge any money upfront. In other words, we underwrite the deal, we basically get paid when the deal performs in the backend. We don’t charge any asset level fees upfront. So the fund fee structure is very investor focused. It’s less for the manager more for the investors if you want to put it in simple terms.

Gary Pinkerton 14:52
Nice. Okay. And so just some details here now you’re this fund is accredited investor only. Is that true? Yeah, that’s right.

Mike Zlotnik 14:59
Yep. Okay. It is known as a 506 c phone C, meaning that it has to be accredited investor only.

Gary Pinkerton 15:05
Right? So and listen some of you. So if you’re not familiar with a credit investor, that’s a million dollars of net worth outside of your primary residence. So you can’t claim I can’t use that, or 200,000 of income or 300,000 combined family income. So, I mean, maybe a lot of the listeners don’t meet that. But what I wanted to just point out is that you’re going to still learn a lot from Mike here, because there are versions of this kind of passive investment that are for non accredited investors or smaller amounts going in, there’s a different way in which they market to you etc. But the concept still applies for all of us out there. So in your minimum investments about 100,000, I think, right?

Mike Zlotnik 15:43
Yeah, that’s right. Okay, well, you have a secondary fund, I can’t promote the other fund, it’s a 506 B, fund B, it doesn’t know up to 35 non accredited investors. So we have very few spots left in that. But again, basically can invest, generally speaking, you need to be an accredited investor to write it is for the for the sake of the protection of a small investor. That’s why it looks like Yeah,

Gary Pinkerton 16:04
so the way you do this, it’s fairly common is to have a preferred return where the investor is going to receive a minimum amount, and yours is a 7%. preferred. And that’s that’s also pretty common. But then because of again, of those fee structures and your design, the total, you know, net annualized return, you’re shooting for 10 to 13. And I think that’s probably fairly conservative based on your history. But that kind of comes from having that additional total return is coming from having that equity split in there on the fund. Is that accurate?

Mike Zlotnik 16:36
That’s right. So this fund is specifically done an Income Fund. And I want to talk a little bit more about the fund strategy and kind of the opportunities for investors to look into those projects in a second. Yeah, we have 7% pref. And then we have performance split, depending on type of shares, 6040, investor favor 7030, or 8020, depending on how much money they put in. So the 8020 split, investors get 7%, preferably they capture 80% of the upside, we have to deliver the prep before the only performance fees. So from that perspective, the fund is set up to deliver returns ahead of manage getting paid, the manager does get paid for disclosure 2% management fee. But on the grand scale of things, it’s a very reasonable fee, it almost follows the two in 20 hedge fund model that institutional investors have access to when high net worth individuals that’s on the structure. One of the asset classes The reason it’s crow for Newcomb is because the equity projects, every single thing we invest in, has a strong value out. So we never invest in retail projects. So I suggest the same strategy for anybody out there. You could buy retail, there’s nothing wrong with buying retail, you can become a costume investor getting cash flow, but you also could look at every project with an opportunity. In other words, you can buy completely fixed up house just cashflow it. And sometimes if you have the ability to rehab the car, the house, you could buy the house at a good discount using this as an example, and fix it up and rent it. And then you will have a significant value out because of the work and the sweat equity that you’ve built. Yes, of course equity, which is absolutely fine. Except for we tried to do it not on a house level, but on a bigger project level. So we’re not talking about New York City buildings, we’re talking about self storage facilities that you know, $8 million projects, $10 million projects, talking about multifamily, some are larger some we have one project that is a $45 million. To start with, we take a piece of the project, as I mentioned, investors could participate in syndication of an equity deal instead of investing into individual equity deal. And benefit have the same benefits of direct ownership without being necessarily involved in doing heavy labor of managing one project. So there’s a little bit of an alternative angle to the opportunity.

Gary Pinkerton 18:51
Yeah, and so you have these, like secure nodes where people can directly kind of own the note, but generally you got membership units, and people will, you know, have chunks of like 24 month redemption option. You can use a an IRA, a self directed IRA, and then actually on the physical distribution of funds other than your opportunity to get redemption for the liquidity side. You get quarterly distributions, is that right, Mike?

Mike Zlotnik 19:17
That’s right. So the fund pays quarterly distributions and dump Opportunity Fund is fairly young. We launched it just to give full disclosure sake, we launched in early 2017. We have three quarters of performance, and the performance has been solid, I’d rather not put on the radio, but it’s been better than the are greater than expected yet. We know I can’t guarantee anything, best performance doesn’t give any guarantee future results. But we feel very strongly about the assets that we own in the fund. And the payments are quarterly, the fund and many other private funds. This is one of the questions investors should ask is there a locking period and we don’t have 24 months locking period all it means is that if you invest in the unit For the fund, you have to prepare to stay for at least 24 months. If you have a shorter time horizon, you should not be investing in a fund. We do offer promissory notes within the fund this two unit opportunities to invest. One is the unit to the fund those based on percent preference and they have a performance split. And then there are promises and those to the fund the basic lending the money to the fund. And that can be Florida, that doesn’t have to be 24 months, it could be one year, six months, and the rates on that will be returns will be lower because it is there to the fund not accurate to the fund, not an equity position.

Gary Pinkerton 20:33
Yeah, there’s a senior on the capital stack. So very good. If we’re gonna lower, got it. Well, I appreciate you making that distinction. And as you can hear audience, we can get very quickly down rabbit holes with this, trying my best to stay at the high level without walking Mike down too many of those. And we just have a couple minutes left. Mike, what what have I not asked that’s important about this kind of investing or your company in particular?

Mike Zlotnik 20:56
Well, there are many good questions. Again, I must stop promoting the book is free. So I’m not charging any money for the book, but the book, it’s a labor of my passion and work. And I think it’s a great opportunity, folks should pick up the book,

Gary Pinkerton 21:09
It’s awesome. I agree with you.

Mike Zlotnik 21:10
The state investment fund is available on Kindle for free, download it. If you go Amazon thing that is a 795 fee, just cover shipping, submit the request, or you can reach out to me directly. I’ll leave my email my email. And if you reach out to me directly, I will happily ship you the book. I don’t even need the 795 from you. And I’ve got a copy of it has a top 10 questions. The questions are Yep, those risks. So what having a better understanding of what the fund invests in us questions about distributions lock in period? There are many other questions about target return. So the fund has to the other good questions. You should always ask them any fund.

Gary Pinkerton 21:56
Yeah, I thought those are really good. And again, it’s Mike at tempo funding t NPO. funding.com. That’s the best way to reach you. Yeah.

Mike Zlotnik 22:05
Yeah. Mike at Temple funding. Good comments. That’s right. Just mentioned you. You were on

Gary Pinkerton 22:10
investing show. Thanks for offering that to my audience. Mike. Such a pleasure having you on any parting words, my friend.

Mike Zlotnik 22:19
I’m just gonna share it. This is one of those things people ask people.

Gary Pinkerton 22:22
Oh, yeah. Your best recommendation for books? Yeah,

Mike Zlotnik 22:25
I was gonna say Tom Clancy, and a bunch of those. But interestingly enough, my sister just told me read when Bigley. I’ve been listening to a book and the book is very, very interesting. Tell me again, what it is when Begley Okay, when was called when big Lee, and it’s about the power of persuasion.

Gary Pinkerton 22:45
Nice.

Mike Zlotnik 22:45
I mean, they actually talk about I’m not taking any political side here. But Trump has a tremendous, tremendous ability to persuade people. He’s a very powerful persuader. Yeah. So that book is really good book. So I would, I’m listening to them enjoying it. And I would say, it’s a good book three.

Gary Pinkerton 23:05
That’s awesome. And your podcast, Mike, where do they find that?

Mike Zlotnik 23:08
Big Mike font.com. That’s the podcast,

Gary Pinkerton 23:12
Big Mike. It’s on iTunes.

Mike Zlotnik 23:14
Zmazon.com is the podcast and

Gary Pinkerton 23:17
Awesome. Well, Mike, thank you.

Mike Zlotnik 23:18
So a lot about fund investing, and investing. And so I appreciate anybody who would come in and listen.

Gary Pinkerton 23:27
Awesome. Well, you might even hear me on there here coming up soon.

Mike Zlotnik 23:29
So yes, we got the episode recorded. Thank you, Gary, for coming on that as well.

Gary Pinkerton 23:34
So Mike, thanks so much. I’m out of time. I really appreciate it. Please go find out more at at his podcast and also send any questions to Mike at tempo funding. com. Thank you, Mike. Thank you.

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