June 10, 2022
Joe Fairless

JF2838: How to Be an Effective Capital Partner ft. Melanie McDaniel


U.S. Navy Veteran Melanie McDaniel had been working as a park ranger for nine years when she decided to leave her federal career behind and become a full-time real estate entrepreneur. Today, she is the founder, partner, and fund manager at Freestyle Capital Group and Freestyle Fund. In this episode, Melanie shares how she became a co-GP and capital partner, her thoughts on investing in real estate during a high inflation period, and why conducting due diligence on deal fees is more important than ever right now.

 

1. Her Path to Co-GP and Capital Partner

When Melanie started her first apartment deal, she realized she didn’t love certain aspects of buying apartments, like touring properties, negotiating with brokers, and handling acquisitions. She did, however, enjoy talking to people and giving them access to opportunities. “The wealthy and their buddies, that’s who’s been making money doing syndications and real estate up until just a few years ago,” she says. “So I want to bring that to the masses so other people can build their wealth and not just throw their money in the stock market.” 

 

2. Investing in Real Estate During a High Inflation Period

Melanie says because real estate is a hedge against inflation, buying and securing now at long-term low interest means that the mortgage note won’t change, but the property’s value and rent will increase as the dollar loses value. “I don’t think we need to pull back,” she says, “We just need to be more careful about what type of debt [we leverage].” She recommends tightening due diligence when it comes to the investment, asset, location, operator, and debt. 

 

3. Why Due Diligence on Deal Fees Is a Top Priority

“I think fees are fine,” Melanie says. “People need to get paid and compensated for their time up front … but I want to see if it’s in alignment with my LPs.” She looks at how much her investors are making and how much risk they are holding before they start getting their principal back. She is often skeptical of syndicators with big platforms because, with such a large funnel of investors, they can charge more fees, potentially leaving investors with more risk and mediocre returns. 

 

Melanie McDaniel | Real Estate Background

  • Founder and partner/fund manager at Freestyle Capital Group and Freestyle Fund. Freestyle Capital Group is a boutique private equity firm that focuses on a variety of asset classes, and Freestyle Fund is a customizable Fund.
  • Portfolio:
    • GP of:
      • 206 units across AZ, TX, and VA
      • Owns 24 units in Norfolk, VA
      • Triple net in Longview, TX
      • Three luxury residential assisted living houses
    • LP of:
      • 276 units in Huntsville, AL
  • Based in: Austin, TX
  • Say hi to her at:
  • Greatest lesson: Everyone who has made money from real estate has been a genius in the last 10 years. The coming times are going to separate the true professionals from the operators who have gotten lucky with the market cycle. Do your due diligence. I have looked at enough underwriting in the last two years to know that a large majority are underwriting aggressively based on the market cycle we just went through. It is time to play defense and look for lower-risk opportunities with strong teams with a track record.

 

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TRANSCRIPT

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I'm Ash Patel and I'm with today's guest, Melanie McDaniel. Melanie is joining us from Huntsville, Alabama. She is the founder and partner fund manager at Freestyle Capital Group and Freestyle Fund, one of which is a boutique private equity firm that focuses on a variety of asset classes, and the other is a customizable fund. Melanie is a GP on hundreds of multifamily units, a triple net property, and three luxury assisted living facilities. She is also an LP investor. Melanie, thank you for joining us, and how are you today?

Melanie McDaniel: I'm super, but I'm coming at you from Austin, not from Huntsville, Alabama. One of my LP investments is there, but I'm in Austin, Texas.

Ash Patel: Alright, we'll modify that. From Austin, Texas. Melanie, before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?

Melanie McDaniel: Yes, for sure. So I came from a very normal background, raised in Utah and taught "Go to school, get good grades, go to college, get a job." I did something a little different. I joined the military first, so I was in the Navy for four years, because I didn't know what I wanted to go to school for, so I got some traveling in... And I decided to get out and go to college, and at the time, I didn't know what I wanted to be when I grew up, but I knew I love to travel. So I actually have a bachelor's degree in hospitality and travel administration.

And then as I was looking for a career, I didn't really find anything in the tourism industry that I felt had a long runway, and so I followed in my dad's footsteps. He was a Utah State Prison guard and his wife was a park ranger for the National Park Service, and I ended up following her route. So I was a park ranger for nine years. And then I read Rich Dad Poor Dad, which, like a lot of people, that was a pivotal book in their life, because it's a mindset shift. And then I realized I was just trading my time for money, and I had a certain ceiling that I would ever amount to if I stayed in that track. So it took me about two years to go from that career path to just completely leaving the federal career behind and going into entrepreneurship and real estate 100%.

So I started as a real estate agent, and it was my stepping stone to figuring out what I wanted to do. Again, I didn't know what I wanted to do, I just knew I wanted bigger numbers, more zeroes, more doors. So it took about two and a half years and then decided to go all-in on apartments. And that didn't end there, I went as far as I want to be the capital part of the GP on those syndications. So that's where I am now. I have a fund, and I'm more on the capital side.

Ash Patel: So Melanie, it doesn't appear that you are motivated by money.

Melanie McDaniel: Well, I think money is a motivator, because I don't want to have a cap on my potential... But lifestyle design is probably my motivator more than anything. I love to travel, and as a park ranger, or work for the government, or a job, you get two weeks a year, three weeks if you're lucky... But I want to travel for months at a time, or potentially even live abroad. So it is more of a lifestyle design, but it was also a fulfillment piece. I was not fulfilled at all being a park ranger, writing tickets to people for the dog off-leash, or whatever it was I was doing. It was so not interesting and not fulfilling. So yeah, it's much bigger. Money is a piece, money is a tool, and it provides a lot of opportunity, so I'm not opposed to money, but it's just not my main driver.

Ash Patel: Got it. What was your entrance into real estate? You became an agent, what was your first investment?

Melanie McDaniel: I bought a little single-family house, sight unseen, turnkey rental in St. Louis, Missouri. I think it was $45,000, and I think my tenant was paying about $800 in rent. So that was my first investment, and I used a self-directed IRA for that.

Ash Patel: And then how did you scale up to hundreds of units as a GP?

Melanie McDaniel: The first one, I joined Michael Blank's coaching program back in 2019. So I ended up buying a 24-unit with partners, that was my first multiple-door deal that was my own. And that was a JV [unintelligible 00:05:34.13] our own deal, but that was a joint venture, so full owners of that. So that was my first deal.

And then the second deal was an LP deal. So I invested in that Huntsville property, like I mentioned. That's 276 doors, so that was a big jump. And then my next one was 108 units, and I did that as an SPV, which is a single-purpose vehicle. So a couple of partners and I formed an entity - it's a fund, it's just a very limited fund - to invest.

We raised $1 million together to go in as an LP into the 108-unit deal as an LP for $1 million, but we also got GP shares of the deal as the fund managers. So there were GP units on that one. So it's every single deal, if I'm not investing just as an LP, which I haven't done yet, I get co-GP shares, so that gives me the GP units and the doors.

Ash Patel: How do you get co-GP shares? What do you put into this?

Melanie McDaniel: Negotiation! [laughs]

Ash Patel: Let's dive into that.

Melanie McDaniel: Sure. So we can talk about... I don't like using the term "capital raising," because SEC is very strict on how you can raise capital from people, and it's guided by regulations, and we most often operate in the 506(b) and 506(c) exemptions. So when I am raising, my fund is a 506(c); I have done 506(b) deals before.

Ash Patel: For the Best Ever listeners, can you explain the difference?

Melanie McDaniel: Okay. So 506(b) - they have to be sophisticated investors, but not accredited. The accredited number marker is a net worth of $1 million, not including the house you live in. Or if you're an individual, you make $200,000 a year and half for the last two years, and you will for the next couple of years. Or if you're trying to qualify with your spouse, then the two of you together make $300,000 a year. So that is the marker for becoming accredited.

On 506(c) deals, everyone investing in the entity or in the deal or whatever has to be accredited. And then in 506(b) deals, you can take up to 35 non-accredited investors, but they still have to be sophisticated. We still have to know that we're not taking their last dollar, that we're going to put them out on the street if their money gets tied up for too long. They have to know and make an informed decision for themselves that this is the deal they want to be in, it's the best investment for their strategy, their path in life, and whatever. So we need to determine that in order to bring them in into the 506(b). So a 506(b) is more restrictive; we can't advertise those investments. 506(c), you can advertise, but you have to verify the accreditation status of all your investors.

Ash Patel: Got it. And what made you want to become a capital raiser?

Melanie McDaniel: So we try not to use that term "capital raiser."

Ash Patel: Let's substitute it for a better term.

Melanie McDaniel: I would say either a capital partner or an investor or a co-GP. And we have other jobs on the GP, but capital raising is maybe one of our main job titles. But I think you had another question about how you get co-GP? You want to finish that thought?

Ash Patel: Yeah. I was going to hit them both, but let's talk about that. Let's go into the co-GP.

Melanie McDaniel: Okay, so you asked me how I get co-GP. So if I am mainly the capital piece, I'm either full on a co-GP where I'm on the GP, I'm part of the team, I can raise capital, I can do due diligence, I can visit the property, I can do investor relations... There's a lot of things I can do as a co-GP; a true syndication where I am on the GP. Or if I'm coming in as my fund or as a newly formed fund or SPV single-purpose vehicle, then if I get co-GP shares as the fund manager, then the things I'm doing on the GP are maybe sitting on a board position, or I have voting rights, or I'm doing some market analysis, and then of course, I'm helping my own investors in my fund. I don't necessarily take ownership of all the investors in the whole deal, but in my fund only. So for that, I will negotiate some GP shares.

So in my fund, I don't have to charge my investors any extra fees in order for me to get paid, because we have to get paid doing business; otherwise, what are we doing? If I can get GP shares, I don't take it from my investors and dilute their shares, so I prefer to do that.

And in general, I would say the value of capital in a GP stack is 30%. I've seen as low as 25%, I've seen up to 40%. And then any structure outside of that I'm sure can be argued. But in the syndication world, 30% value is appropriate for the GP stack. So that means when you break down the GP stack, if 30% goes to capital, maybe 10% goes to the KP, 20% goes to asset management, and there's a 5% for the finder's fee, or the acquisition or whatever. So it breaks down who owns what shares of the GP.

So if you have five people on the GP, if I raise half of the capital, then that would add up to 15%. I would earn a 15% share, plus a few percent for investor relations, a few percent for due diligence, a few percent for acquisition. Just everyone gets compensated according to the value they bring on the GP. So I always try to start with a value of 30%, and then we can negotiate. There's lots of levers to pull. So there's acquisition fees, there's asset management fees, there's potential refi fees or disposition fees... You have to work with your partner to determine what's fair compensation.

Ash Patel: Yeah. Thank you for explaining that. I think it's important for people to understand this. So on the total GPA share, the typical going rate for the capital partner, or the total capital raise, is about 30% on average.

Melanie McDaniel: Yeah, I would say so. And that could come across four different people as well.

Ash Patel: Right, so you would split that amongst the dollar amount that they bring in. Now, in terms of all of those fees, do you still get 30% of acquisition costs, disposition, refi, all the other fees?

Melanie McDaniel: Typically, yes, but I would say a lot of operators push back on the asset management fee, because the asset management fee is going to pay for the actual management of the asset. The software programs, or costs, or maybe an employee, or there's a hard cost that isn't just free money... Asset management fees don't mean income all the time; they mean, "Okay, there's an asset management fee." Some of that might be income for the GP, some of it is just going to hard costs of running the business. So I've had some pushback on sharing the asset management fee, which is fine with me, because I could be charging an asset management fee in my fund or on the SPV or whatever, so I think that's reasonable.

And just to clarify, we should not be getting paid specifically in our compensation to the dollar amount we raise. So some of your compensation will be for the raise, but you do have other jobs in the GP that you'll be compensated for. So you shouldn't ever go out the gate saying, "Hey, I'm going to raise this much money and I want to be compensated exactly this, because that's the dollar amount." We definitely want to avoid that, because unless you're a licensed broker-dealer, you cannot be paid to raise capital.

Ash Patel: And capital partners don't have to be licensed.

Melanie McDaniel: Correct, as long as they're not being compensated to raise capital and the amount that they're raising. Otherwise, that's a licensed activity.

Ash Patel: Got it. And how did you get into this?

Melanie McDaniel: So when I started doing our first apartment, I realized I didn't love a lot of the aspects of buying apartments. I don't like touring properties, I don't like negotiating with brokers or schmoozing brokers to even get a deal. I don't like the negotiation process, I don't even like the inspection process. There's a lot I don't like; I don't really like acquisitions. And then the management, managing management - not very interesting to me.

Things I like are talking to people, bringing opportunities to people who may not otherwise know these things exist, or they wouldn't have access to them without me. Bringing main street to the public, because there's a lot of really rich dudes have gotten richer because they've been doing syndications forever. The wealthy and all their buddies, that's who's been making money doing syndications or real estate up until just a few years ago when podcasts like this one started and people started getting aware that they could also invest like this. So I want to bring that to the masses, so other people can build their wealth, and not just throw their money in the stock market.

Ash Patel: The operator or the syndicator obviously has a fair amount of risk. What risk are you incurring?

Melanie McDaniel: So I'm not signing on any loan docs or anything like that. So as far as the deal goes, we're typically LP positioned. I mean, the fund is, for sure. If I'm taking GP shares, arguably, I could have some risks there. But what I risk - losing my investors' money, and my reputation, and not being able to sleep at night. The last thing in the world I want to do - I don't even care what the financial risk is to me, but I never want to lose investor money. I'm not in this business to do that, at all.

When I get into a deal, I've thoroughly vetted it. And I say no to a lot of deals before I'll ever agree to raise for one or partner on one. Yeah, that is the risk. The risk is losing my friends and family and investors' hard-earned money, and then also my reputation. You lose money one time, it's very hard to go back and do it all again. So this is my career path. I want to do this for a long time, so that's what I risk.

Ash Patel: Yep. Melanie, you've got a triple net property that your GP on. Retail, I'm assuming?

Melanie McDaniel: It's industrial, so it's a printing company.

Ash Patel: Okay. Can you dive into that deal?

Melanie McDaniel: Sure. It's in Longview, Texas. Pretty simple, it's a seller leaseback, triple net property. And triple net means the tenant pays, not just their rent, they're paying for the care and maintenance of the building, the taxes, the insurance. They're paying everything, basically, but the mortgage. We have the mortgage, because we have the loan, and they literally pay everything else. So absolute triple net is even higher than triple net, and that's what we have on that one.

The lease - it's a seller leaseback, meaning the current tenant used to own the property. They sold it to us, but they're leasing it back from us, and their leases tend to be really long-term. That one, I think it's a 15-year with a 15-year extension; it might have been 20-year. I'm getting deal merge, as they would say. I'm looking at another triple net right now, so if I forget exactly the nuances. But they're locked into their lease for 15 years, and for that, and because it's triple net, you get less per square foot, but you have the security of this very long-term investment. We only plan to hold it for three to five years.

And there's an escalation clause, so each year their rent's going up, so each year, the NOI is going up, arguably probably not at the rate that inflation is or that rent rates are increasing, but it's a very stable investment. A lot of buyers, for those - ours actually turned out to be pretty amazing. 10% cash on cash, paid monthly. That will dwindle slightly for the next buyer, simply because the escalation was only 2%, and interest rates are going up, so that will squeeze them a bit But we could hold it long-term if we wanted, or sell. But yeah, my investors are loving their cash-on-cash return on that one.

But I would say the most important part when you're looking at triple net is when we underwrite multifamily apartments, we're looking at rent rates and occupancy. In triple net, you have one tenant, so if your tenant leaves, you're 100% vacant, so that's always the scary part. That's why you need to underwrite not just the property and the rent rate, but the company itself, their financials, their growth strategy, their CEO, and make sure they're collateralized. If they stop paying their rent, what happens? What's available to you to take? Only equipment, and whatever. So it's very important to underwrite the tenant specifically when you're looking at triple nets.

Ash Patel: And the number of years remaining on that lease is also important, because the next buyer doesn't want to buy with two years left, because what's going to happen if that person leaves and doesn't renew?

Melanie McDaniel: Right. I am open to shorter-term leases on other types of triple nets, but you would want to be closer to core markets, and you want to know that that rent per square foot is increasing every year. You almost want to get to the point where you're like, "Yes. Please leave, because I can lease your space out for twice what I have you in there for right now." So yes, I don't think seller leaseback long-term leases are the only way. I think they're awesome, but I also think with a really great operator, with shorter lease term, then a really strong market is also a very good triple net strategy.

Ash Patel: That's a great point.

Break: [00:18:07] - [00:19:54]

Ash Patel: Three luxury assisted living facilities. Talk to me about those.

Melanie McDaniel: So luxury assisted living - these are single-family houses. So there's three of them, they just have eight to 10 bedrooms. Most of the bedrooms have en suite bathrooms. So when you're looking at assisted living, the money that's being made is in the private sector. If you were in a government-backed assisted living facility, the government does not like to pay $6,000 or $7,000 per room, like you will get in the personal space.

So the luxury comes in with the higher-end rooms, rooms that you can push to $6,000 or $7,000 per room, and there's eight to 10 rooms per house. But of course, again, very high operations. You have employees, you have nurses, you have a lot of regulations. So with assisted living, there's a lot of money to be made, but there's also a lot of money to be lost. And all that depends on your operator. Very operation-heavy. Again, if you're going to invest in assisted living or buy one yourself, it's all in the operations, for sure.

Ash Patel: Melanie, we're heading into a high inflation period of time. What are the thoughts from your investors on continuing to put money in real estate?

Melanie McDaniel: From my investors or from me?

Ash Patel: Let's do both. Whatever feedback you've gotten from investors, and your outlook as well.

Melanie McDaniel: I've had a few investors say they're keeping dry powder. I suppose they expect the sale to happen at some point, where maybe there's some sort of a peak and a crash, I don't know, and they're going to buy in the dip. So some of my investors are there. Other investors go with the fundamentals of real estate. Real estate is a hedge to inflation. Yeah, there's inflation, but real estate inflates with it. It doesn't go the opposite direction. So if you buy now, and you secure, especially long-term low interest - I mean, we're still at historical lows, even at 5% and 6%, it's historically low over the last 5000 years of tracking interest rates, we're still pretty low.

So if you can secure long-term low-interest debt, and in this inflationary environment, that mortgage note doesn't change, but your rent increases, because we know it is, or your value increases, because we know it is. Or you can call it value increase, or you just call it the dollar losing value. Well, our payment to the bank doesn't increase as the dollar loses value, but we get to collect more rent because of inflation.

So most investors still believe in the fundamentals of what real estate is, all the tax benefits, the hedge to inflation, leveraging that debt, the long-term debt especially... I don't think we need to pull back, we just need to be more careful about what type of debt. Is it bridge? Is it short-term? Is it floating interest rates? And then I also think, looking at the skill of the operator. What were they doing back in 2008? What are they doing to hedge all of these coming unknowns and risks?

So I just think tighter due diligence on the specific investments you're doing, the asset type, where you are doing it, the operator for sure, and then that debt piece is huge, understanding the debt.

Ash Patel: I feel like real estate people have blinders on. And especially now, where we've had 10+ years of a booming economy, positive price increases, and we just assume that everything's going to always be great. Do you think enough people are taking into account cap rate expansion and exit caps being much higher than entrance caps?

Melanie McDaniel: I think it depends on the asset class. I'm seeing multifamily still compressing, but to what end? The difference between now and back in 2008 is this whole supply and demand issue. There is not enough supply and still a ton of demand. Even though the interest rates are increasing, people are still going and paying higher prices, with higher interest rates. At some point, something's got to give in this single-family space, and at some point, rent rates are going to get too high. And I think that's when, yes, maybe cap rates will start going the other way, or at least becoming stagnant, at least in any rental space... But I don't know. With supply and all this institutional money trying to get to work, what might happen is we as syndicators and mom and pops get squeezed out, and the institutions start buying where they can make a yield on a three or four cap, where we can't anymore. Our investors need to adjust their expectations to the returns. If a deal is underwritten appropriately with an appropriately decompressed cap rate, they probably need to start adjusting their expectations for that cash on cash and that IRR, for sure.

Ash Patel: Yeah, that's a good point. So I am a commercial investor. And when I say commercial, I mean the real definition, the non-residential commercial investor. And already our rates are in the fives, which is still lower than residential, but we're looking at deals completely differently, and we're anticipating exits in the 6% or 7% interest rate. So the way that we're looking at deals has drastically changed, but I see multifamily operators still have those blinders on, expecting cap rates to continue to compress. And I don't know how that's going to end well for a lot of operators.

Melanie McDaniel: I really have been saying no a lot lately, even to some amazing operators that have a really great track record. But I don't care how good your track record is, if you keep compressing your cap rate, increasing rent rates when it becomes unaffordable... Why you? Why your building? There's only so many people that can afford it. They have to start moving down, potentially from an A to a B, a B to a C, potentially.

But yeah, just looking at that supply and demand, I invest in states - especially if it's residential commercial, in states that are landlord-friendly. My first apartment is in Virginia, which is, let's say not a landlord-friendly state. And we closed in January of 2020. We've had our second capital call; we have 11 out of 24 paying tenants. The rest have IOUs from the government because the government is supposed to pay, and we're still tens of thousands of dollars waiting for the government to pay, and they're sitting in our facility rent-free since 2020, while we wait for the government to pay their rent. So I will never invest again in a state that is landlord-friendly for the residential side. I'll do triple nets, I'll do commercial in those states, as long as they're business-friendly.

Ash Patel: That's a horrendous situation.

Melanie McDaniel: So what do we do? I don't know what to do. But we all know if we put our money in the bank, we're losing money to inflation at the rate of eight and a half this year. So I personally believe in diversification. And you see I do different asset classes, and that's intentionally. I offer different asset classes in my fund. I love multifamily, I think it's the bread and butter. But I also see cap rate compression, I see institutional money moving in. And if it's value-add multifamily, you're not just buying at a low cap rate, you have to force-appreciate it, you have to force it. So there's risk in ,that because now you have supply chain, and building, and all that stuff; you're just adding an extra level of risk to the whole model, especially if you've stuck it on a 311 bridge loan or something. Or you require a refinance in order for your numbers to make sense. I will not invest in a multifamily deal that requires a refinance either.

Ash Patel: Yeah, that's a great due diligence item. I also question, with all the fees and people that have built syndication machines where they have to keep feeding the machine to get paid on the fees, how much are they just taking on deal flow to keep that machine fed? Do you have any thoughts on that?

Melanie McDaniel: I definitely think that could be a factor. That's interesting, because if they're doing it, a lot of these guys you see are doing three, four, six, 20 deals a year. They're multimillionaires. Maybe they have some lifestyle inflation, because they should be fine, they should be set.

But for syndicators doing a few and they're just getting started - yeah, you can make a lot of money in fees. When I look at underwriting, I look at that as well. I think fees are fine. People need to get compensated for their time up front, the risk up front, like putting up due diligence, hard money that they lose, and it takes them three deals before they actually get a deal... I'm okay with a certain amount of fees, but I want to see if it's in alignment with my LPs. How much are they making, and how much risk is my investor holding before they start getting their principal back?

So I'm going to just say this - people might not like it, but I feel like the bigger the platform these syndicators have, the more skeptical I go into their numbers. Because if they have a funnel and they have thousands of people in their funnel, because they have a top podcast, or they have a top book, or they're on every circuit of every conference or whatever, they can charge more fees, they can have crazy waterfalls, they can have a refi fee, a due diligence fee, a construction management fee, a travel fee, and an acquisition fee, and an asset management fee, and a construction management fee on the construction management fee, or the management fee on the construction management fee, whatever. They can do that. Why? Because they have so many people lining up to invest with them because people know, like, and trust them because of the thousands of hours they've been listening to them on podcasts. And it doesn't mean it's a bad deal, it just means are you okay that they're making millions of dollars and you're putting up all that risk, and you're getting a mediocre return, because they're taking all the upside, for the most part, and giving you just enough to keep you happy? I'm seeing that a lot. But now I'm seeing them getting more risky in their assumptions as well. So the combination of that, the investors are going to get left holding the bag on that one.

Ash Patel: Yeah, so times are changing, and just a lot of good points on people having to do due diligence, not just on the operator, but on the deal itself. All the fees, the structure... Yeah, a lot of good points. So that's where your value comes in, in being a fund manager, and you're doing all that legwork.

Melanie McDaniel: Yeah. Passive investors, if they're just doing their one-off, typically, there's only so much time you have, probably only so much interest. You're not going to every conference and you're probably not listening to an array of podcasts, you probably have your few favorites, and you find the operators you love, you get to know them as well as you can. Especially if you're a sophisticated investor, not accredited, then you can only invest with those 506(b) deal operators that you've made a relationship with... Where I know hundreds of operators, I go to multiple conferences, and I look at lots of deals before I ever pick one, so it would be a struggle for a passive investor that's not that interested in the due diligence... They don't do a background check on their people, they don't know how to look at underwriting, they don't know how to read the fees or a PPM... It could be very frustrating. So I feel that's where the value I have comes in, but the caveat is they still need to do their own due diligence as well.

Ash Patel: Yeah. And I'll share with you, we've had offers from a lot of capital partners wanting to fund our deals with very little due diligence. Literally, they're just wanting to bring money into our deals, and it's shocking that they don't really vet me, they don't vet the deal a whole lot. They know my track record, but that doesn't mean anything, because all my deals are pretty different. So yeah, that's...

Melanie McDaniel: I see that, too. Deals that I've turned down that were not just a "No", but a "Oh, hell no." I see other people raising capital for [unintelligible 00:30:58.17] Okay, I must have missed that... [laughs]

Ash Patel: Yeah, man. Buyer, beware, investor, beware, during these changing times. Melanie, what is your best real estate investing advice ever?

Melanie McDaniel: Well, ever? Specifically now is the due diligence. And at the end of the day, when you've done all the due diligence you think you've done, sit with it and think, "What does it feel like? What is your gut telling you?" Because your gut usually knows, long before you do, if you should or should not invest. Go with your gut. If there are little tingles, little hair standing up, little red flags, but you just really want to do it, the returns are so awesome - don't do it.

Ash Patel: Melanie, are you ready for the Best Ever lightning round?

Melanie McDaniel: Yes.

Ash Patel: Melanie, what is the Best Ever book you recently read?

Melanie McDaniel: I recently read this one, Passive Investing Made Simple. These guys, Dan and Anthony, wrote this for passive investors. So although I'm not a new passive investor, it was very helpful for me, and I actually bought a whole bulk of these to send to my investors; just for the basics of syndication, the basics of what you should be looking for, how they're set up. So right now that's my favorite book to recommend.

Ash Patel: Melanie, what's the Best Every way you ike to give back?

Melanie McDaniel: I donate. I have a child I support in Kenya. Miracle House, and I've been doing that since 2010. I'm on my third child now.

Ash Patel: Melanie, how can the Best Ever listeners reach out to you?

Melanie McDaniel: My own social's under Freestyle Capital Group or Melanie McDaniel, they'll find me. And if they can't, melanie@freestylecapitalgroup.com is my email.

Ash Patel: Melanie, thank you for sharing your time with us. Thank you for serving in the Navy, giving us your life story from joining the Navy, being a park ranger, reading Rich Dad, becoming a real estate agent, and becoming a capital partner, and giving us all the ins and outs of what it takes to be an effective capital partner. So thank you again for your time.

Melanie McDaniel: My pleasure. Thanks for having me.

Ash Patel: Best Ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five-star review. Share the podcast with someone you think can benefit from it. Also, follow, subscribe, and have a Best Ever day.

 

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