YFP REI 127: Passive Fund Investing with DLP Capital with Rich Delgado

Rich Delgado, Managing Director at DLP Capital, discusses passive real estate investing, particularly for pharmacists who may want to diversify their financial portfolio.

Episode Summary

In this episode, Rich Delgado, Managing Director at DLP Capital, joins hosts David Bright and Nate Hedrick to explore passive real estate investing, particularly for pharmacists who may want to diversify their financial portfolio without the hassles of hands-on property management. 

Rich explains how DLP Capital aligns investments with a focus on making a positive impact, turning financial success into lasting significance. The conversation dives into DLP Capital’s three primary activities: acquiring real estate, building new developments, and providing lending solutions to other real estate operators. Rich highlights how pharmacists can participate in these opportunities to create wealth while supporting meaningful community growth.

About Today’s Guest

Rich Delgado is DLP Capital’s Managing Director of Structured Products and Capital Markets. He has been with DLP for five years, raising debt and equity into DLP to finance the building of thriving communities and successfully scaling the company to over $1.3B in equity under management and $5.5B of Assets under Management. Before joining DLP, Rich enjoyed a 25+ year career in Structured Finance, mainly with two public companies, growing them each to over $600B in mortgage servicing rights. Rich is also a longstanding and active board member of Friends of Foster Children of Palm Beach, the American Heart Association’s Executives with Heart, and the DLP Positive Returns Foundation.

Key Points from the Episode

• Introduction and Disclaimer [0:01]
• Overview of Rich Delgado and DLP Capital [5:36]
• Comparing Different Real Estate Investment Models [10:10]
• Accredited Investors and Minimum Investment Requirements [15:41]
• Tax Benefits and Transparency in Real Estate Investing [21:45]
• Impact Investing and Community Building [33:58]
• Strategies for Balancing Career and Real Estate Investing [42:36]
• Resources and Advice for Real Estate Investors [44:25]
• Conclusion and Contact Information [46:45]

Episode Highlights

“You may say, maybe I’m missing out on something if I’m not doing it myself, if I’m not controlling every aspect, right? But you know, the reality is, owning real estate is hard work. Not just hard, you can lose a lot of money doing it if you don’t do it correctly. So if you don’t know what you’re doing, it could be costly, and rather than being a good investment, could turn out pretty poorly.” -Rich Delgado [7:24]

Links Mentioned in Today’s Episode

• *Register for Aliquot Investing Webinar: “Small Investments in Big Real Estate Deals” October 7th at 9pm/EST
• DLP Capital 
• [email protected]
• Rich Delgado on LinkedIn
• Rich Delgado: [email protected]
• Subscribe to the YFP Newsletter
• YFP Disclaimer
• YFP Real Estate Investing Facebook Group
• Nate Hedrick on Instagram
• David Bright on Instagram
• YFP Real Estate Investing Website
• David Bright on LinkedIn
• Nate Hedrick on LinkedIn

Episode Transcript

Tim Ulbrich  00:01

Hey guys, Tim Ulbrich here, and before we get into today’s episode featuring Rich Delgado from DLP Capital, I want to let our listeners know this episode is not intended to serve as an endorsement for DLP Capital. The content in this episode is for informational purposes only and is not intended to provide and should not be relying on for investment or any other advice. Information in this podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with the financial advisor and or tax professional with respect to any investment decision. Furthermore, the co-host of this podcast, Nate Hetrick and David Bright, are not associates of Your Financial Pharmacist. All right, here’s David and Nate with today’s episode.

Nate Hedrick  00:49

Welcome to the YFP Real Estate Investing Podcast. I’m Nate Hedrick.

David Bright  00:53

I’m David Bright. We’re both pharmacists and real estate investors that believe that real estate investing does not have to distract from a meaningful career in pharmacy. 

Nate Hedrick  01:01

Each episode, we share stories that educate and inspire pharmacists to leverage real estate investing as a part of your financial plan. Hey, David, how’s it going?

David Bright  01:13

Hey, good. Thanks. How you doing, man?

Nate Hedrick  01:15

Good. We just got done with a really good episode, something that, again, in 120 episodes, somehow we have not covered yet, which is, which is really cool. So a new avenue for us is always nice to find. And this time, we got to talk about, you know, investing in private real estate funds, which is, which is similar to things we talked about, but totally different. And so that was a it was a nice change for us.

Nate Hedrick  01:36

And I really like how we walk through with Rich how this can compare and contrast with like a syndication or even like a public REIT, and just how it tows that line between those two things to be something that’s different, unique, and all the pros and cons that go with that, we cover a lot of that in the episode.

David Bright  01:36

Yeah, Rich Delgado of DLP Capital talks about how, you know, some pharmacists like or some people in general, like this team approach to real estate investing. Pharmacists are definitely one of those; we kind of don’t love risk, and so we love pooling expertise and pooling people into a deal in order to reduce that risk. And so what, what this model differs in is, rather than investing in one specific project, where then you are tied to the success or failure of that specific investment. Instead, this is a fund that puts multiple different large real estate projects into one giant fund, so that you’re averaging all of those returns out. 

David Bright  02:33

Yeah, and I think Rich brings something really relatable in this, in that he’s not one of these folks that was on a job site swinging a hammer for 20 years, right? Like he’s he had a finance background, found a love for real estate and how that had potential benefit, and then found a way to invest in real estate without having to be active and in the trenches. And so I think that fits for a lot of pharmacists that you know, not too many of us are going to be hanging drywall tonight. So I think that could be a really good fit for pharmacist investors as well. 

Nate Hedrick  03:04

I think the other cool thing is, just to round it out, is that he talks a little bit about how it’s not just about investing, making money off of things, it’s impact investing. How do we take and make the community a better place? How do we take and make housing a more affordable thing for people? So it’s, it’s a refreshing take on on kind of the standard line of a syndicator of like, here’s how much money you’re going to make. It’s a different take on that. Of like, here’s how we’re going to take and protect your investment and then also contribute to the community growing itself.

David Bright  03:33

Yeah, and that’s why we’re just really excited to bring this one, especially to an audience of pharmacists that love safety in numbers and teamwork and doing something positive with the investment, not just numbers on a spreadsheet. 

Nate Hedrick  03:46

For sure. And then we want to hit pause before we go to the episode, because, again, Rich’s episode is great. But before we go to that, want to remind you guys again, re-announce, rather that we’ve got a webinar coming up really soon. If you’re hearing this right now, it might be going on, right, so it’s, it’s October 7 at 9pm Eastern. So make sure you register if you haven’t already, we’re gonna dive deep into David and I’s other entity, Aliquot Investing and really talking all about how syndications work, right, it’s syndication, 101. So if you haven’t registered for that yet, you can do that right now. Go on over to yourfinancialpharmacist.com/syndication, you can get registered for that webinar that’s coming up again, just right around the corner.

David Bright  04:25

Yeah, so on that webinar, Nate you, and I will be talking with Alex Cartwright, who’s a guest that we’ve had on past episodes. He’s an economist who’s led syndications, and so with that economist hat on, he can talk about this big picture and what that looks like, as well as some of the nitty gritty terms and details that are really helpful if you’re evaluating syndications like this, and then even talk about a project that, Nate, you and I have invested in personally. 

Nate Hedrick  04:51

Yeah, that’s big for me. I think you know talking about this stuff broadly is great, but it’s really nice to dive into the details from somebody that’s actually doing it. And again, you and I are actively doing. It right now as Aliquot Group, and so it’s just a nice way for us to dive into that and kind of share with our audience about how this is actually going.

David Bright  05:08

And again, I just love the how it fits the pharmacist values-teamwork like this, because we’re looking for safety oriented investing, and that’s why we wanted to highlight approaches, whether it’s in that webinar, in today’s episode, that may be a good fit for pharmacists based on their specific real estate goals.

Nate Hedrick  05:25

Yeah, for sure. All right, lots of ways to learn more about real estate, but we’ll take you to the next one in front of you, which is the episode with Rch. Here you go. Hey Rich, welcome to the show.

Rich Delgado  05:36

Hey, gentlemen, thanks for having me. It’s a pleasure to be here with you.

Nate Hedrick  05:39

Yeah, this is great. We – you and I got a chance to talk about a month ago, and really excited to have you on today to talk all about DLP Capital and all of the stuff that you guys are doing today for I guess, just to get our audience started here, can you give us a little background on yourself and and why you’re sitting now with us today?

Rich Delgado  05:56

Yeah, certainly. So I’m a managing director at DLP Capital, which is a private firm that deals in real estate, and we do three primary things. We buy real estate, we build it from the ground up, and we lend to other real estate operators that do the same thing. So we manage investment funds that allow investors to come in and passively invest in all of those strategies. So we give them a little bit of everything to kind of choose from, or choose them all, which many of our investors do. But again, spent about 30 years of my career in structured finance before joining DLP. I’ve been with the company now five years. Before joining DLP, I also was not a real estate investor, but was very interested in real estate, and again, found DLP to be a great passive investment for myself, and finally joined the firm and became a member and an employee as well. 

David Bright  06:54

I love that. I think there’s a lot of what you’re saying that resonates with pharmacists, right? Like not a real estate investor yet, but fascinated by it. I think there’s a lot of folks that like passive, because a lot of us have seen a house flipping show or two on TV, and there’s this, there’s this feeling that, oh, I have to be in there painting, and I have to own a hammer, and I have to do all these things that that feel like real estate investing. But I think what you’re saying is it’s not the case. You could be a real estate investor, but you don’t have to be hands on to do it. 

Rich Delgado  07:24

That’s exactly right. David, um, you know, when you look at it, you know, and I must say, the temptation is there, right? You always say, maybe I’m missing out on something if I’m not doing it myself, if I’m not controlling every aspect, right? But you know, the reality is, owning real estate is hard work. Not just hard, you can lose a lot of money doing it if you don’t do it correctly, right? So if you don’t know what you’re doing, it could be costly, and rather than being a good investment, could turn out pretty poorly. So I like to think I have my strengths right, and what I do as a structured finance professional, and I raise debt and equity for the company. So that’s my expertise. I don’t go out and try to, you know, invest in the properties, or, you know, do all of the property management or the maintenance. We do that all as a company. But again, I like the fact that I can put my money at someone like DLP, and they do everything. I don’t have to take phone calls in the middle of the night because the plumbing is broken, right, or anything is going bad. And, you know, I have diversification, I have a lot of other benefits that we’ll talk about that come with fun structures. But, yeah, it’s nice. And believe it or not, I probably had to say, if I had to guess, more than half of our current investors are former real estate operators, meaning they did do it at one time, right? Whether they did it for a short period of time and just said, not for me, right? I’d rather not be swinging the hammer and doing all the things or running a construction company, or they’re retired from it, right? They’re like, I don’t want to do this anymore. I do want to continue to, you know, be in real estate, because I love it, right? They know there’s money to be made, and if done, well, it could be very profitable. But they just say, You know what we found DLP, they’re a good operator. We can invest in them and let the experts do what they do best. And you know what? I’ll sit back earn a double digit return, which isn’t too bad, right? Not too shabby. And just collect your, you know, and some people call it mailbox money, where they’re just, you know, getting a little extra income. And for others, it’s retirement, you know, we have folks that span all ages, and some of them just put in, you know, a few million dollars. They’ve created a nice little nest egg now. They just lift off of it, you know, they get a nice monthly income every month, and, you know, get a paycheck, and so it works out well for them as well.

David Bright  09:46

Yeah, I think there’s a lot of folks that are active investors that have had that messy move out, or they’ve had an eviction, or they’ve had that maintenance call in the middle of the night, or they’ve had those, those experiences that make them definitely long for that mailbox money and that kind of passive approach, right? So I think of when I hear that mailbox money or that passive investing, I think of things like publicly traded REITs. I think of syndications, and then I think of private REITs or private funds, which is more like what you’re describing here. But could you just big picture walk us through what those different models are and how those differ from each other.

Rich Delgado  10:25

Yeah, sure, that’s a great, great space to go to. So you know, maybe we’ll just frame out the differences between them in terms of what they are, and then we could talk about the pros and cons of each of them, right? So first, let’s start with your public REITs (real estate investment trust), right, which are very different animal, because it’s almost like equity, right? Even though you might have assets behind and everything, the valuation of your investment fluctuates with sentiment, right? What people truly think the value should be, shouldn’t be, and so not very different from an equity investment, in my view, even though it’s real estate related. Then you have syndications, which are typically going to be single one property investment. So again, whatever asset class, let’s just say it’s a multi-family apartment complex, right? You’re investing in that one property, and they may be, you know, another dozen or plus investors in that syndication with you, right? Everybody’s making an investment. The you know, risk there is, you know, you’re taking the chance that that one property is either going to do really well, or it’s going to, you know, maybe break out, okay. In many cases, and unfortunately I take a lot of these calls, it’s investors that say, oh, I should never have invested in that syndication because I lost all my money, right? And that can happen, unfortunately. Especially in today’s environment, from real estate perspective. And then you have what we call the private real estate funds. And again, that can be in the form of a REIT. Doesn’t have to be a REIT, but a private REIT very different from a public REIT, right? So all of our investment funds are private REITs. All they do is give you a preferred tax election and give you some benefits from a tax perspective, but the fundamentals are very much like the syndication in the sense that you are getting the benefits of the direct investment real estate, and in real estate, the direct investment, you get the tax benefits the way, if it’s structured correctly, the way we’ve structured, and we’ll talk about that. But you get the benefit of not being just solely in one property. You’re backed by all the properties in the fund. And that’s the beauty of a private REIT that has a fund structure. And again, there could be other benefits, like, you know, the pass through of depreciation. There could be benefits of having just a evergreen fund, for instance, which we can talk a little bit more about, right, where you don’t have to worry about investing your money and then getting a return of capital maybe at an inopportune time, right, if you do get capital back, right? So there’s some benefits to the longevity. So a lot of benefits, mostly diversification, geographic distribution. So if you have something go bad with a single property, typically, the effect of that is going to be minimal on your overall returns, versus, you know, taking those big, you know, swings where you might make a lot, but you could lose it all as well. 

Nate Hedrick  13:22

It sounds like that’s the major, the major difference, too, in terms of, like, the the Pro that people would think about, right? It’s like the syndication has that, that higher upside where, like, if it goes really well, right, where if I buy this individual apartment complex, if it goes really well, I could make 40, 50, 60% returns, whereas you don’t have that high ceiling on some of these private REITs, but the lower floor, right? You’ve got this kind of protection built into it with the diversification is that. Am I interpreting that right?

Rich Delgado  13:50

That’s exactly right. Now I’ll give you a good example. So we have a an investment fund. It’s called DLP Housing Fund. It’s where we invest in existing real estate. So we go out and buy existing apartment communities, renovate them, improve them, for the benefit of our investors and for the residents, right? Really building thriving communities, which is at the heart of what we do in our impact investment. To your point, right, Nate, you can get oversized returns. So in 2020 we just, you know, Covid hit, we had a couple of assets under contract. Again, with the market being what it was, we were backing out of some of them, they kept coming back. We really want you to buy these assets. So we wound up buying things at a really big discount, because we were able to negotiate, given the market environment at that time. And at that point, we were under a billion of assets under management in 2020. The asset that we bought, a property called Port Royal, put us over the 1 billion of AUM. That single property, it was a originally $60 million check. We got it for a 10% discount, paid $54 million. Sold it 16 months later for $90 million so again, 140% return, really great. But the benefit to the fund, right, that year, investors in the fund made a 45% return. Now we don’t say that’s what you should expect, right? That was a great opportunity, great times, but to your point, you have that downside protection, but you still have all of the same upside, right? You can make really great returns.

David Bright  15:33

I think that sums up nicely some of the pros and cons about this type of fund. I know one other thing that I hear about this type of investing in general is that it can be inaccessible to some when we talk about things like an accredited investor or investment minimums and things like that, it’s not like I can go to the bank and open up a savings account put 100 bucks in. This is a very different animal. So can you walk us through what an accredited investor is and what that means, and then what typical minimums are for whether it’s a syndication or something like this?

Rich Delgado  16:03

Yeah, absolutely. And our our funds, not all funds are created this, but our funds are for accredited investors, and that’s really more for the investors protection, which means they know what they’re doing. They’re a knowledgeable investor, and typically they’re the SEC is the one who dictates what that means and what the definition. The two most common definitions are the income and the net worth test. So the income test means that, as an investor, you have either 200,000 of annual income for two years in a row, and you expect to continue to do so, or you have 300,000 jointly with your spouse. So again, same rule. The other test is, and it’s an either or not both, is you have a million of net worth, and that is excluding your primary residence, so you can’t include that in the calculation. There are a lot of firms where you can get that there’s an attestation that typically investors give that they’re accredited. We ourselves require it to be a third party attestation, so from either an accountant, an attorney, a financial advisor, someone that’s licensed and can attest to it, but there are other firms out there that you can go to, as well, online firms where you can just upload documents, Verify Investor, Invest Ready, and others which a lot of investors use. But again, that gives investors a protection knowing that they’re getting into their knowledgeable investors and getting into these funds. The other side of it is what you brought up, David on the minimum right. Funds are structured differently, and some have lower minimum. Some have higher minimums. All of our funds are 200,000 minimum. But that’s again, because we have limited slots within the funds themselves. And so, you know, if we were taking in $10, $25,000, we chew up all those slots right within the fund pretty quickly. So really, we set that minimum as a threshold to get in. Once you’re in, you can add as much or as little as you want. You could stay at the $200,000 investment. Or you can add $5000 $20,000, $200,00 you know, again, whatever you want to do you can add at any time. And then we’ll talk a little bit about this, because I think it’s an important topic when it comes to looking at fund structures, liquidity. Making sure you have the access to liquidity, which is a big difference when you’re talking about syndications and funds right? A syndication, you’re typically locked into that investment for the life of that deal, and that could be three years, five years, 7, 10, I’ve heard of all different types, and there are funds sometimes that will lock you out the same way. So you just have to know what you’re getting into, understand the liquidity requirements. Our funds are structured where you always have liquidity. And our equity funds, which are where we’re investing directly in real estate or building it from the ground up, you have annual liquidity, so you can get out in whole or in part every year. Or our debt funds, which are very, very liquid funds, because there’s so much velocity Short Term Lending that we offer 90 day liquidity. You can get out at any time with 90 days notice.

Nate Hedrick  19:25

See that’s huge. I’m really glad you went there Rich, because I think that’s something that is not often talked about with a lot of these, especially like a syndication, like you said, if you’re going in with a, you know, even if it’s 100 partners, and you’re buying an apartment complex, right, it’s 200 units, and they’re going to rehab it for two years and then so on, you are, you are essentially locked into that in almost all cases, until they sell that or refinance it, like you, that’s it. Like you have to have your money in there. There’s no selling your shares to somebody else. So I think that’s something that’s that’s really important for to ask about. If you’re going to invest in something like this, how liquid is it? Right? This is very different than buying a stock, right? If I go and buy an equity, if I go buy Apple, if I go buy Google shares, I can sell it tomorrow, I can sell it five minutes later, and it’s there’s someone else ready to buy it, right? That’s not always the case with with a lot of these funds.

Rich Delgado  20:14

That’s exactly right. And along with that, is another issue, which folks don’t talk a lot about, but is a real big issue, which is the capital calls, right? So again, in our funds, when you make an investment, that’s all you’re making, right? We’re not coming back saying hey Nate, hey, David, we need another, you know, $50,000 or another $200,000 from you in order to make this deal work, because it’s requiring more money, because whatever XYZ, right? And you hear that all the time, folks are like, Yeah, I don’t know what to do, because if I don’t put the money in, right, I’ve lost my investment. And you don’t know if you’re throwing good money after bad and so that can be another issue. You just said, as you’re going in doing your diligence, understand, are there going to be capital calls in the future? Are you going to be required to put any more money in? We do not ever. We’ve never had that type of capital call. The only time you’ll hear us talk about capital call is if you make a large investment of 500,000 or more. What we’ll do is, before taking your money, we’ll give you a call and say, okay, rather than waiting a month till we’re ready to deploy it, right, we’ll call you right before we’re going to put the money to work. And then we’ll call you capital. We don’t call portions of it. We just call the whole thing, we put it right to work and deploy and make it, you know, start earning. 

Nate Hedrick  21:37

I’m glad you went there as well. I remember buying into my first syndication and sitting down with my lawyer to, like, review the documents. And he because, like, these are, like, the top 10 things you got to know. And just before you buy this, right, Nate. And I remember the capital call sections like, look, here’s what happens. Like, they can ask for more money, and here are the five things that transpire after that. Like, either you can bail, you can, you know, accept that you’ll have less shares in the in the overall syndication. Like, this is what it looks like. But it’s like, man, that no one ever talks about that on a podcast. Like, why is that not in there? So it’s good, like, this is the stuff we have to be talking about. Because if people are going to look at this as a way to diversify their retirement or their, you know, just their asset class, like, there are repercussions, and there are ramifications to doing that. You have to approach it the right way. So that’s, I’m glad we I’m glad we talked about that. 

Rich Delgado  22:26

Super important. And you know what? You can always tell the different, the difference between entities first, by their transparency, right? So I urge every investor, definitely do your diligence, call. Right? Get to know the company well, ask a million questions, right? Like if they hold back, if they’re not sharing documentation with you, if they’re not giving you financial statements, if they’re not giving you asset summaries, loan tapes, right? Like the information you need to make an informed investment decision fail, that’s just bail. There’s no reason to continue the discussion further right? Because transparency is the first and foremost, the you know the crux of it all, so we see and know so many and I mean, as an investor, right? I’ve gone and tried to get loan tapes from firms to look at debt funds. They won’t give them to you. I’m like, Okay, thanks, but no thanks. So you know, not an investment for me, right? I want to see what the underlying assets are. I want to know what the maturities are. I want to know, you know, again, who you have money like you just want to know. You want to know what the properties are. You want to know what you paid for the properties. You want to know what the value of the property is, what you know, the LTC, the LTV is. You want to know what the debt on the property, like, you just want to know all the data, right? Because if you’re investing, I mean, if I’m putting my money in it, right, I would want to know. So we make all of that available to our investors.

Nate Hedrick  23:50

So I want to, I want to, because that’s really interesting, right? So for, for we kind of kick this off with, like, this is easy, it’s passive. You just buy this thing and it gives you 10% and then you just threw like, 50 acronyms at us, right? And what it’s, what it’s quickly sounding like. And I, again, I just want to talk about this is, like, I go to my financial planner to help me buy equities, right, to buy stocks. Like, can I go to a financial planner and they’ll, like, say, Oh yeah, go to DLP and buy this fund. Like, is that common, or that you have people doing that? Or, like, who’s helping people navigate this? So that I can just turn my brain off and give you, you know, $250 grand and expect returns. Like, what does that look like?

Rich Delgado  24:26

Yeah, and that’s a great question. So when it comes to the institutional side, registered investment advisors. Advisors will help their clients, right, and they will let them know whether they’ve done diligence themselves or if they use a third party diligence firm. So, like, we have fact, right, due diligence, right? So there are parties that due diligence and write reports for these advisors. And you know, we’ve gone through a myriad of different due diligences. We also have some that we can share publicly, right? So that’s another one you can ask your investment firm that you’re considering. Do you have an audit report, or do you have a due diligence report you can share with me, right? But that’s the best way, because, again, you may not know all the questions to ask, but you know what these third party diligence firms that do this for a living, they know what to ask. They know what the issues are, and they’ll point them out. Right? The diligence reports are very concise. They’re accurate. They point out all the risks, things that are done well, things that aren’t done so well, they compare to other funds. So that’s a great way to do it. And getting that kind of information is again, another one of those questions just to ask, Do you have a third party diligence report you could share with me? 

Nate Hedrick  25:41

Yeah, that’s great. That boils it down. Instead of like, you know, what assets are you buying? I just want to know, like, what’s my return look like, how do I do this? You know?

Rich Delgado  25:48

Yeah, yeah, exactly. And again, do you pass, right, the test, or do you not pass the test again? Some folks do things very well. Some well, not so well.

David Bright  26:01

Yeah. When we talk about the upside of real estate investing, it sounds like you’re harnessing a lot of the things that translate from the single family rental space. I think a lot of folks listening are probably pretty familiar with the single family rental space. You think about the cash flow of rents, you think about the building going up in value. Those obviously tie in, but at a much larger scale, because you’re talking about larger properties, one thing that that feels very ethereal and confusing very quickly is the tax benefits. I think everyone tends to know that there’s tax benefits, especially with single family or multifamily, there’s depreciation, things like that. But how do tax benefits fit into an investing strategy like this? 

Rich Delgado  26:40

Suer, and I’m going to come to that right away. I just want to answer one thing, because I realize Nate brought up all the acronyms earlier, we were talking about LTV loan to value and LTC loan to cost. Right, two very different measures, but both very important, right, as you looking at what that loan is, right? When you’re comparing it to the value of the property once it’s repaired. But then there’s also, what do you actually what’s the loan to the cost that you acquire the property at, right? And that’s a more meaningful one, because what you want to know is that the investor or the borrower you’re lending money to has skin in the game, right? And so you want to know that that’s in there. Our loan to cost is generally going to be in the high 70s, which means there’s going to be 20% plus equity behind it, right? Which is very meaningful in this space. And then going to the tax benefits, right? Again, each asset class is a little different. First we do again for DLP at least, we’re in the what I’ll call residential space, and that could be some single family where we build brand new single family communities from the ground up for rent. Almost everything we do is build for rent. We do some small stuff for sale, but most of it is built to rent. To your point, really looking for cash flowing assets, looking at, you know, generating strong net operating income, right? The majority of our communities are going to be multifamily communities, and our sweet spot is anywhere from two to 500 units. And what that means is, when you’re investing in real estate directly, so our housing fund is our most tax efficient structure, because that’s the one that passes through the depreciation on existing real estate. For instance, we have another fund that’s, you know, direct investment in real estate, but it’s ground up construction. So we’re moving a lot of dirt. There’s a lot of pre development work, a lot of development work, right? And then we’re going to start going vertical. We’re actually in the process. We have about 10,000 units that we’re building in our building communities fund. There’s no depreciation, right? There’s nothing to pass through, because we don’t have buildings already erected that we’re going to pass you know, start depreciation. Once we get those built up, then we’ll start depreciating them, passing that through. But they’ll always be new construction and new development going on. So it’ll never be as tax efficient as our housing fund. For instance, our housing fund, which is all existing buildings, right? And we have 55 properties in there and continuously buying new ones and selling, you know, stuff out that fund, and it’s since its inception, has done about 19 and a half percent on a return basis, pre tax. Every year we’ve been able to offset 100% of your ordinary income, which is what I’ll call realized gains, right? So any kind of income from rents, any kind of income from sales. So that realized we’ve been able to offset 100%. Now you have to be careful, right? And good questions to ask is always consult a tax advisor. That’s the first thing, right? Because they’ll know what to look for. But we use cost segregation versus accelerated depreciation, which is painful also, because you don’t want to get stuck with depreciation recapture, right? So with cost seg, you don’t get that recapture, we’re truly offsetting that income. So that’s a super tax efficient structure. And then the only thing we have is on the unrealized gain, which is the appreciation and the property itself, that is a capital gain that just gets deferred in perpetuity within the fund. Because we do 1030 ones within the fund, 1031 exchanges of like kind properties. So that is super tax efficient, because now you’re not paying any tax, you’re deferring all your capital gains to the end. So great structure. And then there is this small little thing called the QBI: qualified business income deduction, which is a 20% tax rate deduction. That’s something that you benefit from, and you do not get phased out. Under normal circumstances, high income earners get phased out over a certain income level. But with REITs, you do not. So being a private REIT, you get the benefit of taking the full 20% tax rate deduction. So let’s just say you’re at the highest, you know, 36-37% it would bring it down to roughly around 29% right on the tax. So again, very, very, very tax efficient structure. 

Nate Hedrick  31:23

What does that look like as an end user, so, so if I’m doing my taxes at the end of the year, like, do I have to understand all that, or am I getting, like, a form that I give to my accountant? Like, I just briefly, like, what does that look like for somebody that’s actually getting this? 

Rich Delgado  31:35

No, that’s that’s a very important question, because, you know what? You know what? You don’t want to scare people and think, Oh, my goodness, what am I going to do with this? Right? Super simple. So first and foremost, another one of those great questions to ask when you’re looking at different investment in different funds is a, you know, what kind of tax form am I going to get? Am I getting a K1, a 1099, right? Second, do you issue your tax forms on time? Right? That is so important. We have, knock on wood, always gotten out our tax forms, our K1’s by the end of March. So meet and meeting the deadline. So we’ve never missed it. And I have to give all the credit to our accounting team. They just do a superb job of real I mean, there’s a lot of properties, you’re getting a lot of information, you’re going through a lot, but we have always issued them on time. That means you don’t have to go ahead and file extensions and everything else. You can actually just give the K1 to your tax professional, and the tax professional will know exactly what they’re looking at and on the K1 is super simple for us. We do just one K1, right? So that’s another question. Some folks who are in certain funds, and let’s just say they have, you know, properties in 20 different states, you might get 20 different K1s from that fund, right? And that’s a big difference from saying I’m getting a one single, consolidated K1 right, which is what we offer. The second part of that is on the K1 the way it works is that the actual depreciation is already offsetting your income on the K1 so when you look at your actual income, it shows as a slight net loss when we, again, that’s not a guarantee that that’ll happen every year. We think we’ll cover the majority, if not all, of the income. But in the past four years, we’ve been, you know, created small tax losses, have been able to cover 100% of all the income with depreciation. 

Nate Hedrick  33:38

That’s great. And like I said, don’t I want the easy button on all this. So that sounds great.

Rich Delgado  33:44

You and me both!

Nate Hedrick  33:45

So something else you mentioned that I wanted to ask about too, is just that, you know, the housing market has changed a lot, right? The real estate market itself has changed a lot in the last, gosh, just five years even. Where do you see, like, obviously, you’re directing a lot of investments, that your company is directing a lot of investments right now. Where do you see that going? Like, is it? Is it all toward building new housing? Are you doing conversion projects, taking offices and converting them to apartments? Like, what? Where’s the money going right now that you think is going to be the future for the next couple of years?

Rich Delgado  34:15

Yeah. Well, I’ll start by saying new construction is a great, you know, place to be, depending on what you’re building. So again, you’re right. Go back five years ago, almost everything being built was for sale, right? Interest rates were low, lending and, you know, just capital liquidity was available to everyone. So there was a lot of churn and a lot of turning over, a lot of flipping of homes, right? And people did well at it. However, once the liquidity became dry, go back, you know, two or three years ago, when markets started change, right? You saw less of that. You saw less sales, and you saw a lot more of the start of build for rent, right. Now, it always had been there, but dictated by the market and by the availability of liquidity, most people right? Because when you’re buying a property, you got to think of what your exit is, right? And if your exit isn’t going to be there, you don’t think you could sell that property within a quick period of time and get the return you want, right? It’s almost hard to make that pencil and you can make anything work, right? On this in a spreadsheet, it’s, how do you actually make it happen in reality? So that’s been the reason why you’ve seen a lot of that of the market convert to a build for rent. For us, right, being in housing, especially in what we’ll call attainable workforce housing, right? Because what we’re in is all impact investments, and we’re not talking about government sponsored or lie tech. These are just, you know, affordable homes that we’re building for. Think of your average teacher, your nurse, your firefighter, right? That works in a community, but can’t live there because they can’t afford it. So what we’re trying to do is build more housing that’s affordable. In today’s market, you go back two years ago, it was probably like a $5 million gap, or excuse me, 5 million unit gap, right between what was available and what was needed. So again, there’s so much more demand than there is supply. You come now to where we sit today, that number’s around 7 million. So it’s growing by almost a million units a month, where the gap is getting worse and worse. And if you look at again today, right, construction starts are almost non existing, right? So where’s that going to come from? Right? In the next two, three years, right? When people are looking for those units, they’re not going to be available. We’re still building, right, but we can’t build it fast enough. We’ve got 10,000 units coming out. You need millions in the market. So for one, it’s a great, you know, when you think of investment 101, supply and demand, it’s a great space to be in right, attainable workforce housing, they’ll, you know, I don’t think there’ll ever be a period where we’ll ever see that gap, ever, you know, come back, maybe a little bit, but I don’t think it’ll ever disappear, which means there’s always going to be demand. And if you think about just again, I’ll use covid as a good example. Our occupancy was about 97% and it went down during covid to about 94% and that was mainly because of moratorium, eviction moratoriums, right? Think about all these other asset classes. Take hotel, take retail, take hospitality, office space, right? Like, I mean, they would kill for 94% occupancy in good times, right? Let alone, you know, tough times. So that’s the resiliency of the attainable workforce housing space, is that there’s always going to be demand, especially in hard times. So we like the space. We love it. We think, you know, that’s a big shift in the market, right? Because you could make rents, you know, affordable. And the way we define that affordability is the 30% threshold of the average median income. So above 30% we consider that unaffordable, less than 30 and we try to stay, you know, call it in the 25% range, plus or minus a little usually it’s in a low to mid 20s, very affordable rent. And you know what, when you make rents affordable people pay.

David Bright  38:27

Yeah, I like where you’re going with with the with the impact investing, because I think real estate can oftentimes feel cold and sterile, where it’s dollars in and then hopefully more dollars out, and it’s so focused on the dollars. But I know one thing that Nate and I really enjoy about the single family investing is taking that uninhabitable property and fixing it up and and now it’s habitable. It goes from an eyesore to someone can live there and it’s safe and respectable and that that feels good. And so it sounds like a lot of what, what you’re focused on to the impact investing is that same kind of strategy, something that feels good along the way. So I’d love for you to unpack that more, if you could. 

Rich Delgado  39:03

Oh, absolutely. And that’s a huge part of you know, and we didn’t talk about this yet. I mean, we have over 3000 investors in our fund, 3200 to be exact, where we sit today. The reason we, you know, have that many investors is because a lot of people, to your point, want to know that they’re doing some good with their investment as well. So we like to say, you know, not only do we do well, you know, for our investors, but we do good in the community, and it’s all about building thriving communities. You’ll hear that a lot at DLP, because again, I love what you said, David, about, you know, fixing up the eyesore and really just making places habitable. So the housing for us in building thriving communities is just one component. We have, like 10 different components to what it means to build a thriving community, right? Because what you want is connections between communities. We always talk about, you know? How do you know if it’s a thriving community. Well, if someone has a child in the middle of the night, right, and they have to run out in an emergency, can they walk next door and knock on their neighbor’s door and ask them to watch their kid? You, believe it or not, I mean, 90% of communities, the answer is no, yeah, right. And that’s just, there’s no connection. So building those connections. So for us, it’s making it affordable, making them great places people want to live in, adding enrichment programs, right? Bringing in just simple things where they can connect with each other. We do two year leases rather than one year leases, right? Keep people in there longer, let them develop they don’t have to move, right? We give them all kinds of different programs to really help them kind of form those bonds help each other out. So it does make a meaningful difference. When you do that, people are less apt to, you know, trash out the place, right? They’re going to stay in there longer. For us, we want residents, on average, to be in our communities for eight years. The average today is about 15-16, months, right? That people are in their apartments. So it’s a big difference in how you look at it. And what we’ve proven is, you know what, you don’t have to take concessionary returns to offer impact investment, right? We hear that so often from folks, hey, we’re going to do impact investments, but we’re going to give you a 7% return, right? Well, that’s not true. You don’t have to have concessionary. We’ve been delivering double digit returns in all our funds. I’ll give you a good example. Our Lending Fund, which is the, what I’ll call the, maybe the least impactful even, of our funds, because, again, it’s lending to other real estate operators that are trying to make that same impact, but we can’t dictate them to do what they want, right? But what we try to do is align ourselves with folks that are making an impact, and that makes a difference, because we can choose to who we lend to. So again, that fund has been out for 10 years, since 2014 it has never had an annualized monthly return. So on a monthly basis, annualized, never had a return less than 10% in any month ever over 10 years. So I mean, again, you don’t have to have concessionary returns. And then within our housing fund and our building communities fund, right, we can invoke all those programs and really build those thriving communities. And you know what? People love to live there. People want to stay there. And it really starts building, and it’s affordable, right, which is a meaningful part of making that impact.

Nate Hedrick  42:31

I really like that. I just like taking it beyond the numbers for a second. I think that’s that’s super important. So appreciate you sharing that. So Rich, I want to go to our final infusion questions, three questions we ask every guest on the show, get your take, see what your thoughts are. So the first one is, what’s one tangible strategy that you use to make sure that investing works hand in hand with your career? How do you how do you avoid getting distracted by the day in and day out grind like what keeps you on the the outside looking in?

Rich Delgado  42:59

So yeah, for me, I mean, it’s really just again, I think part of it is, and you’ll have to forgive me, because I’m a faithful person, and it is truly about aligning myself with making an impact. I’ve gone from, you know, my point in my career, where it’s more about making a difference and trying to go from success to significance. So I’d like to think that, yes, I can still get good returns, but I can also do good in the community. And there are so many good investments, not just DLP, there are investments out there that you can find that are doing well in the community and internationally, all abroad. So that’s the first thing for me is just, you know what? I like to grind, I like to work hard, but at the same time, I like to think that, you know what I have my passive investments that are doing well and are doing good for me. 

David Bright  43:55

I like that a lot. That’s that success to significance. That’s powerful, right there. 

Nate Hedrick  44:00

I wrote that down too!

David Bright  44:02

Yeah. Second question is, what’s one resource that’s been most helpful to you on your your real estate journey? Whether that’s a book, a podcast, a person, author, website, what would that be?

Rich Delgado  44:14

Oh, so many good things out there, you know what? And again, this is not a shameless plug. I’m going to say it because I think you know, if you guys haven’t met Don Wenner yet, the CEO and founder of DLP, he wrote two good books. The first one he wrote was about five years ago, called Building an Elite Organization, and it kind of goes through all the fundamentals of what we do and how we do it. So it’s not just the investment in real estate, right, which we do well, right? But it’s how do you run a good organization? So you have a lot of good real estate operators out there that cannot run a company, right? It’s unfortunate, but this is about the disciplines, about the things you do while you’re investing in real estate, while you’re doing all of those great things that we all want to do, and want you know our returns from is, how do you continue to grow the company, but grow it profitably, scaling it and doing things that are very disciplined? So it’s a great book from that perspective, and I recommend it to all. And then he wrote a separate book about a year ago called Building an Elite Career, which is more for individuals and how to apply those principles to your daily life.

Nate Hedrick  45:27

That’s great. Those are definitely ones that have not been recommended. So thank you. 

Rich Delgado  45:31

All right, excellent. 

Nate Hedrick  45:32

All right. And then last one, what’s one piece of advice you’d give to a pharmacist or other working professional contemplating a start in real estate investing?

Rich Delgado  45:42

Do due diligence, due diligence, due diligence, right? I mean, it’s, it’s tempting to just dive right in, you know, I think if you take the time, it doesn’t take a lot of work. It’s, I, we’re not talking about, hey, I’ve got to spend months, you know, diving into this. No, you just have to, you know, create a quick checklist, check, check with guys like you, right that do this for a living and say, what are the things I need to know and ask? Right? People have done this way before us, right? Leverage what they’ve done. Get that questions right? Pull 10 people. You’ll probably get 10 different questions. Some of them might overlap, right? But at the end of the day, you’ll come out with 25 questions, of which maybe 15 will matter to you. And you know what? Don’t hesitate to ask those 15 questions, right? Ask them if you’re not satisfied with the answers, move on. That’s by faith. You just move on to someone that does satisfy those those answers, and you’ll be in good shape.

David Bright  46:43

I love that finding the win/win and the fit in an investment. I think that makes a lot of sense for people looking to learn more, where can people find you?

Rich Delgado 46:53

So you can actually just come and you could either email us at info, at DLP, capital.com or you can reach me directly, [email protected] and again, on our website, DLPcapital.com there’s an investment button. It has all of our investment fund Care Sheets. It has a good funds comparison, which puts all funds side by side. We have our quarterly report. There’s just tons of information on our website about not only the investments, but then events that we host. So we are very, like I said, very transparent and communicative. We do, you know, a few webinars a month keeping our investors updated on, you know, the real estate markets. What’s going on with the different funds. We host events, live events. We do dinners in many cities. September is going to be a really busy month, so we’re going to probably be in like a half a dozen cities for different events and different dinners. But then we host two big events every year, one in November, here in St Augustine, and then one in June, which can be a different city. This summer, we just did it in Pigeon Forge. It was called Building an Extraordinary Family event. So again, sorry if you’re looking to just learn about real estate. You know, we really this is about pouring into our community. We really help them out. We bring speakers and bring content. We had content for all ages, from, you know, kids to teenagers to grown kids, grandparents. So it was a beautiful event that was Pigeon Forge. Next summer, we’re going to be in Asheville, North Carolina. So again, another family event that we’ll host there at the Omnigrove. But again, I say, you know, reach out to us. We’re happy to tell you about what we do, why we love doing it so much. And again, we love to really serve our investors. Believe it or not, 70% of all of our investments come from existing investors adding to their positions. So I think, you know, we’re doing something right? I think if we continue to have additions coming in. So yeah, but I appreciate you know, the time this evening, gentlemen, and you know, look forward to working with you guys more in the future as well. 

Nate Hedrick  49:11

Yeah, we appreciate your time, Rich. You’re an absolute wealth of knowledge on this stuff, and it’s just great to be able to talk to you and spend the time. So we appreciate you joining us, and I’m sure we’ll have opportunity to talk to you guys in the future. 

Rich Delgado  49:21

Thank you. Beautiful. Have a blessed evening, gentlemen. 

David Bright  49:25

Thanks for listening to the YFP Real Estate Investing Podcast. If you like what you heard on today’s show, please leave us a review and subscribe to the show so you never miss an episode. If you have a question, know someone that would make a good guest, or want to connect with us head on over to YFPrealestate.com and join the growing YFP Real Estate Investing Facebook group. 

Nate Hedrick  49:46

As we conclude this week’s episode of the YFP Real Estate Investing Podcast, an important reminder that the content of this podcast is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in this podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with their financial advisor with respect to any investment. Furthermore, the information contained in our archive, newsletters, blog posts and podcasts is not updated and therefore may not be accurate at the time you listen to it. Opinions and analyzes expressed herein are solely those of Your Financial Pharmacist, unless otherwise noted, and constitute judgments as of the dates published. Such information may contain forward looking statements which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward looking statements. For more information, please visit yourfinancialpharmacist.com forward slash disclaimer.

David Bright  50:40

Thank you for your support of the YFP Real Estate Investing Podcast. Have a great rest of your week.

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