Passive real estate investing can bring cash flow and appreciation to investors who don’t necessarily want to be actively hands-on.
John Rubino, founder and COO of JID Investments, joins the show to discuss how High Net Worth investors should think about passive real estate investing with Qualified Opportunity Funds.
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Episode Highlights
- John’s strategy, why he likes passive investments in real estate, and why he likes Opportunity Zones for certain investors.
- How Opportunity Zone expertise has been a differentiator for JID Investments, and has helped them grow AUM.
- JID’s pipeline of Opportunity Zone real estate assets, and the importance of negotiating healthy preferred returns with their sponsor partners.
- The bull case for high-density residential properties in growth markets.
- Surging demand for multifamily, rent rate increases, and the trend toward tertiary markets for renters.
- Real estate development challenges brought on by the pandemic, inflation, and supply chain issues, and how the deal underwriting process has changed over the past 24 months.
- Thinking of Qualified Opportunity Fund investing as a “Super Roth IRA,” allowing your investments to compound tax-free for as long as possible, instead of being worried about the long hold time.
Featured On This Episode
Today’s Guest: John Rubino, JID Investments
About The Opportunity Zones Podcast
Hosted by OpportunityDb.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.
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Show Transcript
Jimmy Atkinson: Welcome to the opportunity zones podcast I’m Jimmy Atkinson and today we’re discussing the concept of conducting passive real estate investments through opportunities own funds.
joining me on the show today to discuss this topic and more is John Rubino founder and CEO of JID investments and john joins us today from Fairfax County, Virginia just outside of Washington DC. John it’s great to meet you great to have you here with us today, welcome to the show.
John Rubino: it’s great to be here Jimmy thanks for having me looking forward to talking with you and your listeners that.
Jimmy Atkinson: Absolutely john well let’s start really high level if you tell us about Jay ID investments your investment thesis why you like real estate and, specifically, why passive real estate investment.
John Rubino: yeah that’s a great question I served 20 years with the navy, I was a navy pilot had a blast a lot of fun.
But halfway through I started getting into real estate investment with some close friends that there was a station with at the time we started getting into looking at different types of real estate.
Back in around 2005 2006 I actively invested for a few years, close to home or devastation that did some new construction development new construction that.
phone bills and got the chance to really taste the active side about 10 years and I got some orders overseas with my family and I decided to take.
That money I earned on some of those investments, as well as that home I lived in at the time, my primary residence.
And I decided to invest passively with some of my friends who are starting their business and getting into real estate, so we kind of pulled our money together, I provided some seed capital and.
Some of my buddies are out there, finding condo conversions in DC and new construction and single family renovation.
And I started to get these packages these performers and these offering memorandums and I started to dig in and started to really try to understand.
and see hey where’s my money going, how is this work, you know connecting the dots, especially from a real estate investment standpoint.
So that’s kind of where I got my crash course for about a good seven to 10 years getting some great returns and when I moved back to Washington DC for my last tour that can 2012.
I had this idea of hey I was doing this for 10 years and I haven’t a lot of fun and I was learning a good amount of a things about real estate.
As about maybe I try to make this a business and so at the time I connected with my CPA at the time, he was now our CFO and he and I.
Put the strategy together we spent a full year building the business with the mindset of.
Bringing on friends family accredited investors high net worth individuals that wanted to invest through our company and into real estate investments properties mixed use.
Where we did exactly what I was doing partnering with close friends and family.
friends who were developing and that was the relationship we were going to build on the other side of the business developers and sponsor general partners managing members and needed our capital.
To help in their capital stack their equity stacks so that’s what we did we put the business together we started small we started doing private money loans kind of getting our feet wet showing proof of concept.
And then we started getting into the larger check sizes, bringing in anywhere from a million to $5 million as a general equity partner helping the capital stack and raising that money through at first.
Investors that have been both friends and family but also organic connections and referrals.
Public accredited investors public had high net worth individuals that are using a self directed iras or trusts standing up businesses using different games for opportunities own.
And so over that you know say nine years that we’ve been in business we’ve invested on 28 projects to date little over $33 million in investment capital we’ve gone full cycle on 17 of those knock on wood we’ve made money on everyone and.
Right now, we have 11 fantastic deals that are currently not opportunities own but we’re starting to get into overseas we got into our first is he back in 2020.
We raised a little over a quarter of a million dollars or two and opportunities and fun we stood up in Washington DC to partner up with one of our sponsors.
And we were able to raise games through that vehicle and then we just recently raised about a million dollars.
For a deal in Ohio small multifamily deal returned about a million dollars of credit investor fiber succeed money.
And we’re looking some other big projects and so we’re excited to be in the world, because it.
gives our investors more diversification and gives them more options when it comes to the type of assets, they can either classes, they can invest into so it’s been a great business learning a ton.
having fun doing exactly what I want to do and yeah every day I wake up, I just have a smile on my face, and this is the best thing I could have ever done after the navy.
Jimmy Atkinson: No that’s great that’s a great story congrats on your success so far have you found that being able to offer opportunities on investments to your network of accredited investors, has been a differentiator for you, has it helped you attract more investors.
John Rubino: yeah it does Jimmy that’s a great question, because now, you know you have opportunities on investors that are interested in opportunities zone.
Passive real estate investment opportunities, we can bring forward, but then we can also show them hey, by the way, here’s some of the other things we’re doing if you have interest.
And if they do, then they can come in and be part of let’s say a non opportunities own deal as well as get the opportunity to come into an opportunity don’t do that we bring forward from one of our sponsor partners.
A lot of our investors who are in on non opportunities own investments to liquidate then all of a sudden, have a game and guess what if we have an opportunities on investment.
They have the opportunity to take some of those Games are all the games and bring them into one of our projects if they want to invest so it’s pretty exciting.
Jimmy Atkinson: And so, tell me let’s back up a little, I want to hear more about Jay ID investments, you say it’s passive real estate investing is it, I understand is passive for your investors.
I think they’re just simply writing you a check is that right, and then you’re going to deploy that capital putting it to work for them.
partnering with different operators who are actually developing the properties, but are you guys developing properties to are you john actively involved are you also kind of is the firm itself passively investing in these other operators.
John Rubino: The firm is passively investing and operators are actively managing operating overseeing the properties, however, we are very much connected into that process we’re on the phone with them every day we’re looking at the deals.
were passing emails to make sure we get the updates, we need to then pass on to the investors who are investing on those specific opportunities.
what’s unique about us is we’re set up where every project we bring forward is set up as a separate business the single purpose vehicle where investors have the opportunity to invest on a specific deal we’re not taking.
let’s say $100,000 per investor and farming it out among different opportunities under an umbrella fund.
The most we’ve done before under one private placement is two properties, but those two properties are with the same sponsor and maybe in the same jurisdictional geographical location or same asset classes.
But typically we’re bringing in money the investors know where their money is going they know with dealer and.
They get a nice portfolio overview on our juniper square portal where they can log in and see each investment they have how much they’ve invested.
what’s the projections on earnings what’s the eye on what’s the timeline.
where’s my tax documents that God does because my CFO is an enrolled agent, so he does all their taxes so everything is home on that jury per square portal, and so, when someone says, you know hey.
jd is raising X amount of dollars i’m coming in, for this portion of that piece on a percentage owner, this is the percent of capital i’m bringing in.
that’s where my money is going on, that deal and that’s the deal that were overseeing for them along with our other projects that similar investors, either, that that same group of investors or another group within the one a.
Jimmy Atkinson: Very good that’s that’s always helpful to partner with somebody like juniper square to get all that stuff in one location universe square very well regarded.
Of course wow What was it about opportunities zones, they got you interested in looking at them as an investment option for your investors, a couple years back, when you when you first started getting interested in them.
John Rubino: Well yeah I mean we as an opportunity zone investment and being part of what we’re doing now, and offering that it just offers more diversification from an investment standpoint.
That allows investors to continue to work with us and see that we can have that capital available to bring into those types of deals so that’s one big thing is diversification of investment, the second is.
Obviously we’re helping the communities were regenerative find the communities we’re helping much needed areas of lowering common and affordable housing to grow and give back to the Community, which is always important with whatever you do.
And the fact that it’s you know something that is intriguing and it’s something that.
You know, can shelter taxes and help you know those gains over that period of time.
Where you get the full force of that investment capital for X amount of years typically for years now, without having to pay any gains on that and have it differed, so you get that full power that.
That investment dollar you get those wonderful tax incentives and program benefits and again we have investors that love it they see the fact that hey.
I can protect these tax deferred gains for X amount of years and i’m willing to stand for that 10 years to get those benefits on the back end as well.
Jimmy Atkinson: yeah the text and the tax advantages as i’ve talked about.
Ad nauseum on this podcast over the past several years are unbelievably powerful kind of kind of hard to ignore those.
You mentioned diversification a minute ago, what did you mean by that you talking about taking gains from other asset classes and putting them into real estate or explain what you meant by that.
John Rubino: yeah so let’s say, for instance, we go full cycle on and opportunities on investment in our investor spring in X amount of dollars and they make.
You know X amount return well, they can come out of that investment that’s not liquidated, either through a refinance a sale, but we’re now full cycle and closed on that deal well the investors are going to have a game.
And they can use that game if we have an opportunity zone that’s coming in to then take a portion of that game, or that entire game and invest with us on and opportunities on investment.
So it’s Nice in a way, because they’re making their Nanos you gain profit and then taking the nano Z asset class full cycle deal That completes and then can utilize the game they earn to come in on another project that’s under the opportunities on.
Jimmy Atkinson: God and where your investors gains coming from typically are they are they usually from Nanos the real estate sales, or are they from stocks or business or.
John Rubino: On an investment when we liquidate whether it’s the deal goes full cycle, obviously we would we would get paid out on a distribution scheduling waterfall as per operating agreement with the sponsor.
So as that comes through that becomes over a year, a capital gain, so we get to claim that as a capital gain on that project as a.
LP or koji up series owner and then those gains would then be available to utilize if we have an opportunity zone project or the investors would just have to file that.
On their their tax return is a game for that tax year if they don’t so that’s one way that.
We can utilize some of the profits from non ozzy type investments to come in on opportunities on investments, if we have one available and we’re investing.
Other ways would be obviously liquidating business liquidate stop liquidating investment property anything that would show and realize, and then a short term and long term capital gain could then be utilized to invest under one of our projects if they’re available.
Jimmy Atkinson: Well let’s change subjects, a little bit here I want.
To talk specifically about the types of opportunities on projects that you are investing in through your investors at J I D investments, what is your opportunities own pipeline look like what kind of projects are you actively participating in in terms of opportunities on investments.
John Rubino: Sure, so we stick to the same model for both nausea nosy when it comes to sponsors, making sure they have the track record, you know i’m not going to invest, with a nano Z sponsor analogy sponsor That brings me here’s the deal.
So yeah i’m going to try this Z for the first time, looks pretty cool now, not so much.
we’re going to want to make sure they have the experience of track record they understand the law they got the cosby set up properly that the attorneys on board understand everything so that’s very important.
And, just like a nosy do we’re looking for experienced the Second is location, I live here in Washington DC, I have three fantastic markets Washington.
DC Virginia Maryland so a lot of opportunity here, so we have three amazing markets that open, you know really a multitude of different types of opportunities own projects.
And then also we’re in the southeast we’re up in Ohio because these are areas that are growing, these are areas that have population growth.
And they have areas that are gentrifying significantly when we do our due diligence, we see that.
And then obviously the type of returns, we can get you know we are a company that really likes development of lands for.
build usually new construction multi family, and so we still like to look for those types of deals, even if it’s an opportunities are because we may be able to get higher yields on those returns, given the level of risk we’re involved in.
And we also get the benefits of the opportunities and Program.
So that’s kind of what we’re looking at we’re pure we don’t purely focus on just development, but the development and the vertical new construction is where we’re seeing the higher yields, which are our investors so that’s why we target those.
Jimmy Atkinson: yeah Would you mind sharing with us to be able to specifically the projects that are available for investment right now.
John Rubino: yeah I can give you the locations, I mean we’re doing a one project, where we invested, as in opportunities on fun that we stood up to invest in to a cosby in southeast Washington DC.
parcel of land there and se that’s set up for commercial lease and it’s.
going to probably driven cup this year so we’re pretty excited and then i’ll get started with the with the tenant in place and some cash flow, which again, you can take advantage of through an opportunity zone.
Through the bonus depreciation program which is great, we also were involved enough one and 2020 and 2021 so we still got some of those tax incentives to reduce that the deferred game basis which is wonderful.
We have a second project up in Ohio and Columbus we raised about a million dollars for small multifamily property probably about 42 to 45 multifamily apartments again brand new construction.
Development new construction we’ll have we’ll probably have rent starting in the next two years after about 90% stabilization.
And so we’ll get some rents out of that and get some nice income we’ve negotiated some very nice crafts, to make sure that again we’re protected, because you know as a as a passive investment company where you’re coming in under on non collateralized.
You know, we don’t have any clouds right rights.
Risk really is our mind so that’s where we try our best to make sure we position ourselves and our investors to to get you know, a nice healthy press.
That we get our money back, and that even though we’re kind of lower in the batting order and with the smallest champ of mine, we still have some protection.
Jimmy Atkinson: gotcha us perusing some of the projects that you have listed on your website, it seems like you have a lot of like you mentioned in Columbus multifamily but also you do a little bit of student.
Housing senior living, what do you like about those high density residential property types, what is it about the the economics are that are the trends that you like there in terms of multifamily development.
John Rubino: yeah and you’re and I spoke about this a little bit before um you know we see there’s a large need for housing and it’s not going to go it’s not going to close anytime soon.
With interest rates, where they are and the demand for housing and the need for housing is populations are growing, especially in the markets we’re looking at.
it’s getting harder and harder to buy something you know this generation that we have now the Multi millennial generation is now the largest generation in our country.
And nothing against them, but a lot of them, you know have debt, a lot of them don’t come to the table with equity so it’s difficult at times.
To bring in 20 30% to put down and Oh, by the way, I have to get a 6% loan it’s not two and a half percent or 3% anymore.
So that’s a challenge, so what is that doing well that’s turning people now into the rental market.
So now what’s happening to rents well i’m seeing rent some are more markets growing double digits 3040 50% year over year So what does that do that then causes appreciation it causes, you know.
Price rises in the rental markets so to put housing in an area to get a great property that good entry baseline costs.
there’s definitely ways to make money and that’s what we’re dealing with finding really good opportunities good lands develop on our sponsors, know that the market.
Permitting process to design process and we’re coming to market with great product, and you know it’s just it that’s the type of projects we’re going after and we’re finding and we’re having a lot of success.
Jimmy Atkinson: And that’s great uh i’ve long been a fan of multifamily as a property type for investing I think it’s a fantastic property type and it’s the most popular.
type of property for qualified opportunity fund investing that should come as no surprise to my longtime listeners and viewers of this show.
Sure okay john so you mentioned two locations, that was the one in Columbus Ohio multifamily the one in DC though I understand is not multifamily you can tell us a little bit more about what you’re doing in DC.
John Rubino: We haven’t yet so it’s a development it’s a development project that we came in on and it’s a small we’re a small piece of that but it’s going to be developed into a larger.
A larger type structure, they they have a large piece of parcels of land there and so we’re involved more in the land development side but we’re starting to see that area start to grow.
And we came in as non opportunities own investment capital, but you know we’re starting to see that possibly come into growth there and will be part of it and it’s exciting.
Jimmy Atkinson: It really is you mentioned rent rate increases 20 30% in some cases year over year just unbelievable.
rent trends right do you think those trends are sustainable, especially in in light of the economic turbulence that we’re currently.
going through what do you think in terms of the long term, demand for housing and and how rent might continue to grow, or maybe it’ll it’ll stagnate here a little bit, what are your thoughts.
John Rubino: You know it’s interesting I mean, I think that it’s.
it’s not going to come down anytime soon until we start catching up with some supply, and so I think that’s where you’re seeing things like I know here in Washington, where you know, hotels and.
Commercial space has been converted to multifamily because there’s just such a need, and I think that we’re going to continue to see that struggle with.
With supply constraints so until we can get back on track to have availability and housing you’re going to continue to see the demand for multifamily.
multifamily rental multifamily least to continue to go up I don’t know if I would say in the next year to two years if new starts catch up.
And we can start seeing some stuff on the horizon yeah, but I think.
The the more expensive markets like the like New York City DC people are getting priced out because of those higher you know rents so they’re going off to a Columbus or they’re going to a tertiary market.
Where they can find more affordable and still have that work, you know work.
play work joy have fun type of atmosphere and environment Atlanta another market we love were down in Atlanta why because.
people enjoy it down there it’s great weather it’s good quality of life, so I think it’s going to be a challenge for a while, until we can catch up with closing the gap of it on supply.
Jimmy Atkinson: yeah there’s there’s a huge supply and demand mismatch we’re woefully under supplied in almost every city.
All across the country here a huge housing shortage of 5 million units five and a half million units by some counts what i’ve read recently and yeah until we address that I think you’re absolutely right john I think it’s gonna be gonna be hard for.
hard for that asset class to to fall off, I think, what about other challenges that you’re facing.
And, are there any challenges lingering from code, for instance, or any other posey related challenges that that you find worth worth discussing here.
John Rubino: yeah I think definitely you know we saw coming and.
Everybody you know we were in the middle of a couple of multifamily value add deals that we tried and.
And you know it was just difficult that was challenging with the fact that you’re very similar to a debt lenders are walking away.
They were changing the the structure on on loan is the capital stacks percentages were changing so a lot of our projects will put on hold.
For a while, because we just couldn’t get the financing we couldn’t get the construction loans.
That we already were approved for but all of a sudden now it’s changing now we don’t have those construction loans anymore, because.
You know the debt lenders are walking away so we had we had a sit on the bench for for about a year to year and a half and a few of our projects.
But, fortunately, with the appreciation with the fact that you know we weren’t upside down, we could numbers going in.
We still did very well, and when we were able to start bringing in more stabilized dad as the market starts to get through cove it.
we’re still doing very well, I mean you know let’s say we try to always underwrite a home run maybe we’re hitting a double.
On those projects which is still very good people aren’t losing money and they were making money and they were happy.
Going forward, I think the biggest challenge we’re going to see is continued inflation continued supply chain challenges we’ve had a project that.
down in North Carolina we just saw you know budget went up $12 million on the construction budget because prices are going up, you know a lot of contractors are are locked in now to do the.
The guaranteed minimum price contracts GMP so you know it’s it’s going to be a challenge for a bit, but again i’m always said that.
If you go in and underwriting deal very conservatively on the front end, and you can find the land and you got to.
Quality partner, you know you can still want to write the numbers, you need our investors are making you know, on on anonymous a deal around 12% a year.
that’s fantastic you know and they’re making a 15 to 20% return on splits.
On our development and new construction deals, you know they like those higher yields.
So, in turn, we have to make sure we find those projects that can really get those types of returns or bad and typically it’s better so we’re we’re doing well there and i’m.
not going to change anything you know i’m not going to try to cut things here and do stuff there we’re gonna we’re going to want to see a 6% six and a half percent interest rate we’re going to want to see.
10 to 15 to 20% contingency line items, just so that we feel comfortable that all right we’re being ultra conservative because you know we have to be.
Jimmy Atkinson: You know what changed in those underwriting assumptions over the last 12 to 24 months right with.
Her with with coven and with the recession and inflation and rising interest rates, a lot lot has changed there with underwriting for sure, have you found any asset classes changing more than than others in terms of your underlying underwriting assumptions you’ve had to make.
John Rubino: You know, again, like you said Jamie I think we we focus on the developer, we focus on their track record and.
It just so happens that multifamily is where it’s at and that’s what we’re finding a lot of the partners and sponsors we work with.
And it’s not that we’re not opposed to looking at industrial or looking at rv parks that that’s great too, but it’s just that most of the folks we find.
That are doing really well or multifamily housing right now student housing senior living.
And, to be honest with you, those are the types of projects, you like you know we’re getting into a type of strategy now or.
We come in and our development phase, may we may come in on a construction phase of equity.
And then liquidation could be multiple options we can come out and get our returns on the development and vertical stage.
We could stay in with maybe just our profits on those stages and then take the original investment out to let the profit stand for cash flow that’s really exciting.
there’s recapitalisation there’s buyout so we have a lot of different options now.
But I think we’re we’re trying to do is hey how how long can we get that fruit to stay on the train before we have to pull it off and take a bite and it’s working out really well and we we like those types of strategies.
Jimmy Atkinson: And then yeah and then secondly, you know you mentioned that you want to stay in these deals, as long as possible.
Sometimes some pushback I get from some potential investors is they say geez 10 years that’s a long time, and it can be right, I mean oftentimes you know you don’t want to be in a real estate deal.
That long or, particularly if you’re you know, a small business investor venture capital investor you’re not used to staying.
In investments for that long, but with the opportunities own program I kind of like to consider it almost like a super Roth IRA you shouldn’t be asking how soon can get can I get out.
You should be asking how long can they stay, yes, how long can I get this thing to eat for tax free for as long as you can, I think I think you have until 2048 if i’m remembering the the regs correctly.
John Rubino: is currently it’s for.
Jimmy Atkinson: The day there.
John Rubino: yeah and we actually have smaller investors they’re in their 60s and 70s and a lot of them like well you know 10 years is a long time so you’re right and and it is a long time, but.
You got grandkids right you got kids that you know could could utilize these funds as a beneficiary.
And it’s great to be able to pass that down in your State to have that money available to your family.
For the grandkids, for you know, a child wants to go back and get an advanced degree or a PhD you know it’s nice having that down the road.
As an extra kick so that you know you may not be able to enjoy it, but you can at least pass along to your you know it’s generational wealth let’s call.
Jimmy Atkinson: Absolutely yeah always be thinking long term and again it requires patient capital this investment structure, I like to say it’s it it’s amazing and it’s incredible tax benefit and.
incredible opportunity to do some impact investing in areas that are typically under invested in but.
That said, it’s not for everyone, necessarily, and you do need to you know, be aware of the fact that you’re going to get your capital locked up for for quite a while, at least 10 years and and maybe you want it locked up for a longer, as I was hinting at.
that’s right but john it’s been a pleasure speaking with you today.
I am here if any of our listeners or viewers out there, like what you had to say they want to get in touch with you and learn them a little bit more about J ID investments we’re going to go, how can they learn more about you.
John Rubino: yeah and again i’d love for you to share the Info on us our website is jd investments COM we’re on YouTube we’re also on linkedin and Facebook and all the social media handles.
And please feel free to pass on my contact information if anyone has any questions.
And anything, in particular, they want to find out about more like what’s this passive real estate investments stuff you’re talking about or how you doing them with disease.
i’m happy to help and we like to do a lot of educational type webinars and seminars to actually doing one in about two to three weeks on self directed iras because a lot of our investors enjoy using self directed iras and it’s a great tool.
But there’s other things you can utilize it for two so we want to make that an opportunity for education, maybe learn a little bit about us, but at the same time take away oh wow That was really cool I didn’t know I can do that.
Jimmy Atkinson: sounds great john i’ll be sure to link to your website JID investments COM from our website, as always.
We will have show notes available for today’s episode at opportunity db.com slash podcast will link to.
john’s website his firm’s website will also have links to all of the other resources that john and I discussed on today’s show, and also, please be sure to subscribe to us.
on YouTube or your favorite podcast listening platform to make sure that you always get the latest episodes john again been a pleasure speaking with you today Thank you so much.
John Rubino: Thanks Jimmy was great appreciate it.