5.5% management fees and 50% of the profits

One of the bad things about victims, critics and complainers is they are usually very smart.  They are so smart at finding the reasons why something can’t work.  They are so smart at finding the reasons why something is not perfect.  They so smart at finding the reasons not to do something. These are smart people.

Smart people on the internet love telling us about the money we can’t raise or the funding we can’t get. Even Angel Rich, as smart as she is, spends too much time complaining about the funding she can’t get instead of creatively working around the issue.  As Juan Pablo says “when limits exist that us when creativity comes alive”.

Insert Tulsa Real Estate Fund

This week we experienced history as the Tulsa Real Estate Fund raised nearly $10,000,000 dollars, over the internet, among strangers, as an outward showing that people are willing to do more than just talk about how things should be.

For me, as a fund owner, it was inspiring.  It was inspiring because it shows that big money raises are possible among our own (we are constantly told that we are poor and helpless).  It was inspiring because it happened quick, efficiently and professionally (we are constantly told that we do bad business, are unorganized and unprofessional).  It was inspiring because they aren’t reducing themselves to working for pennies and/or free.

For some reason, people want people to do free work. This is why so many black would be business owners opt for the non profit route as opposed to for profit route. If we do support our own we want a low rate, a discount, a hookup.

I get it though. Most people aren’t big ballers even if the pose as if they are. For this reason they aim for reprieve among their own.  They want you to look out because “you know how it is out here”.  Across the board, we are paid the least, we are hired last and we are let go first.  This creates a culture that often times is reaching to rub together two nickles.

I want to recommend something to you though.  Instead of looking for the hookup from black business or free stuff, be willing to pay more so they can get their venture off the ground and into the air.  Go out of your way and inconvenience yourself in support of that venture so they have more money to continue to grow and refine the venture. By sacrificing in the beginning you can create an enterprise that can then afford to give hookups and look out for the community.  You front load it with money not charity and years later it is able to return the favor.

I want to encourage us to be willing to pay more to build wealth among our own. This creates jobs for our own, which creates families for our own which creates communities for our own. All of these issues are intertwined.  The opposite is to save a few bucks shopping at other cultures (which they would never do to us) and building wealth for them and their family so they can get further ahead while you get further behind. Its bigger than that buck that you spend also because they take your buck and recycle it over and over in their community. They let you save money to bring in your cash but they don’t return the favor.

I am not telling you to do anything that other communities aren’t already doing.

Comparing Tulsa to “other funds”

The number one argument that industry pros (and I use that term loosely) make is that Tulsa charges more than the industry average of 2 and 20. For those that don’t know, hedge funds that pool together high net worth money from accredited investors typically charge 2% of total assets as a management fee and then take 20% of the gains. There was a time when they only took 1% but this rate has increased (and likely will continue to increase now that the economy has improved) over the years.  I would argue that the reason their rates are so low is because of the massive competition in this space.  There are hundred of hedge funds and investment funds in New York, all competing for the same money.  This makes them have to compete on price.  That is how microeconomics and the law of supply and demand works.

On the other hand, Tulsa is the first of its kind.  It doesn’t have to compete on price. As Jay said on the IG Live last night “Tulsa is the first of it’s kind, don’t compare Tulsa to any European owned funds”.  The problem is that when you compare Tulsa, a crowdfund designed to build a black community for black people you aren’t making an apples to apples comparison. Additionally, to even make that comparison is ignorant because Tulsa doesn’t operate from the same level as other established funds that run on old money. They are building from the ground up. Another key distinction is that the REITs and the hedge funds you brag about are the ones displacing your grandparents and hiking the rents on your friends.  This is just another example of you saving money or making a few extra bucks and in actuality funding your demise.  Its chess not checkers. You need to think a few more moves ahead.

People insult what they have never seen

When I told someone I was building the investment club they said “like a  hedge fund”. Their goal was to shoot down the idea and then tell me how to perfect it. We took action and picked up a 35% return. When you seek to do what nobody has ever seen there are people who will pop up and tell you its not possible because it doesn’t fit into what they have already seen. Duh. That’s the point.

Every idea that has become a billion dollar enterprise was talked down on at some point in time.  Its like Ford said “if I asked the market what they wanted they would have said faster horses”.  Think about it, they probably told Uber that nobody would want to use their personal car to drive other people around. They probably could talk about how insurance would cost more, maintenance would cost more, gas would cost more, smart people came out in droves to give them all the reasons it wont work.  They probably told Netflix that they couldn’t take down blockbuster because they had a bunch of stores, an established brand, a bunch of inventory etc ect.  Those are now billion dollar companies that took down billion dollar industries. The key is that wealth is on the other side of criticism and cant. If some smart person tells you that you can’t do something that means wealth is behind it. 

So many of us are sitting on ides because of fear and uncertainty. We see what exists now and what is promoted as the trend and we don’t launch out into the unknown. An example is a Forbes article that had Nokia on the cover as the number one phone company.  The headline read “will anyone take down Nokia”.  Another example that I am seeing take place is Facebook. They are on the down slope. Its less appealing, its too spammy but there is someone sitting on an idea not creating in fear of Facebook.   Don’t let these hedge funds and their prices dictate the norm. Eff their norm. Build your own norm and disrupt the space.  Billions are made in disruption.

The Eminem approach: admit your faults

I believe in the Eminem approach. Its what Gary V preaches. I throw all my flaws at you so you can’t use them against me. So yes, Tulsa is over priced compared to hedge funds. But keep in mind that comparing them to hedge funds isn’t a proper comparison.

A proper comparison is to compare them to real estate syndications, the same funds that raise 10-20mm to buy apartment complexes or portfolios of homes and loans. Examples are Cardone Capital by Grant Cardone, Fundrise, Realtymogul and others.  All raise money for deals and then pay their investors 10-15%.

If you break out the numbers Grant and others probably take about 90% of the profits, kick back their investors as much as they would pay a bank or hard money lender for the funding on a mortgage and pocket most of the profits.

When you compare typical syndications and crowdfunds to Tulsa, Tulsa is actually overpaying.  I am not talking about crowdfund portals, I’m not talking about wall street hedge funds.  I am talking about private real estate syndications put together by the guys on bigger pockets, best ever real estate and other podcasts.  For those that are in the private money real estate investing industry they know that 50% is standard procedure. If you are an investor that takes less than 50% you are selling yourself short.  Some syndication sponsors take as much as 80%.

When you invest with a smaller private syndication (unfortunately 10mm while impressive is still small) they typically charge acquisition fees, property management fees, asset management fees and they negotiate a 50/50 split with the partners.  This is true even if they don’t put any money into the deal.  Tulsa doesn’t charge acq fees or any other hidden fees that REITs or other funds charge even though they can and would fall right in line with other similar real estate syndications.

What people who are new to real estate don’t understand is that there is monetary value on the knowledge and the deal. To make a real estate transaction happen you either need money, the deal or the credit.   All of those are worth money.  In Tulsa’s case they are bringing the deals and they are bringing the credibility.  The fund brings the money which is worth something but it ins’t worth 90% of the deal like people want you to think. The terms are more than fair even if they are pricey.

Its not about the ROI please get this

The Tulsa Fund isn’t about the ROI to me.  I made 60% over the last month trading the stock market on my own.  I am not waiting a whole year for 8%.  I put my money up for the culture.  Thankfully this isn’t a donation, collection plate or a gofundme where the money disapears and pastor pops up in a Bentley.

For that reason I could care less how much of a preferred return we get. I could care less about how much of a split of the profits.  I wanted to be a part of the collective effort that we put together to fight back against gentrification and displacement because that is much more respected than a big beg fest.

Just like Big Baller Brand isn’t about the shoes or Lavar Ball. Its for the culture. Its about showing what is possible when we support our own and unify. Its about showing what we can do not highlighting what people think we cant.  There are smart people out here using their smarts to shoot down an idea instead of using their smarts to work the idea.  they want to tweak it and refine it and use that to shut it down. The plan doesn’t have to be perfect. There is more than one way to accomplish a goal but to shoot it down because it doesn’t fit what you think it should fit will end up having us with nothing.

One thing about builders, entrepreneurs and the creatives is we know its about progress not perfection. A lot of employees, corporate cogs and slaves seek perfection, conformity and they don’t move in the face of criticism.  I have no doubt in my mind that Jay is going to continue to build in the face of opposition.  Its just what successful people do.

If you are interested in joining any of our clubs and making a difference in your community, email info@capitaltodd.com if you haven’t yet done your taxes or haven’t created an LLC to organize your hustle, do so now! Email charles@capitaltodd.com today!

Be great and invest well!

Todd Millionaire

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