In this episode of The Passive Income Attorney Podcast, Seth discusses with corporate and real estate attorney Jeffrey Love how to avoid the most common mistakes when investing in real estate, as well as the five W’s you need to know before starting your own business entity. If you want to hit the ground running with your business and investments to set yourself up for quick success, Jeff will share all you need to know to get started. Enjoy!
“You want to build net worth and become wealthy. There’s only a certain amount of hours in the day, so being able to make money while you’re sleeping is going to help you get there.”
HIGHLIGHTS:
1:43 – Jeff talks about his background.
3:46- Jeff explains how every client is different depending on what their business is.
7:44 – Seth asks Jeff whether investors should form an entity to invest in real estate.
11:15 – Jeff explains the five W’s of incorporating your business.
16:24 – Jeff discusses the risk of signing a purchased agreement as an individual.
17:45 – Seth asks Jeff about the most common mistakes people make when investing in real estate or forming entities.
23:58 – Jeff gives his opinion about forming an LLC to invest in passive real estate syndications.
26:55 – Seth asks Jeff about the best practices to vet a sponsor.
33:05- Seth and Jeff discuss how to deal with freeloaders.
36:00 – It’s time for the Freedom 4.
36: 04 – What’s the best thing you do to keep your mind and body healthy?
36:39 – In an alternative universe where you weren’t involved in the law, what would you be doing?
37:19 – Where were you at five years ago and where do you see yourself five years from now?
37:51 – How has passive income made your life better?
FIND | JEFFREY LOVE:
Website: https://www.gibbsgiden.com/
FULL TRANSCRIPTION:
Seth:
Welcome law nation to a new episode of the Passive Income Attorney Podcast. As always, I hope you’re having a fantastic week. When you have a moment, please go check out escapethebillable.com and snag our free passive investing guide. It is absolutely free. You’ve got nothing to lose guys go check it out. Have you ever wondered if you should incorporate a company to start your side hustle or invest in real estate? Many of us may not even know where to start. Today we welcome attorney Jeffrey Love to the show, where he’ll discuss the five W’s you absolutely need to know before starting a business. Jeff is a partner at Gibbs Giden in Los Angeles and shares his law school alma mater with yours truly as a University of San Diego grad. He has extensive experience in all things real estate and corporate. Alright, let’s get going.
Seth:
Jeff, welcome to the show.
Jeff:
Thanks for having me on. I’m excited.
Seth:
Of course, man, really appreciate you coming on today.
Jeff:
I’m happy to be here.
Seth:
Yeah, brother. So tell our listeners a little bit about yourself and your story.
Jeff:
So I am a real estate, corporate m&a transaction attorney. All transactions, whether it’s buying and selling buildings, buying and selling businesses, it was startups really everything in between. I wanted to get into real estate as far back as I can remember, we had a bunch of family friends that were entrepreneurs. And they seemed like they were just weren’t working much and kind of getting passive income from these projects. And it seemed like a good way to make a living. So from UCLA, I went to law school down in San Diego at USD focusing on really taking transactional classes, knowing when to want to get in transaction or didn’t have an interest in criminal law or litigation. After law school, it was it was the last real estate downturns and nobody really wanted to hire a transactional attorney. So after a little bit, I found my first position was with a scrap metal recycling company, you know, kind of being their first in House Counsel. And that kind of sealed it for me, I like transactional work, I like dealing with people. From there, I went to a real estate development company figured I really want to get more into real estate, kind of get that passive income, learn about seeing what they’re doing. And I was there for about a year it was a terrific experience and realized, you know, I don’t really need to be the entrepreneur myself, I kind of like being in behind the scenes and helping different clients in different sizes, or working on different transactions. So I left the one client, which was the company I’m working for enjoying gives getting where I am now. And I help startups through fortune 50 companies with real estate work with corporate work. My favorite, though, is working with entrepreneurs and investors and helping them grow and see the progress that they make throughout their business in their careers.
Seth:
That’s awesome, man. So what’s kind of your typical client look like?
Jeff:
Typical, I don’t know that. The nice thing about my period is I don’t have a typical client every day is different. Every even during the day, I’ll work on a client that, you know, a couple of weeks ago, I had a client that was creating a crypto currency hedge fund. It came to me and I didn’t know anything about cryptocurrency. But I can do the securities work in the corporate work for you. And that’s what I did. But that was really interesting to learn about. And, you know, today I’m working on a project for a real estate developer that is taking an old apartment building tank down and rebuilding it and with the business plan of leasing that to a co living provider in an opportunity zone. So helping them create that value for them starting to delve in themselves, but all of their investors as well. So completely different clients love them both. But I think my favorite type of client is does earlier on stage company where they grow and they don’t necessarily have all the pieces figured out yet and to see them grow from an idea into a full fledged business and see the mistakes they’ve made along the way and learning and sometimes doesn’t always happen. Hey Jeff. You’re right about that. That’s the best. doesn’t happen all the time. They don’t want to admit it. But you know, I’ve had a few times that I use that not all the time, but kind of learning from the mistakes, even if they don’t say, you can see when that layoff clicks. Yeah, that Yeah, that’s a better way to do it. Yeah.
Seth:
Yeah. Well, that’s cool. You do both corporate and real estates, you can get a, you know, a wide swath of different types of entrepreneurs and people that are that are investing in, you know, in business man.
Jeff:
Yeah, that’s it, it’s, it’s neat, because your people, it is not always their core business. Sometimes it’s, I might have a client that’s investing in the site, or buying their first commercial real estate project, and they don’t really know what to do or how to do it. But they’re thinking outside the box, and maybe this is my retirement plan, or this is my kids savings, and teaching them walking them through that process. And it seemed to move on to their second project or their third. To me, that’s the exciting part. kind of see them growing and see get them get that kind of extra cash flow and start these new businesses.
Seth:
Yeah, now, are you an investor yourself?
Jeff:
I am, you know, wasn’t always but I kind of taken my hint from the client, my clients, and my wife and I, we bought our first apartment building about two years ago. Completely different investment strategy than most but it’s, you know, ours is not about cash flowing as much as it’s two blocks from the breed the beach, it’s for our kids one day. So we’re just buying it, we’re letting it sit with residential mortgage, 30 years, and one day, our kids will have this great property that hopefully appreciates, and in a few years, it will start cash flowing better and better. And hopefully, we’ll be able to take that and buy another one and another one and go from there.
Seth:
Yeah, when you buy a property that close to the beach, it should appreciate.
Jeff:
Appreciate it. And it’s you know, it’s for me, it’s buying something in an area that you understand it’s 10 minutes from my house, can use the same vendors to plumbing issues and electricity. So I know what I know, kind of what things rent for because I used to be a renter there. So we really understand it. And our goal is not to cash flow or make a killing off of it. But it’s to let it appreciate over time, and hopefully cash flow and really leave this asset to our kids one day. And advice. One of my partners, she’s done the same thing. We’re actually able to gift part of it to my two year old and four year old, who already own your 10% of a building. I wish my parents have done that for me.
Seth:
Yeah, same here, man. Same here. Well, let’s keep it simple. Um, should you form an entity to invest in real estate?
Jeff:
Great question. Now, you’re both sides of it. My what I tell clients is typically Yes, because it’s an extra layer of protection versus just insurance. If you form an entity, whether it’s typically in real estate, or a cash flow business, but real estate, in particular, you’re looking at your LLC is a limited partnership, you’re avoiding the corporate level taxation, you’re avoiding issues of moving properties in and out of a corporation, which hurts an S Corp. So those are entities of choice. And for me, when I think about it, it’s if you have tenants, if you have an apartment building, someone has a party, some slips falls, when they’re saying tenant and they’re suing you, you’ve got an Amazon delivery coming, someone’s slipping, someone falls, they’re suing you. And while I’ve turned my cover, there’s so many exclusions to these policies. besides just the limit, you know, you might have a, maybe it’s a million dollar limit, and maybe someone has brain damage. Well, now you have a $5 million claim, you have exposure there. I’m sure all these companies will worry COVID anything that their insurance policies excluded business interruption from this, but they probably thought they were covered, but they weren’t. So I don’t know. And I tell clients, you don’t want to run that risk, have insurance, but also create the entity the cost isn’t prohibitive. You know, especially if you’re buying in Southern California, you’re buying a multi million dollar property, the cost crazy and even the franchise taxes you’re gonna pay are worth that added level of protection.
Seth:
Yeah, I like that, man. I like how you explain that, you know, insurance isn’t enough because a lot of people think that they can just own property or own businesses in their own name. And then you know, insurance, they get insurance and they’re covered. But you know, there’s a limit to that the insurance as well. As you know, insurance companies are smart, they’ve been in business for a long, long time and they know what the common outs are and they know how to get out of, you know, certain settlements. So it’s certainly important to form the correct entity to protect yourself even further.
Jeff:
It really It’s not, you know, it seems like a lot more work. But it’s, it’s helpful not only from that, but it’s easier to, to get the expenses, there’s a lot of pros to actually creating it once you do it. And you really want to, what I tell clients you really want to do is it helps you segregate your assets. You know what, even with insurance, I don’t want my personal home or my car, or my money I’m making for my practice, to kind of be coming with the real estate, I treat that as a separate business, and creating the LLC to hold it is the way to really protect yourself and keep it separate. And it’s like you said, insurance may cover and try to cover everything. But this gives you that added protection to know even if you didn’t have insurance, very worst, they’re coming after what that entity owns, rather than all your other assets.
Seth:
Right? And it’s very easy to do. I mean, you put a little bit of work upfront and a little bit of cost upfront, and then it’s pretty much taken care of you know, you have your annual minutes. But other than that, it’s pretty simple to maintain going forward.
Jeff:
Absolutely.
Seth:
Yeah, yeah. So I know, this is something you’re an expert on, let’s go through the five W’s of incorporating your business, whether that’s for real estate, or starting a business or a side hustle, or whatever it might be.
Jeff:
Let’s do it. So if I remember them from when I was a little kid, you know, what, when, where and why. And cokes some of them are more important than others a couple of quickly, who is really anyone that wants to protect their business, you don’t want to be a sole proprietor, you want that added level of liability protection, where if someone suing you, they’re going to sue your business and your other assets are segregate the what is one of the bigger ones, and what type of entities you’ve created. Their benefits and drawbacks to really all of them. So you want to pick the one talk to your advisors, consultants, your accountant attorney about what is right for you. If it’s an active business, you may want an S corporation because you can save money on fica, especially if you’re actively working in an employee. But there’s a limit to how many shareholders you can have. If you have a lot of investors above 100, or investor is an entity that might not work for you. Regular corporate, your kind of C corporation works for a lot of different businesses, you have a corporate level tax, with changes in administration CLEP, tax may go up even more. So you want to be cognizant of that and make sure that that entity works for you. Specifically with real estate. Like I said, we look at limited partnerships and limited liability companies, because it’s passed through any tax actually goes through the individual, you’re not paying a separate level of tax. It’s very flexible in the fact that profits and losses can be allocated differently than ownership. So while you may own 90% of the business, we could maybe have a split profit 5050. And that’s really valuable for real estate, especially when you’re dealing with investors. So a lot of different entities out there may want to pick one that fits your business the best. And it’s not a one size all fits, you may have two different real estate companies and ones maybe a limited partnership, one’s an LLC, but for different reasons. So we’ve covered the who would cover the what, when is really as soon as possible. Before you prefer you want to buy a property, you don’t want to form it and have it sitting there. But at the same time, once you sign on the dotted line for purchase agreement, even if you assign that later, we use real estate as an example before with any business, really, you have liability for that for indemnities representations. So when you sign as an individual, you’re on the hook even with an assignment. So if you have the ability to create a company earlier on and use that to run your business in the earlier really is, is the better way to go. So who, what, when to read about where and why. Where it really depends on where your businesses to you can use real estate as example talking about passive income. Where in California, it doesn’t make as much sense for us to form a company in Delaware, Wyoming, Nevada, which you hear about a lot, because then we have to qualify our business to to do work in in California, which means now we’ve got franchise taxes in another state plus California. But if we were buying a property our business was in Nevada, maybe we want to form a Nevada LLC or not a corporation because it gives you a much greater ability to remain anonymous. You hear a lot about big companies being in Delaware, because they have they’re very Corporation friendly. Their laws have been interpreted more than anywhere else. So there’s a benefit to being in Delaware, especially if you’re bigger, but you have to weight all the consideration, especially money and taxes to see whether that makes sense to have a Delaware LLC. See if you’re buying real estate in California. Last one jumping too quickly is why is mainly I want limited liability, I want to segregate my assets, I want to protect myself, I may want the ability to, you know, market it separate for myself, it gives that kind of professional feeling. It’s not sat there, Jeff, Jeff’s business, Jeff’s just tackled standards, you have a real name to it, which helps you with marketability, helps you attract customers raise investment, or tax benefits we talked about with, you know, with an S corp versus other entities. So, you if you want to take advantage of any of those different items, that’s a reason to incorporate, there are reasons not to buy there, it’s, you know, it’s cost, whether you might, you know, you’re buying residential property lender may not allow you to be an entity, you may have to get the loan in your own name. So that’s a consideration at that beginning. But when you weigh all those, typically, when you go over them with clients and talk to your accountant, typically in organizing Incorporated, the pros of it will outweigh the negative aspects of it. So there you got it, the who the what the when the where, and the why, still a little kid, I gotta count on my fingers. Don’t forget.
Seth:
Awesome, man, covered all five, I counted. I thought that was an interesting point about signing a purchase agreement as an individual and then later assigning that to, you know, an LLC that you create later, because a lot of people do that, but there’s a certain amount of risk to that.
Jeff:
Does, it happens in on just that when you’re starting with, you know, a term sheet, you go through this process, you sign it and not create my entity later, and then I’ll sign it. But especially in the commercial context of real estate, you may be gearing to certain indemnities, you may be getting a phase one, or doing inspections on the property, and those identities would fall on you personally. Because even if you assign it, though, new entity becomes on the hook as well, but the sellers not relieving you as the buyer, as an individual. So it’s something to it’s to weigh, you know, am I creating this now, maybe I don’t use it doesn’t go through versus I’m protecting myself from these identities and these other aspects by creating it and actually entering into the contract under that specific entity. And we’ve had clients run into issues with, you know, being an individual, because something happens during that due diligence period, and there is a claim. And now it’s there’s no liability protection, there may not be insurance. So they’ve run the route ran the risk, and it ended up being on the wrong side of it.
Seth:
Yeah. Well, what are some of the other mistakes, common mistakes you see people making whenever they’re either investing in real estate or even just forming their entities?
Jeff:
That’s a really good question. One of the biggest, it seems so commonplace, you know, and so simple is not thinking about what you’re doing from high level, whether you’re investing real estate, you’re starting a business, not just creating like a business plan. But where do I see myself in this company in five years, or 10 years, and just a recent example is had a client, two partners created a real estate business, and one is significantly older than the other. And now they’re fighting. And they’re potentially we’re going to be a call it a business divorce, because the older partner wants to pull money out of the business. And a younger partner wants to contribute everything, leave it in there, grow it, build this empire, build, once I’m done, I built mine, I want this money for retirement, I want to go hang out on the beach. So they didn’t plan that from the beginning and make sure they were both aligned as to where they want it to be. And that happens a lot, not just older, younger partners. What are we both gonna devote in terms of time to this business? Do we have another job? Is this a side business? Making sure that you’re aligned with real with real estate? Are we going to put money back into this? Are we going to maintain the property we currently have? Are we going to grow more? Are we going to bring on outside investors?. So looking at your business from a high level, making sure that you’ve thought through what’s going to happen the next 3,5,7,10 years to make sure that everyone’s aligned. Even if you don’t have a partner, it helps yourself to think about that, because life throws curveballs at you, and you can get married, have kids, be the middle of a pandemic, and you want to make sure that you that, you know, I’m gonna devote myself to this business. I make sure that you’ve thought through it. So when you get these curveballs, you’re able to focus on what’s important, and not worry about addressing those external third party events today doesn’t affect your business. One more, one more good one for you. And this one is, is not a specific one, I can give you 50 examples of where it comes into play it but having a good team in place. Starting business, whether it’s real estate or restaurant, a professional services firm is making sure that when you’re setting it up and even running it, that you have this team. So in real estate, as an example is, do you have a good accountant, because if you don’t, you’re going to leave money on the table, because you’re not going to take the proper deductions, your books are going to be a mess. That’s your that’s a team member. You have a good insurance broker, talking about how important insurance is not just from a liability standpoint, but Casualty. Do you have a broker that can save you money? And you can call them you can ask me questions. Integral team member, you know, not just real estate, but for really any business to have you have a good attorney, you know, every business, you know, it may be hard doubts that because money’s tight. But do you have a good attorney where you can bounce questions off of because you’re hiring a new employee, and you don’t know if he should be an employee or independent contractor, you’re confused about the new laws that were passed in California or elsewhere, you have that attorney that you can use him if and when needed. So having not just consultants and professional service providers, but if you’re growing employees, having that team around you, because it’s one thing I’ve learned not just clients, but myself is it’s impossible to know everything. And one of the hardest things with new business owners is thinking that they have to do everything. And that’s not the case, it’s Can you have a good partner that you can go to and be able to know, I don’t know this, ask someone else, you’re going to be more efficient, you’re going to look better, you’re gonna get a better answer. But you can only do that if you have the right team around you. And I’ve had so many clients that haven’t had that team and they run into an accounting issue, or they run into a legal issue. They have an insurance claim, and they didn’t have those policies in place. And then it comes to us as attorneys, and we have to try to get them out of that situation.
Seth:
Yeah, yeah, a couple really good points that man, I mean, it’s really important to have those hard conversations up front with a potential business partner, and get all those potential problems in writing so that you don’t run into problems in the future. And then of course, like you just said, I mean, build an all star team. And even when capital is a little bit short to beginning, you need to, you know, you still need to consult with experts, have them on your team. And don’t be afraid to you know, if you have to spend a little bit of money to have those experts and get that expert advice. it’ll pay off in the long run.
Jeff:
It’s really true. And not all of them, some of them are maybe commission based or you’re not paying them for any question. And you know, even as Attorney, you know, just because you call me it’s not going to cost you 20 hours, it might be a five minute question. And that may save you money. We’ve had a lot of clients, and it’s really hard. And people still do it all the time is can I save money this way or that way? And can I create a LLC by using one of these online service companies that will do it for 350 bucks? Yes, you can. But what ends up happening more often than not is 12 months, 18 months later, I get a call from that person. My operating agreement didn’t say this, or I didn’t deal with the proper allocations, can you fix it, and it ends up costing you more money later on than you would have spent upfront. So it’s just not in your budget when you’re starting that business or growing that you have expenses. But those expenses are more often than not they’re worth paying for. Because it’ll save you money down the road.
Seth:
Absolutely, man, you got to budget that stuff in. I’ve heard a couple different opinions on this. So I’d like to get your opinion on it. Should you form an LLC to invest in let’s say, just a passive investment or a real estate syndication?
Jeff:
That’s a good questions. That’s another good question. I think we depend on the value of the investment. If I’m going to invest $20,000 into a syndication, and that’s a fraction of my net worth very small percentage, it may not be worth it for me to have an LLC just for that investment. But if I’m investing a large chunk of money, a quarter million dollars, or I’ve got investments in many different syndications, then I might create an LLC or a vehicle to hold all my different investments, not just from an administrative standpoint that it’s it’s easier, but again, it may allow me to save money through deductions and offsets from certain expenses. And as it depends on that to me is run, they may do something that exposes the members to personal liability. Maybe that operating agreement has a capital call clause, or maybe it has a cross indemnity. And we’ve all guaranteed something. And I didn’t really read the operating agreement. So I didn’t know that it was in there, that those are the situations with having an NDA or LLC to invest really do help. So as many attorneys say, the answer is, it depends. depends on the situation. There are certainly absolutely times when it makes a lot of sense. But like many things we’ve talked about, you have to weigh the risk rewards. And obviously, there is a cost to setting up that type of entity and maintaining it all small, you’re talking about minutes and some franchise taxes, it could end up saving you a lot of money, exposure, and the worst of all, the headache and stress if something were to happen, by protecting yourself with that investment.
Seth:
Sure, yeah, that makes sense. I mean, so you know, if you’re going to continue to invest, you know, $50,000, here and there, and you know, over the period of time, and you have a lot of money invested, then it might make sense to look into, you know, having an entity form just for that particular type of investment.
Jeff:
You think about to think about, you know, from a very large scale, family offices, how it might be an individual family, but they’re not investing as a family, they have a separate company, and often many subsidiaries of that company investing, because they’re segregating assets, maybe one project they’re investing in as an environmental exposure component, and they don’t want that investment to affect your other investments. That’s why having that LLC could protect you, and maybe even several different policies, depending on what you’re investing in, you’d look at each situation and determine I’ve got some exposure here, I want to protect myself. But with exposure, in the risk comes a big return. So I’m insuring the investment, but I’m just gonna protect my downside as well.
Seth:
Yep, yep. Well, let’s dive into syndications a little bit. There’s been an explosion of real estate syndicators out there in the last few years. And I’m sure you’ve seen it, and you’ve been a part of it. So you know, what are some of the best practices to vet a sponsor or, you know, general partner, whatever the the term being thrown around happens to be that day?
Jeff:
You really, I think you really want to look at your track record. And you’re absolutely right, there’s just so many out there. And it’s so easy with all the crowdfunding sites out there now to go raise money. And there’s, there’s great sponsors, and there’s ones that aren’t a great, kind of put it mildly, in, you know, especially at first time sponsors indicator, they may run into problems, because they haven’t learned to have gone through it, it’s not to say that a subsequent project, they won’t hit it out of the park. But they may not know that I’m developing a building value out of grand ground up. And I really got to keep an eye on my contract, because I don’t really understand cost overruns. And I’ve watched the HGTV show on flipping a house. And I’m syndicating that and I realized what I’ve got carrying costs that they don’t necessarily show and other expenses. So it’s not as easy as always looks. So I think the first thing is really looking at their track record what they’ve done, what their background, is it maybe their first indication that maybe they worked for another syndicator. Maybe they worked for a development company. So there are a lot more experienced than the accountant that wants to get into real estate and starts their first indication. Beyond that I really look at, you know, when you’re presenting the deal to you, how do they present it? Is it I prepared a private place? Random, they prepared a good summary or perspectives on this deal, or they just come in using, hey, I’m gonna buy this there that has a taco bell on it. You want to look you want to invest in all, you know, I’ll guarantee you this return. Well, I mean, that’s a red flag for me, because it’s not just the way they presented it, they use the word guarantee. And as a lot of early sponsors, will, will use words like that. But as Attorney when we draft these documents, that’s an absolute No, no, we use we use words like we reprojected we predict and anticipate, because it’s real estate, you can’t guarantee things because you just don’t know what the market is. And a sponsor that’s guaranteeing something hasn’t been in the trenches, they haven’t had a deal go bad, and maybe you never do. But you’re lying. If you’ve said you’ve never had a hiccup and a deal and you learn from those hiccups. And certain things like that, and what I’m looking for to understand this this person know what they’re doing and being able to run this project from start to finish. So I’ll look at things like that until the client you’re talking to the sponsor. You want to ask him these types of questions.
Seth:
yeah, totally agreed, man. What are some specific things in the legal documentation? The ppm and the operating agreement in particular that some potential passive investors might want to look at when they’re vetting a deal?
Jeff:
I really look at the summary and look at you know, we talked about words like guarantee. But what are the basic business terms, make sure what they’ve presented to you whether or later another document is actually in these legal documents, you know, the ppm while it’s out there, that’s not always your binding document, you look at your operating agreement. So if they’re anticipating paying you 8% preferred return to the ppm. Take a look at the operating room and make sure that everything’s consistent. I’ve had a lot of deals where one document will say one thing, one will say the other. And while it might just be a mistake, you don’t want to buy a lawsuit, or have to make a claim against someone. If you can catch that from the outset, making sure everything’s consistent. Another big item, we always look for, which the sponsor being paid. Are they getting the portion of the upside? After you get a preferred return? Is there? Is there a waterfall or type of split? are they offering whatever fees are there? I’ve seen acquisition fees, this disposition fees, asset management fees, construction management fees. None of them are wrong, in a sense, but you want to look at the whole picture, where’s everything this person’s getting paid. I’ve had a client in the past that ran into issues because it was a, it was a syndication, but it was for development deal ground up, and they disclose all of their fees. And they didn’t disclose that they were paying the payment a development fee on a monthly basis. And investors thought it was just as a portion of the profits. So there was a dispute in that. So making sure whether you’re the sponsor, disclose everything. If the investor barks at it, they’re not the right one. And if you are the investor, make sure that everything is lined is outlined, you want to know exactly what this person getting paid. There’s no right or wrong answer as to what they are being paid, you know, the more experienced they are, maybe they’re entitled to more or it’s a great project, but making sure you understand what they’re getting. So these are items that you know, normally we’ll see a ppm but certainly in an operating agreement, some of the disclosure documents so that you understand the full picture of what you’re actually investing.
Seth:
Yeah, for sure, man. And when I’m looking at a passive investment and looking at the fees that the sponsors are taking, I always like to see alignment of interest. I mean, the more aligned your interests are with the sponsors, the more they should care about the deal, the more they want to see the success of the deal long term. And I think that goes a long ways in, you know, the total success and outlook of the project.
Jeff:
That’s a great point. Another point kind of ancillary point to that is, you know, that the phrase that they have skin in the game, have a are they just raising money from everyone else? Are they actually have put their own money at risk in this deal? To me, that’s important, because if they have money, and it’s due, their interests, you know, are aligned, like you said, rather than I’m raising a million bucks, and I’ve got $100 in this deal to me, a lot of times that’s a red flag, because they don’t have any exposure. If it goes badly. They don’t make money, but they haven’t lost anything.
Seth:
Let’s switch gears for one last question. Because I think this would ring true with a lot of our listeners, and I was thinking about the other days, how do you deal with, you know, freeloaders? Or you know, let’s say uncle Ned asking you for free legal advice, or for some of our physician listeners, you know, why? Why is my leg hurt? And how do you deal with that? Do you get a lot of that on a daily basis?
Jeff:
We do. It’s, especially, you know, with new potential clients, I’ve got a folder, I took the name from one of my partners, it’s the acquired but not hired, as what we call the folder, the client comes in and asks a bunch of questions. You’re talking for 30 minutes. And I agree to sign up, here’s retainer, never hear from again. So what we try to do free consultations is kind of a phone, it’s kind of work thing in the past, if someone calls, you know, I want to be there when you present, answer some questions and show them that we’re the right person for them. Because there’s a lot of other attorneys that do the same thing. There’s competition in every industry. So you want to show them that you’re not only a good fit personality wise, and they can trust you, but that you have the expertise they’re looking for. So I can’t say, you know, the client comes in, sorry, I can’t talk to you sign my retainer. 1000 bucks, and then they’ll answer your questions. But what I do try is put a limit on it, you know, I’m not going to sit there talking to the client for an hour and say, 15 minutes, you know, this is what I think you probably would do. This is some of the strategy, but not give him everything. You know, it’s 50% of what’s there. And if you want us to do the work, I’d be happy to let’s get you set up as a client. So it’s kind of a mix between them, giving them all the free advice or nothing. It’s, it’s that little bit of a tease to come in and show you that we are the right fit. But we’re service provider, we’re paid, you know, for our time. If you want us to work on your project, then we do need to set you up as a client.
Seth:
Yeah, maybe give them a little Bit of the what but not the how.
Jeff:
Exactly. And it’s, it’s just it’s a function of the business, you know, it’s people do it, it happens, you know, having, let’s say every week, but you know, every month you get someone like that that’s, that’s coming in. And sometimes it’s not their attention, you know, they may want to come in as a client and then ask them some questions and they’re fully intend to do it, but then they just disappeared. And you haven’t even given them that much free information. But setting up a client is even expensive, you know, as attorneys with paperwork and running conflicts and preparing an engagement or retainer letter takes a long time and you send it out, and then you don’t hear from him. And it’s, it’s frustrating, but you never know, if people do come back as well. I’ve had clients disappear for potential clients disappear year later, they come back, and now you know, we’re working with them. So hence, the acquired, but not hired. All their loads go into that.
Seth:
I like that I might start one of those folders too.
Seth:
Jeff, let’s jump into the freedom for so what’s the best thing you do to keep your mind and body healthy?
Jeff:
You know, it used to be taking some time to myself driving to work and listen to listen to podcasts just kind of decompress. Now that I’m at home, I’ve kind of lost that, you know, last view, which people say yeah, Mr. commute, kind of, because that was my free time. You know, now I try to just take, you know, 15 minutes here and there. And for that little kids to just myself, I organize my thoughts. And it helps us separate work at home and keeps me It keeps me motivated and keeps me going.
Seth:
There you go. Yep, got to take a few breaks here and there man. In an alternative universe where you weren’t involved in the law, what would you be doing?
Jeff:
I wouldn’t be a business owner for sure. I advise them and I, you know, like I said, I like the behind the scenes, but I’m also envious of, you know, the risks, the reward kind of running that business, your success rides on your own merits. It’s, you’re pushing that business forward. I don’t know what it would be. But I definitely be, you know, hopefully the owner running some type of some type of small, medium sized business
Seth:
I like that, man. Maybe I’ll do it anyways.
Jeff:
I’ll do it anyways. Now there’s another side hustle.
Seth:
There you go. Where are we at five years ago? And where do you see yourself and your business five years from now?
Jeff:
Five years ago, I was an associate at Gibbs getting hoping to become partner one day. Yeah. Now, partner at the firm, you’re supposed to continue to grow the business, help more clients grow their businesses. And on the side note, hopefully grow my my real estate business from a personal standpoint, as well get take down another apartment building or another acquisition or two.
Seth:
Yeah, cool, man. Well, I know that you’re just getting started with the real estate investing and cash flow isn’t, you know, too high right now. But you know, how have you seen passive income changed your clients life and made it better?
Jeff:
Yeah, even my life, it’s both it’s because you know, there’s still money coming in. And it’s, it’s something that you’re not working for in your day business, it helps it’s that extra little money for that rainy day. You know, I’m a broker as well. So don’t advertise it, don’t do much with it. But last year, I helped to, you know, up to individual buy a piece of dirt, and I got a commission for it. And what was little work on my end, that money to me felt passive, and that’s going to my kids college funds. So with clients, they say, you know, passive is not something working for, you really want to build a net worth and become wealthy. There’s only a certain amount of hours in the day, being able to make money while you’re sleeping, that’s really going to help you get there. And then you can use that money you make to make money on that money and reinvest it. And it’s really just, you know, it gets you kind of out of the rat race and gives you a little bit more control over your over your life, because you’re not actively working for that money, hence the word. It’s passive income.
Seth:
Yeah, controlling freedom. And that’s what it’s all about.
Jeff:
Yes it is.
Seth:
Jeff, really appreciate you coming on today, man, where can our listeners find out more about you?
Jeff:
Check me out on my website. It’s https://www.gibbsgiden.com/. I’ve got a LinkedIn page. Email me, call me. It’s all on the website. Happy to answer any questions or just chat.
Seth:
Alright, brother. Appreciate it. Talk soon.
Jeff:
Thanks for having me on.
Seth:
All right. Alright, fellow Torero. Jeff Love. Jeff really broke down the things that we need to be thinking about before starting our own legal entity, and specifically the five W’s. It’s best to get all of our ducks in a row upfront, so that we can hit the ground running with our new businesses and investments and set ourselves up for quick success. Now, if you want to take your passive investing to the next level, I want to invite you all to go to escapethebillable.com get our free copy of our newest passive investing guide. Until next time, celebrate the journey.
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