Brecht Palombo: In today’s episode of the Distressed Pro Professional Podcast Series, I speak with Paige Panzarello. Boy, that’s a lot of Ps I just had in that whole sentence, about raising money, about raising capital.
Paige has raised a lot of money and she’s been through the whole cycle. Started back early in the late ’90s and so has been in real estate and in notes for over 20 years, Went through the global financial and housing crisis here in the US. She emerged with a very big healthy business, and in this episode today, she walks us through a lot of the considerations, including some tactics and strategy for raising money.
Brecht Palombo: We go deep in on that, I hope this is going to be really helpful for you. I think you’re going to learn a lot and just pay attention to what we talk about in here, because if you are thinking about getting out there, doing the work to find the deals, and you’re going to be raising some money. Then this episode is for you. All right, so enjoy and here’s Paige.
Brecht Palombo: Welcome everybody to another episode of the Distressed Pro Professional Podcast Series. Today I’m very happy to have Paige Panzarello here from CashflowChick.com.
Paige is going to talk to us about raising money. Who reached out to me over there, somebody reached out to me a little while back, and its taken us a while to connect, but I’m really happy that we did. Paige I understand you raised a lot of money. Is that right?
Paige Panzarello: I have, I have. Yeah, I’ve been really fortunate Brecht because I have over my career as a real estate investor, but specifically in the last, you know, since I got into the note space. I’ve been very blessed that I’ve been able to raise quite a bit of capital.
Brecht Palombo: Yeah, cool. Tell me a little bit about your trajectory as a investor. What brought you here today, and if you could just walk us through. I know a lot of times, people here this and they think, “Oh, well she was able to do this, because she had this sort of benefit that nobody else that. You know, that’s why she’s special and I can’t do it. That’s going to be my excuse.” If you could just take is from what your beginnings, so that people understand how you’re here today.
Paige Panzarello: Absolutely. Okay, I’m not special, I can tell you that. In that, I didn’t have any … I started my real estate investing career over 20 years ago. And kind of by virtue, by default. I was thrown into the deep end of the pool by knowing nothing about real estate investing. My grandmother past away and she had a very large estate. She had some commercial property, she had some townhome units. We had a sewer treatment plant, and then we had some land.
Paige Panzarello: Of course I was quite young, and I went off to Arizona ’cause that’s where a portion of the estate was. The townhomes, the sewer treatment plant
Paige Panzarello: I literally knew nothing. I very quickly realized, that because I’m a very helpful person, I love to help people, that’s one of my passions. I realized very quickly that I was not a good property manager, because I have a really big heart and everybody has a story. I put property management in place, and then I really started surrounding myself with people that had the answers that I sought. I was able to kind of parlay all of that, within three years we turned the properties around. I got us out of the whole, we were back in the black in three years which was great.
Paige Panzarello: Yep, we sold the sewer treatment plant, we leveraged. And then we started selling the townhome units. I realized that I really want to build on the land, and my family really wanted no part of that. I ended up buying the corporation, and I started my own construction company knowing nothing about construction.
This is the late ’90s, early 2000’s, and we started expanding and growing. I brought in a qualifying party, we grew in three years to 36 employees. We were building everything, we held all of our licenses except HBAC and roofing. And we didn’t hold those because the insurance was too high.
Paige Panzarello: But you know, we were rocking and rolling, we were really building. As you know Brecht, that was you know, the ramp up to 2005, 2006 and then 2007 happened. The crash, you know, I was looking at it and then I saw it coming.
But I was very fortunate in that I thought to myself, well this isn’t going to happen to me because I’m only encumbered about 10%. I was wrong, it happened right on top of my head, and it took me down because the people that owned me money didn’t pay me.
Paige Panzarello: I was very fortunate that I had a lot of assets, I had a lot of liquidity. I had big commercial and construction equipment that I was able to fire sale. But at the end of the day, you know, at the end of three years, I ended up walking away from Arizona, having paid everybody what I owed them, but I lost $20 million. That has a tendency to change you as an investor and shape you.
Brecht Palombo: It does. Yeah, yeah, no, I’m forever changed. My perspective on investment and everything is forever changed from that same period. And I know a lot of the folks here feel the same way.
Paige Panzarello: A lot of people, a lot of people. And because of that you know, I walked away from real estate for a little while. But when I came back in, I came back in in the direction of the note space.
You know, I was doing some fixing and flipping, I was doing wholesaling, ’cause I had to rebuild, right? But all the while I was educating myself on notes and I was starting to invest in notes.
Paige Panzarello: I love the fact that there is so much control. I invest in first position, non-performing primarily. And so, that gives me a lot of ways to mitigate risk and a lot of control over my own investments and over my own destiny and profit margins. I have never looked back, and I just I love it, and I love that I get to help borrowers, you know, my goal is to try and keep them in their home, to get them to re-perform. But I get to not only help borrowers, but I also get to help my investors. There are investors back from 20 years ago that are still investing with me today.
Brecht Palombo: Wow, that’s great.
Paige Panzarello: Yeah, I mean, because I did what I said I was going to do, so I’m very fortunate of that. And then word of mouth of course spreads. You know, and that’s part of-
Brecht Palombo: It’s funny how, or not funny but, what you just said there, it seems more and
Paige Panzarello: Yes.
Brecht Palombo: I mean, and if you don’t have that, you really don’t have anything at all.
PaigePanzarello: Anything, exactly.
Brecht Palombo: It’s so critical.
Paige Panzarello: It is, it is critical. And you know, sometimes it’s not always … You know, there’s not always lemonade, we have to sometimes take the lemons and make lemonade, right? It’s not always unicorns and rainbows, there are things that happen because life happens to people every single day.
And as long as you’re honest and forthcoming about it. You know, that’s something that I really pride myself on, but I’m human too, you know? I fall down and skin my knees sometimes too, and as long as I can own up to it and be honest about it, and not try to pull the wool over somebody’s eyes. You know, that’s just so important in this business, and your reputation absolutely is everything.
Brecht Palombo: Yeah, yeah. Maybe you could walk us through, talk a little bit about … We went through the crash, we had this terrible experience. Is it terrible? I guess if I was going to be really Zen about it, it wouldn’t be terrible, it would just be an experience that we learned from. And then from then to here, you’ve raised a lot of money. What did you do?
Walk us through that a little bit. What I’d love for our folks to come away from this video, this call today, is that they have some idea about how they would begin and some confidence that the things that you do in order to raise money like that aren’t you know, magical things, they’re like actual you know, these are
Paige Panzarello: Absolutely, absolutely. Okay, so first of all, you need to educate yourself. That’s the first thing. And you have to have integrity and responsibility because when you’re dealing with raising capital from other people to use them for investments, not only to benefit them but to benefit yourself as well, that’s a huge responsibility. You have to walk into it with a knowledge base.
You don’t have to know everything, but you do have to have a fairly firm grasp of the direction of where the investment is going, right? You don’t want to fake it till you make it, because you know, you hear that a lot in real estate investing, “Fake it until you make it.” I don’t subscribe to that school of thought. This is other people’s money and you have to take it very seriously, there’s no faking it.
Paige Panzarello: Educate yourself to the point that you’re feeling somewhat comfortable. Surround yourself with other people that are going to help you along the way, those are crucial elements.
Brecht Palombo: When you talk about educating yourself. Let’s just put a little bit a finer point on that. Are there specific things that you feel like before you’re going to go out and start talking to people about their money that you really need to have down?
Paige Panzarello: Yeah, I think you need to know the risk factors. You know, you need to know how you can mitigate risk for people. You need to know the general strategy of the investment. For notes, for instance, you know, because that’s our business. There’s a lot of front end loaded due diligence. And if you haven’t educated yourself to know what those due diligence steps are, you’re really putting other people’s money in harm’s way.
Paige Panzarello: If you can at least educate yourself to the point that you understand what those main due diligence steps are that you need to take. And then have your loss mitigation team and other teams behind you, that they can take the ball and run with it after you buy the asset, then you’re going to be in good shape.
Brecht Palombo: Yeah, okay. Take us forward from there then.
Paige Panzarello: Yeah, so after your education and taking this very seriously. It really is just there’s no magic wand secret, right. There are two things that everybody wants in real estate investing. The two biggest things are deals, which Brecht you can help with, and then money, right? Money, when you’re seeking to raise capital, the most important thing is that you need to remember this is not about you, it really isn’t. It’s about the person that you’re talking with. What are their needs? And it’s your job to really ask questions to find out what they need. And honestly not everybody is going to be a fit for you, and that’s okay.
Paige Panzarello: You’re not asking for money, you’re seeking to help somebody to better their life and better their retirement, and you benefit from it as well. If you go into it thinking along those lines, as opposed to, “Oh, I’m asking for money.” Because most people freeze when they think, “Oh, I’m asking for money.” You’re really not, you have an opportunity that you’re working that you can bring people along with you that’s going to benefit them as well, so that kind of takes the pressure off.
Paige Panzarello: And if it’s not a good fit, if they’re looking to make chunks of cash, and you’re investing in performing assets you know, where you just have monthly cash flow. That’s not a good fit. The job is yours to find out what their need is, and then see if it’s a good fit.
Paige Panzarello: It also requires you opening your mouth, literally. Most people when they get into the real estate investing sphere of any medium, buy and hold, fix and flip notes, any of it, they get very tight-lipped about what they’re doing.
Because they don’t want to feel like they’re going to be judged or you know, listen to the naysayers. But if you don’t open your mouth and tell people what you’re doing, money is literally not going to fall out of the sky and into your lap, you need to tell people what you’re doing.
Paige Panzarello: You know, again, surround yourself with people that are in your team and leverage their experience and their expertise. I actually have a funny story, Brecht, that I kind of would like to share. This is literally opening my mouth and opening my mouth, both figuratively and literally.
Paige Panzarello: A couple of years ago I went to a real estate conference. And I’m a dentist daughter, by the way, my father was a dentist, and I had a little pain in my tooth, right. I knew what it was, and I got back home and I made an appointment with the e
Paige Panzarello: And he said, “Oh my gosh. I really had been thinking, you know, after I’m planning to retire in a couple of years from doing what I’m doing now, being an
Paige Panzarello: I explained what I did and he said, “Oh my gosh, that’s really interesting.” I said, “Well, you know, would it make sense.” This is very key by the way, you need to kind of ask permission, “Would it make sense for us to have lunch or coffee and kind of discuss some options for you?” And he said that would be great, so we did. About two weeks later we had lunch, and it ended up that he had a million dollars to you know, invest. You know, in my circle of friends we kind of call it the million dollar root canal, right?
Brecht Palombo: Yeah, got the right side of it, that’s for sure.
Paige Panzarello: Exactly. I literally opened my mouth and opened my mouth.
Brecht Palombo: Yeah. Tell me a little bit about how that begins. Did you start off with like a PPM in pooling funds, or did you start off doing JVs? If someone’s thinking about their … You know, maybe they’ve got some due diligence, maybe they went through your training and they understand that part, what’s the next thing for them to do?
Paige Panzarello: Yeah, I think it really just depends on what their goals are. I don’t suggest going directly into a PPM because setting up PPMs can be quite costly.
Brecht Palombo: Oh, maybe we should tell people what a PPM is. Sometimes I do that, you know, we just say things there and I don’t.
Paige Panzarello: Sorry, yes, Private Placement Memorandum, it is for a fund. And there are different types of funds, so if you’re looking to invest with somebody who’s doing a fund. Then you know, figure out what kind of fund it is and all … I mean, there’s a huge stack of papers of disclosures that you get when you sign up to invest through a PPM, through a fund. But you know, those can be quite costly to set up, and I certainly, you know, if your goal is to be a hedge fund then certainly you know, go that route.
Paige Panzarello: But when you’re first starting out in note investing, I strongly urge people that want to do this, that you know, they start with their own money and maybe a joint venture. And then they surround themselves with other people that are in the know. Right, because the practice is always when you’re actually doing it, the action behind it, that’s where you learn and that’s where you grow.
Paige Panzarello: You know, do a few of those first, and then you know, with joint ventures, with people that are experienced. You might not get as much return initially, but the value of the experience you’re going to gain is exponentially more valuable than the actual ROI that you’re going to get back in terms of dollars, right?
Paige Panzarello: And then you know, go into you know, perhaps continue that way for a long time or go into a PPM. Or decide you know what, “Hey I don’t want to do this myself, but I do love the medium.” Meaning, you know, I love the ways you could mitigate risk, I love helping people, I love making money doing it, but I don’t want to do the day to day stuff. Invest with other note investors, there are so many different options. Definitely you know, start out small and don’t try and bite off more than you can chew.
Brecht Palombo: Can you talk a little bit about what a structure might look like for somebody who is just going to work with their dentist to you know, to buy a couple of notes. You know, without putting together a PPM and all that. What would just a JV, like a basic JV structure look like for you?
Paige Panzarello: Yeah, our basic JV structure, you know, we’ve grown considerably. But our basic JV structure, when we started out, it really didn’t change from that point, is our funding partner. We call them our JV funding partner, so the person that came in, to partner with us, brought the funds.
And we put in the sweat equity and they were able to leverage our team. You know, they did participate, because you really need to know your SEC regulations, you can’t just JV with anybody. They need to be a part of your sphere of influence, you need to have a relationship with them, otherwise, you’re selling
Paige Panzarello: But you know, as long as you get to know the person, and I like to call it marriage. You know, because when you talk about people and emotions and money, it’s very much like a marriage, so date first before you get married.
Brecht Palombo: Good advice.
Paige Panzarello: Yeah, our funding partners will bring the funds, we put in the sweat equity. They do participate on a weekly basis, sometimes a monthly basis. They do help us to make decisions.
You know, we include them in decisions. But they bring the funds, we bring the sweat equity. When we exit a note, 100% of the funds, the original principal amount goes back to them, and then the profit is split between us 50/50.
Paige Panzarello: If we get a note to re-perform, then 100% of the principal portion of the payment goes to the JV partner toward the original principal amount that gets reduced. And then the interest is split between us 50/50. It works out well for everybody.
Brecht Palombo: Yeah, and so do you put together a special entity for that kind of a thing? Are they one-off LLCs? Is that what that looks like?
Paige Panzarello: I actually operate through a Delaware Statutory Trust, which functions very much like a series LLC. I always encourage any investor that I’m speaking with to invest under an entity. There are certain protections that are afforded, there are certain deductions that are allowed. Because when you’re investing in notes, it’s largely the income that you get a straight income. Very rarely are we subject to capital gains, but sometimes we are. Again, I’m not a tax professional, so you know, take everything I’m saying with a grain of salt.
Brecht Palombo: Yeah, we’re definitely not providing legal or tax advice today. That’s for sure.
Paige Panzarello: Exactly, exactly. Nor am I a lawyer. Definitely, seek the advice of your professionals. But I always encourage people to have to invest through an LLC, it protects them in a number of ways.
Paige Panzarello: Agreed.
Brecht Palombo: If somebody’s listening to this, maybe they’re starting to get a little bit of a … You know a couple of ideas, somebody they can talk to, you know, some of the folks who they know. What are some of the other ways that you find the investors out there who you’re working with? Other than in the dentist chair.
Paige Panzarello: Sure, exactly. Well, you know, honestly Brecht, there’s money all around there. There are so many people that are out there that have 401Ks, they have IRAs. Self-directed IRAs are huge. I mean, anybody that’s in a self-directed IRA, they’re looking to earn and generate higher returns. And they’re just looking for the vehicle to do that, so that’s a great way.
PaigePanzarello: But you know, of course, you want to talk to realtors, you want to go to REO meetings and talk to those people. You want to go to everywhere. I mean, when I was doing fixing and flipping, because here in California, we’re not allowed to … We have to have reusable grocery bags, right? What were my bags? What did they say? It said, “We buy houses.” And I can’t tell you how many referrals I got from the checker. You know, they took my card because they saw my bag.
Brecht Palombo: That’s fantastic.
Paige Panzarello: Yeah, I mean, it’s literally everywhere. Accountants, attorneys, gosh, medical conventions, that’s another one, go and work the lobby. You’re not a doctor, that’s fine, but
Brecht Palombo: Yeah, for sure. Well, I think we’re coming up on time here. Is there anything else we want to talk about before we sign off here, any last tips you want to leave for folks as they think about raising money and getting into notes?
Paige Panzarello: You know, again, I like to challenge people, everybody’s got
Paige Panzarello: The converse is true, you know, if you need monthly cash flow, don’t go into fixing and flipping. If you need a little of both, then maybe do look at notes, because you can create both chunks and streams of monthly cash flow in the same investment vehicle which is great. But you need to define who you are as an investor first, and then educate yourself and kind of stick with it.
Paige Panzarello: As you know Brecht I do teach a workshop. It’s called Building Wealth With Notes. It’s a three day hands-on intensive. If you’re interested in learning how to invest in notes, that might be a great place for you to start. There are others out there that do the same. I just highly encourage you to educate yourself and then proceed with
Brecht Palombo: I agree with you. The idea of … I think another way to say what you said there is to begin with the end in mind. Which I think you know, a lot of folks, they might get hot on something, or you know, find something you know, looks sexy to them or whatever. But is it going to be a vehicle to get you where you’re going? And you don’t know unless you know where you’re going.
Paige Panzarello: Exactly, exactly. If you don’t have a road map to get there, then you’re going to be in trouble, and especially with other people’s money. It’s just dangerous, don’t do it.
Brecht Palombo: Yeah. Tell us how folks can reach and reach out to you if they want to learn more about how you do this?
Paige Panzarello: Yeah, absolutely. You can reach out to me and schedule a call. If you go to cashflowchick.com. There’s a little tab there that you can book a call with me if you’re interested. If you’re interested in the workshop, you can go to buildingwealthwithnotes.com.
I have one coming up here in Orange County in a
Brecht Palombo: Okay, awesome. Thank you
Paige Panzarello: Thank you.
Brecht Palombo: I really appreciate it, those are great tips and hope that everybody really takes a lot away from this, so thank you for that.
Paige Panzarello: Thank you so much for having me, Brecht I appreciate it.
Brecht Palombo: My pleasure.