Financial Freedom Fast
Building a Hedge Fund w/ Justin Freishtat
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Download my FREE E-Book on Scaling Through Partnerships NOW
CLICK HERE
Apply for mentorship with Matt and the FAST FI Coaching Community:
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Follow Matt online:
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I just watched $1.2 million a year of income go to zero, and you know what. As much as that sucks, it's the greatest thing that ever happened to me, because you don't get to find out who you are until you go through this. The number one thing you should do to raise capital is get on other people's stages and tap into their networks. Find a way to bring them value. Do it for free or pay to do it.
Speaker 2:Welcome to the Financial Freedom Fast Podcast, the show that teaches you how to buy back your time and live life on your terms. Learn how to confidently leave your nine to five from guests who've done it themselves. Whether you want to lay on a beach, travel the world or focus on your passions, this show will give you the tools to do what you want when you want. Now here's your host, Matt Emmebio.
Speaker 3:What is up? Financial freedom, fast fam. Today we've got on Justin Freistat. He is the president of sales at Kerns Capital hedge fund managing partner.
Speaker 3:Guys, we dive deep today into what a hedge fund actually does, how hedge funds find distressed deals and they are able to buy some pretty incredible deals, and then how they raise capital. I didn't even know what a hedge fund really did too much before digging in on this podcast, and that's why I do this podcast so I can explore new things and show you, guys, new things. So if you don't know what a hedge fund is, today's podcast will teach you the basics and it'll tell you how they find some pretty incredible deals to buy and it will give you the backbone that you would need to be able to go start your own hedge fund in the future if that's something that you wanna do. So, guys, make sure that you're paying attention, make sure you're listening and my people if you would like to be mentored, if you are interested in real estate which is not exactly what this hedge fund is doing but if you wanna learn how to partner with other people, buy real estate with none of your own money and partner on deals by bringing in other people as partners and having them bring the capital. Then reach out to me on Instagram, let's set up a talk, see if you'll be a good fit for my mentorship program and, without further ado, let's jump into the pod.
Speaker 3:Justin Freistat, welcome to the Financial Freedom Fest podcast. What is going on, my man?
Speaker 1:Man, it's a beautiful day to be alive, trying to get better. Be around a bunch of winners, and that's what we're doing, right.
Speaker 3:Dude, that's what we're doing, man. That's actually a reason why I created this podcast is so I could have conversations with people like you. If I just kind of reached out and asked for your time for an hour long phone call, it might not work as good as it could work when I reach out and say, hey man, you wanna be on my podcast. So that allows me to have some high powered conversations with high powered, high influenced people like you, which ultimately is just increasing my inner circle and moving me up and it's doing the same for you and increasing your brand all these different things and I love that you're just in that mindset and pushing forward for our listeners that don't know, justin, you should check them out on IG and we'll get to some contact information later in the podcast.
Speaker 3:We are the managing partner of Kern's capital. President of sales. I know you guys are on a mission here to take this hedge fund to like a billion dollars of management there. Really excited. Haven't had any hedge fund managers on the podcast so far, so it's gonna be cool to dig in, give a good overview of what a hedge fund is, what we can do, and then dive into some more tactical things that come with a hedge fund, but for our listeners that don't know exactly who you are and what you do, justin, who are you and what do you do?
Speaker 1:Yeah, so it's been a long evolution to becoming a hedge fund manager. That's not how it started. I'm a college dropout, went into direct sales. That's really where I found my passion connecting with people, being in a performance based role, like I never understood a salary. It's like how hard do you work, they're gonna pay the same thing at the end of the week and I just I can never understand that. Right, that's actually demotivating to me. I need to be incentivized by performance. That's where I found sales as a trajectory for me, and I went into a family business with my dad.
Speaker 1:We actually built an organic food company has nothing to do with hedge funds and so we built that for 15 years and then eventually sold that to a private equity firm. So I got some experience in seeing what that world looks like, and the whole time we were building that company, I was investing passively in the private placement space, because one thing that a lot of entrepreneurs do is they're really good at making money and they have no idea what to do with the money, and I didn't want that to be my story. So many entrepreneurs, they make a lot of money, they lose it all. They make a lot of money and lose it all because it's a completely different skill set to keep it, protect it, multiply it. So I did a lot of studying with that and I was through that process didn't buy into the traditional realm of investing where you basically dollar cost average into 401Ks all the public market stuff which is really just derivatives of the real investments where everybody made all the money on it. So once I learned that, I was like I need to figure out how to get into real estate and private placement, private equity stuff. I started with real estate. It made the most sense to me. It seems to be the foundation of how everybody builds their wealth. So I started first with a couple of single families and then realized that wasn't it either and then started investing passively in multifamily real estate. The portfolio for me it's about 1600 units now across five states as an LP. So a lot of diversification, a lot of safety, a lot of long-term build.
Speaker 1:And then when we got out of Heartland Foods, which was the food company, I knew I wanted to be in the space as a manager.
Speaker 1:So I went on the road this was only year and a half, two years ago went on the road going a lot of high-end masterminds, trying to see what's going on in those spaces, meet the people that are doing big things, and that's where I found my business partner who was launching a new fund, and the rest is history.
Speaker 1:And now, on the first year, we went from zero to 20 million under management and we've developed some really high-end relationships with billion-dollar funds. So our model at this point, when you're a young edge fund is being fun to fund, so we raise capital into our. We're like a micro hedge fund at this point. Right, even though we understand the path of how we get to a billion, it's really through leveraging the relationships of the people who have already done it and getting access to those really high-level investments that are very difficult for anybody to get. Like, we just invested in Flexport, we're about to get shares of SpaceX, and you can call any financial advisor any of you listening to this, call anybody you know in the financial space, and they won't be able to get you that access.
Speaker 3:Dude, that's amazing. This is all from building relationships with the right people, networking with the right people, putting yourself in the right position so you can talk to the right people and create the right opportunities for yourself. We just unpacked a lot of time, a lot of career, a lot of experience from your entire life. I see three pretty distinct stages here, where you went from building this food company with your father, then selling that off and then investing in real estate. Is that right? You started investing in that first single family after you started that company, or what was the timeline like there?
Speaker 1:Yeah, when I first started in sales, I was dead broke. I was making that first year I'm like 40 grand and then it turned into 60. I didn't have my priorities in line at all. I was blowing everything. I didn't save a dollar just in that party lifestyle when you're in your early 20s. Then I met my now wife and we got really serious about what our vision looked like was going to look like. I knew that I didn't want to be blowing all my money. I just didn't know what to do. That shift. When you decide to do personal development and you really start investing in yourself, that's when everything's going to change. I started reading books, started understanding that we had to work in percentages, because if you can't save money when you make 40 grand a year, you're not going to save it when you make four months. It's just act.
Speaker 1:I remember that first year we were both in pretty bad environments and we decided we were going to move away from those cities, go to a new city, move in together and start building our life. That first year she was still in college, getting her degree, and I made, I think, probably 90 grand a year. I went from 60 to 90 just because I was out of a bad environment and I was focused on building a life with one woman. Of that 90 grand, we probably saved 50 of it. We spent nothing because we were like we need to get this seed capital to go make our first investment.
Speaker 1:A year later we moved out of that apartment that we had. We bought our first property, we moved into it and we did that rinse-repeat model where you get the primary resident's low interest rate, you live in it for a year and then you move out by another one and rent that one out. We did that twice and then I realized that the cash flow was pathetic. It was going to take forever to build a portfolio. Doing it that way, we decided to sell the condo, we stayed in that townhouse, we bought, and then all the cash that we started saving we started investing in the multifamily projects.
Speaker 3:These were larger syndication projects that you started to invest in as an LP. For our listeners, lp Limited Partner means that you're not the one who's actively managing these properties, which is what you learn from these first investments that you went into. You don't want to be the one that's there managing them, but you still want the advantages that come from real estate so you can invest in these as an LP Limited Partner, put capital in and still get the returns, the tax benefits, all these different benefits that come from real estate, just from investing as this Limited Partner, not having to come in and do the management heavy work on it. I'm interested to learn about building the food company up with your father as well. Did you parkland foods? Is that what it's called? It was Heartland Home Foods, heartland Home Foods. What was that company exactly? How did you feel confident enough to go in there and build this out with them and just say, yeah, this could be something that's going to work.
Speaker 1:I really didn't have much confidence at all in the beginning. That's one thing that I learned was that I'm a sales guy and operating a business operating real estate. It's the same reason why I'm an LP on real estate. I don't want to do it myself. That's not my skill set. To be an operator, to wear 50 million hats and manage a bunch of stuff that's that. I was my dad's skill set. He ran all the high level of the business and I drove all the revenue through the company. At first it was becoming great at the job and then it was duplicating yourself, building out the team and then driving revenue at different levels at different break points.
Speaker 1:Food business is a very difficult business. I would not recommend going into it. I would never do it again. Very thin margins, cold storage, utility bills on walk-in freezers we got trucks on the road, gas tolls, 30 employees and then what's left over is not very much. You even add a $10 million of revenue every year. But I'm so grateful for that experience because it forged incredible skill sets that transitioning out of that into a different vehicle where you can make a lot more money. I was ready to walk into that role because of all the tough times in the grinding and what it took to build that food business.
Speaker 3:Yeah, and it's almost like these trials, tribulations, these things that we go through. We might not know exactly what they're preparing us for in the future, like all these different problems, all these skill sets that we're building, but eventually it's going to lead us to something, as long as we continue to take these steps towards growth. It's going to lead us to something that was meant to be and it's just going to come in and be like this is what all that power, all those skills that I've been building this is what that is for. What are some of those skill sets that you learned from those initial few years in your career building out that business, real estate, whatever it might be that enabled you to be so successful in your current position?
Speaker 1:I think it's. For me, it was a willingness that I didn't put expiration dates on my goals. I didn't just get hard, I didn't quit and look for the next thing when I make a decision, and that's why I love putting things on social media. Once I put it out there, it's got to get done. It's accountability. I just started looking at the top sales guys when I came into the industry. I was like what do they do? What do I have to do to catch them? Which means I'm going to have to have more frequency, I'm going to have to show up more. I would ask the guys I'm like the top sales guy in the industry how'd you do it? I work six days a week. I read books. I'm like, yeah, but how many? He's like blah, blah, blah. I read one book a month. I'm like, okay, I'm going to read two because I need to get there faster. That's the way I looked at it was like I don't want to be 40, 50 years old when I get there. I want to compress time. The only way you're going to compress time is through frequency.
Speaker 1:I took some of these skill sets when I first got into the hedge fund space. We only can partner with accredited investors. That's like 1% of the population even qualifies to invest with us. That's a 506. 506c that's the whole regulation D Exactly. In the beginning you got to build skill sets. I wasn't trying to raise capital. I would take meetings with anybody. I scheduled hundreds of meetings to pitch this product, knowing I wasn't going to raise any money from these people and they weren't qualified. How many guys are willing to do that? They want to go into sales, barely learn the pitch in the product and then go out there and fail forward. You, I'm like I'm gonna do hundreds and hundreds of meetings just so I can get good at it, so that once I'm in front of somebody who's qualified to say yes, I'm ready to go. So these are the things you're gonna have to do in anything, right, you're not gonna go to the gym one time and build muscle. You need to show up consistently, often and more frequent than everybody else.
Speaker 3:So you learn this skill set. That frequency is going to be the thing that trains the mind, trains the body, trains the abilities. You're gonna be able to see what works, what doesn't work when you're talking with people over Zoom or in person, whatever it is to get the sale. And maybe some of these not-accredited investors actually did, I'm sure, like they wanted to invest with you but they didn't have the ability because they were not accredited. Now, what is your position with current capital? Are you fully in sales, Like you are the guy that is bringing in and closing these deals up, closing the money to come in, or what is it specifically that you're doing?
Speaker 1:Yeah, that's exactly right. So I'm the president of sales. I drive all the revenues through current capital. We've got other people on the team that also raise capital Some people that is their primary responsibility underneath me, and then anybody in the business can raise capital. Anybody can refer business right, so we're all wearing that hat at all times. Sales is anybody in the company can do it, and I love some businesses that I've heard of where the receptionist answers the phone. If she can drive some revenue, she gets commissioned. It's like that's a great mindset because we're all in sales.
Speaker 1:Right, for me to make a sale, I need everybody in the business to be great at what they do. It's not just you, and that's something that a lot of high-end salespeople lose track of. They get this ego. They think it's all them, but really it's the entire ecosystem, right. It's not just the product, it's not just you, it's the follow-up systems, it's how we nurture these clients and all the people involved in that. So it's about having that well-oiled machine and just making sure that everybody has accountability to show up in their role at the best of their ability. So with all those things together, like at the top of our company, sergio is the CEO who crushes it for us. Cody is the CEO and he is doing high-level relationships that I can go out and raise capital for right. So without those two things, I wouldn't be able to do what I do, and without me driving the revenue, we wouldn't be able to fund these deals. So it's really about an ecosystem and everybody having no egos about their role, because they're all equally as important.
Speaker 3:And they all help with the flow of business. Because you need something to invest in. You need someone who handles the entire operations of the business. Then you need something for your business to actually be able to invest in. Then, when you're going to be able to invest in something, you need the capital to be able to invest with it. And then you need again the operations to run all of that flow down through your system. I love that you guys the three of you have that all broken down into your individual sectors that you can all kill and do the best job possible for the fund. So for our listeners today that don't exactly know what a hedge fund is, what a fund is that you're raising for and doing and you mentioned that you've gone through, I think, three funds so far. What does one of these funds look like? What is the point of a fund? What are you guys doing? What are you investing in? How do you create one? Let's just get into the general ABCs of what this stuff is and then we'll dig into the nitty gritty.
Speaker 1:Yeah, there's all different types of hedge funds. You've got 506Cs. We'll focus on that because that's what we are. You've got to be accredited to be in a 506C. But there's hedge funds up by real estate. There's hedge funds that do crypto. There's private equity. We focus on trading funds and private equity. For the most part, there's two levels to the private equity. So the sexy side of it is the big private equity. That's the most fun to talk. Right now we're about to have a capital call for $50 million of shares with SpaceX and Starlink. That's exciting. That's in the news, everybody knows Elon and that's a sexy thing to get involved.
Speaker 1:The thing with big private equity like that is that we're basically getting in late stage before an IPO. So when you buy something on the public market, what you have to understand is that all the insiders are going to make all the money on IPO days. So the closer you can get to the inside, to the source of the investment, the bigger the returns will be, or the bigger the drop will be. It's more risk, more reward. So the exciting thing, our model we're partnered with InnovationX. It's a big multi-billion dollar private equity funds run by the Forte Capital Group and they have their position with SpaceX is $550 million. So they're going to have funds like us that go fund to fund with them so that they can raise a ton of money very quickly for these investments. So we're just one small sliver of the total raise. But we get access based off the relationship. And then people who invest with Kern's capital smaller time accredited investors, $100,000 and up they are able to get access through this chain of fund to fund. So it's really just a game of access.
Speaker 1:And at these big unicorn companies there's a lot of insiders or funds that were in early who want to liquidate before the IPO, maybe a year, two, three, four, five years before the IPO. So our model is we wait. We're not a venture capital fund. We don't invest in startups. We wait until the big boys the Sequoia Capitals, andreessen, horowitz, softbanks already invested billions and we have a proven model and the odds of success are extremely high. So if we can buy shares at a 20, 40, 50, 80% discount off of an insider or a fund that was in early, we're going to take that whole period one to five years and get a four to eight X on these investments. That's as sexy as it gets. The difference is. You got to figure out what type of investor you are. Right, because you're not going to have liquidity, you're going to have to have that money in. It's going to take a few years until the IPO and then we get the liquidity event. So that's one of the funds we do.
Speaker 1:And then the trading funds, which is more of your traditional hedge fund, is also in partnership with Forte Capital Group. We raise capital. This one has quarterly distributions right, it's swing trading inequities. They've got a robust research desk, technical fundamental analysis, quant, all that stuff, and they're going to try to beat the benchmark and they've got a track record of beating the S&P 500 for a long time, right. So that's a fund where we're not going to have these big monster pops but a gross return target of 20% to 40% a year, and they're hedging the downside risk. So that's your 401K on steroids per se. So that's more for an investor that wants liquidity. It's only a one year lock on your principal and you can take the gains off the table every quarter if you would like, or you can let it stay in and compound. So someone like me, I want to mix a boat. I want that fast money where I get paid quarterly. And then I want those big injections of capital from the private equity that come every three to five years.
Speaker 3:Yeah, and this is so. The actual breakdown of a hedge fund, in its simplicity, is to raise some capital at your business model, actually on your end, not from, like, the consumer side, but your actual business model is to raise capital at a certain percentage and then to be able to manage that capital and invest that capital into the two different types of funds that you do have, whether it's trading or what is the other one called. So you've got the trading, which is the quarterly distributions, and then the ones that are in the big pop. What do you call those types of funds?
Speaker 1:Yeah, so the private equity fund is just CDK fund too. That's our second fund, so it's important, right. So that's a big fund, the private equity fund. But within that fund is a series, right, or sometimes it's called special purpose vehicles, spvs, which means that we're investing in one thing. So we just finished a raise on a company called Flexport. That's closed. Right, once we raise the capital for that one investment, that series is closed. Then we get the next one, spacex, and we raise just for that. So there's several series SPVs inside of that hedge fund vehicle, right, that's how that's structured.
Speaker 1:On the smaller side of private equity fund four it's called Maverick fund four it's gonna launch in the next 60, probably 90 days. That's more of a joint venture with a smaller business. It's a little different, right. So we're partnering with a turbine company Basically we're calling this an aerospace fund and they specialize only two companies in the world that specialize in this. They buy old airplanes or turbines and they refurbish 757 Rolls Royce engines and then they flip them and they've got monster margins. It's like real estate too, because if they buy an airplane, you can depreciate it. Now you've got some tax losses coming through in the form of the K1, right. So there's all different things you can do within these different structures.
Speaker 1:But to answer your original question structure of a fund there's a lot that goes into putting this together. You've got your legal. Everything has to be compliant. It's very complex putting these things together. You need your accounting team, you need your third party administration, which is extremely important, and this is something for.
Speaker 1:If there's one thing you get out of this podcast, this is it right here. Third party reporting right. Every scam in history, from Bernie Madoff to FTX, internal reporting was done and it was falsified. If your reports come from me as the hedge fund manager, can you really trust them?
Speaker 1:So when you're designing a fund, one of the principles at the beginning is we're going to put third-party administration in place to protect the LPs and to keep the fund managers accountable, which means anytime we move money, the bank won't let us unless our third-party admin signs off on the transaction Every month or every quarter, depending on the fund structure. When you get your report, your monthly statement, it doesn't come from us, it comes from the third-party admin that's reviewing all the statements, looking at all the accounts and sending you an unbiased, factual report. This is very important. It's the one question that I would ask if I'm ever investing in a Vivo 6C, who does your third-party reporting? I would call them and say, hey, this is what these guys told me about their fund. Can you verify it? Make sure it's true. You can save yourself a lot of headaches just by that one principle right there.
Speaker 3:That's a solid tip, that turbine company that you mentioned. Are you able to disclose what that company's called? Don't think I can at this point. Okay, got it, because my buddy that's building up the fund that I told you before we hopped on this podcast, that's one of the companies that is going to be his main first investment. They do exactly what you mentioned, because you really can't find many returns like this in the area that are as solid as this. I'm curious if it's the same company there. I'm sure it might be. But so to go at your business of a hedge fund from a high level, what are the main parts of this business? We've got the legal side, like the compliance side, and we already mentioned, you want to make sure, at least when you're looking at investing into one of these companies, to have a third-party compliance company, not have that internal reporting, but from an exterior view of your own company. What are the main plugins, the main parts of your business? Is it like capital raising, investment finding? What do you structure your business as?
Speaker 1:Yeah, from a very high level. It's deal flow and capital raising. We need a deal, we need a structure and then we need capital to fund it. Depending on the fund, there's all different structures. You've got management fees and then you've got splits on the performance Every fund's different Industry standards, usually at 2%-ish management fee and then at 80, 20 split 80% to the LPs, 20 to the fund. But there's a lot of wiggle room here. Somebody that wants to invest the minimum might not get the same profit split as someone who wants to bring in a ton of capital. Performance is negotiable, management fees are not.
Speaker 1:That's, from the high level, how it works. If you're going to build a hedge fund, you're going to need solid deal flow where you can build in a profit for yourself and make it advantageous for the LP. And then you're just going to need a lot of capital, the ability to raise capital and usually on time lines. We got the capital call for Flexport, which was the last private equity deal we did, which I can run you through that deal it's a great deal. We only had a couple of weeks to fund that. You've got to have a pipeline built. You've got to be having these conversations in advance, you've got to have people that are ready to roll quickly, whereas a fund like fund three, a traditional trading fund, we can take capital in at any time but there's no rush on the raise. It's just very different depending on what you're doing, kind of like real estate if you only got so much time to raise the capital and close. There's urgency.
Speaker 3:Yeah, so let's talk about that deal. I'm curious to break down what one of these deals looks like, from finding out about it to raising the capital. Let's talk about that whole process, what that looked like and how you got that deal done.
Speaker 1:Yeah, so on the surface, with the private equity and the big, this is pre-IPO. Flexport is an extremely large company. They're going to do somewhere around $5 billion in revenue this year. They're in 116 countries across the world. It's a big logistics company like a FedEx. They're growing at 30%. That's something you look at is okay where can we buy these shares at a discount and you factor in the growth and what it's going to look like at IPO and what's the return. Essentially, we bought these shares at $7.87. Six years ago, softbank put a billion in between $4 and $5. This company is now valued between $20 and $30, and we bought it at $7.
Speaker 1:That's often insider or a distressed fund. There's a lot of distressed funds right now that have problems in other parts of their portfolio and they need to liquidate shares quickly. That's how you get these opportunities. Why would someone sell these shares at $7 if there were a 20? That was the opportunity here. The public market pays four and a half times sales for a company like this and we bought it a one-time sales Immediately. You're already looking at 4X and then you factor in 30% growth. Ipo is expected between 12 and 24 months. We know that the gross return here should be somewhere between 4 and 8X conservatively, and then you break down an 80-20 split. We've got to pay a placement fee to InnovationX for getting these shares for us, because they're the ones who do these monster deals. We're getting a small piece of the big monster deal. At the end of that. The LP should be looking at a 2-4X in a 1-2 year period and very predictably solid. Nothing's ever guaranteed, but that's the type of deal you look for.
Speaker 3:Why was this? You said that this was a distressed fund that they were able to…. Innovationx went out and bought these shares and then they sold them off to you guys. How did they get such a steep discount on those shares of FlexPorts to start off?
Speaker 1:It's usually one of two scenarios. It's either an insider, someone who was with a company early that has equity. I don't know the exact situation, but let's say you're one of the first 100 employees at a $5 billion company. You've got equity, right. You might just be an accountant and you've got $20 million of equity. You might want to take that off the table. You killed it, right. You might not be getting greedy for the next 20, and IPO. You might want that money now. Then a negotiation happens where someone like InnovationX is going to buy those shares privately at what's a great investment for us and a great deal for that insider. That could be the scenario. Or it could be a distressed fund that needs to liquidate some shares. If they were in a $2 and they sell it to us at $7, it doesn't really matter if they're valued at $20. They got a huge win. They need the cash. Then, if you can close quickly and solve their problem and somewhere else in their portfolio, win-win.
Speaker 3:Dude. This reminds me for my listeners that are pretty well-versed in real estate this is just me digging into this from day one as well, because I haven't done a ton of research into hedge funds, but what this sounds like to me is finding very good opportunities. If we bring this back to real estate, you've got distressed assets which could be a distressed hedge fund that needs to liquidate these things. A crappy property, the roof is falling down, all these different issues. You're going to be able to get that a heavy discount compared to maybe even its current value, because the owner just wants to get rid of it. Because they're in a situation. They're distressed, the owner is distressed. That's like a distressed hedge fund.
Speaker 3:Then you've got the old person, the guy who's 80 years old and he's got a 200-unit portfolio. That's got a ton of equities, got no leverage on these things. That's almost like the guy who's been at the company for 15 years and it's about the IPO and it's got millions and millions of dollars of equity in these shares and he just wants to get rid of it. It sounds like it's the hedge fund manager. Whoever goes out and finds these deals. It is their responsibility to go and find these different types of deals, whether it's someone who's been there and has all this equity buildup, or it's someone who's fun, that's in distress and they need to sell off some of these assets. Am I understanding that correctly? You basically just need to go find these opportunities, yeah?
Speaker 1:it's on a micro level, like what wholesalers do? They're dialing, they're driving around, they're looking to buy an asset on sale. Right, my favorite wholesaler, real estate guys, chris Rudy's like I got it. He's only gonna buy it if I can steal it legally, morally and ethically right. So that's what this is. It's the same thing, except in the billion dollar space in private companies.
Speaker 3:Yeah, that is. That's pretty amazing, and, from my end, where I have found some success is Knowing that I'm going to be able to. If I can find a killer asset, I know that I can raise the capital to get that deal done. If I find a killer deal that's worth money, money will come to me and I'll be able to get that deal executed. But obviously so there's two sizes. We got the deal finding, which we just covered, where that comes from, and then finding the money. So what is the main strategy of finding capital that like, obviously, as a 506 C, you can and it's not obvious for all the listeners but 506 C and 506 B a main difference is like 506 B is it's your buddies, it's your close people. 506 C, you can actually reach out and do some, do like crowdfunding, and you can reach out and advertise for your fund and reach out to people. So what is what's a way, now that we know how to find deals, or where deals come from, where's the capital come from and how do you get that? Though?
Speaker 1:Yeah, it's, you touched on it. These different structures allow you to raise in different ways. Right again, in the 506 B you can raise from unaccredited, not in a 506 C, but you also there's a lot of rules and regulations around the advertising shouting from the rooftops on social media. You really can't solicit anyone who's on the credit, it's just you don't even want to mess with it. Very fine minds. So really, the private placement space is mostly net. That's really how it goes. When you're a new hedge fund, you're gonna get most of your raise from retail Institutions, family offices. They're not gonna mess with you when you're small because they have parameters, right. They might only want to be, let's say, 10% or less of your funds and their minimum investments to a million, right. So that means they won't even look at you until you're over 20 mil or whatever it is for their parameters. So in the beginning you're gonna be bootstrapping this for me.
Speaker 1:I hit the road high-end masterminds that cost five grand or more. Everybody in that room, the smaller the better. They're looking for deals or they're looking for funding, right, and you never know what's gonna happen. I went into this with no expectations. I was brand new in the industry. I just ran the playbook from my old industry with a better product and it's the boots on the ground, networking in the beginning. And what's interesting is you get into some of these rooms and you won't necessarily raise a ton of capital, but you're gonna build relationships with other really high-end people that are in that same room and then things Spire right.
Speaker 1:Like I went to a real estate mastermind. In the beginning I had only raised a couple million and Somebody there was a hey, you should come on my YouTube show, right. We develop a relationship. I go on his YouTube show, then I'm at his mastermind speaking. All of a sudden we raise millions of dollars together, right, so it's. I think the number one thing you should do to raise capital is get on other people's stages and Tap into their networks. Find a way to bring them value. Do it for free or pay to do it. Like I spent money to speak on other people's stages, right, someone sees you on stage. They're like, wow, they were invited or they got paid. It's not like that. In the beginning you got it. When you're someone's ahead of you, you bring them back. That's the only way to climb this lap Is to bring people value that are ahead.
Speaker 3:Man, I love that there are so many actionable steps that have been talked about in this podcast today, like from raising capital to actually being able To go out and find the deals to be able to do.
Speaker 3:This seems like there's a good amount of information for someone who actually Actually wants to go out and start up one of these hedge funds. If that's a goal or dream that you do have in your future, these are some pretty amazing tips that you have to be able to go out and do that. And now what I love about your story is that you found your business partner, the people that you actually started this fun with by going out to these Networking events and being able to partner with people and get these deals done. Now how can someone else if they are really good at, let's say, raising capital and having these conversations and knowing how to find money and get these things done, but maybe they don't know how to find the deal what tips and tricks might you have for them being able to find somebody that Fits them well and can bring value to them, and be able to go and find the deal so you could start up this little hedge fund company?
Speaker 1:Yeah, so I want to tell you the story of how I did it, because there's a lot of lessons here, right when we're talking about seven figure plus sales jobs, that's essentially what I right.
Speaker 1:I'm doing the same thing. I did it before, just in a new industry, new level of product. It's not a job you apply for Straight up, right If you. If I had gone to Cody Kerns at his mastermind number one, I paid for the highest level ticket, right, you're not gonna get taken seriously if you buy general admission. May as well not go, right, man, you should go. But so that was step one on his radar. I'm serious, I'm a player. Right, establishing who you are in this chain. Right, but I'm still not on his level. So I got to figure out a way to bring value to him. He says he's launching a hedge fund. I put up my money and invested in it personally Before he even launched it. I, right, so I was one of the first investors. Right, that was step one. Still didn't ask for the position, never asked for this position. This is such a key thing. I said to myself how do I be different than everybody else? I just went out and started raising capital for hair without asking for anything.
Speaker 3:Without even being a part of the company. Yeah, but that's you want to be at this level.
Speaker 1:You got to do stuff like that. You got to demonstrate who you are to people, Because think about what it's like to be a multi-seven, eight-figure guy, Like everyone's coming at you from all directions and it's just gross because they have no tact. So how are you going to separate yourself? How are you going to say I'm the guy Right? I wonder.
Speaker 3:It's to already be like, literally, you didn't have to say I'm the guy, you didn't have to do any of that, you just were the guy. You went out and did the stuff that the guy would do and you said look, if you want the guy that could do this, I just did that for you. So let's do more of this in the future.
Speaker 1:Exactly how it happened. I went out and month one got him a couple investors. I mean, hey, I got a guy a hundred grand here and that just demonstrates, okay, he can raise a hundred thousand dollars. It's not like we're making a $5,000, $10,000 high ticket sale. I went out and raised a hundred grand. Then it was like a couple hundred grand. He's hey, man, do you want to come into this and do this? I was like funny, you mentioned that. Right, that's how it happened. I would love to.
Speaker 3:Dude, that's incredible man, and I see some synchronicities from like where your story is at and where I'm at here. I just actually raised the first big raise that I was able to do for any of my assets, like I've raised I don't know 20,000 here and there, but I raised 150 grand to go buy a property and then I raised what did I raise? 50 grand and then 30 grand and all this is within within. I, probably throughout my entire career, raised besides, like JV partners and stuff like that. I raised like maybe 20 grand, 30 grand, and then all within the past two and a half months I think, I've raised like 250,000, a little bit over that.
Speaker 3:And it's whoa this stuff is you can actually get this done if you leverage the skills and the mindset and just know you can go do it. So I love that you were able to apply that to a business that needed the need. You used it, you just went and did it. You didn't even ask if you could do it, you just went and did it for him. You proved that you could do it and then that put you in an amazing position to be able to execute for this company and put yourself in an awesome financial position, which I love, man.
Speaker 1:It's actually really simple. People like DM me to ask what are you hiring for? Like all this, just not 1% or stuff. You wanna be on my team, bring me one investor and you're in. Let's say just show me you can do it, and do it for free. Don't ask for a commission. Put in some sweat equity and now you are a hedge fund manager. Like how simple is this? If someone for you it's looking at, I got a sales skillset, but real estate's intimidating. I don't wanna operate, I don't wanna find the deals, all they would have to do is bring you some capital and you'd be like, hey, let's do this again.
Speaker 3:Dude, that is literally it. If you find me someone to go bring deals like, I have somebody I'm mentoring right now and he's going and finding other people money on their deals and like doing all this stuff and he's not injecting himself into equity on those deals. He is proving himself as a player for their deals. But I'm like man now it's if that is what you're good at, leverage that skill and you can leverage yourself into equity in the deals in the future, at least with these people, if you're going out and finding them capital for these deals.
Speaker 3:That's a big part of being able to execute on a real estate deal. Make sure you know how much your value is actually worth and leverage that. Know your skills, be able to execute your skills and put yourself in a position to be able to make that ask for equity or for a position in the future. But in the beginning, maybe don't make that ask, just go and do it, prove yourself. Once you prove yourself, then you could start making those asks. Man, so much valuable content. I love it, justin. I'm going to dive into our final questions that I've got for you today. What is one actionable step our listeners should take today to start on their path towards financial freedom.
Speaker 1:So many I got to call it with a one. I would say do the audits. Okay, this is like the most simple audit you can do. I love this. I got it from Matt Monero and his book. You Need More Money.
Speaker 1:If you're between the ages of 20 and 30 years old, your net worth should be at least one times what you make in a year. Meaning, if you make $100,000 and your net worth is not $100,000 or more, you are not living right. You are spending too much and you're not saving and investing enough. Okay, if you're between 30 and 40 years old, it needs to be three times your annual income that net worth. So just get honest with yourself, right? If you're between 40 and 50, it needs to be five times what you make in a year, and if you're 50 or over, it needs to be 10 times. So get honest with yourself about how you're living, what your spending habits are, and then make some changes. If you need to sell your Camaro, like whatever car you have, just because you can make the payment and get a 2,000-bile piece of shit, guess what? You should do that until you're a millionaire. Like you'll get there faster. Like, where did this? Like ego, come in where everybody wants to it's nuts man, it's nuts dude.
Speaker 3:Everybody wants the Gucci belt and all this crazy stuff. Man, I just calculated my net worth the other day, like it's not like a huge driver for me, but saw that I've got over a million-dollar net worth 26, and I'm still. I drive my 2,000, 2005 Honda Civic. Everywhere I go and people make fun of me for my car man, and I'm just like, oh man, I love it, I love it. You know? Yeah, it's, that's it, dude. It's these habits, these things that you can actually move into your business as well and making sure you're putting your dollars in value-add places in your life. Like, having a fancy car doesn't really add a ton of value to my life, so I don't go out and buy it, but I will buy a nicer car in the future when I feel like I want or need it. Right now I'm chilling man, so that's the principle.
Speaker 1:It's like if you want it, delay it as long as you can, but it better come from passive cash flow. If you're buying Louis Vuitton anything and it didn't come from investment money that you didn't work for, you got this thing backwards.
Speaker 3:Broke is a joke, man, broke is a joke. Hey, the last question I've got for you today what is one question that you wish I would have asked or one topic that you wish I would have covered, and how would you have answered that question or how would you have expanded on that topic?
Speaker 1:Yeah, man, this is because of the time period I'm going through, whether you believe this or not. As wonderful as this podcast has sounded, everybody wants to talk about the good stuff. But what's it like to go through some hell? What's it like? Because I used to have this mentality of I'm gonna study so much that nothing bad can happen to me, I'm never gonna lose money, all this stuff and you know what? I was pretty successful at that for a while, but that's because I wasn't playing big enough and I don't know anybody who's done really big things that didn't get kicked in the teeth at some point. And I'm going through that right now in a big way.
Speaker 1:I had a lot of my real estate deals cash flows been cut. Things are bad out there. I had an oil deal go to zero and then one of our funds, occurrence capital, is in a big lawsuit, so we can't get performance off that fund until we resolve that lawsuit. So I just watched $1.2 million a year of income go to zero and you know what. As much as that sucks, it's the greatest thing that ever happened to me, because you don't get to find out who you are until you go through this, and it's been better for me, like that's my brother got cancer, my dog died of cancer all in a three month period.
Speaker 1:This all happened in a really tight period. We sell our business, I'm on top of the world, I move out to Vegas, I got this beautiful view here. None of this shit matters when you don't have the foundation of your life intact. It doesn't matter, right? I didn't really fully understand that until I started going through it and I'm like man. Like every morning I'm waking up and I'm like I'm still in this health, like we're gonna. We're gonna be fine in the grand scheme of things, we're gonna do great things, we're gonna make millions of dollars. But like it's a different level of gratitude when you can wake up and walk through hell and just be grateful you got two legs to do it with.
Speaker 3:Dude, that is. That is amazing, and one mindset shift that I've been having is the fact that God has gotten, has gotten me through this life, and whatever's happening in this moment, there's a reason for it. It's leading to the next thing Every failure, every issue, every problem that I see as an issue, as a problem, is actually a blessing. It's a lesson preparing me for the next thing in my life, which you know and I know is happening for you, not to you right now Love that you mentioned that man, love the, the strength, perseverance that you've got and not gonna be digging in. If our listeners and watchers want to find you online, justin, where can they find out more about you?
Speaker 1:So my personal website is toptierhumancom and Kerns Capital. It's kernscapital. We don't have a dot com on the back of that, so kernscapital and of course, all over the social media is kernscapital. And at Justin Freistat.
Speaker 3:Love it, love it. Guys, reach out, look online. If you could bring them some capital for some deals and raise some money, maybe you'll get yourself on the team there, who knows, man? But so much valuable information on today's podcast and from the Financial Freedom Fast podcast. I'm your host, matt Ammobile. Today we had on Justin Freistat and we are signing off. Thanks, justin, my pleasure.
Speaker 2:Thanks for listening to the Financial Freedom Fast podcast, the show that teaches you to buy back your time and live life on your terms. Be sure to subscribe to this podcast wherever you're listening, and follow us online at Matt Ammobile. That's Matt AMA B I L E. Be sure to tune in Monday, wednesday and Friday for our weekly podcast drops. Thanks for listening. Let's retire together.