Embrace the Suck: How this Green Beret Built a Real Estate Debt Fund
I recently had the honor to jump on Leo Young’s Podcast, for the “Embrace the Suck: How this Green Beret Built a Real Estate Debt Fund” episode. We had a great time discussing the struggles of transitioning out of the military as well as the struggles of starting a career in real estate investing, on the debt side, without any formal training or education.
Self-made and self-taught, I share with Leo:
From Military to Money, My Journey
The Transition to Real Estate Lending
Building a Debt Fund: Lessons Learned
The Mindset of a Lender: Risk and Resilience
Transitioning from Military to Entrepreneurship
The Military Mindset and Entrepreneurship
Embracing Chaos and Learning from Failure
The Importance of Experience in Fund Management
Handling Investor Relationships During Crisis
Building Trust and Transparency with Investors
You can listen to the podcast on Spotify here: https://open.spotify.com/episode/0cpNqZb3yxrk0wNxUTxBTr?si=HCFWTgKYTk6cQuNHvZm4CQ
I would very much appreciate being able to share with you personally how I have accomplished what I have, through the Grace of God, and faith in Christ. You can schedule a call with me below and even watch the Blue Bay Fund presentation below to learn more about how I manage and run Blue Bay Fund for may passive investors.
With Honor,
Edwin D. Epperson III,
Manager & CEO
Soli Deo Gloria
Schedule Consultation
Fund Presentation
Join Investor Network
Podcast Transcript:
Today's guest made his first private loan on the side of a mountain while deployed in Afghanistan as a Green Beret.
Since then, he's built a disciplined, systems-driven debt fund, the Blue Bay Fund, and deployed over $30 million into real estate-backed notes with a 100% manager investment.
Now, he's finalizing a $100 million Family Office Commitment, not because he's chased capital, but because he built something worth chasing.
Edwin Epperson isn't your typical fund manager. He's a former Special Operations, Special Forces operator who runs his business like a mission, with clear objectives, minimum noise, and zero excuses.
Edwin, welcome to the podcast. Hey, Leo, thanks for having me on the journey. I'm looking forward to being here. That was a fantastic intro, so I don't think there's anything else that needs to be said.
That's great, that's great. So, just give us, the audience, a little bit of context, you know. How did you get here?
What was your journey up until this point? We had a conversation, and now we're on the podcast. Or do you want me to go further back, further than that?
Yes, exactly. Just like you, you as a person started in the Green Berets, and you went into real estate, and just a quick summary of that.
Yeah, and I figured as much, just trying to make light of the situation. We have a limited amount of time today, so I'll do my best to make the most of our time together and work effectively.
I really get into the meat and potatoes of the business and my journey. I started in the military, joining after 9/11. I joined the Army in 2002, deployed to Kuwait in 2003 to cross the border into Iraq, and served in the regular military for about eight years.
Uhm, moved out of the regular military into, uhm, special operations, so I went through, uh, selection in Fort Bragg, North Carolina, was selected, I was, uh, at that time I was with a small unit in Fort Campbell called, uh, LURS-D, they were in the process of transforming into a pathfinder company, but it was a small unit, uh, type of team. I was exposed to small-unit tactics and fell in love with the idea of being part of that special operations world.
So, I dropped my packet and went to selection. Out of 471 candidates for the special forces qualifications course, the SFQC, only 147 actually made it to the end of the selection phase, and then of that 147, only 41 were selected.
It was an intense selection. However, right after I was selected, I decided that since we were going to Afghanistan with the team, we would be conducting downed air force recovery, as well as some long-range reconnaissance missions.
So, I didn't want to miss that. Ended up going to Afghanistan, coming back from Afghanistan, and then heading into the Q course. Got through the Q course in the summer of 2011. After graduating, I was assigned to the 7th Special Forces Group and then went down to Colombia to join my team. I spent the last 5 years of my career on a combat dive team before officially exiting the military in 2015.
Actually, when I exited the military, I stepped right into what I'm doing now, but not on the same scale.
I've definitely stepped into private lending, originating loans, and holding those loans on my books.
I have always been what you would call a portfolio lender. So we make the loan. I keep that loan.
I don't sell it to the secondary markets. We're not hypothecating it. We're not doing anything fancy. We just make the loan, the borrower pays their interest, and then we get paid.
It paid back in a specific period of time. So, uh, that has grown. That business has grown to the point where, in 2000 and 2023, we opened my fourth fund.
That's a whole journey, and I'm happy to discuss it. This will be my fourth fund. It will be my third real estate fund.
I currently have a small, uh, debt. We manage a day-trading cryptocurrency fund. Um, that's just a side hobby.
It's fun. Uh, it's exciting. It's definitely, uh, ups and downs. It's a roller coaster ride, but it's fun. However, the real estate fund, Blue Bay Fund I, will be my third fund.
We learned many lessons and gained a lot of structure, particularly through restructuring, compared to the first two real estate funds.
We decided to go with a debt and equity fund, allowing us to deploy capital in both forms. As you mentioned in my intro, I also took the approach of not wanting to raise capital or commit to a loan that I couldn't fund.
And we can dive into that later. So, with every loan we do, I personally guarantee that loan. First, we utilize my capital, and then we list the loan as available for our fund investors.
We also have a unique debt structure that enables our capital investors to access their portal. Once they log in, they can manually select which loans to allocate their investment to.
This allows them to have more control over diversification and revenue. It's a great platform and an excellent methodology for investors who want cash flow but also want to be exposed to equity-type investments, as we occasionally offer those.
And so, they achieve a good balance of return, risk, and diversification within that. We launched that in 2023, and it's been doing very well.
And as you mentioned in the intro, do you have an excellent intro? I mean, you hit those points right on the head.
We have just signed the onboarding documents for a family office out of California, which was a whole other journey as well.
Actually, after this podcast, we're ending in about 45 minutes. Then, I'm heading to a local cigar bar to meet the CEO of the family office.
He's flying in from Canada to meet my team and me. So we're going to treat him to a nice cigar in Tampa, maybe a whiskey or two, and have a good time.
So, that's how I got to where I am today. And then, of course, we talked, and now I'm on the podcast.
Yes. Fantastic. Well, thanks for that, Edwin. It's a very colorful journey. And. I'm eager to explore my vision for it.
There are three distinct phases in your career so far. First, you had an army career, and then you transitioned to real estate.
However, you've already started with notes and funding deals. And then the third part is how you grew that team. Into where it is today.
There is a common thread among those. I want to understand how you made that decision.
What drew you into the army in the first place, and how did you get into real estate from there?
My journey in the military, I think it was at a time in our nation where we were just literally as a nation, we were attacked and, uh, you know, the twin towers came down, lost 2,600 plus, uh, American civilians on American soil. And I think it really shattered, uh, the perception that we've had since World War II, that we were on an island, by our, literally, we're on an island.
The North American continent is a vast landmass, comparable in size to the South American continent. We're on a massive Island on the other side of the world. The United States has just had this perception that we were untouchable. And 9/11 sort of shattered that protective view that we had.
And, um, I was, you know, I graduated by the grace of God, barely a high school graduate. I had no aspirations to attend college or university, and so I was going to work two full-time jobs, which I did for a period of about six months.
I got burnt out, um, and then not 11 happened. I think it lit inside of me, a patriotic fire, um, a, a desire to defend what I love, to stand up for what I believe in.
08:49 And, uh, and, uh, and yeah, that, that, that was the, that was the catalyst for me to join the military.
And when I joined the military, I walked. I remember walking into the recruitment station. It was actually a recruitment station located off Dixie Highway in Louisville, Kentucky, where I grew up.
And, uh, as soon as I walked into the recruitment station, there was this long hallway, and you had all five branches there.
So, you had the army on the right, the first door on the right, and you had the Marines at the first door on the left.
You had the Air Force on the second door on the right, and the Navy's on the second door on the left.
And at the very back of the hallway, in a dark room, was the coast guard. Nobody was in the coast guard room.
I did what every good soldier does first, the first step on the right. And, uh, and so I, I walked into the first door on the right and there was a recruitment station.
Recruiter right there. And as soon as I walked in, there was this big picture on the wall, and it had, I want to say, um, it was six or seven men that had Green Berets.
I mean, they were all decked out in their dress uniform, looking sharp. And I looked at the recruiter, looked at the photo, and I said, Who are those guys? I want to be like that. And so that was sort of my initiation in the military. I signed a contract.
I didn't immediately join the Green Berets, as I briefly mentioned earlier. I had a roundabout journey through the regular military, but I felt that it was very beneficial because it instilled in me a strong work ethic.
It instilled in me the capabilities and mindset to become a Green Beret. So that same mindset of wanting to defend and stand for what I believed in was solid.
It solidified, and it also remained throughout my time in the military, so I've attended many of the military schools that are available.
In fact, there are only two schools that I did not attend. That would be HALO, which stands for High Altitude, Low Open. Where you're jumping out of a plane at 30,000 feet and falling, and then you have HAHO, which stands for high altitude, high opening.
So, HAHO is when you jump out of a plane and then literally coast in the air into denied territory.
That's, it's the same type of training. And then you have sniper school. I never went through a sniper school, either in the regular military or special operations.
However, all the other schools I've attended and graduated from include Pathfinder, Airborne, and Air-Assault Ranger School, SFAUC, SERE C, as well as some others, such as Q course and language school. Additionally, there was Combat Dive School, as I was part of a dive team that was, by far, the best school there.
And during these 13 and a half years in the military, during my time in the military and going through all these schools, some of them very, very, very mentally tough.
Some of them are very, very physically tough. All of them required a level of grit and a level of what we call stick-to-itiveness.
It was literally one word with a bunch of dashes, stick-to-itiveness. And what that created in me is the realization that you can set your mind on something, a goal, and then start working towards it.
But something's going to pop up, as Mike Tyson is famous for saying, you know, everybody's got a plan until you get punched in the face.
Well, the military was pretty good about, Hey, here's your plan. And then punching you repeatedly in the face. There was a specific requirement that I encountered while reviewing these schools and training deployments.
I've had seven combat deployments, um, to Afghanistan, Iraq, Colombia, Egypt. These, this constant getting punched in the face, if you will, uh, built in me the resilience to look at a problem and then say, okay, how do I mitigate that risk or reduce my risk and then continue and accomplish the mission? And that's really what it's about. And that translated very well into the real estate investing side. And so, most likely, many of your listeners know people who listen to this podcast, and a lot of people want to get involved in real estate.
They struggle with where to start. There's a lot of, you know, courses and gurus out there that teach people fix and flip or buy and hold, also called burr.
We buy property, renovate it, and then rent it out, refinance, and repeat the process. You have commercial property. That's been very popular over the last six years, particularly on the forefront of the stage, in multifamily, as well as storage units and car washes, which have also been huge. Um, but everybody's got this desire to be in real estate, and it’s sort of like, okay, how do I get started?
And ultimately, if you talk to a lot of people, the goal of real estate is to generate, uh, wealth, it's to generate cash flow.
And more and more often, many people's ultimate goal is to be sitting on an Island somewhere on vacation, lending their money to real estate investors, essentially being completely passive and acting as a bank.
I had the privilege and honor of meeting a gentleman while going through the Q course. So, the Q course, also known as the Special Forces Qualifications course.
It can be anywhere from a year to two years, depending on your language, depending on your MOS, or what you call your military occupational specialty, um, based on your job.
It can be a variety of links, but it's more of a gentleman's course. It's a very intense course.
And many people don't make it all the way to the end, but for the most part, throughout the SFQC, you have weekends off.
Of course, depending on when you're in language school, which can be anywhere from six months to a year, it's basically like going to college.
So, you go and are literally immersed in a language course for about six hours a day, but then you have evenings and weekends off.
During this time, specifically while attending language school, I was in Fayetteville, North Carolina. I attended a real estate club.
Of course, if you want to get involved in real estate, everybody says to join a real estate club.
So, I went to a real estate club and was trying to figure out what I wanted to do.
I thought that I was going to buy a property, slap some paint and carpet on it, and sell it for a million dollars.
I was going to be rich beyond my wildest dreams. That doesn't work for anybody listening. That's completely not how it works.
This gentleman, in the meeting, would stand in the back of the room, and the meeting would happen.
The host would do their talk. They'd bring in a presenter, and then everybody in the room would get a chance to introduce themselves.
And so this older gentleman, I would say he's probably in his mid-seventies at the time, uh, said, he was back there, and he said, any real estate, uh, flippers, uh, real estate investors, if you're looking for money for your projects, talk to me.
I'm a private lender. Wow. That’s like, of course, everybody's going to get up, go back, and everybody did. Everybody had this big, long line.
You're waiting in line to shake his hand and tell him how awesome you are. So I get back there, shake his hand.
And I had a lot more spitfire and vinegar. Uh, well, let's call it what it really is. I had a lot of arrogance and pride.
And so, I get back there, and I shake his hand and I said, You know, my name's Edwin Epperson. I'm training to become a Green Beret.
And you know, throughout the brief introduction, the attitude was, and you know, as we grow older, you get to, you get to discern what someone's attitude really is like, what's the underlying motive for why they're talking with me?
And my underlying motive was that there's nobody else in this room that you need to invest in but me.
I'm the end-all, be-all. Please give me your money. I've got this. Even though I had no experience, um, and bless his heart, he shattered my dreams, which was to my benefit.
He said, ‘Mr. Epperson, I appreciate what you're doing for your family and what you're doing for our nation.’ That's a very honorable goal.
I wish you the best, but I wouldn't loan you money if you were the last person on earth. And for somebody who has gone through all this training, I've already had at that point three deployments, combat, uh, been in fire.
I mean, you name it, I've been there. And I was taken aback by, You don't even know me.
How can you say that? And so he explained to me that every entrepreneur, regardless of whether you're an employee or not, needs three things to be successful.
You need time, knowledge, and experience. And he explained to me, ‘You don't have the time to gain the knowledge.’
And then you don't have the additional time to put that knowledge to work, to gain the experience. And for those reasons, I won't loan you money.
And thank God that I had at least enough humility to realize that that was wisdom. That was wisdom that was talking.
I said, I didn't really say that, but I said, Thank you, sir. And, walked off a little deflated.
Actually, a lot deflated. I chewed on that and I realized that, man, this guy, there's something about, like, there's something about him that I want to learn from.
And so over the next couple of months, uh, they would do their, you know, this meeting once a month, and I would go back and talk with him.
And it was about the end of language school. I was about to get into it, but at that time, the Q course was split up into different phases.
And so the language school was out. Actually, it was more like a college course, a very gentlemen one, but after language, we went into SUT, which stands for Small Unit Tactics.
That was a suck fest. Then we went into CRC, which is where you're given all the tools to get your face beaten and do it with a smile.
We did the CRC and then immediately moved on to Robin Sager, which is the big final event where you consolidate all your training and conduct the mission.
Additionally, we had our MOS, or specific training, before attending language school, which was related to our MOS or skill set.
And so, you know, during this time, I was going to this real estate club, and he, uh, he asked me a question probably near the end of language school.
And he said, Have you ever considered being the bank? And I thought, wow, that's a novel. I did. No, I haven't considered being at the bank, and I'm not from a wealthy family.
And a lot of people would say, oh, well, you probably came from money. You're a trust fund, baby. You know, all this money was lying around.
And you, I, that's not me. That's not my mom; she worked in the women's ministry at all. Our church, my dad was a failed entrepreneur twice.
He had almost gone bankrupt. He had a, uh, restaurant. He had 14 restaurants. They all went out of business due to internal theft.
He then learned to write computer program code and got hired at Humana, City Bank, among many other significant places.
And then, that business was pushed out by the big firms. So, I didn't come from a wealthy background.
That's not my background. And so, uh, I explained that to him, and he said, Don’t worry about that. He said, if you learn how to find good deals, vet properties, borrowers, and projects, people with the money will want to invest in your loans.
And I said, Well, let's do it. And so, he, I, this was before the big guru, and conference, and all this stuff.
I mean, I'm sure they had them back then, but it was not nearly as prevalent as it is today. And, um, and I was introduced to a very small group.
It was, it wasn't paid. I didn't have to go there and pay. It was truly a benefit and a privilege.
We have Skype calls, and there are six private lenders across the United States. So, there are two gentlemen in California, a gentleman in Colorado, a husband and wife in Texas, and another gentleman in Alabama.
And I had the absolute privilege of sitting in, and I kept my mouth shut. All I did was like, I'm here to learn.
And you know, uh, and, and they carried on. They basically discussed the types of loans they were offering, how they handled borrowers, particularly those who were difficult, how they managed projects that went awry, and what their underwriting guidelines were.
Through this, I began to develop my own processes. And then they started to ask me questions like, How do you do a loan in Florida, Ed?
How do you mitigate your risk? If this is the risk, how do you mitigate that risk? So there's back and forth.
They would give me homework assignments, if you will. And so, in between going to deployments and training, I would jump on these calls when I was available, and I've learned.
I learned how to shift my mindset from being a real estate investor to looking at investing through the lens of a banker, and the banker's lens really aligns well with being a Green Beret.
It's not about avoiding risk, and it's also not about just head-charging. Hey, here's the risk. Let's go at it.
Uh, it's about stepping back, taking a tactical pause, looking at the scenario, and saying, okay, what are my risks?
How can I control? Also, a fancy word is mitigate. How can I mitigate my risk and still accomplish the mission?
And I, just being the lender, just spoke so much into what I had grown into being in the military.
And so that was, that's where, how I got started. And, um, yeah, my last deployment was in 2014 to Afghanistan.
And, um, the story, not the, well, the fact is I was on a Skype call, uh, with my girlfriend, wife now, and, um, the Zoom wasn't a big thing then.
I’m not sure if it was around, but Skype was. And so we're on the Skype call. We're in this little compound, our compound is in the middle of a Valley, very heavily trafficked by the Taliban.
And, uh, and so we were constantly getting in firefights, just constantly getting harassed, constantly going out and doing missions. It was a blast.
It really was pun intended. And so, we get attacked, and typically the attacks involve harassing machine gun fire followed by a barrage of mortars and RPGs.
So we're on the Skype call, and suddenly you hear this boom, boom, the lights start flickering. And dust has fallen from the ceiling.
And my girlfriend, her name's Carolina. She's like wide-eyed, like what in the world? And this happens in a matter of seconds, right?
Well, one of the mortar rounds hits our satcom antenna. And so it knocks everything out. Everything just goes dead. And so, of course, I grabbed my stuff.
We'd go out, neutralize the threat, and secure the area. We had to call in a new satellite antenna from Kandahar.
So they had to fly it out. It took a few hours to coordinate that. Then we had to get it connected.
So, it was about 10 hours later that we got back up, uh, communications. And I'm talking to my girlfriend, I get her on the call, and Leo, her face is swollen.
Eyes are puffy and red. I mean, you could tell that she'd just been balling her. She thought I was dead. Right.
And she told me then, ‘If there is anything that you can do, please, outside the military.’ Please get out.
I will live under a bridge. I don't care. And so, for me, that was really the push I needed to gain the confidence that my girlfriend, soon to be fiancée, and then wife, was behind me, no matter what.
And it wasn't about, Oh, we're going to be rich and Gucci this and yachts, this and Lamborghinis, this and big house, that it was, I want you to be safe, but I also want you to do something safe.
That will allow us to grow a family together. And so, during that time in Afghanistan, I made a loan to a real estate investor in Pensacola.
So I became the guy at the back of the room. And I still didn't have any money.
I had like $15,000 in a self-directed IRA. And so the very first loan, actually, a gentleman contacted me in Afghanistan, and he said, I know that you're a private lender.
I've seen you at the clubs. I've got a deal. Will you do the loan? And so, at this point, four years of studying, four years, Leo. This wasn't like I went to a three-day course, and I'm a lender.
Now, this is four years of intensive study, really building out the process of becoming a bank and changing my mindset to look at how I can protect my capital.
Capital preservation is the hallmark of a good lender. Uh, if you want capital growth, well, then you're looking at a real estate through the lens of a real estate investor, i.e., a borrower or a buyer. And so, over four years, I had developed my processes, developed my underwriting guidelines, which I still use today.
And so, he contacted me via email. I had coordinated with the title company and the appraiser. Like everybody that I needed to contact to make this loan, I did it through email.
I didn't even have to pick up the phone. And we made the loan. It closed two weeks after I contacted him, and the way I funded it was through a fractional note.
I had multiple people listed as the lender on the loan documents. And I had my uncle, as well as a couple of buddies I served with in the military, but I was the manager, if you will.
Of that loan, I was the administrator. And so the borrower made their payments, and I paid my investors.
What I later learned, called a yield spread, is what I earned. So the borrower paid 12%.
I paid my investors 8%. I made the difference. And this is all annualized. I earned a 4% annualized return on other people’s money.
Additionally, I made a few key points upfront. One point is 1% of the total. Total loan amount. So I made that up front, and it went well. Nine months later, I was back in the States by the time he paid us off, but he continued to pay us interest every month.
And then I was able to do the distributions while in Afghanistan via email. And I thought I had, but I found literally the tree that lays the golden goose that lays the golden eggs; this is incredible.
And, uh, then that event happened. With my girlfriend at the time, I told her, ‘Well, there's this opportunity.’
I could excel at this. If I bring the same tenacity I developed in the military to this, then I guess I can make it work.
She said, I don't care what you do. Just get out. Please don't deploy again. That was in 2014, on October 14.
I was open. We call it, uh, your website. The window for re-enlistment opens up. It's one year out from when you're supposed to get out.
I told the team, I'm not going to re-enlist. And they were like, well, if you're not going to re-enlist, we've got to make room for the next guy who is going to deploy with us.
You're going to go to the B team. The B team is basically an administrative paperwork team in the Special Forces community.
And so I checked in on Mondays and Fridays. And they knew I was getting out.
So I had a whole year. And this is where the military experience benefited me tremendously, allowing me to have that one year to build my business.
And that's what I did. During that one year, I was able to complete about 21 additional loans, deploying approximately $3 million.
I graduated in October 2015. And I just kept doing exactly what I was doing before that. And the only thing, of course, was that the pay was adjusted because I wasn't receiving military pay, but that was the motivation for me to say, 'Hey, I'm going to step up my game and do more loans.'
And yeah, that's how I got started in the real estate space on the lending side. Wow.
I love that. I think you touched on many good points that confirmed my belief that the military is one of the best incubators for entrepreneurship.
I would agree with you. I would agree with you. Unfortunately, many of them are required to have the mindset needed in the military, especially in large military organizations.
There is a big difference, right? Even when I transitioned from the regular army to the special operations side, there was a significant mindset shift. That mindset shift is necessary to succeed in the special operations world. Um, for those that stay in the regular side of the military, nothing against that at all.
You will find this across the board, both in the special operations and the regular military. They have the capability to be uber successful in the entrepreneurial space, but they are so used to being in a competitive environment.
It's such a top-down environment where you're accustomed to someone telling you what to do. And when you take that away from somebody, it's like this, this safety net, this, this controlled environment where I can be in chaos and I can thrive because of this controlled environment.
That controlled environment is no longer there. So, the chaos is infinite, and it never ends. And that can be overwhelming and devastating.
And so I agree with you, the military is an excellent incubator for the entrepreneurial mindset, but there is a shift that has to happen.
And, almost as a result of this acceptance and welcoming, we called it 'embrace the suck.' Um, and a lot of your military schools and training where the training was just, I mean, it was tough.
Ranger school is one of those. I mean, you don't get much sleep, little food. You were exhausted. You were expected to still perform at peak performance.
You were just beaten down. This mindset, to 'embrace the suck,' means not trying to avoid being uncomfortable or escape the pain, whether it's physical, mental, spiritual, or whatever it may be. Don't try to get away from it. Literally, embrace it, make it part of who you are, and in that embracing the suck, if you will, you begin to learn how to control that chaos and make it work for you.
And so, that was something that went through all the training I had. It really gave me the foundation to know that, man, when I got out, and by the way, my private lending career has not been all roses.
We've been scammed out of money. I've lost investors’ capital in mine. Um, I've made bad loans. I've had to have tough conversations with passive investors about, 'I made a bad loan,' and not only that, but my underwriter didn't follow my underwriting guidelines.
I did not follow it through with what I was supposed to. And now this was early in my career, but still, it haunts me today.
Having those conversations with those LPs, the limited partners who trusted me, and saying, 'I've lost your money.'
Not only have I lost your money, but we've been scammed, and that's a direct result of my failure. Like for a lender to be scammed, the lender made the mistake.
Absolutely. It wasn't just, Hey, I didn't mitigate my risk. No, I didn't even identify my risk. Like, I just made that loan.
Because of the result, right? The payout. And, uh, and so it's not been all roses in sunshine. Uh, it's been a tough road.
So the military mindset behind that grit, that determination, that intestinal fortitude, along with being able to embrace the suck and live with that chaos, has made me a better fund manager, a better leader.
Someone who can manage that chaos and control that chaos, if you will. And, you know, I think what a lot of people get wrong is that they assume that a fund manager’s success depends on their material success.
But I disagree with that because bad times will happen if there is no down, there will be no up.
So bad times will happen, but bad decisions and bad execution are up to you. Absolutely. As a matter of fact, you bring up a good point, Leo.
There was a gentleman from California who was worth a lot of money, and he and I were talking. This was early in my career, again, early in my career.
So the loan that I made that I just. As described to you, it happened about 2016. At that point, two years later, I had completed almost 50 loans.
I had deployed at that point, almost $15 to $18 million. Like I was again, that arrogance and pride. I was everything I touched turned to gold.
I am the cat's meow. I am God's gift to real estate investors, passive investors. Like I could do nothing. No wrong.
And then this happened shortly before that happened. Literally, four or five months before that event occurred, he and I were talking, and I was trying to onboard another capital investor to continue growing, as he was worth a lot of money.
And, uh, and you know, he, he knew me too. Um, we had known each other for almost two years at that point.
And he said, 'Ed, I appreciate what you're doing.’ Uh, you're, you're, you're making headway in the space. You're doing good stuff.
I've seen you, but I don't invest with anybody until they've lost at least a million dollars. And I was like, what?
That's the most ridiculous thing I've ever heard. Why you, why would you invest in somebody that's lost money? That doesn't make any sense.
And then why would you have that as a requirement? Like that doesn't make any sense. And then come to find out, like some, somebody's actual color shows when the rubber meets the road.
And this is, of course, something I know in the military, you would not, you would be surprised, Leo, even in the special operations world, when that first round flies overhead, people can be the biggest, the bulkiest, they can be in the gym, pushing tons of weight.
They can be the, you know, they can be the most confident guy that goes out to the bar, gets all the chicks.
And I don't mean to be crass, but just that mindset of, oh man, that guy, he has it all together.
He's an operator's operator, right? And yet when that first bullet flies, that's when you know what somebody's actual color is.
And you will find that you have literally one of three responses. You freeze because you don't know what to do.
You either fight or you flee. So those are your only three responses. There is no middle ground. You are going to do one of those two or one of those three, excuse me.
And, uh, and there were so many men that I saw in the regular military, not so, not so much in the special operations community.
They, they, they, they train that, that flight, and they train that freeze response out of you. So, it's really all about the fight.
But in the regular military, oh man, I saw that so many times we'd have a round go off suddenly, getting in a tick of troops in contact, rounds are flying everywhere, explosions.
And you have these guys that were so cocky when it was training, but when the real stuff hit the road, it was like when the rubber meets the road, they were, they were nothing.
And I remember when I got that deal, I finally realized that we had been scammed, like it was fraudulent.
We were fraudulently taken. We had no loan. We had no secured loan, which is essential. Right? The borrower owned the title company, and they scammed us.
I mean, it was a crazy story. We don't have enough time for it today, but it’s a crazy story. During that time, I realized I was either going to freeze, fight, or flee.
And there are a lot of fund managers, syndicators, man, the deal goes south. And you're seeing this all over the, uh, multifamily space right now, especially in Texas central.
Many of these hot markets from 2021 through 2023, or actually 2018 through 2023, were multifamily. You could, you could do no wrong in multifamily.
And now suddenly, multifamily is collapsing everywhere. And it's so interesting. You hear all these LPs that are now saying this GP, this sponsor, man, they were, they were all about selling the product.
And now that the deal has gone south, I can't raise them to save my life. I can't get them on a phone call, and I can't get them on an email.
And unfortunately, it is impossible to identify how somebody is going to react until the fires hit the road. Right.
Until that fire happens, that first round flies overhead. And I can understand now why that investor did not want to invest in me, because I had not yet lost money.
I had not walked through the fire, the actual fire, not to say that in private lending, you should wait to work with a fund manager who has been scammed.
I think that would be the extreme. But working with the fund manager who has had a deal go south.
They thought they had mitigated the risk. They thought they underwrote the loan. And all of a sudden, the loan's going into default.
Okay, now how do you handle that? And so, uh, that is something that not only can I humbly say I've walked through that fire, but I can confidently say I know how to handle that fire when it comes.
And again, it's all about that chaos, saying, Oh man, I welcome that chaos. I embrace the suck, right? Now let's make this part of who we are.
We're going to move through this. As a matter of fact, let's identify ways to make this chaos even more successful than just a, you know, alone.
So, yeah, a comment and then a question. You touched on an interesting point, Edwin, that the success of an entrepreneur is akin to one's personal strength. The goal is not to be the strongest person out there, but to be a well-rounded, holistic strength. So, what I often see is that people, when they engage in sports they don't frequently do, such as playing baseball, usually strain their rotator cuffs.
They have the most enormous biceps and the biggest shoulders, but they didn't exercise their rotator cuffs. It's the small, small stabilizer muscles that are commonly overlooked.
That is the weakest link in the chain. And people don't know that. And when it comes to investing, people are always like, Oh, how many full-cycle deals have you done?
How many of these, how many of that, but that checks the boxes. It's like, how big is your bicep?
How much, how much can you bench? However, it doesn't reveal your actual strength holistically. And, um, I think a way that people can build it up, you know, even if they're not in the military, I think the military teaches you a lot of good qualities that are transferable.
But I think the fundamental quality is pain tolerance. It's not to be afraid of the pain and to figure it out.
So I've noticed that I naturally gravitate towards that as well. I do some questionable things to myself. That's like, why, why do that?
I've fasted for seven days. So, like, I've gone without food. And, um, I remember that I continue with work and have conversations with sellers and whatnot, to do it.
It wasn't for any health benefit or anything like that. I think having an 'embrace the suck' mindset is crucial to your success.
Now, my question to you is, when things go south, which they inevitably do, how do you have that conversation with the person that's impacted? Do you have that habit early?
How do you structure it? Do you plan ahead? We're talking about the LPs that were invested in this deal, in this case, my LPs.
When do I address it with them? That is a great question. I talked about the three immediate responses, right?
So, you have the fight, flight, or freeze response. The problem is that everybody, everybody's sort of like when you're new, especially in the special operations world, that's really homed in, and the, the, the immediate thought pattern is what I need to be able to do something immediately.
And then there's this: hold up, let's take a tactical pause. So, some people who don't have experience in, like, combat, right?
I saw this as well, especially to your new guys, eh? They get to a team and they're like raring to go, like, yeah, let's kick these guys’ butts.
We're going to go down this Valley and like get in a firefight. We would literally plan something like, 'Hey, this is Firefight Friday.'
And so on Fridays, we would literally gear up. We had no mission. It was, we're going to go down a Valley and see if we can poke the bear.
Poke the Hornets’ nest and get in a firefight. And so it was, the number one to train a number.
First, we were taking care of business and getting rid of the milk enemy. However, we were also training ourselves so that when it was unexpected, when you're not expecting it, you know how to respond.
Additionally, it also trained the younger guys. Hey, just as soon as that first round, you don't have to charge at the enemy immediately.
You don't know what lies over that hill. You don't know what's in front of you. So do this, take a tactic.
Tactical pause, look around, determine what's happening. Where's the fire coming from? Cause in every movie, everybody said, you know, you're suddenly on fire and you see the flame around it.
That's Hollywood. That doesn't happen in real life. Suddenly, you hear this snap. You might see a buddy just get bam.
He gets hit right in the chest or somewhere worse. Right. And it's like, if you don't take that tactical pause, you might say, Hey, I'm going to go fire.
Right. And jump over a rock, or run around a rock, or a tree, or a house. And suddenly you get face-to-face with the machine gun, right?
Or an RPG or, you know, 15 guys that are looking to take you out. Therefore, it is necessary to take a tactical pause to get your bearings and understand, 'Hey, what's happening?'
And now let's decide. Let's decide. Some of the new guys, when they were on a team, would see that.
And they would think, 'Oh, you're all freezing.' Let's go. Let's go. Let's go. It's like, ' No, bro, calm down. ‘
We're fighters. We'll get to it. But then there was the other side of where the guys literally freeze, and you can tell when somebody is frozen in that action.
And then there were also the flights where I'd never seen anybody in a special operations flight, like where they ran away.
But you saw that in the regular military, unfortunately. Um, and so it happens. So, learning to take that tactical pulse, when this happened, I had the inkling that we had just been scammed.
Like, so that we don't have enough time to get into it. We should do another podcast, Leo, to discuss this deal in more detail.
We wired the funds in, and then, typically, in the lending process, you wire the funds, and then you receive the executed loan agreement.
And there are two ways to approach this. You can either wire the funds, get the executed documents, and then authorize the title company to clear to close.
And then they disperse funds the other way to approach it, which is much more suited for newer lenders. And I should have been practicing this back then. If you get the loan documents executed and then send in the wire,
The problem with this is that the borrower owned the title company without informing me. And so, even if they had signed the loan documents and I had wired the money, in either regard, we would have lost our money.
We wired the funds in; I'm waiting. I'm like, where are the documents? Like, where are those signed documents?
I contacted them. Suddenly, nobody's answering the phone. Nobody's answering emails. Two days go by, three days go by.
And I'm like, my gut starts to sink, right? Like, oh man, that, that gut feeling like you're going on a roller coaster and you're cresting the top and suddenly you start to drop that gut feeling.
I did what I should have done, which is called underwriting. I decided to underwrite the borrower post-closing.
It turns out that this borrower owned the title company. The title company was not filed. They were not insured, nor were they licensed to be a title company in the state of Georgia.
So then I started digging in even more. Man, there's just so much here to unpack, but the husband also had a history of fraud.
And then I started doing some basic Google searches on someone, which, if you're going to step into the lending space, Google is your friend, and it would be amazing.
It is impressive how much information you find just by doing a Google search. Come to find out, she had a history of stealing.
Scamming people. There were lawsuits filed against her in the state of Georgia. And I, so it was at that point, which was on a Friday.
I realized that we've been there, and there's not going to be any accountability. You will see this a lot in victims who want some accountability.
They want some ownership from the person who victimized them. Um, that was the perpetrator of the crime, and unfortunately, most victims will never get that because the perpetrator is arrogant, they're prideful.
They will never admit to being wrong. Um, and so I knew we weren't going to get a confession from her for whatever it was.
And I also realized that I need to have a conversation with the investors. And I knew, so in the military, we have what's called Courses of Action, C-O-A's.
So, the course of action is. When you admit to a risk, you should have a primary course of action.
This is what you will do. This is what your plan is. However, you should also have a secondary course of action.
A good planner has a tertiary or third course of action in case the plan fails, the backup plan fails, and then where are you?
So, I developed my courses of action over that weekend. I called attorneys and developed my Courses of Action. How are we going to handle this?
And then, on a Monday, I gathered all the LPs on one Zoom call. Um, some people would say you shouldn't have done that.
However, it was the only way I knew to be completely honest and transparent. I got them all on a Zoom call.
And for the first 30 minutes, I laid everything out on the table. I failed. I failed to do this. I failed to do that.
I failed to do this. I read a book written by Jocko Willink and Leif Babin, two former Navy SEALs, called Extreme Ownership.
I love that book because it puts into words the mindset that is prevalent in special operations, specifically the mindset that says it doesn't matter where I am in the chain of command or where I am in the mission.
If there's a failure, it's my responsibility, my ownership. I own that decision. I can't; there's a problem with the title company; they made a mistake.
You know, they scammed us. I could have easily said it was a title company, but I could have easily said it was a borrower.
No, at the end of the day, it was mine. It was my mistake, and I completely owned up to that mistake and all the mistakes.
Ultimately, I had seven investors in that deal. It was a $364,000 loan. We spent an additional $130,000 on attorney fees, but nothing else.
At the end of the day, we had no collateral because there was no executed mortgage or recorded mortgage, more specifically.
So, we had to pursue them in civil court. They declared bankruptcy. That was it. Nothing. And when I hear people say, ‘Oh, I'm going to give a private loan to this person.’
Then the first question is, is it secured? How do you know it's secured? Did the borrower tell you, hey, this is my attorney. And did the borrower say, these are the loan documents. If that's the case, you need to run from that deal.
I prefer it to be done as quickly as possible because, in lending, that's not how you mitigate your risk. You control the documents, you control everything.
And we can discuss on another day how to ensure the title companies you're dealing with are legitimate.
But yeah, I learned a lot of lessons; it took me about three days. I had to gather my courses of action and develop a plan.
And then I went to the investors. You don't want to say, ‘Hey, this is; I'm still figuring it out.’
That's the wrong answer as a leader, as a GP sponsor fund manager, that is the wrong answer to go to your investor.
I've identified that we have a problem, but I don't know what to do. What do you guys think? That is absolutely the wrong approach, and it will not foster them being on board with you because, whether you like it or not, whether you recognize it or not, you are the commander. You are the ship commander of that ship; you will determine what happens to that ship, being the investment.
Out of those seven investors, two no longer invested with me, but five continued to do so. And so that shows, I mean, that was a lot of money for them.
Many of them had saved their retirement funds. And yet, because of the way I stepped up, took ownership, presented a plan, executed that plan, and continued to contribute to the legal costs and other expenses, I was able to make a positive impact.
Like. Who wouldn't want to continue to invest in a fund manager that does that? Who would not want to continue to invest in a GP?
Okay, you owned your mistake, but the way you took ownership is you developed a plan, you executed that plan, and then you continued to put your own money at risk, believing in your plan.
How can you not get behind somebody who approaches their business like that? And so that's how I chose to handle that situation.
And, um, yeah, I'm very happy to say that, you know, of those seven, five continue to invest with me. So, um, that's a pretty good statistic.
Definitely. So, Edwin, we need to do part two because there's a lot to explore.
I would love to delve into how you think about lending and how you build. What's your business, especially in the civilian world, right?
As they call it. So, we'll do that next time. But for now, how can people contact you?
What kind of person are you looking to meet? Um, and then we'll continue from there. Yeah, absolutely. So, the best way to reach out to me is to visit our website at www.bluebayfund.com. There, you can view my background, history, and learn more about what we're doing.
Obviously, email is a great way to reach me at edwin@bluebayfund.com. And, um, yeah, if you're ever in Tampa, uh, and you enjoy a whiskey and a cigar, hit me up.
I will, and this is for anyone who's listening. I'm being serious, too. Like, I have people that come in like, uh, for, uh, and we didn't even get to touch on this, Leo, but, uh, the gentleman from Canada, so the family office is coming down, and we're taking them out for cigars and whiskey.
So, yeah, if anybody's listening and you want to pick my brain, I'm a big cigars guy and I'm a big whiskey guy. We can sit down and have a whiskey, a cigar, that's at least an hour and 15, an hour and a half, and we can talk and answer any questions that they have.
Fantastic. Well, thank you so much, Edwin. We'll do it next time.
You're welcome. Thank you, Leo, for having me. Thank you.
