JP Newman on Making a Real Impact with Real Estate – EP 39

JP Newman

JP Newman on Making a Real Impact with Real Estate

Today, I’m speaking with JP Newman. JP is the Founder and CEO of Thrive, FP — a relationship based private equity firm focusing on real estate projects that make a real impact. Their focus is on generating profit for investors, while also improving tenant communities for the greater good. 

The way JP see’s it, when residents thrive, a property succeeds—and when a property succeeds, investors win.

Since 2009, JP and his partner (Adrian Lufschanowski) have done over a billion dollars in real estate transactions and have acquired more than 11,000 units. 

Few businesses strive to create prosperity, but JP’s company is proof that it’s possible to invest with purpose and create wealth and success where everyone succeeds.  

In our conversation, JP shares his story from quitting a lucrative career with SONY and his humble beginnings as an investor, to building a real estate empire focused on building community and doing social good.

You’ll also learn about the capital stack structure, important questions to ask a syndicator, and one of the most unique tax-advantaged deals I’ve ever heard of when it comes to multifamily real estate.

Key Takeaways with JP Newman

  • JP shares the story of quitting a high-paying career with Sony to learn the fundamentals of real estate from his Dad — a humbling experience to go from working in a big corporate studio, to his childhood bedroom.
  • How to avoid falling into the “Miserable Career” trap.
  • Why true wealth is freedom of your time — and the lucrative deal JP decided to kill in return for hanging with his family. 
  • Achieving happiness through service to others.
  • Why nothing matters more than your health. Learn about the toxin in JP’s office that was damaging his brain and body for over 2 years!  
  • Creating a deeper WHY when it comes to making big profits. 
  • How JP is revitalizing America’s working class — and creating a replicable, scalable, and sustainable housing model that will transform the lives of cost-burdened residents throughout the nation.
  • Why did JP invest in building a state of the art sports complex?
  • What exactly is risk-adjusted return? 
  • Demystifying the full capital stack structure (common equity, preferred equity, senior secured debt, etc.), so you can make informed investment decisions with real estate. 
  • How to get tax-advantaged opportunities — and one of the most unique deals I’ve heard of when it comes to multifamily real estate. 
  • What questions should you ask a real estate syndicator? 
  • Learn about the investment options offered through JP’s private equity firm.

Investing In Multifamily Affordable Housing with JP Newman

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“True wealth is the freedom of your time.” - JP Newman Click To Tweet

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Read the Full Transcript with JP Newman

Justin Donald: Hey, JP, I’m so excited to hang, and it looks like you are in just gorgeous outdoors. I’m guessing you’re on the rooftop of your custom-made office that we hung out with the first time we met a while ago.

 

JP Newman: I’m in my office, I’ll show you real quickly. I’m in another nook and cranny. This is the balcony of my office. And I thought after a crazy rainstorm last night where I got soaked because, of course, my jacuzzi cover flew off, I am now enjoying a beautiful sunny day and just thought it would be nice to be outdoors.

 

Justin Donald: It is gorgeous. And you know what? When we met for the very first time, I felt just so inspired by the beautiful surroundings and the landscape and the green, the lush green, the trees, the plants, everything. It’s like you turn in off this road and you enter into this tropical paradise. I mean, you did really well. And I’ve got to imagine all the people that work with you just love going there.

 

JP Newman: It’s a very special place. With real estate, they say don’t get emotional, but sometimes you get emotional. And this is an eight-acre campus here that just the energy of this place, and then to take real estate investments and really, we value transparency and a lot of our mission around transparency, goodness, respect, decency, and paying it forward. I feel like it’s so much better to do it when you have more of a campus like this that has this kind of nature because I think you can do it from an office, no problem. I just feel very fortunate. I think it actually makes my staff more creative.

 

Justin Donald: Yeah, that’s awesome. And it’s interesting. I was thinking the other day, how did we get connected originally? And we just have so many people in the same circle that it was just a matter of time. I mean, we have like 20 mutual friends. And it was so funny how many times I had been recommended to you or heard of you just through my trusted friends. And the last couple of times that we got together, we’ve had some fun. You have a membership at Barton Creek Country Club, and that is just a gorgeous country club.

 

JP Newman: It’s a good spot.

 

Justin Donald: Great property, awesome food. I mean, I feel like your environment to you is a very important piece of what you do based on where your office is located, where your home is located, just your membership at this, what I would say is one of the nicest, at least esthetically pleasing country clubs anywhere around.

 

JP Newman: Yeah. I’m a very visual person. And so, my background, which we can talk about, but actually, I’m not a normal real estate guy. My first career, this was my second career, I was the Vice President of Family Entertainment at Sony Pictures producing animation. So, you can imagine the world of literally working with producers and producing paint or digital paint like my world really is these colors and visuals. And that’s actually my very visual learner.

 

And my kids have had to learn how to coach me in football visually as they were doing yesterday. But I love space matters a lot, too. I mean, I think actually, for real estate, I like to think that when we buy our deals, our apartment deals or when we produce a sports complex like what we did in Austin, I’m very much not just the private equity shop that’s producing the money. When invited, I definitely jump into the collaboration of design that I think really helps promote and facilitate community.

 

Justin Donald: Yeah, and it shows in the artwork and architecture and just overall design and what you do, which is really cool. You talked a little bit about starting at Sony. And it’s so fascinating, the leap that you took. You are in a totally different field today than where you started your career. How on earth did that happen? And by the way, it looks like you’re thrilled about it.

 

JP Newman: Yeah, and that wasn’t immediately, but there are some hard knocks, but I was definitely a late bloomer. Some people, I have a lot of friends your age and even in their 20s that hit it the first time they hit it. I was not that guy. I had a career. At first, I had a bunch of failed entrepreneurial attempts. Sony was a great five-and-a-half-year gig for me, kind of in my late 20s to my early 30s, producing animations, and I loved it. I got to fly around the world, produce some pretty neat things that I’m proud of, but I also realized at the end of the day, it was great, but I was going to be a corporate guy. I was going to be a well-paid corporate guy. I mean, I had a beautiful penthouse office. I mean, I had all the trappings, but I also knew it was going to be limited, but leaving for a dream of an entrepreneurial dream that had failed a couple of times in my early 20s, actually tried some early internet startups, during the dotcom boom. And they just didn’t take. And I worked my butt off, and I just didn’t get it like why, why, why?

 

And so, I love my corporate job. It was amazing, but it wasn’t a great corporate job and I knew that my vision was financial freedom. And so, after five and a half years at the studio, I left. And here is the hardest part, Justin, my father was a small-time syndicator and as a kid, I grew up with investments, but at that time, he was kind of going towards his retirement, but he says, “If you want to, I’ll teach you.” I said, “Give me a year and just teach me,” but he was already out of his office by then.

 

I went back to my childhood bedroom because he was home officing at that point. So, imagine, like after having a big studio job, going to your childhood bedroom to learn the fundamentals of real estate. And to this day, I’m really grateful. It was incredibly humbling. You have to take all that of what you know, and then, again, your father always sees you as a son. So, all those dynamics, to be honest, it was a pretty rough couple of years for me. You really have to humble down, but looking back now, I am so grateful for the journey. I’m so grateful to my father, who’s 82 and still flipping homes. And we actually did it alone together this week. I’m just really grateful that he took that time to really train me, and then I got to kind of take that.

 

And then, probably, I think what Thrive is today, my company now, Thrive FP, really is this beautiful combination of, I think, the skills, the fiduciary, and a lot of the lessons I learned from my dad, but I think if you look at the Sony days of the visual mission and going bigger than just being a normal private equity firm, I think what you’re seeing here is Sony and real estate discipline kind of as a hybrid, which is why our offices and maybe our mission is a little different and how we look at it, then there may be other firms.

 

Justin Donald: Oh, I love that. One of the cool things, there are a couple of things you said that really resonate. One is just this way that your father was able to teach you the business of the real estate. And the last time we got together, I know that you are at that stage where you can do this with your sons, which is so cool and so exciting, right? There’s something else you said, though, that I don’t know if our audience caught this, but you said the trappings. You said you had this great corporate job with all the trappings. And I feel like that’s what happens. You get trapped into the corporate world or into whatever it might be with a really fancy office, with great insurance, with a nice 401(k) package, with some other bells and whistles, maybe a company car, all these different trappings that really do handcuff you to the thing that you will soon realize isn’t for you. At least a lot of people, many people realize that that world isn’t for them.

 

JP Newman: Yeah, agreed. I mean, thank goodness, but it’s humbling. I mean, especially, it’s one thing if you’re 20, I left Sony when I was 30, and it really took me a good five years, including leaving Los Angeles, moving to Austin, creating a company from scratch that started in the basement of my house. We were having our first child, and then literally getting my first office. And then it’s been blessed, we’ve been able to build here in Austin, Texas, but definitely, if you compare yourself to other people, your friends or who’ve already been successful or have that corporate job, it can look really scary and really ugly and really humbling for a couple of years.

 

And I mentor a lot of people. One of my favorite things to do as I’m kind of progressing through my career is actually mentoring younger people. And I always get the same question. It’s kind of like, what’s the biggest important advice for you? I’m like, I wish somebody could have said to me, trust yourself. Like your ship will come in. I don’t know how, it may not even be your time frame. Like you may think it’s going to be in a year and it might take a lot longer, but if you keep at it with the skill and the mindset, whatever you think, and it may not even be what you think it is, it may not be the dollar amount, but you will get your gift if you stay with it, with that steadfastness, but I know it’s an anxious time. I have a lot of friends in my late 20s and 30s that I feel their anxiety sometimes of just trying so hard and wanting so bad to be at a certain place that they’re not at yet.

 

And as you know, Justin, you and I have talked about this a lot. It’s great. And it’s great to get to more financial money and more things, but the journey and being able to have the story just makes you appreciate what you earn and what you achieve and how to give, and philanthropy, I think that much more.

 

Justin Donald: I love the direction that you kind of went in this because I want to uncover so many things about what you do today and what keeps you inspired. And we’re going to get into a lot of things here, but I think one of the things that I love the most about you, JP, is how you just embrace life, your very presence at the moment, and you’ve built an incredible lifestyle. So, beyond the fact that you have some of the fun toys that a successful investor or an entrepreneur has and you’ve got really nice homes, you really do a great job on that material side, but I’ve seen your quality life firsthand. I see the travel that you have and the freedom that you have with your family. And I know that you love traveling to Utah for parts of the year and…

 

JP Newman: Go tomorrow for three weeks with the boys.

 

Justin Donald: Yeah. And by the way, this is perfect timing for us to get this in and to get our time, but you just have built an incredible life. And I’d love to know some of your keys to success there before we even dive into the specifics of what you’re doing today.

 

JP Newman: Well, I think I’ll just segue on a couple of things. I think for me, you start to realize, Justin, I think you and I share this in common, that true wealth is the freedom of your time and then what you do with it. Obviously, if you have health, you get to have a lot of time, but you’re not healthy, that’s pretty hard. But if you have your health and you’ve gotten to the point where you’ve structured your life and part of this is financially and part of this is spiritually and psychologically, too, it’s giving yourself permission to turn the phone off. It’s giving yourself its priorities. And so, it’s not just about money. I think a lot of people think if I make money or if I have X, I will be happy and I will be free. Not at all.

 

I think a lot of it is a mental discipline and prioritizing your values and knowing when to say no, like, there’s a deal. I’ll give you one, I don’t have to go into details, but there’s a deal I really, really wanted to do this week. It’s something I’m really– but I’m also leaving on vacation for three weeks with my boys, and I think it’d be financially lucrative, I think it’d be really fun, and I think I just decided this one, I’m going to kill it because, like, what it would take is time away from my boys during Utah to make this deal happen. And what’s more important right now, three weeks with my family or a deal that doesn’t change my lifestyle at a certain point, but as entrepreneurs, we all love, like what’s next? I’m the worst Labrador deal retriever. I’m always looking for the next deal. I love it. You do too.

 

So, I would say that is definitely a big part of it is just making sure you prioritize that. And then I also think from my days from like Sony, well, I think it comes like to a values thing, we realize like there was a lot of people, they say in Hollywood, that you almost believe your own stink and you think you’re that important and especially like, did I have fun seeing that in 70? And I think there’s a certain humbleness when you realize it’s not about you. I mean, it is about you and it’s not about you. It’s about you that you want respect from your staff and hopefully, you’re in a good relationship with your life partner and kids and all that stuff, but really beyond that, even the need for respect is not that, it just becomes less and less important. And actually, I think almost the more I study spirituality, whether it’s any organized religion or just really spirituality, I think we all know that we’re really at our happiest and most productive when we’re serving others. And so I think that’s also part of it is just like when it becomes less about you, I think all that becomes, it just creates this beautiful, vibrant energy to kind of have this life that you’re describing.

 

Justin Donald: That’s so well said. There are a handful of things I’d love to expand upon, but I want to honor you for choosing to kill a deal that is going to cost you time during your family vacation and the realization that, hey, this isn’t going to change my life one way or the other. It’s just the thrill of the deal. I mean, that’s very honorable and it’s really cool to see that you can intentionally do that and especially, knowing that you only have a couple more years before your boys are out of the house.

 

JP Newman: Totally.

 

Justin Donald: And so, yeah, these are like pivotal, critical years. You’ve got from the standpoint of a timeline, there is a finite amount of time and it’s limited to the inside of a couple of years.

 

JP Newman: And we have a finite time in our lives. Like if you’re all blessed if you’re lucky enough to have your health, and you wake up and your head’s generally good and you’re not, you know, you can go to bed, so it’s mental health and physical health. You’ve already been given like that’s mostly the keys to the kingdom right there. The money helps you out after work. I can call my shots, but like, it’s so much and it’s this beautiful short window of time, as we all know, to just embrace. And I think that perspective really helps to make those decisions.

 

Justin Donald: Yeah. I’d love to talk if you’re comfortable with kind of a dark time in your life where you were really struggling. And specifically, this is something that we talked about with Mike Dillard when I had him on the show is just this world of mold and how rampant it is in virtually every type of construction or almost every type of construction and how debilitating it can really be, especially to those that are hypersensitive. So, if you could share some of that story because I feel like a lot of this new chapter of your life really kind of– it was like that period of time was a springboard to where you are today and who you are today. So, I’d love to capture that.

 

JP Newman: Sure. I think there’s a couple of springboards, but that’s certainly one of them. So, in a nutshell, when I moved into this office here, and it’s actually something that people should realize about, not just that mold is everywhere, it’s actually particularly bad in certain building materials and also in humid areas like Austin, Texas. And so, it turns out that my fancy office had a lot of Stachybotrys, which is black mold. It’s the worst kind. It’s a neurotoxin. And I was breathing in every day. And within six months of moving into my office, I was having systemic arthritis, chronic fatigue, couldn’t get out of bed. It messes with your mind. It messes with your body. And no one knows what it is by the way, like they say it’s non-specified arthritis. Like they give you all these titles. They want to put you on a lot of medicines. And every day, you just feel shitty. You don’t know why you feel so shitty.

 

And that kind of goes back to the perspective. Like, if you can wake up in the morning and you have your health, that definitely, certainly feels a lot of that, like, oh my God, today, my body feels good. And like that is the biggest gift. Nothing matters if that body doesn’t feel good. So, after going through really almost two, two and a half years of pretty severe suffering and a very difficult journey to discover what it was because a lot of mainstream medicine didn’t really understand it. And then, I actually like where I’m sitting right now in my office, I built this office, which is a mold-free office.

 

If anyone’s interested and suffering from mold, Dr. Mark Hyman, Broken Brain, is a wonderful series on mold. Actually, my wife has a whole specialty on mold, and she’s part of it, but there’s a whole bunch of building materials to help you if you are going through suffering if you’re having a surprise inflammation. In Mike’s case, it was actually with my dealer. I actually had lunch with him that day and he was telling me some of his symptoms. And I think he wasn’t getting the answers. And actually, I said, “Mike, that happened to me, too. I want you to check it out for mold,” and you know his story from there.

 

Justin Donald: That is amazing. And I love that you built your office. So, first of all, you built the sanctuary. That is just a wonderful place to be, it’s inspiring to be, but you built it in a way that is friendly to the environment, but friendly to you and to your health.

 

JP Newman: Yes.

 

Justin Donald: And so, you’re very holistic on health and you’re very conscious on many levels with just healthy living today and just making choices that surround a world that most people don’t even know, don’t even realize exists. And so, I’m curious what got you to the point of recognizing all these external forces that are out in the world, and then what you can do to combat those?

 

JP Newman: You mean like how do you keep positivity or how do you keep an energy kind of vibration?

 

Justin Donald: Yeah.

 

JP Newman: I actually think the more I go into and the more I hear from mystics to entrepreneurs that I think that attracts like I really do believe in the law of attraction. I think your five best friends are the five people you talk to most. I think your own mindset. I mean, I think Einstein said, I think you can go science or we will, that we really are just all energy and we transmit energy. We transmit energy. And this conversation is energy, but it’s not only the words that we’re saying to each other. I’m very much looking at you. We’re connecting like it’s easier in person, but even now there’s a resonance, even with your audience of like we’re all energy either receiving or transmitting.

 

And so, I think a lot of it really is understanding some of the laws of energy and then being really conscientious, like building your own mindset, not just because you own your mindset, but that you become a really strong transmitter for resilience, for optimism, not false positivity. And you don’t work on a fake life. You just kind of like, when there’s a problem, which is always going to be because this is life and bad shit happens to people, excuse me, but bad things happen, like how do you problem solve it? Like how do you go through a creative solution? How do you problem solve it? What’s the best lesson I can learn? This is a really bad situation, and am I going to fall down? Or what’s the best situation I can learn from it?

 

And I think I’m pretty good at it, but I know in life I see a lot of friends who are going through really hard struggles that maybe, perhaps, I haven’t gone through. And I’m like, they’re a badass. I’m not a badass, they’re a badass because they’re going through X, Y, or Z. And I think that’s maybe a trick for all of us to build that resilience and that energy frequency.

 

Justin Donald: I love it. So, let’s talk about your business, because you’ve built an incredible company, JP, called Thrive, and you have done great work with this, not only with the staff that you’ve built and the team but also in just the incredible work that you do for the communities that you build in. I’d love to hear more about why Thrive and how that came about and I guess the transition into real estate in general.

 

JP Newman: Yeah. A lot of questions all impacted us. Oh, I’m talking. So, when I moved to Austin, actually, my dad’s company was a very traditional private equity, like blah, blah, blah funding, like everything you would expect from a real estate company. And as I was lucky enough to be able to grow Thrive from Austin, and it really was one investor at a time. And at the time, we had a guy named Bernie Madoff and a guy named Allen Stanford who just got prosecuted for fraud investor prosecution. And the economy was just going through a recession.

 

So, I literally started my career as like all these wins we’re hitting against. And I realize that, like, Thrive needed to be a different kind of company, and especially after what happened with the way Bernie Madoff really lost what fiduciary means to investors and trust. A lot of that I realized, it was also a technology, it’s like, how can we build a different kind of company based on this transparency fiduciary and really do something more.

 

And so, at the time, it’s funny, the hot technology at the time, Justin, was Box.com and Dropbox, and it was the first time where I could say to an investor, you don’t need to trust me. Here are all the files. Send them to your attorney, whatever. You can wire the money to the title company. You can send it to me, but if you’re just not sure, here is my entire diligence package. You’re basically essential when you hire someone like myself, like a Thrive. You’re paying us to make investment decisions, do all the diligence to go through everything and come up with a thesis, and then execute a business plan and create a return for you. And that’s what I do.

 

But if you want to check and verify that what I’m saying and if you want to check and verify my thesis, it’s right there for you to check. The truth is, very few people actually do it. Some people do, and it’s just a personality thing, but I think it sounds so basic at the time. But before Dropbox, how would you go come to my office and go look through my files that are this big? So, I actually credit Dropbox, the internet. And really, starting over, there was enough, and of course, that’s gone now, as you know, fancy investor portals and tons of communication, what have you, but I think that started us off just a little differently. I think Sony, I didn’t want just to be a boring finance company. I think as investors just making returns, that’s the how. How do I make returns? I’m much more interested in the why. Why make the return, not just how to make the return?

 

And then, again, if you’re going to make it, what is the deepest why? Not just why? I want to have a nice car. Why? Like, what’s the deeper why as you really drill down there. And then it talks a lot of segues, a lot to what you’re were saying earlier about your lifestyle. You create a lot of intention of what you want to do with that why? So, I think I’ve always, not always, I think I’ve been learned and through studying and books and coaches that the whys become more and more important over the how, although I think I’m pretty good on how, too.

 

And so, what happened was as we started having some success here and we started getting investors and moved to Austin and things were starting to move up, I renamed the company after a TED Talk. It came to me. I was like, I want to be Thrive FP. And the FP stands for purpose, for profit. So, no one’s ever done an FP. I thought, who wants an LLC? I’m going to be an FP. And it really is a declaration of the principles of conscious capitalism, simply meaning that all stakeholders need to win. It can’t just be the investors or the shareholders will win. Those residents of my apartments, all I’ve had 40, 50 thousand residents. So far I’ve owned, thirteen-and-a-half-thousand apartment units, usually about three people per family. So, I’m responsible to a lot of people.

 

And so, I think that really was the aha that I’m responsible to the residents, I’m responsible to my staff members. I’m also responsible to the janitors, the maintenance people, the managers, the general contractors. Like they’re all stakeholders in my business called Thrive. So, FP was a declaration. Yes, it is for-profit. My main job as a service to produce returns, good-risk adjusted returns for investors, but it’s a lot more than that too. There is a mission to make sure that we lift those residents. And as I was saying here earlier, Justin, right now, it’s about revitalizing America’s working class. That really is what the mission is behind it. So, it’s a for purpose, for-profit, and that’s kind of where the FP kind of melds in together.

 

Justin Donald: I love it. And you light up when you talk about it. You’re so passionate and so inspired by the cause. I mean, every time when I hear you discuss it, I can just see you really, truly light up. So, it’s really fun to watch.

 

JP Newman: Thank you.

 

Justin Donald: When you talk about, like, conscious capitalism, I love how all-inclusive that is. So, it’s not just that the investors make money, though that’s important. It’s not just that you, as the business owners and operators make money. It’s not just that the employees of the company make money, but it’s also that your clientele, your residents have not only a great place to live, but a great experience that really helps them have a better life. And by the way, it goes beyond just money, you’re creating purpose beyond money for your team and for investors and for these communities that you’re building in and for the people that will live in these apartments and utilize these facilities. I just think it’s really beautiful.

 

JP Newman: It really, if you think about it, I think the theme is really whether I’m doing the sports complex or the apartments as a community. In this world right now where sometimes we’re also so separate from each other, so alienated from each other, yet we are so communal as people, so how do we create better communities? And I’ve just been blessed that I’ve got these square boxes called apartments. And a lot of internet marketers are trying to get your attention for six seconds. These people live in these apartments.

 

So, little things like putting on a chime, literally like a wind chime at the leasing office just to signal your home to help during a pandemic with telemedicine with Teladoc through our nonprofit, like your signal in having leadership councils or you actually foster, but then you let the leaders in each apartment, community residents actually tell us what they need. And it’s where we find out more, it’s not what they needed. It doesn’t become a bitch session. It actually becomes a food thing or the next thing you know, they’re having food parties and there are a hundred people outside and they just want to get to know each other. And that’s some of the things that we’re learning from the experience quite a bit.

 

Justin Donald: That’s incredible. And I love that you offer telemedicine to your residents. I don’t know anyone else that does that.

 

JP Newman: I think we’re the first one.

 

Justin Donald: Yeah, that is so incredible. And then, also, we’ve talked about this before, but I love that you have a goal that your residents will not continue to rent from you, that they will eventually become homeowners at some point in time, and you’ll get someone else in there that rents before they can become a homeowner. I’d love to hear you speak to that.

 

JP Newman: Yeah, we want to become obsolete. That’s our goal. I mean, really, we want to let people. We want to let people. So, through the nonprofit, which is called Veritas, that’s nonprofit that we co-founded, I and a couple of colleagues. It’s about helping people rise. Again, these are your blue-collar $500 don’t have for an emergency. And they are policemen, firemen, or teachers, they’re the ones who actually support all of our lives. I mean, we worry about the homeless, which is a problem, but this is like 40% of America that would fit this description.

 

And so, through health education and finance, financial literacy and financial thing, like we were looking to lift them that they will transcend out if they want to. Not that people are in different phases of their life, and so, some of the things we’re doing right now is we’ve just started doing monthly reporting, positive reporting to help lift their credit reports by every month that you pay your rent, we report it to the bureaus. We want to boost your credit. We want to teach you about savings that we’re starting to do early, early classes about how to save money. We have a resource to the nonprofit. If you’re going through scarcity, instead of not being able to pay rent, how can we help you create resources around food or medicine or help you through this time together?

 

My next thing this year, we haven’t started yet, but we’re going to really– I mean, education side, not just to help tutoring kids to get better grades, but how do we create what we’re talking about, Justin? How do you create resilience? How do you create some of those soft skills, optimism? How do you create the Rich Dad, Poor Dad, or all these books that you talk about in your podcast? How do we bring this down to people who haven’t maybe had as much exposure to it in a way that could help lift them? And that’s part of this year for me, last year was the health crisis and telemedicine, which we continue to grow. This year is going to focus really on those kind of I call it hard and soft skills around education.

 

Justin Donald: Yeah, that is just incredible. I love the value that you’re bringing people through education and through community and through really just loving people well. I think that that is powerful. One of the things that are interesting to me, you have had a tremendous amount of success with building– so, you buy existing apartment complexes, you build apartment complexes, but then you kind of dabbled off of the path of your main expertise to build, what you’ve referenced a couple of times, a state-of-the-art sports complex here in Austin. I’d love to hear kind of your thoughts on why you decided to do that, and then feel free to brag about how cool this place is because it’s incredible.

 

JP Newman: Thank you. So, I think maybe this is where Sony makes things a little differently. I was the guy you would pitch to your family program. And so, I got this pitch from a local developer, and it took him a year to convince me. I knew he was the guy. And one of the things you’ll learn in life, by the way, like whether it’s investing, this is kind of investing advice as a side thing, I always found at Sony, and during these times, like a lot of times, I’d say people want to get in crypto. All of a sudden, you get three of the same business plans within a month.

 

Everyone’s got that, but I find there’s always one that sticks out because like a lot of times, people want to do a story about a fox and like literally, even the animal or like the themes would come up at Sony in the same time, but what I found is that there’s always one person that’s a little more special so sparklingly. I’m sure, Justin, when you invest, I guess you call that a gut. So, in this case, this developer, it wasn’t just an idea that he had, it was his life. He was a young, scrawny kid who was bullied. And from that, his dad bought him a used pair of ice skates and took him every morning to this game. It’s a little bit of a rocky story. Nobody believes that you need a kid to be on a skating team. And he wound up being on a semi-professional hockey team as he grew older.

 

And so, he wanted to share. And so, what we built is called the crossover. And it really is just another creative form of community. How do we bring people together and all families? And crossing over is a great sports move in basketball and football, but crossing over has an alliteration to spirituality. How do you cross over to your highest and best self? And that’s exactly what Eric, my partner, did. He went from being a low self-esteem, picked-on guy who picked himself up because his dad bought him a used pair of ice skates and said, “I believe in you, son.”

 

So, a lot of what the crossover is, besides the children, 40,000 square foot sports complex here in Austin, and what we did is no one’s ever done this before. We want just to be like another. We can operate everything. How do we know how to operate the best ice skating experience? How do we know how to operate the best batting cage? How do we know how to operate the best skating? How do we know how to operate the best pickleball? I mean, I’ve got 11 or 12 people. The San Antonio Spurs are joining us now too. They’re going to an office there as of yesterday.

 

So, like, instead of trying to be like the jack of all trades and being the master of none, why don’t we just bring in the most trusted names that moms and dads trust? And also, so many different activities, we can grab a beer or you can have food, you can hear a concert, you can bring your kids, the girls upstairs or the guys upstairs and dance like you can do all these things under one roof rather than being that exhausted parent that has to, like, drive around town to keep your kids happy. And that really was the premise behind it.

 

We opened about eight months ago and we feel very blessed. We’re just about full, I’d say, almost, might be full as of yesterday and are outside. So, we opened all the inside because COVID slowed us down a bit. And then, on July 11th, everything opens, the concert stage, the pickleball, the volleyball. And we’re getting about 4,000 individual visitors on the weekends right now. So, I feel like we’re in a blessed time, hopefully, call this the post COVID period where people are coming out, really starting to enjoy again.

 

Justin Donald: I love it. That’s so cool. And one of the things I love is that you’re looking to build, and I know there may be an expansion of even more volleyball courts and more outdoor features. And I just think that that’s incredible that you have so many things under one roof or in one location. And I love that you decided to just do something different. And that difference has been a massive success, not just for you, but also for the community, especially during a time where people maybe weren’t traveling as much, maybe didn’t have as much to do, but you gave them a lot to do. That’s really exciting.

 

JP Newman: And there really was on the other side, too. And to me, this is what’s really fun about life. I think that the investor thesis, I won’t go through the whole investment thesis, but I try in all my deals, Justin, and I think, you’re getting to know me well enough to see is I try to find an angle. I don’t want to be– there are so many real estate people out there, it’s not bad, but maybe it’s just where you get in life. I always try to find, is it a tax-advantaged angle? Is it an interest rate reduction angle?

 

In this case, I actually have to maintain. I had a 60% pre-lease on a 20-year lease when I went into this deal. So, not only was it like that I believe in the visionary, not only do I know it was the right team, not only do I believe in the concept, but the risk-adjusted return to my investors was big. That’s why it took me so long to really understand after I checked the boxes that it was worthy of a risk-adjusted return. And I think you have to weigh both. And I think when you can do great business that’s highly creative, that’s my favorite day.

 

Justin Donald: I love that, too, and one of the things I’d love to have you elaborate on, you’ve talked about– so, a couple of things. The first one is a risk-adjusted return. What does that mean for your average folks that they could maybe surmise what it means, but what in your mind does a risk-adjusted return really mean?

 

JP Newman: I just think that it’s very hard for most people, including myself at times, by the way. You look at these big fancy investment taxes, these pretty buildings, they say about the same thing. And I don’t care if you’re invested in crypto or stocks or real estate, it’s all the things. I invest in a lot of things like you, Justin, I love investing. So, I’ve seen hundreds of thousands of DACS, but I think what people, either it’s hard for people to gain is, what is my reward? And what is the risk to get to that reward? And is it worth it? Like if I compare apples to apples or are there other deals where maybe I make a little bit less, but there’s a lot less risk? Because I think a lot of people, it’s easy to just go, what am I going to make on this? I’m going to make 12%. I’m going to make 200% of my crypto. I love that, right?

 

But anyone with crypto, I’m a crypto holder, too, but like, it’s exciting and exuberant, but what is the risk? Actually, one investor would say to me, “I’ve made so much money in crypto. I don’t know that I want to make 15% with you, JP, anymore.” And I’m like, “Totally got it. Glad you’re making 200%, but I think that also sometimes invalidates the fact of what is the risk and reward. I think we saw a couple of weeks ago and crypto went down 50% in a day versus a hard asset in Texas. It’s just a different, different profile.

 

I really would encourage anyone in your audience, and if I can specifically give you a couple of hints for multifamily to really try to look at it risk-adjusted. And I think some of the things you look at, if I was just to say, first of all, like to like. So, if you’re an investor and it’s your first time looking at an apartment deal or let’s say you’re looking at an office deal or a sports complex deal, like, you really have to understand the comps of cap rates, like for a similar product in a similar neighborhood, can you show me?

 

A lot of times, the DACS, take me through similar comps as to why this is this, and then, on a business plan, I really like how people, it tells me a lot about a person based on your risk, how people put their capital stacks together, people I tend to think who highly leverage, like, for instance, let’s say you got a first trust deed, but then you want to put on more money on top of that, what you’d call a second trust deed or preferred equity. And then, the investor comes in, which actually, I’m looking at a deal right now, which I’m probably going to pass on because the capital stack was above 80%. And my return goes up 5% or 7% more. It’s very sexy, I can get to a 20 rather than a 15, but I also know, I’ve now got $20 million of other money at a click in on a clock before I get to see anything. So, I know the risk of that. That deal, it can’t even be a single game, or the deal has to be a double or triple or a home run before I get to that reward.

 

So, for me, if I can get to an 8% to 12% average, I mean, I actually aim for 8 or 9, and then, of course, some of my deals will be 50, maybe my crypto will be 200, maybe it won’t be, but I think if you kind of know where you want that set point to be and you really can kind of look at that return from– there’s more if you’re interested, I can give your audience name on the video. I can talk more about this, but like, there are probably five things I look at just on almost any investment deal to try to assess it. And to be honest, I’ve some super complex deals like hedge fund deals. It’s really honestly almost impossible to assess for me the risk reward. And it becomes either I trust the sponsor or I just don’t trust the sponsor based on my feeling for them, my relationship, or their track record.

 

Justin Donald: Yeah, that is all so good. And there’s so much that we could unpack in just what you talked about and even the structure, the capital stack and where money is coming from, and senior secured debt versus preferred equity versus common equity. Can you elaborate? Because there’s a pecking order, of course, that is going to come in first and have the first protections and then you’ve got your preferred equity and then you’ve got common equity. I’d love to hear you speak to some of those in a little more detail.

 

JP Newman: Sure. So, the debt always has priorities. If you’re looking at a capital stack, the safest place to be in is debt. And in debt, there are different parts to be in debt, but typically it’s called a first trust deed, a deed of trust, but you want to be in first position. The only person more senior than that possibly is the taxman. If you don’t pay your taxes, the government gets to go in front of you no matter what. God bless the government, but then it’s the first trust deed. And then, on most things, like I stop at first trust deed, most of my apartments or even the loans that I had, I also have a hundred-million-dollar lending fund. And so, I’m very familiar with both debt and equity.

 

And so on the downside, I stop at first, but some people can do a second trust deed, which means it’s second. So, you’ve got first and then second priority. And so, let’s say your first is 70% of your capital stack, maybe the next 10% that gets you to 80% of your capital stack is the second trust deed. You can do a third, fourth, and fifth trust deed, but at a certain point, you can do equity and that would be the last. Let’s say you’re at 80% and you have 20% more you need from investors, but then there are different kinds of equity. There is preferred equity, which goes in priority position, usually gets a lower return but goes on a higher position. And then there’s common equity, which kind of goes in a second.

 

And even in some things, there’s B equity, B shares and C shares and D shares. And you can even, same thing, is you can constantly stack. And I think it’s really important because if you don’t understand your capital stacks, I was looking at a hundred-million-dollar deal. This is not the one I passed on. This is actually when I was looking to invest in yesterday. And the capital stack from the deck didn’t really make sense. I spent an hour on the phone with the guy yesterday and I actually probably like I said, I don’t want to say too much here, but like once I understood the water flow, it took me a long time to really understand that waterfall, but it helped that risk-adjusted return of like, okay, well, this much more has to happen, and I think that I’ll find things like Justin or investor lifestyle and I’ll find other deals elsewhere outside of my deals that I think might be better, not just my assessment of a risk-adjusted return, but maybe better to my personality, my investment objectives as well, timing term, the whole thing.

 

Justin Donald: Yeah, that was a really good summary of kind of how that works. And for anyone investing, you want to be really careful. If you are not senior secured debt or if you’re not first lien, then you are a junior debt. Someone is in front of you and it is a lesser protected position. And so, it’s just good to know that. If you are common equity, someone is in front of you and…

 

JP Newman: Not always. Could be in front of you.

 

Justin Donald: Could be in front of you. There may not be any preferred equity. Yeah, and I think it’s just good to understand how this all works and the pros and cons to each because it’s not necessarily that one is better than the other. It’s what are your goals and what is best for you in this particular circumstance.

 

JP Newman: Yeah, I agree.

 

Justin Donald: So, I think it’s great. And something else, JP, that you are a master at is getting tax-advantaged opportunities. So, we spoke about one of the really cool structures that you are able to negotiate in one of your newest deals. And we don’t have to mention any specifics on where it is, but I would love to know if you could just elaborate on how you were able to get such a tax-advantaged deal. This is one of the most unique things I have heard of any multifamily investment.

 

JP Newman: Well, like I said, Justin, my favorite day is when you can take good business practices and creativity and merge them together. And this tax advantage thing I’m going to explain to you really has a great social purpose. It’s really a win-win for everyone. So, it wasn’t like I had to find a loophole or find something weird, but a lot of times, as you know, when the government tries to come up with a solution, particularly in this case, what I’m talking about is affordable housing. Governments try hard, as you know, they tend to overspend. Their budgets go way over. And a lot of times, like if you look at pure government housing, we tend to create ghettos. You actually create a downward spiral back to it, you create the wrong kind of communities. And we talk about communities and people learning. You create just the opposite. You reinforce cycles of poverty, low self-esteem. You kind of continue that.

 

And so, I always look at how does private enterprise going to help solve the solution that maybe the government can’t. It’s bigger than the government. Even like that with our current administration, there’s going to be billions of dollars. And I’m happy. I think it’s great. Like we need more affordability, but it’s always going to be the entrepreneurs to help figure it out. So, in this case, there’s something really interesting. And it’s in some states in America where it’s based almost on cooperation between, like what I said, government body and an entrepreneur.

 

So, in this case, the tax thing is essentially you work with the city in Texas. In this case, we work with the city of Houston, but basically, 50% of our buildings, we’re going to have affordable housing for people in need. People are making 60% to 80% of median family income, your policemen, firemen, and teachers, but we’re building them in better neighborhoods. And you’re building them better neighborhoods, but you build them with less amenities, so no pools, no gyms. I call it the Southwest Airlines. You get the peanuts, but you don’t get dinner, but now, you’re in the better neighborhood that you can afford with better schools, better influences around you, safer communities. And it’s a way to break people into communities that maybe they wouldn’t otherwise be able to afford.

 

And so, obviously, it costs a lot of money in rent savings that we’re doing. I mean, it could be up to $600, $700 of rent savings, but these are qualified people. They do apply. They qualify through the organization, they’re residents of ours, but then on the other side of that, we get some tax advantages for it, too. And it’s really a win-win because it really does help the social purpose of really– you don’t want to gentrify all your neighborhoods in America or any of them. You really want to create this balance. You want your policemen, you want your artist, you want your cities to have these people. And how do you do it with rents just keep going up and up? So, I really feel– and then the other trick for us is when you build these buildings and you create this kind of cooperation between where the government is cooperating in a way that my investors can make enough of a return, that it makes sense for us to go ahead and give out these savings and then we’re going to own these buildings for years. This isn’t like buying, something you own it. So, you really get to do the social programs on top of it.

 

And I think that’s really how you can create some amazing solutions where you don’t just ask the government who is not responsible to a checkbook or not responsible to investors to solve a solution. I mean, this isn’t the only solution. I say when you’re talking about the homeless or affordability, there’s so much of a crisis that there are a hundred ways to do it. I’m just really excited about the approach that we’ve been jumping into as one of the tools in the tool belt that really can make a difference in America.

 

Justin Donald: Yeah, and when you explain this one out, it’s great because you’re helping people on every level. And then, from an investor standpoint, you’re coming in at such a low price when all is said and done that it would be virtually impossible for you guys to mess it up. Like there’s just no way you’re winning the day that you start. And I just love that that is the position. When I buy real estate, my goal is to buy at such a low price that I have one day 1 because it’s so far under market. And so, in this instance, you can buy something at market value or even below market value, but because of these abatements, these tax abatements, these tax credits, these discounts, all the different ways, tax-advantaged capital treatment, you are so far below where most multifamily deals begin. And I just think that that’s cool.

 

JP Newman: And the tax thing is great, too, but also we’re building for about 20% less. Like, again, it’s a thesis and it’s again almost like the crossover. I can’t give you a book to speak of this thesis, but it just seems to me that, as you know, generally, there’s a lot of people who are looking for value. I think there’s a tremendous amount of value in kind of that approach of just amenity less but then give people. Even though our market people are coming in with no rent discount because half our building will be market, we’re still going to be $110 cheaper than our competition next door, but no yoga classes, but you can get those yoga classes. I have $200 of savings. You can sign up to a gym for 50 bucks a month and get those yoga classes. So, it becomes almost more like a la carte, or I just want to save money, live in this neighborhood so my kids can go to these schools, or I just want to live in a better neighborhood for my own positivity.

 

Justin Donald: I love it. And when you think about what you guys do, there are a lot of syndicators out there. How do you decipher who’s good from who’s average from who’s bad, but maybe, we don’t even know they’re bad yet because everyone’s done well the last 10 to 15 years?

 

JP Newman: Right. Now, it’s a really good point. Well, I’d say there are four or five things I would probably advise if you’re looking to invest with someone that syndicates real estate, I mean, obviously, I think years of experience. That’s to start with years of experience, I agree with you. I mean, if you’ve been in business the last 10 years, I mean, if the market goes up 10% a year unless you’re really bad at this, you can be mediocre and get away with being mediocre. So, I would say time in business matters. That’s one of the questions I’d ask.

 

I would certainly ask for their book of business or track records. Show me everything you’ve done, not just what works, show me everything so I can see your returns. Tell me about the ones that didn’t work. Tell me about how many have not worked for you and tell me about them. And tell me what it looked like in the end, and how did you promise all around a really hard situation? Very few people ask that question. I think it’s one of the smartest questions you can ask is tell me about a loss and how it worked out and how you navigated it. It tells you a lot about how, because really what you’re buying is not just someone who can get you an upside of a return, you also want the same team that’s going to battle for you and really do the best they can to protect your principal should there be some black swan event, some unexpected things. And as we all know, unexpected things do happen. So, I think that’s a really important thing.

 

Of course, legal background checks a lot of times, like, for instance, if someone was to ask me, we have background checks on fire. We always are happy to share background checks. If anyone hesitates on that, I would say, you can ask if they had any lawsuits and it’s possible they have it, particularly with an investor. There are always lawsuits if you’ve done this business long enough that things happen over time that an investor lawsuit is one I would want to understand. It doesn’t mean that they’ve had one. If they’ve had 10 or 20, I might get nervous. That had a feeling you might want to understand what they were about.

 

And then, I think investor references, I think that would be the last thing is ask for references and maybe not let them handpick one, but in some ways where you can maybe pick one that they didn’t expect, like, ask them and maybe say, the CFO. I’m not sure how you do that sometimes, but I don’t like when someone just gives me one person. I kind of like, say, can you give me the person who’s been with you the longest? Or maybe ask for some qualification, someone that has been with at least five deals with you or something like that, that you really feel like it’s going to be a reliable reference.

 

Justin Donald: Those are incredible due diligence points. And that’s just one way that you can do your homework here and get better results because you know the operators better and you’ve asked some of the tougher questions. So, thank you for sharing that. And I know you have a fund that’s open right now. I’d love to hear about that. And additionally, I’d love to learn where we can find out more about you as we wrap our interview up here today.

 

JP Newman: Terrific. I’ll give you the broad view and then we can get more information. The broad view really is we are a relationship-based private equity firm. We’ve done actually over a billion dollars of real estate transactions since I moved here 15 or 16 years ago now. And we do transactions in real estate in two different ways. We have the debt platform which is a hundred million dollars, like I mentioned, it’s called Thrive Lending, and we actually do first trust deeds in commercial real estate apartments, and what have you. It’s probably the most conservative of the three things that we do, the lowest return risk-adjusted return, but also the safest.

 

And then in the middle, we do apartment buildings, right now, closing a deal. I think this week it looks like in Salt Lake City. I’m super excited to be in Salt Lake. I love the south and the southwest. And so, we do these, I call them one-off apartment deals, deal by deal for some investors who are like, I don’t want to be in a fund, I just want to do one deal at a time and understand that deal and the business plan. We do a lot of those. It’s kind of the core business that we do.

 

And then we also do funds, funds and fund of funds. And so, with the fund of funds, I think they’re great for investors. They typically are also– a lot of my apartments, again, as their workforce, I call workforce, people who are paying, let’s say, $700-1400 in all their rents. That’s kind of my world. And they’re all throughout the south and southwest, typically in cities that have tremendous job growth and long-term population growth. It’s all supply and demand. I focus on, call it 10 markets that I focus on the most.

 

And then, if you want to get in the funds, the funds are great for kind of a longer-term strategy. It also creates diversity. A lot of it’s the same kind of apartments that I do and the one-off model column 10- to 30-year-old apartments in that rent range. And right now, in this part of the cycle, we’re holding them longer. It’s not about real things. How do we know if things are going to continue or not? We hope they’ll continue, but it’s solid fundamentals, don’t overleverage. We can create cash flow with low interest rates. Hold them because we know long term, I don’t know what’s going to happen in two years, but I know in five, seven, and ten years in cities like Austin, Texas, Dallas, Salt Lake, you’re going to just continue to see slower growth and supply and demand things that I believe we don’t have to be geniuses or try to guess the future if you look at long-term demographics. So, the funds are great for people. They were sent in a long-term player. I like cash flow and I like the diversity. I don’t want to have to figure out each deal. I just want to be in something that’s been secured by 10 different deals under a similar investment theory, but maybe has different geographical diversity and different like some market diversities is what I would explain it as.

 

Justin Donald: That’s awesome. And JP, I’m also really thankful because you have volunteered to create a professional video just for The Lifestyle Investor community. And I’m excited, and it’s going to be what’s next for multifamily and kind of some of the trends and all the things that are going on. And I appreciate you being willing to do this just for our community and kind of give us a bird’s eye view from your perspective, so.

 

JP Newman: I think we have a really exciting time. I think after the year that we’ve had, we’re in a really pivotal moment. I’m happy to share it in three minutes. And if anyone wants to know more, they can reach out to you, and happy to help with any questions. And if anyone out there is in a tough situation as far as that they want to invest and they’re not sure, they have a question or they’re not sure about the property and multifamily, I’m always happy to help your audience out as well with any kind of questions to help them.

 

Justin Donald: Awesome. Where can people find you, JP?

 

JP Newman: So, our website is ThriveFP.com, T-H-R-I-V-E F-P dotcom. And if anybody wanted to reach out, my assistant is Cody, C-O-D-Y @ThriveFP.com, and Cody is air traffic control for me and she can help maybe direct people in the right direction if you’d like more information.

 

Justin Donald: JP, this has been such a fun interview. I appreciate your time. I’m so glad we could get this in before your vacation here to Salt Lake. And what a blast.

 

JP Newman: What a blast.

 

Justin Donald: Yeah. Thank you again. And to all of our listeners and those of you watching, I just want to encourage you again to take action today, some form of action, one step towards financial freedom and the life that you truly desire to live, one that is intentional and purposeful, that is well crafted by you, not one that’s on default in autopilot because you’re not spending the time to figure out what it is that you want. So, take action today moving towards the life that you dream of. We’ll catch you next week.


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