Can You Build Wealth With Just One Step?

In this powerful episode of the Generations of Wealth Podcast, host Derek Dombeck sits down with Mike Zlotnik, also known as “Big Mike,” to unpack the realities of fund management, real estate market cycles, and investment strategy. From dissecting debt vs. equity funds to analyzing when and why to invest in down markets, this episode delivers both technical insights and philosophical wisdom for investors and fund managers alike.

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Welcome to the Generations of Wealth podcast. I am your host, Derek Dombeck, and today we are talking about fund management, how to start a fund, establish a fund, what to do with it. We’re talking about market cycles, and we’re doing all this with Mike Zlotnick, and I had the pleasure of being on Mike’s podcast a few weeks back. And, but before I bring on Mike, it’s time to, you know, pay homage to you. Thank you for following us. Thanks for being here. We really, really appreciate it. And if there’s anything I can do to help you, don’t hesitate to reach out to generationsofwealth.com, derrickdombeck.com, or shoot me an email, derrick at globalgow.com. And, you know, that is what this is supposed to be about. Build your network. Use this network and accomplish your goals. So with that, let’s bring on Mike Zlotnick. And here he is, Mr. Big Mike himself. Mike Zlotnick, welcome to the Generations of Wealth Show. Thanks, Derek. Appreciate your kind invitation. You know, we got the pleasure of recording a podcast on your show not too long ago. And I highly recommend everybody go and follow the Big Mike Fund podcast. And specifically my show, of course. No, I’m just kidding. But before we dive into your expertise, why don’t you just tell us a little bit about your background and where you came from. And then we’ll definitely pick your brain a lot because you are doing some incredible things.

Thanks, Derek. Yeah, I come from, you know, with a James Bond movie called From Russia With Love. Well, I didn’t come from Russia. I come from Moldova originally. A small republic of the former USSR. I came to the United States in 89. And I am a U.S. citizen and U.S. patriot. You know, I lived most of my life here. Lovely family. I live in Brooklyn, New York. My wife, coming up in 26 years. I have four kids, four monkeys and a cat. Well, cat is real. and four kids. U.S. Educated actually, we’re chatting before the show, I studied computer science and mathematics, had a career in technology for almost 15 years, and then started investing in real estate passively, part-time in 2000, just basically still being a technology professional, and then switched to real estate full-time 2009, became a fund manager focused on real estate investing so never looked back that was at the end of my technology career and start of my full-time real estate career but I did it I went active after being 90 years past so for me it was just a natural fit my passion to be a real estate investor so that’s the journey well I know from you and I talking on your show and just other stuff about you you’re very heavy into fund you know management now but if we if we kind of back that down to just how do you how do you look at the different market cycles and how do you know before you start raising money for a project how do you know where you are in the cycle and um you know i guess maybe talk about that sure so um the more you know the more you don’t know like i’m listening now to and his focal market cycles. Now, he’s a stock market investor, and he’s a famous publicly traded securities investor, but there’s a lot of wisdoms from him. And I was watching a video that he put together on risk. The risk is hidden. The risk is everywhere. You never know how much risk is out there.

Market cycle, there’s a risk at the bottom of the cycle. There’s a risk at the peak of the cycle. So all these discussions are theoretical, right? We don’t know, and past doesn’t guarantee the future. Past performance is not indicative of future outcomes. All we know is lessons. We observe the past. We do know that markets go to recycle public markets, real estate markets. Obviously, real estate has sectors, residential, commercial, various parts of commercial, multifamily, industrial, storage, open-air shopping, et cetera, et cetera. And each sub-strategy acts differently. On top of that, you’ve got regional cycles, right? So things can go really well in one region under one administration when there’s appropriate energy policy, and then another administration comes in and different energy policy, and that region goes, economies really weakens. So all of this, I’m just going to say, is when you look at this, you have to take all these variables into the equation and think about what’s right for each strategy location. To give you an example, we’re recording this in May 2025. We know that multifamily market on a broad basis has gone through a substantial peak in, let’s call it, 22 weather correction, fast and furious change in interest rates, oversupply in some markets, impact of high insurance and the market has been significantly dislocated and now it’s trading at a steep discount. Is this the bottom of the market? We don’t know, but we’re somewhere towards the bottom based on many factors. Now, I just came back from San Diego. We have an upcoming project there called the Headquarters of Seaport. It’s a beautiful property, prime real estate. And we were separately at a conference that I attended Passive Puckets, and I looked at it, and one of the speakers brought retail as an asset class and where it is in the cycle. And it’s still in the expansion. It’s not even oversupply. It’s not a recession. So certain asset classes continue to chime along because there’s no supply. Like retail, open-air shopping, these centers, it’s been no new product. And in the post-COVID world, many people want to go out. Experiential real estate picked up demand. As a result, these concepts continue to see great food traffic, and they continue to do really well. So all I’m going to say is it’s not a binary answer. Right now we’re at the bottom of the cycle, for example, in the multifamily real estate, most likely, again, probabilistically. On the other side, we’re still in the strong expansion in open-air shopping, but again, all real estate is local. So I’m going to stop for a second and really let you ask follow-up questions, and folks, they just this. You always have to be aware there is a cycle. Whatever comes up at some point may come down. Reversion to the mean, these things do happen. But at the same time, being a good observer and a scholar is very important in making a decision. Is this a time to write a check or is this a time to sit in your hand?

Yeah, and that’s why I love the way that you analyze deals or analyze markets, analyze all of this stuff. is you have a different mindset than I do to a lot of degrees. I definitely want the research and I want the data, but I also thrive in down markets with what I do. My creative deal structuring is better served when there’s blood in the streets. And there’s people that, and I can make money in any real estate market, But I look for those down times. And I mean, just to give you an example, I mentioned before we started recording, I’m going to go to contract on a property today. And this guy, this was a dead real estate lead that we were $100,000 apart. And yesterday, he got in contact with us. And we’re going to contract today. Why? What has changed? the circumstances have changed and the market itself hasn’t shifted a lot but the average days to sell a property is going up and he he ran out of time you know so i say all that that i guess ask the next question right like what do you look for do you look for uptrends do you look for downtrends to start doing deals when it bottoms out? What’s your personal preference?

Sure, it’s a great question, Derek. What I would say is some people say trend is different sometimes. So open-air shopping right now, the trend is strong. So for that asset class, that’s still in the expansion. You can continue to invest with the trend. Of course, you have to monitor for potential future supply demand changes. but in general a trend could be a friend for a long time but there are also market conditions when you’re looking for the bottom of the market the trend has been slow downwards or maybe rapid downwards at some point the trend breaks and then that down market the blood in the street is so high that it creates a great buying opportunity will you know for sure that it’s a great buying opportunity you may not know but you know directionally you’re close to the bottom then you start looking at these fundamental data matrix metrics that tell you yeah i mean that this price using all these factors it’s a great deal so what are these factors this i agree with you we all love to buy deals when the market is is down i mean this is the best buying opportunities by far because you will benefit for two reasons. One with market recovery, for two is your deal. Assuming that you’re getting a great deal because you have a motivated seller situation and you’re getting a deal better than, let’s call it, a kind of open market transaction. But what is market, right? It’s supply and demand of deals, and when you have motivated sellers, you may get a great deal. So what are these factors, right? and you start looking at these fundamental factors in real estate. So what I’m saying is the trend is like a momentum buying. When things are going well, you can keep doing that. You could also shift into a deep value buy, and it sounds like that transaction is a deep value buy with the structured finance, seller finance, creative finance. So when you can do that, you can do this, by the way, in residential, commercial deals. I have an associate of mine who does self-storage deals, and all he does is sell a finance, hold 75-year-old sellers and mom-and-pop facilities, but he has some extra expansion real estate, and he can go build and do his value add that way. So the wisdom is there’s no right or wrong, but you can look at things, reconstruction cost. Like what does it cost to build a similar house, and then you just count for the age of the current construction versus the past, right? Two, you could look at the income approach. What kind of income are you getting on a property versus the cost of finance? How conservative is your leverage? And if you add all these basic, basic factors together, you look at the deal and say, I can’t lose on this deal. There’s no way for me to lose. Now, is it going to be a home run or a double or triple? It’s another question. When you get to this point in time, then you don’t need to be looking at the trend. Yeah, the trend has been down, but you can’t lose on this deal, so it doesn’t matter. Even if the trend is still a little more down, at some point, it’ll bottom out. That’s kind of the whistle.

Right, right. Well, I love that. Let’s kind of dive more into the actual fund management and the difference between debt funds, equity funds, your everyday world. Tell us about it. Yeah, I’ll keep it simple. So this morning I recorded a short video. I showed you what’s the difference between publicly traded REITs, real estate investment trusts, and then private real estate funds. I’ll start with that. The really basic stuff. So most people understand, well, why would I ever want to invest in the private real estate fund when I can go buy a real estate REIT? We absolutely can do that. And there are beauties and courses involved, the advantages and disadvantages. So one of the biggest advantages of publicly traded REITs, they are funds. They are publicly traded funds, and you have liquidity. You could buy and sell the same way you could buy and sell Google stock, right? You have liquidity. The curse is it’s a publicly traded security. It’s a very efficient market. Information travels fast. So when the bad news hits, before you know, the stock can fall in price or the stock price can move up. So you could have it. The efficient markets don’t also give you great opportunities. You can’t go make a deal and buy Google stock. If it’s trading at, you know, $200 a share, you can get suddenly a deal for $180 a share. It doesn’t happen unless you’re writing, you know, $50 billion check to Google and they need to raise capital. Right. They may not give you a discount. the discount, they may give you the tiny discount at a market price. But in private real estate, as a fund manager, you could get into great deals. Like situations you have, motivated seller situations, distressed property, distressed asset. You also have situations where the bank is involved, right? There’s some kind of distress on the property, and then you’re dealing with a negotiation of a bank, good old short sales, right? So you have ability to negotiate much better deal. Seller financing terms. Right. Private real estate funds just work as a collection of these multiple individual deals that go in the fund. Now, REITs typically are also large. They, you know, a billion dollar REIT or two billion dollar REIT and industrial REITs. Sometimes they are self-storage REITs or some other specialty REITs. But they have a national footprint. They operate on a big scale and they have a big money deployment problem. So if a billion-dollar REIT is trying to acquire properties, they’ve got to put to work $30, $40, $50 million on a small check size. When you’re dealing with private funds, it could be a $25, $50 million fund, and they’re solving a very different problem. Other benefits of private funds, just to give you another really interesting difference, is some folks haven’t heard about this. It’s a very powerful strategy that many investors utilize. They have self-directed IRA money, and they invest into private funds, and then they convert from traditional to Roth at a discount. They get a discount evaluation through the investment. It’s a very powerful strategy. So if you do it publicly read, you can’t. There’s a market price every day. It’s liquid. Private fund or a syndication. You could write a 100K check, and three months down the road, you can’t redeem, you can’t get out. If you were to sell this investment, you would have to take a discount.

It’s kind of funny how it works. But for the sake of the IRS, you get a valuation letter. It’s not worth $100. It’s worth, I’m using an example, $50 or $70 or whatever, discounted number. So you have some advantages of these funds, and you can use some of these techniques to actually save on taxes. Also, private real estate deals or funds could be structured to give you a ton of depreciation benefits. It looks like we’re going to get 100% bonus renewed. You know what it’s going to do? It’s going to increase demand. Why are people going to buy? And then they’re going to do cost segregation studies. They’re going to take tax benefits. Most of these public reads don’t do that. But private use could be structured with high-depreciation benefits. So the world of funds, and you asked me, debt versus equity. Yes, you could have funds that are focused on private credit. Hard money lending fund, for sake of simplicity. You need to borrow money on a fixed-and-script project. The bank’s not lending well. You go to one of these private credit funds, you get hard money loans. So there are funds that focus on that, and there are funds that focus on certain equity investments. There are also syndications. I wanted to differentiate for folks what is syndication, what is a fund. And we’ve done debt syndications. We’ve done equity syndication. The concept is still the same. So you have one asset, right, whether it’s a loan on a property. You can do a $5 million loan and syndicate it to, you know, 50 investors, right? where you can do $5 million equity investments, and you can syndicate it to 50 equity investors. The same way funds do the same thing. They just collect a bunch of these notes or debt investments, and they put it in a fund. You have many investors, and you have many investments. That’s what the fund does. Diverse price for you. Syndication, typically, you have one or two assets, whether it’s an investment in a debt or investment in equity, and you have many investors. So that’s the structure. Focus, you could have self-storage funds, industrial funds. You can have different strategy funds. You can do residential lending funds. You can do residential equity funds by portfolios of turnkey homes. So I’m going to stop for a second, but there’s a broad range of options out there. Yeah, and I think that before I ever got involved in my first fund, when we owned a hard money lending company, I guess I was afraid of it, right? There’s so many unknowns. You start thinking, okay, I have to be SEC compliant, and there’s all these, I guess, the monster under the bed scenarios. The reality of it is, and I’d love your opinion, the reality of it is when you do get involved and you structure your first fund, and yes, there is a cost to that with your SEC attorney and that stuff, But it’s really not that hard. I mean, what do you think now that you’ve been doing this for a long time?

Agreed. I’ll tell you this. It’s definitely not hard. There’s a compliance. The attorneys who operate in this space are generally specialists. So you will get, hopefully, competent advice. As far as what type of offering you need to put together, there’s a 506C or 506B. These are terms that you see is where you can only take credit investors and you have to verify accreditation. But you can promote. You can advertise. 506B, you can only go to existing relationships. You can market to people you know. All these things are, I won’t call them mechanical, but they are details, which are obviously important. They’re compliance details, but with a competent attorney, you will follow the right process. You will file with SEC. You will file with individual states wherever you’re raising capital. So there are requirements, but it’s nothing more than any business. You get a license, you get certain rules and regulations. If you follow them, you can stay in business, you can operate the business. It’s not, you know, all I can tell you that we do in, day in and day out with high quality attorneys, and they just crank out another deal. It’s not a rocket science at all. So all I’m going to say is for those who are aspiring to do a fund, I’m happy to chat with you, give you a couple of minutes just to give you a little bit of feedback. And just to be very clear, some folks want to start a fund, and if the fund is too small, not worth doing it, some folks start with one-off syndication, one-off deal, and they go to a fund model. So it all depends on what you’re trying to accomplish, how much capital you think you’re going to raise, what you’re going to invest in. Is this something you’re passionate about? Some people think, well, let’s do a fund. Are you passionate about running a fund? Do you understand what is in and out? Do you have some responsibilities related to that? Now, it doesn’t mean it’s a bad thing. It just means you just have to understand. Go into that business with eyes wide open.

Yeah, I would say the big thing that I learned through running several funds over the years was the investor communication is so important. And there was, you know, at that point in my career, I had a business partner that I co-owned the hard money lending business with. And, you know, he was more of an introvert. I’m more of an extrovert. So we split those duties. You know, he kind of handled the back end and I handled the people stuff. And it was great. And I really, I know that any time that I hear of an investor who was interested in bringing their money to us, and they may have even been getting better returns, but I would always ask them, why? Why were they, you know, coming to us? And it was either one of two reasons. We are out in our community educating and giving back and teaching as many people as we can. So they like that. But the second one was, you know, they’d say, well, I borrowed my money to, you know, Bob Smith, who I met at the Real Estate Investor Association meeting. And I just never knew what was going on. He never communicated with me. Right. And I would hear that time and time again. So if you’re out there just raising money individually or in a fund or doing syndications, just make sure you have a plan to stay in good, healthy communication with your investors. And then it gets, Mike, you can give me your feedback, but it gets easier and easier because they are singing your praises. They are raising money for you just by referral, right? So.

Yeah, yeah, yeah. I think you got it right. I just had a couple of comments. But, you know, it’s so interesting. And whenever you loan somebody money or invest with somebody, the first thing you need to do is to observe how they communicate with you. Communication, like you said, is probably one of the most important things. And first of all, hopefully you had an opportunity to get to know, like, in trust, do some due diligence before you give them a check. Obviously, if you’re loaning somebody money, you’ve got to do due diligence. If you’re investing in equity, you’ve got to do due diligence. Basic due diligence. right just at least understand what the business plan is who you invest in with the personality the jackie is always ahead of the horse so um going back to the points you mentioned communication is so important we do today as fund managers as uh syndicators whoever we write a check with or whoever gives us a check it’s a two-way street this communication has always got to be good and if it’s not good you need to be open to improve we try to listen that’s what give us a check and they don’t like something, we will take their constructive feedback. So this two-way communication is always important to understand both points of view, help answer questions, and help solve any issues. And it’s also true when you write a check into a deal. Not every deal will go perfectly, but quick communications will go long ways to help at least all parties to be on the same page. So I will say that investor relation function is an important function. We have a great head of investor relations. It took us a while to find that person, but it’s a very important function. So I am completely affirming what you said, that whatever you do, whether you’re both an investor or looking to raise capital, that’s a very important function. And going back to the fund manager, the fund manager has really only three functions. One is to raise capital and maintain these relations to investor relations. to find deals, underwrite deals, and then obviously deploy capital and manage the deals through the life cycle. So it’s capital raising and then that’s relations on the other side and then finding deals and then managing them through the life cycle. Business is not that difficult. It’s just a combination of a few important functions. And, of course, you’ve got to get better at each of those functions. If you do good at one or two and not good at the other, And the business doesn’t click the way it needs to click.

Yeah, absolutely. Mike, what’s one question I should have asked you that I didn’t as we start to wind down here? So one question today that I get quite a bit, and literally I got the question right before this call. I had another call with an investor. So clearly today, May 25, markets have, commercial markets at least have gone to a level of change, reset. The opportunities today are much better than the opportunities a few years ago. I mean, you mentioned this, I mentioned this, and that’s the question, well, why should I take action now? Why not be very defensive and do very little because a lot of uncertainty today? Obviously, uncertainty related to the tariffs, Trumponomics. The world is in this environment where we’re sailing along sort of comfortably. And now it’s the quality of blood in the street and uncertainty in the street, depending on how you look at it. So the easiest thing to do is do nothing. And then what I would say is this. You could do nothing. You could sit and wait for another year and have your money around 4%. and the fact that the banks are paying 4% is giving folks incentives to do nothing, which is fine. You could also take a more conservative route. You could invest some money in that private credit. Let’s call them hard money lenders. Get your 10%, 11% yield and take less. Let’s call them risk. There’s still risk. Well, you could get a little bit more what I call take the Warren Buffett hat and put it on. Be greedy when others are fearful and be fearful when others are greedy. Greed is low, fear is high. It’s time to get actually a little bit greedy and be selective, of course, in who you invest with, what type of projects you invest in. But the opportunities are insane. You look at many metrics and you can get into these deals and wherever. Legally, I can’t tell you you can’t lose money. Of course, legally, I can tell you you can lose money. But practically speaking, look at these deals and the feedback we’re getting is you can’t lose money. You’re using low leverage, fixed rate debt with long enough maturity, your downside protected liquidity, no tomorrow. You can cover your debt with debt service coverage ratio.

I’m using an example, over two. For those who understand what it is, a huge number. You can service your debt with only less than 50% occupancy. There’s so many factors you can look at and say, wait a minute, And then I’m getting a positive spread between the cap rate that I’m buying at all and the cost of money. And this spread is now 2%, 2.5% positive. This is the crazy part. Oh, on the reconstruction basis, it will only cost you twice as much to build versus 10 to buy, right? So there’s so many opportunities today that begin to look like this. I wouldn’t call them value, but at least in my universe, when I see these deals, I know these are great deals. Now, folks talk about ground-up construction, these great opportunities, and I tell them I love that. That’s a great strategy, except for I can’t get a discount on ground-up construction. It’s going to cost me what it’s going to cost me to build. I can get a great deal in existing, but I can’t get the same type of a deal in the ground-up. Can you still build and make money? Sure you can. Can you do it with less risk in existing? I believe you can, right? It’s a matter of opinion if you get into the right type of deals. So the question is, why take action? And the answer is you’ve got to have courage. A little bit of courage, even though you’re incentivized to sit in your head. And courage, by definition, means acting despite fear. And that’s the wisdom of the day.

Well, that is a great note to end on. And I really, really appreciate everything that you’ve given us today. And I know just when I was on the Big Mike Fund show, we actually chatted for quite a while after we were done recording that show. You’re a wealth of knowledge. And so for everybody listening to this, go to BigMikeFund.com. Follow his show. As he mentioned, he’s more than happy to give you a few minutes if you need some help. Mike, any last thoughts before we sign off? No, keep reading books. It’s one thing that I can tell you through my journey. I consume so many books, and I get a new book recommendation. I started the podcast by saying Howard Marks has a great book. I read multiple books on Peach Anything. Just give me an example. I just consume that. And there’s a follow-up book, and this and that. All I can tell you is get your mindset into a humble learner, and then the world will look like the more you know, the more you don’t know, but it’s a fun place to be, fun place to learn all the time. And every time you have a non-successful situation, whatever it is, just remember yet another book called Sometimes You Win and Sometimes You Learn. That’s it.

Absolutely. Couldn’t say it better myself. So for all of you that joined us today, thank you. And, you know, go out there, share this show with others, help us spread the message of Generations of Wealth, Family Needs to Grow. And, again, thank you, Mike, for your time. Until the next show, go out there, do some deals, think about raising some money, maybe start a fund. Who knows? See you next time. Thank you.

 

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About Mike Zlotnik