Welcome to another episode from the Southwest Dental Conference where Ash sits down with Paul Montelongo, founder of Montelongo Capital, an investment firm based in San Antonio, Texas. They discuss Paul’s background and expertise in real estate investment, focusing on cash-flowing properties such as apartments, self-storage, and oil and gas assets. Paul talks about how Montelongo Capital partners with business owners, including dentists and physicians, to invest in these assets that offer regular cash flow, significant equity growth, and substantial tax benefits.

The conversation also covers the dynamics of multifamily syndicates—a key investment strategy for Montelongo Capital. Paul explains the role of both general and limited partners in these deals, emphasizing the benefits of passive income and tax advantages for busy professionals. He also details current investment opportunities, including a promising property in Corpus Christi, Texas, projected to offer a 20% annual return on investment.

To find out more, you can visit: montelongocapital.com

If you have specific questions about embezzlement or if you'd like to have another question answered on a future podcast, please reach out to the Edwards & Associates team. (https://www.EandAssociates.com)

Key Topics Discussed:

• Cash-flowing investments and their benefits
• Tax benefits for business owners and passive investors
• Differences between General Partners and Limited Partners
• Transition from single-family to multifamily investments
• Typical holding periods and return timelines for investments
• Quarterly distributions and investor returns
• Current investment opportunities in Corpus Christi, Texas
• Risk management and market leverage
• Treating real estate investments as businesses

Welcome to Beyond Bitewings, the business side of dentistry, brought to you by Edwards and Associates, PC. Join us as we discuss how to build your dental practice, before acting on any of the information that is shared. At Edwards and Associates, PC, our business is the business of dentistry. For help or more information, visit our website at e nassociates.com. Hello, and welcome to another episode of Beyond by Wings. In today's episode, we have a very special guest. His name is Paul Montelongo. And, you know, the reason why we decided to do this episode with him is because, you know, he he he's he's a bit of a real estate investor, so to speak.

Right? And I'm sure I'm when when I pass the mic back to him, he's gonna say more about what he does, right, in more elaboration. It's also because the kind of listeners we have, the kind of clients we have, they're very much interested in the kind of investment options that you guys are offering. So without further ado, can you tell us a little bit about yourself

and what you guys do? Absolutely, Ash. Good to see you. Anyway, Paul Montelongo from San Antonio, Texas, founder of Montelongo Capital. And what we are is an investment firm that partners with business owners, physicians, dentists to invest in cash flowing real estate for tax benefits and for equity benefits. Alright. Perfect. Now, expand a little bit on the cash flowing investments bit. Sure.

So, we buy assets that cash flow on a monthly basis. Mhmm. Apartments, self storage, lease spaces, and oil and gas. We also buy those that kind of asset as well. So that we're interested in 2 things or 3 things. We're interested in the cash flow. So it's gotta generate monthly revenue that surpasses all of the debt, of course, so we can Good. We can divide up the profits Right.

With our investors. And then secondly, we want good equity. Like, these are assets that are gonna appreciate because we put the work into these assets to force the appreciation. Okay. To build the appreciation over the life of the asset. I see.

I see.

And then 3rd, and maybe most important, is tax benefits. That's right. And so, since most of our investors are business owners on their own, they have their own independent businesses, not in real estate. They're doing something else. Right. And they have investable money, but they also have a tax situation that they have to take care of. Right. And so real estate's perfect for that.

Real estate, oil and gas, those are perfect assets to help offset your tax liability. And so we work with investors

Right.

To help them with their tax situation. Right. And we are what's known as owner operators. So we do the day to day operations. We take the rents. We do the management. We handle all the problems on a day to day basis. And then the investor is a limited partner or passive investor.

They get to share in the benefits. And by the way, it's usually to they they get more of the profit than we do as the general partners Right. On most assets.

Yep. Now, would it be possible for an interested investor to join in as a GP as a general partner?

Yeah. There are pops there's a possibility for investors to join as a general partner. This would give them additional tax benefits. That is correct. And so we have partners, throughout all of our investments that, you know, have come on from different industries. They bring different specialties, different skill sets, different job titles and roles to the investment. Right. And, yeah, we partner with them all the time.

Just a little interesting note, we have a general partner in one of our deals and he's kind of an expert in finding local municipal and city tax benefits and benefit programs. I see. And so so, so more of a social element to our investment. So he's become the social director. Not social media, because that's another role. That's a whole different role. But the social director for our investments in the local areas in which we invest.

Okay. Wow. That's amazing. Now how long have you been doing this?

Well, I've been doing this particular business for 11 years. Wow. Yeah. Prior to that, I was in single family residence. Mhmm. And I did many many many flips. I started flipping when I was 21 years old. Wow.

That's amazing. Yeah. That's a long time ago. But not

but not People can't see us. But even even if people can see you, man, I don't think they'll be able to tell.

Okay. Let's go with that. I appreciate it. Yeah. But so for a long time, single family residences, flip, fix and flips, you know. Right. And then in 2013 Mhmm. I got invited to buy a marina Mhmm.

In North Carolina. Wow. That's amazing. So to partner with some people to buy a marina. And that really gave me a test of a taste of this, multi unit type, multi revenue generating type Mhmm. Properties. Because that particular property had a 115 boat slips and had 38 tiny homes. Wow.

And then it had some storage and it had some parking and it had at one point it had 13 streams of revenue. Well, that's, you

know, that's From 1 Marina.

From 1 Marina. For 1 piece Wow. For one track of land, 14 acre track of land. And that's 100 of checks Uh-huh. Up coming in each month Right. From a variety of sources. Right. So that gave me the taste.

That was like, okay. I I see rather than a transactional investment like a flip. Mhmm. You know, you buy a flip. You buy a house. You fix it. You sell it. You get paid.

No. And then there's another one. And there's another. So those are singular or transactional

Right.

Events. Whereas, multifamily, multi unit storage, those kinds of asset classes, you have one close, you have one transaction

Right.

But then you have multiple streams of revenue. And so that increases your opportunity to make money. It also helps defer some of the risk Mhmm. In a property. So that made a lot of sense to me. And so then I just I I doubled down and I started doing that.

Okay. That's good. Yeah. Let's talk a little bit about the multifamily syndicates. Right? So typically, when you acquire a project after you have raised the funds that you're looking for and you go through with the deal, how long do you typically keep it before it's sold to another investor?

Yeah. Traditionally, these are 5 year business plans. Okay. Historically though, on our track record is we hold for about 33 months. Okay. But they are based on 5 year business plans. Right. If it would go into a 6th year, it would just be because it makes sense or maybe the market is telling us it's not quite ready to sell.

Right. But the other side is true also, you know, we can have a 5 year business plan and what's happened up until now is the market tells us, okay, your property is ready to sell for optimal value at 33, 34, 36 months, that sort of thing. And so then then we sell and then we divide up the profits to the investors and we we go to the next one.

Okay. Good. And during the entire time, you know, the cash point investment, right, is it generating the cash per month, per quarter? When when do you guys typically hand out the distributions?

So we we issue distributions quarterly. Okay. And then on some of the properties, some of the investments, we have a preferred rate of return. Okay. Others, we have just a straight rate of return. Right? So based on whatever the property is generating. Right. And so, you know, it's all in the business plan.

Right. It's all disclosed. It's all it's all formal. Mhmm. And then based on our experience, based on the market, based on how we think we can generate the most value in that property, then we decide are we gonna distribute quarterly? We can distribute monthly. Right. You know for how long those sorts of things. Right.

And and how involved does an LP need to be?

LP real well let's let's go back. First of all an LP has ownership. Okay. Right? LP has ownership. You're in the LLC that owns that particular asset. Correct. It's just that you don't have the day to day responsibilities that the general partnership has. And having said that, LPs have all the disclosure rights, have all the availability, and all the accessible rights that a general partner would have.

It's just that they don't do get involved in the in the day to day operations. Right?

They they are truly the the LPs will have the true passive

They're passive. Part. They're passive. Okay. And and and that's ideal for the investors that we bring on because these ladies and gentlemen, they're operating their own business. Like, we have people from the dental industry. We have people from that are physicians. Mhmm.

You know, oncologists. Mhmm. We have people that run run trucking companies, roofing companies, meat supply companies, plumbing companies, you know. So so these these individuals, they all have their own profitable businesses and they're locked in, locked down on operating their businesses. Mhmm. Yet they have this deployable money for real estate investments. Right. And so we provide the done for you model.

Right. Like we do all the due diligence. Right. We do all the operations. We do the acquisitions. Our team does all the operations. I obtain the loans. I guarantee the loans myself.

Okay. And so then they come in and are are passive investors. Yeah. Oh, I see.

I see. Okay. Okay. That's good to know. Now the other thing that I'm also thinking about is are there any current projects going on right now where you guys are actively looking for investors?

Actually, we do. We have one property in Corpus Christi, Texas Okay. That we've already purchased. Here's the nuance of this property. Okay. First of all, this is our 2nd property in Corpus Christi, Texas. Interesting. We like Corpus Christi, Texas and I'll tell you why.

First of all, it's a working class community

Mhmm.

For the most part. Mhmm. Blue collar workforce housing is what we buy. And so we bought our first property there in December of 2022. Okay? And we bought it, just a few hours before the end of business ended that year. Wow. One week later, an article comes out that Elon Musk and Tesla are building a lithium battery plant in the Corpus Christi market area, and that did not come up in our due diligence. We're like, oh, wow.

We must be living right.

Uh-huh.

Because what does that do? That brings jobs. Right. That brings income. Mhmm. You know, and those people need a place to live. Mhmm. And so workforce housing is that supply. So we like Corpus Christi.

And then in March, which is now what, 4 months ago or so, we bought another asset in Corpus Christi about 10 minutes away from our first asset.

Okay.

And we paid $6,000,000 for it. We've already transacted on it. We've already closed on it. We're already in the middle of operations. Okay. We raised enough money to purchase the property and to begin all of the capital expenditures, the improvements, the rehabs. Right. Okay? Right.

And so now we're just raising just the balance of the of the capital raise just for some more reserves and what ifs and those kinds of things. So I see. There is an opportunity on the table right now for an investor to come in and invest in one of our properties. That particular property is projected to generate at sale. When we look back, it's projected to generate 20% per year return on investment. Really? That's right. So that means if a person invests $100,000 at the end of 5 years, they'd get their 100 thou original $100,000 back Mhmm. And then they get another $100,000 on top of it.

Uh-huh. And

so you divide that by the 5 year business plan that that averages out to 20% per year. That also has a 7% preferred rate of return. So that means every year

Yeah.

That an investor will get 7% on their money in quarterly distributions. Okay. 7% annually, of course, spread out over the quarterly distributions. And so you take the 7 and that's there's no word guarantee in our business, but it's called preferred rate of return. In other words, investors get paid first. Mhmm. So from the profits, from the net operating income that is generated on the property, limited partner, passive investors get paid first and then general partners get paid second. So the first 7% goes to the limited partners.

Mhmm. And then if we generate more than that, then there's a share. Right. Right? So And for

the interest listeners who are maybe considering looking into the GPU route for tax purposes. Yep. Almost always, it's more than 7%. Right? The rate of return. Yes. Definitely. So you are still going to get a decent amount per quarter. Yeah.

Yeah.

Like I said, once once we look back on it, it's projected to you're you're projected to see 20% per year. That's pretty strong. I there's there's That's pretty strong. There's not many other investments, you know, standard traditional investments that'll generate that kind of return on investment. Right now in 2024, since we're doing this in August of 2024, the economy and interest rates and real estate is it's in an adjustment period. That's right. It is by it is not by any chance low or in trouble. It's just adjusting.

Because we saw it so crazy in 2018, 2019

That's right.

The beginning of 2020. We saw it so crazy on fire That's right. That now it's adjusted a little bit. So what does this mean? This means that over the next 2 to 3 years, 3 or 4 years, then it's gonna crawl what it's gonna crawl back and we're gonna see the values go back up again. So the properties that we're buying right now in 2024, we're buying them at about 22 to 25 percent under market value. Okay. How are

you guys getting that leverage? Cash and you guys have a lot of investors that are We

have a lot of investors.

Okay.

And we get good debt. I see. So we get we get about 65% of the purchase price in debt. Mhmm. So we have a loan, a mortgage loan. Mhmm. And then the balance we go raise from investors Right. From passive investors.

Right. Right. And I

thought you're pretty good. 65% is pretty good.

65% is good.

In fact higher. Yeah.

The the property that I was, just referring to, we got 67% leverage on it. Right? Okay. And these are agency loans. They're federally backed loans, but they are also asset based loans. In other words, the asset Mhmm. Has to produce and generate enough income, enough revenue to cover the debt and more. Right? And so that's a condition of getting of getting the debt.

And that's important to know because if you are thinking about investing, you would want to know that if the potential asset that's going to generate revenue for you has been vetted. Right? Absolutely.

I mean, think about the math on this. Okay. For those of for those math people out there, you buy a piece of property and you only get 65% leverage on it. Right? You can only get a 65% loan. That means that inherently you have a 35% upside. Okay? They are being purchased for about 20 to 25% below market as I mentioned. So now a property is, you know, it's it's about a 110, a 120 percent upside on the day that you purchase it. Now obviously, there's some equity that has to be invested and that all goes against the cost and everything.

But in terms of the property itself against the debt at the day of closing, there's an upside. And by the way, these properties are all appraised Right. And they have to be appraised well over the purchase price Right. In order for us to obtain that kind of a

debt, which they are. And you did also mention something important there, which is you guys will always make sure that the income proponent of that investment will always be higher than the mortgage that you acquire. Absolutely. So I'm assuming maybe through a variable rate plan or something. Right? Well, it has

to be yeah. It has to it has to maintain a minimum of 25% Mhmm. More than the debt. It's called debt coverage ratio. So

That's right.

Yeah. So typically these are 35 to 50% more than the debt, but the minimum as required by lenders 25% more.

Right. Right. That's awesome. That's amazing.

But, you know, it all it all goes into the formula. It all goes into the business plan. And and by the way, I'll just mention this, you know, I'm a business owner. Uh-huh. I've had many businesses in my career, and I've generated lots of revenue through these businesses. And so when I got into buying these kinds of properties 11 years ago, immediately I decide decided that these are businesses I'm buying. Oh, yeah. I'm buying real estate, of course.

But the what the reality is I'm buying a business. So if I buy an apartment complex, I'm buying Yeah. I'm buying the business. That's right. I mean, excuse me, I'm buying the real estate. I'm buying the the the doors, the buildings, the dirt, but I'm also buying the personnel. I'm also buying the website. I'm also buying their equipment.

I'm buying their customers called tenants. Mhmm. I'm buying their really good Google reviews and I'm buying their really crappy Google reviews. Right? In other words, I'm buying the entire business. So it's our job to go in and reshape the business.

That's right.

Give it a new business plan. Bring it up so that it has value so that it's resale value is, good for the investors. Right. Right. Yeah.

Yeah. Yeah. Well, I do really appreciate you being here on the episode today just because I know when I'm talking to my clients, for instance, after a certain point, you know, just funding a 41 k plan isn't just enough. They still have overflow of funds that they've generated. And oftentimes they sometimes, you know, always think about, okay, maybe I should put some money into a CD. Oftentimes, sometimes they even forget about it and they're just sitting in a crappy savings account where it's not even generating 1%. So it is that is where we have to come up with ideas on how to, you know, diversify some of the funds that are there so they can invest in areas where they can generate a good significant return. Now, one of the things that was a big buzz amongst my clients, and I'm sure with some of our listeners, is, the potential to invest in multifamily syndicates as well as storages, self storages.

You know, if you even go on TikTok or something, I think that's where they get a lot of their information in reality. I'm not going to lie. They go like, oh, okay. What are some of the investment options out there? And it goes like, oh, self storage is okay. I need to talk to someone about self storage. Right? So having someone like you in the area, in in this specific industry that can talk quite a bit about it, it's been, it's very helpful.

Yeah. That's funny you say that TikTok. Really? Yeah. Yeah. It's general. It's true. It's very true. Yeah.

People go and they go, TikTok's you know, it looks good on TikTok. Yeah. Must must be a real thing. It's like you would vet a dentist. You know, does this person have experience? Do they have knowledge? You know, do they have referrals? Right. What's the history of their current customers? The same thing with an investor, multifamily storage investor. You know, what's the track record? Uh-huh. How they're gonna handle the business? How they're gonna handle my investment? Sure.

It's it's just a a vetting process. So you mentioned something interesting in in that what you do, you know, you help with the financial planning and the accounting Right. For dentists and professionals, you know On the general side of it too. Yeah. And the tax side of it. The tax side

of it.

Right? So That's right. K ones are issue every year. That's right. And, so you help them with their tax side. And these investments qualify for retirement funds self direct. You know, self directed IRA funds. So oftentimes and we have a lot of investors that just they have money from a from an IRA account. Oh.

They got there through some company they worked for Right there. Many years ago. And it's just money just sitting there at 2 or 3% interest, maybe 4% interest if they're lucky now. But then since the government allows those funds to be directed into qualified investments and real estate and oil and gas are one of those, you know, investments that qualify for self directed funds. Uh-huh. It's it's it's makes total sense to place your money from self Right. From I your IRA to self direct it into these kinds of investments. Right? And so and then the IRA money acts the same way it's always acted.

So like when we pay distributions, we pay it back to the IRA. Uh-huh. You don't get to touch it until you're 59 and a half if you don't wanna be penalized. When you're 59 and a half or beyond, then you then you can draw the profits out. That's right. Yeah.

That's tax deferred

growth. Tax deferred growth. Right. So And you're compounding on it. So our technically, our investor is the IRA fund. Not you. That's right. But you get the benefits out of it.

That's true. That's true. So a

lot of lot of ways to make it work. Uh-huh. You know, a lot of ways to make it work. I think the main thing is is that you you wanna find an expert in the industry Mhmm. That knows how to manage properties, know how to manage how to buy properties correctly.

Mhmm.

And then, as I mentioned earlier, it's a done for you model. Mhmm. They we do all the operations, you know, all of the management, and then the distributions go out. Okay. Perfect. Yeah.

That's amazing. Well, thank you so much, Paul. That was a lot of valuable information for our listeners, including myself. And it it was nice to run into you here today.

Yeah. Yeah. Good to meet you as well. Of course, anybody who wants any more information, go to montelongocapital.com. There's all kinds of free resources there for investors, for physicians. There's even one for physicians, a resource for physicians. And, we have events, and we have education, and we, like, we we do what we can to help people understand the investing market and how their money can be protected and how their money can grow. Right.

So it's montelongocapital.com. Also there, you'll find all of our social media links. And on social media, we post pictures and videos of our properties and education and our events. And I said, we're extremely active on social media. And you'll find all those links at montelongocapital.com.

Right. That's amazing. Yeah. It speaks volume on you guys for being able to inform Yeah. The people out there that's looking out to invest.

Yeah. Yeah. I would. Yeah. We we of everything that we do, we find that education is, like, our most satisfying.

That's true.

Because we're teaching people. We're helping people. That's true. And, you know, we're helping their families. We're helping them build wealth. We're helping them build legacy for their families. We're doing the same thing for our for our families, for ourselves. Right.

But we're also we also get to share it. So, you know, that's very, very rewarding. Yeah. I'm sure. It is. Well, thank you again, Paul. Alright, my man. Take care.

You too. Thanks.

Thanks for listening today. Be sure to subscribe to Beyond by Wings on your favorite podcast platform. For more information, you can follow us on Facebook, Twitter, and LinkedIn, or reach out to us on our website. You can also shoot us an email at info at e and associates.com.