How Real Estate Debt Funds Create Passive Income Without Syndication Risk | Tom St. John

Tom St. John (00:00)
When you look at compounding, people always think about the power of compounding as you earn returns on your returns, which is true, but compounding only works when it’s uninterrupted. So I found a lot of these really highly sophisticated investors were like, man, just put me somewhere where I can earn 10 or 12 % every year without having to worry about it going down. my recent kind of pivot was that these private credit funds and some very

high level real estate debt funds where you have to choose the operators the most important part, but that that solves that cash flow problem.

Cody Crabb (00:33)
⁓

Welcome back to the Real Estate Pros podcast. I’m Cody Crabb with Investor Fuel, and today I’m joined by Tom St. John, owner of Northcorp Capital, 20 plus years in multifamily, 500 plus units, and now raising private credit and real estate debt funds where he personally invests alongside his investors with no fees.

Tom, thank you so much for joining us today. I really appreciate it.

Tom St. John (02:27)
Oh, thanks a lot for having me, Cody. I’m excited to be here.

Cody Crabb (02:30)
So just to kind of get started, how did you get started in real estate? What was your path to kind of bring you to where you are today?

Tom St. John (02:38)
Well, I come from a real humble beginnings. I know a lot of people say they came from zero, but I really did. I came from a real blue collar family, factory workers. And the short version, my dad, around 2005, he retired. He had a heart attack on a golf course and was kind of forced to retire after 32 years of working at a power plant. And a week or so after he retired, got this big package in the mail and it was a big telescope.

And I remember it was exciting. Like I loved like watching, you know, looking at the moon and all this stuff. But for some reason, just looking at that telescope, maybe I was at that age where it just represented something to me where I’d look at my dad with that telescope and it just kind of represented like what 32 years will get you, you know, doing what he did. And I just thought, you know, this telescope’s cool, but man, I got to find a different way. You know, he was

Cody Crabb (03:19)
Hmm.

That’s

almost like a movie. you’d see the like it’s like a little certificate or something to illustrate how it really is like it’s something that you’d see in a movie.

Tom St. John (03:35)
Yeah, because he, you know, a week before that, you know, he was in the ICU. So it was like, hoping he is okay. And then the, he decided I’m done at whatever I got, I got, then seeing with that telescope, I was thinking like, that’s what he worked for, you know, almost that, you know, he, the cold, the co-plant he worked, you know, breathing in fly, dash, fly ash and coal dust for all that time. It, almost killed them. So I didn’t have any, ⁓ anyone to ask.

Cody Crabb (03:50)
Yeah.

Tom St. John (04:02)
already mentor. So I just went to the library and I, know that’s not too popular these days with YouTube and podcasts like we’re on now. And, but man, I just read, I’ve read so many books. I’ve just read a bunch of books and that’s kind of how I, how I got started. And the quote that I remember reading, I’m not sure which book it was, but I still have it framed in my, in my office. It was a quote by Warren Buffett and said, it doesn’t matter how hard you wrote, what matters is what kind of boat you’re in.

And that really resonated to me because I just looked at my dad like, I don’t think I knew anyone that worked harder than my dad. He was just on the wrong boat.

Cody Crabb (04:33)
Framing it like that is really great because I think a lot of people, including like, you know, a lot of people can relate to like our parents, right? Like if you have a job, it’s like your parents might, you know, depending on how hard it seems like you work, they may or may not have some feelings about that. But really like money and how hard a job is just have nothing to do with each other. The hardest jobs I’ve ever had paid the worst every 100 % of the time.

Tom St. John (04:43)
Yeah, for sure.

No, yeah, they’re just not correlated. Yeah.

Yeah. I I, I started off, um, I found a landlord that had like maybe like 12 houses, which to me, it might as well have been 1200. That was unbelievable that someone owned 12 houses and, he didn’t really have a need for me. So my negotiating skills were really good at that time. So I told him I’d work for free. And, um, so I ended up

Cody Crabb (06:01)
That’s,

I will say if you have that chip to play, that is a pretty good chip to play,

Tom St. John (06:05)
Yeah, that works almost every time. If you

haul shingles up a ladder for free, you know, but I kind of learned, eventually he paid me like seven bucks an hour, I think, cause his wife, I’m pretty sure his wife like guilted him into paying me something, but I learned a lot from him kind of some things to do some things not to do, but that’s kind of how I got in. ⁓ you know, I started off with single families, like, like most people do or a lot of people, but, just working for that guy, cleaning out all his vacant units, painting walls.

just the grunt labor. I learned from the bottom up of what it takes and what it actually means to be an active real estate investor. It’s the furthest thing from passive income that a lot of books will misguide you.

Cody Crabb (06:40)
You

Yeah, I mean, when people in this industry hear passive income, they don’t hear no work at all. They hear less work than more. You know what I mean? Maybe not like a nine to five, but it’s gonna keep you busy. So, okay, this is a neat story. I love when people can kind of use the resources they have to kind of pull themselves up and just kind of be creative. I’ve heard so many stories of people just went around town and found the crappiest house they could find.

Tom St. John (06:55)
Yeah.

Cody Crabb (07:09)
So, alright, so I want to hear about that first deal. How did that happen?

Tom St. John (07:09)
Yeah.

Yeah.

Well, I found the first deal the same way I found that landlord. And for your listeners, whoever’s listening to the show, everyone has a library in their town and everyone can drive around their neighborhoods and find a rental, know, houses for rent. So that’s how I found him. I just happened to see a couple for rent signs in yards. I know that’s not even as popular anymore these days with online searches, but I just called the number on the for rent sign.

Cody Crabb (07:25)
Good point, yeah.

Tom St. John (07:39)
And that’s how I started talking to him. So that’s how we decided that that worked. So I went around and was calling for run signs. Thinking well, this is a vacant house that a landlord, maybe a tired landlord or he’s sick of dealing with it. This one’s vacant. You could get rid of it.

Cody Crabb (07:53)
That’s really smart. I mean, it’s so obvious when you say that, but it’s like, yeah, it’s currently vacant or it’s going to be soon. They are trying to find somebody and haven’t. Like, yeah, it’s brilliant.

Tom St. John (07:55)
I don’t.

Yeah.

I didn’t think it was, didn’t know any other way. That’s just kind of what it came up with.

Cody Crabb (08:10)
I think it’s great, yeah.

Tom St. John (08:11)
So I ended up buying a lot of my first houses I bought that way from other landlords. And that’s actually how I got into multifamily. I’ll explain later, but yeah, the first deal, was, it was just hard. mean, it was 2005. It was when I started, I want to do real estate. All those books I read, they all led a business book, entrepreneurial tech. It’s for, in my head, everything kind of came back to real estate as far as the vehicle that I thought was best.

But I had this first house I ended up not buying until the very end of 2006. I had to clean up my credit. I had to save up enough for a down payment. It took quite a long time to buy my first house, which was $35,000 at that time. But I got my first house. It took me a couple of months to fix it up. Pretty much did all the work myself, except for I had maybe had a guy install carpet and then I got it rented out, man. And it was cool because I got like a $600 rent check and it was like,

I created this money out of thin air and it was less than the paycheck I had at my job at the time, but I didn’t care. You know, this was, created this on my own and it.

Cody Crabb (09:14)
And you’re

like, and I got this while doing the other thing too. Like I could just pick, I could just see it. Yeah.

Tom St. John (09:18)
Yeah. Yeah, I was addicted

kind of from day one and I eat, sleep and breathe the stuff every day since.

Cody Crabb (09:26)
Awesome. Well, I mean, this is such a cool story. I love this. ⁓ Okay, so from there, you you said you didn’t have any mentors early on. Looking back to those first few years, do you kind of look back and go, I probably made some mistakes along the way that I could have avoided if I’d had someone kind of to help me out? And if so, what were they?

Tom St. John (10:20)
Yeah, I I made a lot of mistakes as far as, um, stalling my own growth by not asking for help or not, you know, just trying to bootstrap it all myself, you know, you know, growth was, was pretty slow, but I was able to buy maybe two or three homes a year. Um, then that was right. That led right up into the 2008, um, the GFC, you know, the big financial great financial crisis. So 08, 09, 2010.

Now I could see all these prices drop and all these great deals that I knew were awesome, but I couldn’t do anything about it because of the credit crunch. A guy like me couldn’t walk into a bank, get alone for anything after, after the ball dropped on that. So, so then I kind of started reaching out and, ⁓ that was my big bottleneck at that time, but I did kind of ask for help and, found some really creative ways to finance properties through crowdfunding sources or hard money. ⁓ and.

Cody Crabb (10:53)
Yeah.

yeah, tell us about that.

I’d be interested to know about that, but yeah, finish what you were saying.

Tom St. John (11:13)
Yeah, don’t know if you remember like Prosper and Lending Club and I don’t even know if they’re still around anymore, but they’re just, you could go online with your credit score. I mean, it was like 20 some percent interest, you know, but they’re like five year, five year term. So I knew I was going to, I knew I was going to be able to rent the property for close to the payment. I knew I was probably going to negatively cashflow or maybe just kind of break even, but I was just so aggressive to buy property that I

Cody Crabb (11:25)
my gosh.

Tom St. John (11:42)
I didn’t really the risk. There was no risk for me at that point. I never had anything to begin with, so I wasn’t bringing in any outside capital or in my time. I didn’t value my I didn’t care about my time, but I just I was able to acquire a bunch of properties. I worked two jobs. And I kind of kept it all afloat long enough to where I had enough principal pay down. Over time, and I always kept the rents kept kept him occupied, kept him fixed up and I was able to. Have enough of him to.

To sell in one big swoop and then get enough money for my first multifamily property. But for your listeners, but for your listeners, that was 2015. So that took, that took nine years. I mean, it took me nine years to get started. I always tell people and, it doesn’t have to take that long.

Cody Crabb (12:13)
Go ahead,

Well, in the grand scheme, that’s really not even that long. mean, people like, that’s almost just being, like becoming a doctor, right? It takes a long time, but like, lots of people do that. Like, it’s a thing people do. So I think, I also think we kind of say like, if it’s, it’s not a get rich quick scheme, we all know that. But I also feel like it’s, you also have to kind of like stretch out all the timelines, all of them.

Tom St. John (12:36)
Yeah.

Now.

Cody Crabb (12:50)
everything is gonna take longer than you expected unless something falls in your lap. So the fact that you kind of pulled this out of nowhere, I think it’s so cool. So tell us about that multifamily world. I wanna know kind of what drew you into multifamily. You’d kind of were in this single family space for a while, but then you just kind of leapt over and I’d be curious what you saw there that maybe kind of caught your attention.

Tom St. John (13:06)
Yeah.

Yeah. Multifamily

was always the plan, you know, but I just starting out, I just thought there’s no way I can go to a bank and ask for a loan for this multifamily deal. I just didn’t think it was possible. Looking back, you know, it is possible if you have some help or some loan sponsors, some partners. ⁓ but yeah, so I, for me, the obstacle is always the down payment. I never raised capital. I never brought in any limited partner money, investors. So it was just the bottleneck of how do I get the down payment?

Cody Crabb (13:19)
Mm-hmm.

Tom St. John (13:36)
for a $500,000 property, someone has come up with 125,000 bucks. I mean, never had $10,000 in my bank account, let alone 100,000, but I had all these properties. had 52 single family houses at one point. And it was just this 12 unit building that again, another investor, the Ferencine thing, he was looking to sell that and to buy a larger property.

Cody Crabb (13:40)
Mm-hmm.

Tom St. John (14:01)
And so I just made him an offer. I kind of agreed to his price. It was a pretty good offer to begin with and a pretty good price to begin with. I had really had no idea how I was going to do it, but I had enough houses to where I just had a huge fire sale and that didn’t work. So after that, I sold a couple in the fire sale. I had a little bit of money. And then what I had to do, cause I had deadlines on the purchase agreement is I just, held an auction. It was terrible too. I held this auction. I auctioned off like nine houses that I.

Cody Crabb (14:22)
Wow.

Tom St. John (14:26)
didn’t know much on and, ⁓ and then auction went terrible too. You know, there was no windfall. mean, most of them, a lot of them sold for like minimum bids. but you know, that’s what I had to do. I sold, I knew on the direction I wanted to go, which was multifamily. wanted to scale and multifamily is just, it’s way easier to force appreciation, build wealth. So I had to, I had to let these nine houses go for almost nothing just to get my foot in the door in the multifamily space. And then once I was able to do that.

And it was easy too, because I had nine years of experience of owning and operating management. They actually served to benefit me ultimately in the end, even though it took a while. But once I got one multifamily building, I was able to get a few more in a pretty short time period.

Cody Crabb (15:06)
Yeah, I suppose that that first one is mostly like the big issue. And then once you can kind of show, hey, look, I literally have one of these already, you know, and then obviously the income from that.

Tom St. John (15:15)
Yeah, I didn’t.

Yeah, I mean, I only understood like NOI, like operating income and expense ratios from the books I’ve read. never. When I bought my first multifamily, I knew that the rents were low. Like I said, the owner, he bought it for like nothing years before that. So he was making a big chunk of money, but he kept the rents way too low because he just wanted to keep him occupied. And so then I started getting the rents up to market. And then when. ⁓

Cody Crabb (16:16)
Yeah.

Tom St. John (16:20)
I realized like, man, I realized, wow, how much value did I just create here? A single family house, you can rent it for whatever you want. It’s worth what it’s worth. It’s actually worth what’s the neighbor’s house sold for. It can be vacant, it can be occupied. You can’t really do anything about it. It’s very dependent on the market. Now multifamily is depending on the market in a way too, but you can force appreciation by operating the property efficiently. So I found that multifamily rewards you more for the effort you put in. And that’s when.

Cody Crabb (16:28)
Yeah.

Tom St. John (16:48)
That’s when real wealth and real momentum can be unlocked.

Cody Crabb (16:51)
Yeah, I think that’s, I admire this story a lot because you really had to gamble a lot on the multifamily thing because you, it sounds like you just educated yourself so much on what you could do and kind of what the future was for you and stuff and you had decided that even if it was maybe not the smart move in the short term, you’re like, this is what we gotta do. that’s awesome.

Tom St. John (17:14)
Yeah, I’ve definitely

I’ve definitely done some goofy things and made some mistakes. one of the thing that’s gotten me this far is I will take action, man. I’m an action taker, you know, right or wrong. I’m going to I’ll choose and act on it. But if I had to do it all over again, I think about some people ask me that like, what would you do if you had to start all over again? It’s like, man, I don’t know if I could do that again. It was, you know. I mean, I’m writing a book now and.

Cody Crabb (17:31)
Yeah.

Knowing what’s in store. Yeah.

Tom St. John (17:39)
people say, are you going to write a book on how you or they asked me what you’re to name it. And my first my initial thought was to name it brain damage. You know, I thought, that wouldn’t really that wouldn’t really entice too many people. So I had to scrap that.

Cody Crabb (17:51)
I’m not gonna lie, if it was like, if

it had a good subtitle, like, brain damage, why I started investing in real estate. Yeah, I could see that, I would read that. No, but this is, I think that, this is a, I love when I hear about people making mistakes like this because, like, someone like, someone hearing this with no experience whatsoever hears a story about someone like you, but like, let’s say you didn’t share any of those mistakes. They just see this trajectory like this, whereas,

Tom St. John (17:57)
Yeah.

Cody Crabb (18:20)
And that’s so discouraging because you go, well, that means I have to make no mistakes in order to get there. So I appreciate you sharing a lot of these because I think it’s, it makes it sound so much more possible because it’s like, you know, mistakes are how we learn obviously. So if you’re making mistakes, you’re learning.

Tom St. John (18:34)
Yeah, I think it’s important.

It’s important for people starting out. What I would suggest, you know, find a mentor, you know, find someone who, who is where you want to be. and ask them how he got there and follow his path. The guy that I bought that first 12 unit building from, we became really good friends and we’re still friends to this day. And, ⁓ man, I kind of, I followed his multifamily trajectory for a long time and I, and I still will really, but, yeah, find a mentor, ask for help, but you know, act real estate.

You can make a lot of mistakes, but it is a pretty forgiving business. can actually do it in the single family world. You buy a bad single family. It just takes you more time to recover from it. But when people say what’s the best time to buy real estate is the best time was yesterday, you know.

Cody Crabb (19:09)
Tell me a little about, ⁓

Yeah,

yep, I know exactly what you’re saying. So tell us a little bit about what you do now, how things are going, what you’re doing, and maybe what’s on the horizon for what’s coming up next.

Tom St. John (19:24)
Well, as I got more units under management and I started kind of reaching out, kind of put myself out there in the world and making some strategic partnerships, even in other States. And I started bringing in investor capital to scale. The problem initially with multifamily is, to get to the next one, you know, all you’re down paying money, you’ve saved years for it to get to this first multifamily. Now it’s locked up in there.

And so I’ve had to sell a lot of multifamily to get to the next one. And I wanted to stop doing that. So I started doing some syndications and networking with people, bringing in LP money. And, ⁓ recently though, with the, recent market cycle, you know, I found that a lot of these syndications that kind of went south over the last three years with the, interest rates, ⁓ people kind of banking on rent increases going up and values going up forever. A lot of investors had their money tied up for.

five years and wasted a lot of that time. So recently I’ve kind of networked and joined some shorter term deals that investors only have their money locked up for 12 months, private credit and real estate debt funds. I mean, the only thing better to be in the operator of a piece of real estate is to be in the bank, right? So our fund loans money to real estate operators. we receive, I can get investors 12%.

annualized returns on their money, you know, monthly monthly payments, only a one year lockup. So I’ve kind of really, I put a lot of my money into those deals just for shorter lockups. That way when the 12 months is up, you know, I can reallocate that if I see some good opportunities in the multifamily space. But it’s a good way to earn that 12 % every year and not have the setbacks that the public markets have like the stock market. You know,

Cody Crabb (20:40)
Hmm.

Tom St. John (20:59)
When you look at compounding, people always think about the power of compounding as you earn returns on your returns, which is true, but compounding only works when it’s uninterrupted. So I found a lot of these really highly sophisticated investors were like, man, just put me somewhere where I can earn 10 or 12 % every year without having to worry about it going down. my recent kind of pivot was that these private credit funds and some very

high level real estate debt funds where you have to choose the operators the most important part, but that that solves that cash flow problem.

Cody Crabb (21:32)
⁓

Tom St. John (21:33)
And so I.

Cody Crabb (21:33)
okay, so,

⁓ go ahead.

Tom St. John (21:35)
I guess if you want to hear if your listeners want to hear another horror story, when I first made my big large exit in multifamily, I made a bunch of money. I I was like, I thought I was rich, you know. And then I had my daughter was two years old at the time. And so I thought, like everyone’s dream is to be a passive investor, you know, and just sit on the beach. And so I made a very substantial investment into another deal as a passive investor. And I lost

Cody Crabb (21:39)
Yes, always.

Tom St. John (22:02)
a lot of money, lost like over six figures. And, uh, like putting my daughter to bed that night, I just, thought I blew her a chance to have a different trajectory than I did. You know, I man, she’s going to start from zero, just like I did. And that’s actually how I, how and when I founded my, current company, because I thought, man, this can happen to me. It can happen to anyone. And so I spent years kind of traveling the country, meeting with people, meeting with operators, the guys who run these deals and run these funds.

meeting their families, having lunch with them, going to their office. And I’ve really kind of, that’s what I do now is I just, I’m a fund manager that just expertly vets these operators. And I invest my money into the deals first before I ever let any of my investors know about it. That way people always tell me like, man, the reason I invest with you is because, you know, if I go down, you’re going to, I know you’re going down with me, you know.

Cody Crabb (22:49)
There’s a certain satisfaction. that’s it. No, yeah, that’s I think that’s that’s really admirable

Tom St. John (22:51)
Yeah.

that’s the most important thing. know, everyone, you’ll hear about investor alignment and alignment of interest all the time. That’s all good. And a lot of people do a good job of it, but write a check. You know, that’s how you align your interest, you know.

Cody Crabb (23:05)
Let’s see. ⁓ Yeah,

like I think I think it’s As soon as the as soon as you kind of conceive of someone’s financial interests like your perspective changes I mean if you’re at a sales, know You’re in a sales situation and someone’s trying to sell you a washing machine But you know, they’re gonna make a commission on that you suddenly start kind of thinking maybe it’s not you know But in your case where it’s like, ⁓ man, he means it he really does mean this cuz he if he wouldn’t lose money just to

just to lie to me. So yeah, that’s awesome.

Tom St. John (23:35)
Yeah, yeah, I don’t. I make

any money. Any money on that. I don’t charge a fee. There’s no subscription service. I don’t sell a coaching business or nothing so people. Why?

Cody Crabb (23:42)
Why?

Why? It seems like it sounds so wide open for that. mean, 99 % of people would think that. I’d be curious what your answer to that is.

Tom St. John (23:44)
Why do I not sell it?

I know, just don’t, I think it makes the whole, I think it makes it just disingenuous then, you know?

Cody Crabb (23:56)
In what way I just I really that’s a unique perspective

Tom St. John (23:59)
The reason, mean,

well, just to be clear, as far as you’re wondering if I get compensated, I mean,

Cody Crabb (24:05)
No, that’s not it

at all. I just think I love the idea that you’re like, no, that’s, you I don’t want to do that. Even though that’s kind of what it sounds like. That’s exactly what you could offer. I’m curious what your rationale was.

Tom St. John (24:16)
Yeah, I mean, guess so.

mean, with, with the fund manager business, you know, when I put my a hundred grand in, someone else puts their 50, their 50, and we pool money together as a fund. Those guys that operate those funds, they give me a better deal. They give me enhanced economics. So if you went to that fund yourself, you might get 10%. With me, you’re going to, you’re going to get 12.

Cody Crabb (24:33)
Mmm.

Hmm, okay.

Tom St. John (24:41)
because

I’m bringing in a larger chunk of money. So you get to participate. If you’re a $50,000 investor, you get to participate in that fund as if you were a 500 or a million dollar investor, because you are as part of my fund. So the fund compensates me for that by just giving me enhanced economics. I just know there’s no reason to take that, to pass that.

Cody Crabb (24:53)
I

Tom St. John (25:06)
It’s easier to pass on to the investors, know, because if they’re not charging me any fees, why am going to charge them fees? know, but to answer your question about a coaching business, I don’t know, man. We talked about it before the show. I’m not a tech guy. I can’t download a link and copy and paste a CSV file. I’d be too frustrated trying to even stand up in front of a class and get the PowerPoint to work.

Cody Crabb (25:12)
Right.

You

Well, there’s something to be said for that, because I think I inherently trust someone that’s just like, nah, I’m not doing all that. I know what I’m doing. Just let me do my stuff. There’s something about that. know what I mean? The mechanic that doesn’t use the fancy stuff, but he’ll just whack the engine and it’ll work. There’s something about that. yeah, no, think, and like you said, think it brings this level of disingenuousness that I think that

Tom St. John (25:41)
Yeah.

Yeah.

Cody Crabb (25:51)
I think it’s pretty admirable that you would kind of go, yeah, why would we do that? ⁓

Tom St. John (25:54)
I will think. Yeah,

I felt victim to all the noise, you know? And so I just want to fight against that, I suppose.

Cody Crabb (26:03)
sure yeah well this has been really this has been really interesting ⁓ if someone wants to kind of learn more about what you what you can provide and your company and and maybe even invest with you where can they go online to do that

Tom St. John (26:16)
You can go to my website at northcorpcapital.com and it’s my email on there, my phone number. I answer everyone. I’m most active on LinkedIn. You can find my LinkedIn and Facebook, but go to my website. There’s a few different free guides on there that you can download. How to vet an operator, some multifamily guides. It’s all free. And my contact info is on there. And like I said, it’ll be, it’ll be me answering the phone.

Cody Crabb (26:24)
love that.

That’s cool, that’s cool. See what I mean? There’s something cool about that. You’re like, yeah, no, I’ll just do it, it’s fine. ⁓ Tom, I can’t thank you enough for joining us today. And you listeners, thank you so much for joining us as well. If you liked what you heard today, go ahead and give us a like, subscribe, follow, do all the things so that you don’t miss another episode with someone like Tom. Once again, it’s been a real pleasure, Tom. Thank you so much.

Tom St. John (26:46)
I just do it. I enjoy it. really enjoy it.

Thanks a lot. Thanks again for having me. You too.

Cody Crabb (27:05)
Yeah, have a good one.