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Noah Rosenfarb - Starting as a CPA & Building To 6,000 Units in Real Estate

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As a 3rd generation CPA, Noah Rosenfarb has learned a lot about tax strategies over his career. However, it's his strong passion helping others build a life to become Rich Beyond Money that drives him. In his career, Noah has written 3 books, sold 8 companies, helped invest in over 6,000 apartment units, founded a public company, and runs his Freedom Family Office to help advise the half percent. Hear Noah share his top tips on taxes, investing, syndications - just as if you were a part of his own family office!

 

In this episode, hosted by Mike Swenson, we discussed:

  • Taking responsibility for your decisions. If it's not good for my money, it's certainly not going to be good for someone else's.
  • Doing what's best for your investors is always what's best for the business.
  • Entrepreneurs are the ones who effectively do more in creating jobs and innovating.
  • Before you sell the business, try to invest the first 20% of your capital to generate your monthly lifestyle from those passive sources. 
  • Common Mistakes to avoid:
    • Not understanding the impact of taxes on the overall financial health.
    • Not spending much time in determining how to reduce or avoid income taxes. 
    • Being unprepared
  • Help them reduce their overall tax liability and potential tax burden.
  • Set awareness to entrepreneurs from selling their company to invest in other businesses without having a thoughtful plan.
  • Most entrepreneurs enjoy creating value for others.
  • Decision matrix
    • Do you want to do it on your own? 
    • Do you want to do it with professionals?
  • The opportunity set is limited to what deals you could create on your own.
  • There is a higher probability of success in creating more diversity than investing.
  • If you're going to become a professional real estate investor you may qualify for certain tax status.
  • As a real estate professional, you can take any losses in real estate and offset it against your ordinary income

 

Timestamps

0:00 - Intro to Noah’s Career
1:24 - Background in Real Estate
2:09 - From First Property to 6000 Units
5:04 - Transition to Syndication
11:30 - Family Office for Entrepreneurs
13:15 - Financial Freedom
15: 45 Predictable Income
17:36 - Common Mistakes
21:02 - Investment Strategy
24:39 - What He Wants to Focus On
26:42- How to Find Noah

 

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Full transcript here:

Mike Swenson  

Welcome to The REL Freedom Podcast where we inspire you to pursue your passion to gain time and financial freedom through opportunities in real estate. I'm your host, Mike Swenson. Let's get some real freedom together

 

Mike Swenson  

Hello, everybody, and welcome to another episode of The REL Freedom Podcast where we talk about building wealth and gaining time and financial freedom through different opportunities in real estate, and today, I'm so excited to share our guest with you, we're gonna be talking about lots of different ways building wealth as an entrepreneur, tax strategies, building and growing your portfolio. So there's so many different ways here that that we're talking about building wealth, and we've got Noah Rosenfarb here, and Noah has long been in the real estate industry, also a CPA. 

 

Mike Swenson  

So there's so much that he's going to talk about with us. So just a quick background. He's built and sold eight companies, written three books, founded a public company invested in over 6000 apartment units, and opened your family office to new clients. So you have a wide set of expertise in all things related to business Money and Taxes. And so we'll talk about that, as it relates to real estate today. So welcome, Noah, excited to have you on the show. 

 

Noah Rosenfarb  

Yeah, pleasure. Glad to be here.

 

Mike Swenson  

Why don't you just share for our listeners, just a little bit about your background. Obviously, there's so much there to cover, but just the you know, the Cliff Notes version of how you got where you're at today. And then we can kind of dig into that real estate portion a little bit more here.

 

Noah Rosenfarb  

Sure, I bought my first investment property when I was 23 years old, back at the turn of the century, my wife and I bought a two family house with no money down and got $40 Back at the closing table. And we started building our real estate portfolio while she was a school teacher, and I was practicing as an accountant. I'm a third generation CPA, and helped my dad scale and ultimately sell his small accounting firm from 12 people to about 70, before I left to start a family office.

 

Mike Swenson  

So as it relates to real estate, then how did how did that grow for you from from your first property to now, like we said 6000 units, that's pretty significant.

 

Noah Rosenfarb  

Yeah, so when we were engaged to be married, and we bought a home that we were gonna live in half and rent half, you know, our idea was, we just go out and buy a couple of two family houses, maybe we could buy one every year and, you know, maybe 1015 years from from then we'd have this little portfolio and we could pay it off and eventually retire on the income. It was a good plan. But what happened, as we started to accumulate more units, I noticed that, you know, on a Tuesday on my way home from work, I'd have to stop and deal with an issue or on Saturday, before we were going to go meet some friends for lunch, I'd have to deal with some stuff with our apartments. And so when I was measuring our return on investment, I was really happy with our cash on cash returns. 

 

Noah Rosenfarb  

But then I came to the conclusion that I needed to allocate something for my time. And at the time, I was making about $75 An hour and the work that I was doing. So I subtracted $75 an hour for about the couple hours a week that this was taking me to manage. And lo and behold, my returns weren't looking so good anymore. And I realized that really my investment at time had to be more appropriately sized to the returns that I'd be able to create. And I pivoted after the recession, from owning assets directly to investing in syndications where I was pulling capital.

 

Mike Swenson  

And I think for a lot of people, they build up the grind so much of you know how I I'm taking pride in the fact that I'm working all hours of the day, burning the candle at all ends to be able to build and grow my wealth. And they're realizing that Yeah, from your perspective on $1 per hour analysis, it's like yeah, it's my time is better spent doing other things. And if you're draining your own emotional bank account, family bank account, in terms of time away from your family, there's a cost there. And so it does make sense to be able to leverage other people and leverage other professionals. 

 

Mike Swenson  

That's why property managers help manage properties for people because it takes away those types of headaches. And I've seen so many people that have built and grown portfolios, and they start with these grandiose plans like you had of let's just do a couple single families some duplexes will build and then they're like, oh, my gosh, all of a sudden, my time is so much more valuable. And so being able to outsource that have a good property managers has been really key for people.

 

Noah Rosenfarb  

Yeah, no doubt. And, you know, we found the same thing and as we've shifted into syndications, my returns have actually better than they were when I was self managing. Our last eight transactions we averaged about a 27% net return to investors. I don't that'll continue. But I'm happy that we've added in our past.

 

Mike Swenson  

So talk about that transition then to syndication. How did that get started for you to go from? Okay, now, I've been doing some smaller buildings to now I want to do something larger. How did you make that decision? And who did you have to partner up with to pull that together?

 

Noah Rosenfarb  

So in 2007, I left the comforts of the family business to start my own family office for affluent divorced women. And as I started to build relationships with those clients, I ended up with, let's say, around three dozen families that I was managing their money coming into 2011. And I decided, you know, what, now is a good time to allocate to real estate, why don't you know, you ladies, follow me into some real estate transaction that I'll be able to put together, we bought a couple of office buildings and a retail shopping complex, who bought a couple of apartment buildings, where I was just pooling maybe a million to $2 million of my investors capital together, and investing in someone else's syndication. 

 

Noah Rosenfarb  

And getting a little bit of an override on the promotes or the fees that the manager was charging either by way of them giving us a discount for the investors getting better terms, and then charging them a separate fee to kind of get back to market terms. So that was that that was how I got started. And then I ended up doing a real estate fund. And then after deploying that real estate fund, I went back to individual deal by deal syndications which we've been doing for the last couple of years.

 

Mike Swenson  

Okay. And in terms of, you know, finding and networking with syndicators, because I know there's a lot of people out there that want to do syndications. And yet they may not know, how do I find people? How do I trust people and make sure that they're going to help me make money. So talk about that process of networking and, and finding those those right syndicators. And then for yourself, getting your name out there for people to fund your deals.

 

Noah Rosenfarb  

So for the most part, our target market for operating partners, as we like to call them, you know, the people that have identified the asset, they've lined up the financing, they've got the deal ready to go, all they need is a check from somebody like me, what we tend to look for are people that have had success in real estate. 

 

Noah Rosenfarb  

In the past, they've maybe broken off from a larger firm, where they were an asset manager, they were involved in underwriting or acquisitions. And now they want to do it by themselves, they've likely bought one, two or three assets with the money that they've been able to pull together from their friends and family. And now they want to grow, they want to get into that 100 plus unit acquisition, and they don't have confidence that they have enough capital on their own to get that deal closed. 

 

Noah Rosenfarb  

So we'll come in and partner with them sometimes will be the key person and sign on the loan will take a co GP position if they need co GP capital, or will bring all the LP capital that they need to the deal or any an all of the above and a combination, and help them build their business. And, you know, the kind of good news of that strategy for us is we don't have to carry the laboring or you know, our operating partners really do all the heavy lifting on a going forward basis once the capital is raised. But the downside for me is that usually after two, three or four years of working with somebody, you know, they don't really need our help as much anymore. And so we're always finding new people to partner with new markets to enter and and new people that could benefit from our expertise and scale.

 

Mike Swenson  

Talk about the the other investors that you've you've worked with them. So are you using a lot of your own capital now? Or are these people that you've partnered with from from the early days, and they are still sticking with you through this as it's grown?

 

Noah Rosenfarb  

Yeah, so everybody's been sticking with me through it's grown. So those first two dozen families that we started investing in real estate with, they're still doing deals with me. But in 2019, we decided to open the doors, and accept capital from non family Office clients. So we've had about another 200 families that started investing with us in the last few years.

 

Mike Swenson  

That's great. I mean, when I when I meet and talk with other people that do syndications, it's, you know, make those great relationships, help them make money, and once you help them make money, they're gonna want to stick their money with you, because they already trust you. They don't have to find new relationships, and a lot of times, it's just rolling it into the next property, you know, doing some sort of 1031 exchange and, and go on from there.

 

Noah Rosenfarb  

Yeah, and, you know, unfortunately, sometimes, like in a market like we're in today, we've just decided to the hard decision to walk away from a project that we're supposed to close, actually, this week, and you know, we were delaying the closing because our proceeds got cut from our lender and trying to renegotiate with the seller. And, you know, there's the second deal we're walking away from this year, we lose in you know, a million and a half dollars a hard money deposit so far this year. So it's been a difficult year, but I think One of those great benefits that these families feel is that I'm not going to do a deal that I'm marginally confident on, just so that I get a fee or, you know, get that acquisition fee. That's not really the reason I'm in this business, I am looking to invest my money first. And if it's not good for my money, it's certainly not going to be good for someone else's.

 

Mike Swenson  

And that's a key for people building trust. And having those great relationships is yeah, they want to know that, you know, that they that they can trust you and that you're going to do what's right for them. And yeah, I think sometimes walking away from a deal or talking about deals that, you know, just weren't good enough for your standards, help them to see like, Okay, this isn't the type of person that's just going to buy anything and everything to take our money, but they really do have a set of standards and are trusting me to have a great deal on the table. And if we don't find that deal, we're not going to do a deal we'd rather do no deal than than the wrong one.

 

Noah Rosenfarb  

Yeah, it's, it's tough, because it's a business as well, and we've got overhead and a team. And then of course, you know, we kind of lose out on our deposit money. But in the long run over time, I know, doing what's best for the investors is always what's best for the business.

 

Mike Swenson  

So talk a little bit then about about the other stuff that you've worked on. I mean, I think I want people to see too, that, you know, you can have your hand and real estate and have your hand and other things. And they they can work well together. And so you've built some businesses that kind of help feed each other, and serve each other. And so we'd love to hear kind of how that idea got into your head and how you were able to develop that because of the success that you've had in other areas.

 

Noah Rosenfarb  

So I had this family office for affluent divorced women from 2007, that I grew to 2011, and then kind of relocated, moved my family from New Jersey to Florida. And that business became a lifestyle business just had a handful of clients that I was working with. And I ended up selling that company in 2014, to another investment advisory firm. And I was unfortunately retired for a couple of years while I was doing some deal making. And I came to the conclusion, in part because too many people were asking me for help that I really should build the infrastructure to serve the people that I consider my heroes, which are the entrepreneurs that are creating jobs and innovating. And, you know, really the ones that make the world go round, I don't want to rely on the government to satisfy all the needs of all the people, 

 

Noah Rosenfarb  

I think entrepreneurs are the ones that do it more effectively. So decided to build a family office for entrepreneurs really keyed in to those that are making a million dollars or more have an eight figure net worth, but might not have had their liquidity event yet, haven't sold their company and aren't sitting on a pile of cash. And we're able to help them really build the life that they want and become what we refer to as rich beyond money. Because most of the people when they approach us, they've achieved a certain level of financial success, but they may not really be living the life that they want. 

 

Noah Rosenfarb  

And so together we help them along with their spouse and whoever else is you know, intimately involved in how they spend their money and their time, figure out what's really going to bring them most meaning in their life. And collectively we go from where they are now we understand where they want to be. And then we help figure out what's the best way to get there.

 

Mike Swenson  

What does that look like for somebody? Do you have a maybe an example of, you know, how we can turn the money into the the meaning piece that you talked about?

 

Noah Rosenfarb  

Yeah, it's usually looking at, again, first achieving financial freedom, because I think that's what most entrepreneurs strive for first. And for us that financial freedom doesn't always necessarily come from having, you know, $15 million liquid in a bank. Because if you have that sitting there and you spend, you know, $600,000 a year, you still have to do something to generate that income. And so we think more about predictable income, and how are you going to generate the income to support the lifestyle that you want, and and really focus on that component first. And if we could get the money coming in every month that you want to spend? It's a lot easier to then focus on your calendar and say, what are the things that you're doing, that you'd rather stop doing or at some of the things that you'd like to start doing, that you just don't feel you have time for? 

 

Noah Rosenfarb  

And then we'll look at who are the people you're spending your time with? And say, you know, who are the people you want to spend more time with, and who are the people you want to spend less time with. And collectively we work to create what we refer to as a perfect week a schedule that includes and incorporates the things that are most important to the individuals that we work with. So we help them get from the financial freedom to time freedom. And when you have time freedom part of that is figuring out you know, what is it in your life that creates meeting, what we find is that, you know, experience sharing creates a lot of meaning. One of the reasons I enjoy doing podcasts is because I get a chance to share my experience and things that I've learned that maybe some others have not, and it could benefit them in some way. 

 

Noah Rosenfarb  

But for most entrepreneurs, there's some methodology that they can, you know, take what they've learned and either share it with their team and mentor their team. teammates or mentor their family members or mentor people in their community. And then in addition, finding ways to build the family unit that they want, often entrepreneurs spent a lot of their time and energy focused on their business and not as much on their family, so rejigger their priorities and identify what makes for them to feel like they're a successful matriarch or patriarch of their family. And then also, the causes that they care about identifying what those causes are, and how they want to support those causes, whether it's time or money, or time and money, and whether they want to be focused on who they want to help, or really broad on helping everybody that asks them for help.

 

Mike Swenson  

Yeah, I want to circle back to you had mentioned about, you know, building predictable income. So can you kind of walk us through how, how you help people do that? Build that predictable income? And actually, I see it's, it's right behind you, for those folks that are watching it on video, you know, rich beyond money right there on top earned predictable income. So yeah, tell us more about how you walk through that.

 

Noah Rosenfarb  

So you know, personally, I really love the predictable income that comes from investing in real estate over time. And we recommend that to all the clients that we work with. But there's lots of other ways to create predictable income. One is having a really good business that can run without you and potentially even grow without you. And often for an entrepreneur, if you can get your business in a position where that income will be persistent, either, you know, at the same level or more, even if you didn't have a cell phone, even if you didn't have access to the internet, if nobody could get in touch with you. But yet that business was still generating that cashflow. 

 

Noah Rosenfarb  

That's a great way to continue to earn money. And then of course, there's other more common ways to earn predictable income, like investing in publicly traded markets, like leveraging insurance, like using private debt as a vehicle. So there's all these other instruments of investments that can generate predictable income for clients. And it's figuring out, what are they comfortable with? What do they understand the risks of what are they like investing in. So one of our kind of key components of our advice is before you sell that business that's generating most of your cash flow, trying to invest enough capital so that you're generating 20% of your monthly lifestyle from those passive sources. 

 

Noah Rosenfarb  

And because if you've done that, that probably means you've made some investments that you regret. And you've also made some investments that you'd like, and now have that liquidity event and a big wire hits your account, you're going to have more confidence about what's going to happen to it next.

 

Mike Swenson  

What's some of the mistakes that you see that people make? You know, obviously, you're you're helping them walk through that. But if you have an entrepreneur, that's, you know, trying to do this on their own, they're trying to build this on their own. And obviously, you've got your CPA background here, chiming in, but But what are the mistakes that you see people make that maybe they should avoid?

 

Noah Rosenfarb  

I'd say see a couple of common mistakes. One is not understanding the impact of taxes on your overall financial health. So people look at how much they pay an individual year, and maybe someone that's making a million dollars says yeah, to pay 300 grand in taxes, and it's like, Oh, that sucks. But they're not thinking about, what would it mean, if they were able to keep some are all of that 300 and invested? What does that look like in 1020 3040 years from now? How much more wealth would you accumulate, so they're not really spending as much time to determine how they might reduce or avoid income taxes. 

 

Noah Rosenfarb  

And so we recommend that becomes a core focus for a lot of the families we work with, is first helping them reduce their overall tax liability and potential tax burden. Second big mistake, I would say, is not being prepared. When an owner sells their company for what's going to come next in their life, not just what are they going to invest in? But again, back to that meaning and purpose? How are they going to wake up in the morning and feel really excited and energetic about the day that's in front of them? 

 

Noah Rosenfarb  

The week, that's a foreign month that's in front of them. And you know, the kind of excitement of going to St. Barts over Christmas or going golfing with your friends on Tuesday that wears off relatively quickly. And so whether it's three months or nine months or a year and a half later, you might wake up one day and say, Wait a minute, what am I really doing here? Because most entrepreneurs enjoy creating value for others. And we've got to find ways to replicate that feeling of pride and achievement that we had when we built our business.

 

Mike Swenson  

Yeah, there's a lot of entrepreneurs, well, even just folks that have retired that three months later, six months later, nine months later, they're back at something, whether it's tinkering around, whether it's working at a nonprofit or something just to help keep themselves busy because they realize, yeah, just what am I going to do all day. Now? The I don't have my my regular job or grow my business.

 

Noah Rosenfarb  

Yeah. So one of the, the mistake I'd add on top of that, based on what you said is a lot of entrepreneurs after they sell, after they go through that six, three months, six months kind of cooling off period, they want to get engaged in something, what they think they want to do is invest in startup businesses, and provide that startup business owners with counsel, in addition to capital. And unfortunately, when you go back and look at how they performed, you know, three years later, six years later, with those initial investments that they made, unfortunately, there's a lot of doughnuts there. And, you know, goose eggs, they got nothing. So I really caution entrepreneurs from jumping from selling their company into investing in other businesses without having a thoughtful plan.

 

Mike Swenson  

How does that work with, you know, a lot of people that I see are in real estate, or maybe entrepreneurs and other intelligence industries, and they decide that they want to invest in businesses and an industry that they're not familiar with. We'd love to hear your your perspective on that of how do you strategically invest in businesses in areas that you're just not as comfortable with, where you're doing your day job? Or kind of grown your your day to day business?

 

Noah Rosenfarb  

Yeah, so I forget the decision matrix with first Do you want to do it on your own? Or do you want to do with professionals? I think most of the mistakes happen, because people want to do it on their own. They want to take the calls that are coming in from their network from people that have heard that they sold their business, and now someone's approaching them saying, Hey, I've got this idea I heard you might be able to help me, you know, can you put in 50, grand, 100, grand, 250 grand, and it becomes attractive to say yes to those opportunities, because the opportunity set is limited to what deals you could create on your own. 

 

Noah Rosenfarb  

If you broaden it, and think about having professional advisors work on managing that capital allocation for you, I think the risk is reduced often because the way those investments are made are typically through fund structures. And in a fund structure, you're getting allocated to multiple investments. So just by virtue of creating more diversity, I think you can have a higher probability of success versus only investing in you know, basically, your networks deals that they're originating for you.

 

Mike Swenson  

Yeah, that makes a lot of sense. I mean, it's it's been showing up like a professional right and doing it in a professional way versus kind of rinky dink figure figuring it out as we go. Yeah. And

 

Noah Rosenfarb  

the same is true on the real estate side as well. I would say a lot of people start like I did, you know, they buy a two family house to live in half and rent half, or then they buy another two family house or a four Plex or what have you, and they're managing it themselves. And they do it with the sense that this is the right way for me to manage my capital. But if you said, Well wait, what if I just invested in a syndication and I use my time to do something that I'm already good at? Would that get me a better result, and the main distinction, the entrepreneurs that I discourage from investing with me, and being a passive investor, and instead doing it on their own independently, and becoming an active investor predominantly relates to the tax treatment. 

 

Noah Rosenfarb  

So if you're going to become a professional real estate investor, then you may qualify for a certain tax status, if you're spending 750 hours or more on real estate, and it's more than anything else you're doing, you're likely going to be able to file as a real estate professional. And when you have that type of status, you'll be able to take any losses in real estate, and offset it against your ordinary income. So that could be a better strategy than being a passive investor in syndicated deals, if you have that passion and drive in that ordinary income, that you're going to be able to offset.

 

Mike Swenson  

Yeah, I mean, I've been working with investors now for a couple of years, and realizing that you have some people really want to be hands on and involved in the investment and, and maybe even picking out the property manager and working with the property manager. And then there's a lot of people that are like, I don't want to do any of that. Here's, here's my check. And let me know when I get my my residual income here. It's a personality thing and a time thing, right? 

 

Mike Swenson  

Somebody outside of real estate doesn't necessarily want to or have the time to learn how to pick a successful syndication or are the right questions to ask for somebody? Is this the right market? Is this the right opportunity. And so that's where going back to great relationships can really matter. And when you can show them that you can handle their money correctly, they'll want to have more money for you. So kind of the future for you. What what are the things that you want to spend your time and focus on to continue growing what you're already doing?

 

Noah Rosenfarb  

So I spend a lot of my time now creating content, both through podcasts interviews, like this one, where I just came from a conference in California where I was talking about how to become rich beyond money to a group of successful entrepreneurs and helping them Consider, you know how well they build out their plans for long term achievement. So I really enjoy the content creation process and, and finding new ways to distribute my content. And that just leads to a virtuous cycle where, you know, I'm sharing with others, really genuinely from my heart, and lo and behold, a lot of people will reach back out and say, you know, to me, really, to my team, hey, can you help me, either with real estate investing, or my tax strategy, or my investment strategy or my insurance strategy, or helped me prepare for the sale of my company. And so the more I get out into the world and share what it is that we do, and our philosophy, the more it comes back to us in terms of new people, for us to help,

 

Mike Swenson  

you know, that's the beauty. I mean, I I consult with some some folks in real estate, and I always talk about the importance of putting yourself out there putting yourself on tape where people can find you, and talking about what it is that you're working on. Because that helps build trust, right, like for us to be able to, instead of cold, calling people to build relationships, getting your stuff out there where people can find you and see, look, I'm not a jerk. Hopefully, I'm trying to do the right things for people, and you can build and earn trust that way. And then yeah, like you said, the right people are gonna raise their hand because they, they've watched your stuff they've seen and they're like, oh, yeah, this person is fantastic. 

 

Mike Swenson  

I know, you're the person that I want to answer this question that I have or to do business together, because you have put yourself out there. So I think that that's why I love doing the podcast as a chance to get out there and meet people, and to be able to put myself out there and attract the people that you want to help grow your business. So how then Noah Can Can folks reach out to you if they want to learn more? They love what they've heard here today. They love what you're doing, how can they get a hold of you.

 

Noah Rosenfarb  

If you go to talk about our E like, talk about real estate and talk about rv.com You can download a free ebook that I wrote on how my family invest for infinite returns and apartments, goes through a bunch of case studies talks about what to look for when you're investing with a syndicator and then that'll add you to our email distribution list. So you'll get a chance to see any of the new deals that we're working on. If you're interested in the broader topic of you know, your full financial planning, we've got a bunch of resources, you know, free ebooks downloads, connect with me on LinkedIn, you'll get a chance to see all the things that I'm talking about and if you wanted to talk with our team, you just go to talk to freedom.com and fill out an intake form and we'll you'll get on the line with our small but mighty team of accountants lawyers and financial planners to help you figure out what ultimately will help you become rich beyond money.

 

Mike Swenson  

Awesome. Well thank you so much for coming on. There's there's so much to share and and you've added a lot of value and and really help people navigate difficult waters of figuring out how the heck do I handle this wealth that I've built? And what do I do with it? And I love like you said focusing on what time do you want to get back? How do you want to help others how do you want to show up for your family when in the goals that you have? Because like like you said sometimes they forego that as they're building and growing their wealth. So appreciate what you're doing and how you're helping people and for people listening to this certainly reach out if you have questions. 

 

Noah Rosenfarb  

Thank you so much for having me. Appreciate it.

 

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