5 Talents Podcast - Passive Investing, Cashflow, & Wealth Creation in Commercial Real Estate
Listen to Spencer's interview with Abel Pacheco where they explore the "why" behind the "why" for his real estate investing strategy and learn about what it was like exiting his corporate career to focus solely on active and passive real estate investing...right before a global pandemic.
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Spencer: [00:00:00] I'm not the guy who myopically goes out and says only do one thing because great investing, in my humble opinion, comes down to the word and versus or right. And that is a key lesson that I think I would just impart on everybody out there. I'm not giving financial advice. That's a very basic piece of advice is just like it's about complimenting things overall and not just going down one path full bore. And so.
Abel: [00:00:27] Hello, hello, welcome to the Five Talents podcast, I'm your host, Abel Pacheco. I interviewed the top commercial real estate investors and industry experts so you can learn from their experiences. So if you're an investor, a high W2 earner or real estate or tech sales professional that wants to invest in real estate without having to manage properties or your day job, then this podcast is for you. Or if you are already investing in real estate, but you're doing it part time and you want to become a full time multifamily or full time commercial real estate investor. This podcast is for you and you're going to learn a ton. You will learn from real life multifamily investors and other professionals in the industry. They're going to share their blueprints for success. And I'm super excited that you're here, so I hope you enjoy the show.
Abel: [00:01:21] All right, hello. Hello, this is able to Checo, your host for the five Tallinn's podcast. We are super excited because we have an amazing guest, Mr. Spencer Helga's. Spencer is the man. I'm excited. What's up, Spencer? How's it going, brother?
Spencer: [00:01:35] Doing great, Abel. Thanks so much for having me. This is like an awesome way to spend a Friday.
Abel: [00:01:39] Yeah, I mean, I'm. I'm thankful. I'm appreciative. I'm humbled. I'm excited to have you on. I think you can provide our guest, our listeners, a lot of value for those that maybe are catching this show for the first time. You may have heard talk about my tech career. So I spent a lot of years in tech, about 13 years. And prior to that, I never really thought about the long term direction. I was just trying to figure out how to make as much money as I could. And then somewhere through the tech career, I go, I if I stop working, what is going to stop coming in? And you have to get to a point where you can create wealth. So anyways, I say all of that about me, because Spens is a big tech guy, spent a lot of years in tech. And we are going to listen and hear a little bit about his story on how he came from doing what he did in tech, crushing it in that space, going to an amazing, successful real estate entrepreneur, investor and now licensed individuals, which is is really cool to kind of here. But for those that don't know, Spencer, let me introduce some real quick and then I'll turn it over to him for an actual introduction. So he's with Madisen investing and that's his company. So he's done a ton of real estate. I'll let him talk about the amounts. But really, he helps other passive investors invest in large cash flowing real estate properties, storage facilities, apartment complexes and some of the best markets in the US. So he does a lot of what we do and he's really figured out how to convert the full time W2 employee lifestyle and make a successful run in the real estate side so that he can officially exit the tech world. So we're excited to have them. Spencer, let me turn it over to you. Why don't you tell us in your own words, brother, tell us who you are and what you do, and we'll start a great conversation here.
Spencer: [00:03:32] Yeah, making me blush a little bit about the Israelis and really kind words. Thank you for that. I mean, honestly, I think my story, the front end of it is pretty common, I think, for both you and I. And it's pretty cool that we both had like that parallel thirteen year mark, by the way, at thirteen years in tech. So I live out here in the Bay Area of California, which is, as many folks already know, very much known for tech being in Silicon Valley. So that's where I grew up. But I did also grow up in a real estate household. My dad was a broker for thirty years and he ended up being one of the top ten residential real estate brokers in the nineties. And so he had me working for open houses. And even before that, I think my official start date for exposure to real estate was like around the age of six. I don't think I learned much necessarily that was practical at that point. But the point is, like our lifestyle growing up ended up becoming quite comfortable. You know, when you live in an income stream that is strong like that from a broken lifestyle. It wasn't always that case, though. I ended up getting some learnings through really tough times and kind of like Agip that we had to go through before I found this whole that career and then later now helping other investors, possibly who are still in their own tech careers, invest in multifamily and invest in these alternative asset classes. But I think it's important to mention this upfront table that like the values and the principles that guide me today, we're very much forms from those early years. And we went through this period of time coming off the heels of like a very comfortable, prosperous lifestyle as a family with my dad working as a broker and then hitting a point where we just hit really challenging things one after another, lost my brother to cancer, won't go too far into that and scare people.
Spencer: [00:05:10] You know, parents got divorced and relatively common in that case. And then you go through a bunch of other stuff watching his business kind of implode, downsizing our lifestyle, all that stuff. And so I think that's important because I watched all that happen and that was the one major income stream for our family. And when that stops, when the active income stream stops, because that's what it is, just like a job to consultant, you have one active income stream coming into a household and that income stops because the person stops working or the business is interrupted or unfortunately, someone is like as a medical issue. I sat there and said like, wow, I wish now I'm sitting here as a dad. I have two young kids of my own. I'm like, what could I do to avoid having that kind of moment occur in my own family? You know, just taking those principles and learnings from the early days. And now we apply this in our own household with Jennifer, who's my co-founder. She's the CEO of our company as well. We call it financial offense and playing financial defense. And I think that that flashing forward into my tech career still didn't really click, even though I saw, like, that challenging time for my dad's brokerage and all that stuff in our family back in the day. Thirteen years across five software companies, largely in financial. Which should have implied that I was picking up these nuggets about how to better
Abel: [00:06:25] If anybody in the tech world was going to do it, it should have been the financial tech employees.
Spencer: [00:06:30] Right, right. And truth be told, there's brilliant people way smarter than I am in these companies. But doing amazing things right now, building software that helps thousands of people across the US all problems small businesses and people in other ways. But I was investing heavily, maxing out my 401k, making strong W-2 income, income, housing a all that stuff, very common Silicon Valley path. And then particularly one thing you never hear about evil. And I would say that when people think about Silicon Valley and big IPOs and exits and these days people talk more about like the sparks going go going public that way. But people tend to keep going down the path of working heavily 60, 80 hours a week, depending on the startup. That's what I was doing. I was working at one startup 80 hours a week, sometimes one hundred hours a week. Even in the office alone at the most intense company I was at, didn't see my infant son at the time, very much was thinking like, oh, you know, at some point like this will change. But truly, I was betting on the exit of a couple of companies like the sale of an IPO of a couple of companies that I had equity in and thinking that that's like the big get out of jail free card financially. And I think it's understated how many people are following a similar plan, consciously or unconsciously, who work in these companies. And you can have W-2 income that's outstanding all day. But what's your exit strategy from that lifestyle? I literally speak to weekly people that work at the big name tech companies who now invest with us.
Spencer: [00:07:59] And they are maybe they have a couple of young kids of their own now and they're still working 60 hours a week making great income. But that doesn't change the fact they don't have any time to spend with them. So that's where I was at before I stumbled my way into a real estate company. This is about back in early. Twenty sixteen, like twenty fifteen maybe. I went to a company that's now the biggest fix and flip lender in the country. It was called Lending Home, and I was tasked with building their loan origination groups. And so I basically had to go in and become a licensed loan originator just to learn how to build this team. I had to go and see how much money and how much income that flippers who were doing this professionally for years were making on one side of those transactions and going, wow, that seems pretty interesting. And so I can swing a hammer at all. I rely on YouTube every day to fix the front house. So long story short, that was the bug for me. I picked up twenty four books over the course of like a year and a half and read them all devoured podcasts. Dove to my way to multifamily and multifamily was the first commercial asset class where I was like really appealed to me. The passive nature of it, the scale of it, all the things that you educate folks on all the time about economy of scale and frankly, just the best kind of boring in some ways, frankly.
Spencer: [00:09:14] I mean, I think it's exciting, but I do think financially it allows you to do a lot of other stuff. So anyways, one way to answer would be that's how I got into tech. I mean, out of tech and into real estate. Yeah, just passively investing. At first we still stumble through buying a local rental. We still own it now. It's been way too much money on it before we ended up finding out way maybe paying four hundred and thirty thousand dollars for a duplex in California. The cash flow is two hundred dollars a month is maybe not the best cash on cash return that you can get. Of course, it's a different strategy. We didn't understand cash flow goal setting yet now we know better. We know that our dollars can go further when you deploy that capital somewhere else. The economics are stronger, particularly if you're looking for cash flow and the cash flow is what it's all about for our goal setting. And that's what we do now. So now we don't just invest passively. We invest in education, actively help other people invest alongside us in these deals, because I truly don't believe that enough people understand how advantageous this asset class is for them. And I really wish a lot more of my friends and family and myself started this thing like ten years ago. I wish that I'd started investing in these projects back in their early 20s. And so anyways. Yeah, so sorry for the long winded tangent.
Abel: [00:10:24] Good man. This is it's good to hear some background on you growing up in real estate. I guess you had the extra exposure to it. Sounds like if you're in open houses and things like that with your dad thirty years and that you probably had some kind of impact on what you're doing today. And then, you know, I think the challenge that your family faced, similar one had the same. My parents got divorced as soon as we finished high school. And, you know, that quality of life and everything kind of changed dramatically. But I grew up kind of in that middle income. Everything was really fine and comfortable. And then when I got to college or like, hey, you've got to pay for your car, you got to pay for college. Do you want to go do it? You've got to hack it out. And you're like, oh, here we go. Right. And off to the real world. So I did something pretty close or similar to you, which was tech and tech a number of times. But you mentioned something that most people don't. Whether it's consciously or subconsciously is what she said is that they don't really think about that long term or they're hoping for this big exit. I worked my tail off thinking, oh, yeah, this is a great tech company.
Abel: [00:11:33] I'm going to be here forever. And I thought that I would retire there. I thought things would magically work out. And I didn't even have huge amounts of equity. I just got enough. But, you know, I was thinking, oh, this is this going to be it? And consciously or subconsciously, people kind of forget about the Enron man. Do you want to work till you're 70 or 60? And, you know, if you don't plan for that stuff now, it just doesn't magically happen so that I can resonate and reflect on those things. So you realize the power of investing in multifamily, it sounds like, versus your single friend. The last thing that you mentioned was that duplex at four hundred thirty thousand dollar investment for two hundred cash flow. I think I did the same on our Texas dollars by more real estate. But along the lines of the same, it was a hundred and fifty thousand on our house and I'm getting a hundred and fifty dollars cash flow and I go, that's probably a different way to create that for us and a better way. So tell us a little bit about maybe fast forward one moment. Tell us about your holdings today, like so people can really understand how much real estate you're in, the best way you can describe it.
Spencer: [00:12:46] Yeah, happy to. I mean, so, you know, I think we did, by the way, go beyond before I jump into the commercial thing, we went beyond that local duplex and we also went through the turnkey phase a lot. I think a lot of folks go through that. And I wouldn't say that we're done with a single family. This is not I'm not the guy who myopically goes out and says only do one thing because great investing, in my humble opinion, comes down to the word and versus or. Right. And that is a key lesson that I think I would just impart on everybody out there. I'm not giving financial advice. That's a very basic piece of advice. It's just like it's about complimenting things overall and not just going down one path full bore. And so we did go through, though, and buy like a handful of modest portfolio of turnkey properties, got up to five, realized it was like good cash flow in the Midwest. But we did sell them earlier this year. So it was Democratic. Even with the property manager. We decided to walk away from that, redeploy it into stuff that was more passive to match our current lifestyle goals. So and the multifamily and the other commercial real estate side, essentially our portfolio is a mix of we target, we're currently we're targeting in real estate slice of our portfolio, about half of it to be multifamily within syndication and fund investing. And then also I mean, I'm I'm also active. So I'm also actively partnering on some projects and helping on both the GOP side, in addition to just being an investor and then also storage like I'm a big believer in the storage asset class.
Spencer: [00:14:11] I think that that in addition to multifamily but multifamily is the bulk of our focus when it comes to our commercial real estate and our real estate portfolio these days because of all the wonderful benefits that it accords you. And also I just believe in the thesis. I believe in the thesis. And also I think the reason I think some folks might have been getting a little bit skittish about the asset classes in real estate at large during covid is because people were wondering, where's this all going? Of course, in April, twenty twenty, for example, no one knew which way was up. But now we're sitting here seeing trends that are emerging. I want to go to macro to fast the like companies are going remote work, so they're accelerating certain trends that drove people to to move to other markets that were already growing. But now it's going faster. There's a scarcity of single family home supply in markets that need a lot more. So that's going to drive people to have to rent in some cases or maybe they can't afford it because the prices are so high. All of these things are just like bullet after bullet after bullet. They keep reinforcing the investment thesis that I believe in and still believe in now more than ever about multifamily. So that's why just to go off on that tangent about why, I still believe very wholeheartedly about multifamily as an asset class at large. And so I just want to give the context.
Abel: [00:15:26] Yeah, OK, good stuff. Thanks for giving us the information and so has a passive investor. Give us the thesis. Why should a passive investor be interested in what we're doing?
Spencer: [00:15:38] Yeah, I mean, I think for most folks, at least like a lot of the folks that we work with, there's two broad buckets. You've got the folks who the high net worth folks who have done very well. I look at them and I'm like, wow, I want to learn from this person. And when I talk to them, they to me every day because they've done so well in their entrepreneurship career or whatever, has led them to be such a strong financial footing for them. They don't really care as much about cash flow. They're looking for growth. They want growth, tax benefits all day. Most people are looking for passive income streams like they're looking for because they're working full time, either a single income household, two income household, like we work with a lot of tech employees, particularly big tech companies right now here in the Bay Area and beyond. They are looking for supplemental income either to get ready to pivot, might be two years to 10 years out, maybe they want to have one member of that household go and work and just be a household parent and just kind of peel off from working while the other one keeps working. Another playbook would be they actually just want to have a little bit more swagger walking into the office. If they're like in a role where they want to go into a meeting and know, OK, maybe I'm going to go give this really firm suggestion or critique and not worry as much about losing an income stream because that person might actually take it so hard, so hard that they're going to get fired and not even kidding. You know, we've had conversations with people about that that are like, yeah, I feel much better about my position at work because of my investment portfolio generating income streams for me.
Abel: [00:17:02] I bit my tongue a lot of years and a lot of meetings because I was worried about strong suggestion or notion that I had. And back then I was more fearful about saying certain things to the wrong people, and that was exactly it. So I completely understand.
Spencer: [00:17:17] Yeah. And interesting how that works. You can even see it. And I'll bring a brief example where I first observed in a prior company at the time that these views are my current colleagues, friendly colleagues, and they would go off and work on something at night. And I hadn't really gotten the real estate bug yet. And I was always wondering, what are they working on at night? You see them working after hours together. And there was like came to the office tired. The next day they were building the business and they would come into meetings. And to their credit, these are very smart folks, like they would be able to deliver feedback and just come up with ideas that were a little bit more unique. And they could push harder. They could drive projects more aggressively and all those things. So why? Because they could afford to.
Abel: [00:17:56] Yeah, yeah, yeah. One hundred percent. And then we started investing in real estate. We're along the same and we were able to it felt like we were taking more risk outside of work. Me and my wife buying houses, pulling the trigger once, twice, three or four or five portfolio grew a little bit. I remember people say, well you said, you know, X, Y and Z and that public forum. And they actually said something along the lines. Oh, but you've got a little safety net outside of these four walls. So I can imagine I was like, oh, you know what? Towards the end, I literally heard someone say that. And I guess maybe I just subconsciously acted that way. Right. So I get this is what it is.
Spencer: [00:18:38] It's OK. I think of it as might sound corny for most folks, but this is how I think of it is like got some swagger, you got some swagger. And that's just confidence coming through because, you know, you've built a safety net. That's a great way to say it here.
Abel: [00:18:50] Sorry to interrupt. I was just thinking about the time you were talking about before I interrupted you, Spencer. Just the different reasons why I passive investor would come in and say, you mentioned high net worth individuals, growth and tax benefits, caring less about cash flow. And then on the tech side or the employee kind of I want some extra cash flow side. It's cash flow, supplemental income, the ability to pivot and then maybe a little extra swagger is anything we left off. Yeah, I mean,
Spencer: [00:19:18] I think and I appreciate you following up on it, too. I think all of these things that even we've talked about so far, like are they the real why it's probably not the real wired. Right. Like if you ever played there was an exercise, a former VP that I used to work for, really brilliant person. It was like, you got to play the five wise game whenever you're diagnosing.
Abel: [00:19:38] I talked about it earlier this morning on an investor call. He brought that up to me. Layers of why, why, why, why. Anyway, sorry to interrupt. Go ahead.
Spencer: [00:19:46] I'm totally right. I think it's an incredibly helpful exercise to run, particularly when it comes to figuring out not just motivation, but also crafting a strategy that aligns to someone's big goals or their life. And so, like, why does someone really want to have passive income streams? Well, it's probably because they want to perform better. As for me, my big why as simple as this does sound, I want to be the best dad and husband that I can be.
Abel: [00:20:16] Hello, hello, you're listening to the Five Talents podcast, I'm your host, Abel Pacheco. If you're enjoying this podcast, then I know you're serious about achieving financial freedom. Are you ready to create your own path through multifamily investing for yourself and your family? Then I know you're going to appreciate our investors guide to Multifamily Investing. It's titled Tackling Commercial Real Estate The Easy Way. We use this guide to invest ourselves in 93 million dollars worth of real estate. So we're going to show you the basic mechanics of multifamily syndication and how to evaluate your next passive investment opportunity. So the best part, if you subscribe to our podcast now, leave us a review and a rating. I'm going to give you a free copy of our e-book. So please take a moment to do that. Now, once you've done that, go to five to see our com book five TCR Dotcom Bogy, but make sure to let us know. He left a review and we're going to send you a free copy. So thank you so much for subscribing to the five town podcast. We really appreciate it.
Spencer: [00:21:28] Right, and I think that previous career in that previous setup that we had financially didn't allow me to do that to the best of my ability. Here we are. Give a tangible example for people like after working really hard at this. My son learned how to ride a bike without training wheels in the last week. There's a lot of hours. So, you know, stuff like that. We're having the time and the flexibility to be able to spend that time with him and going through that modest goal of modest achievement, maybe for some people. For us, it was like, man, we were cheering know. And so I think if someone has a way to get more passive income, they have to figure out, like, are they doing this? Like another real example. When people say they want to better support their family, that can also mean, like a pretty common example, more generation of parents are living with their families now. And so that actually is relatively common that we hear people want to go the dual working and they have like the next generation. But maybe it's apparent to parents that living in their home, they want to be able to supplement their income to better support those other members of their household.
Spencer: [00:22:27] This is one specific example to give. You can go on and on. Some people on a more rudimentary level, people just want the flexibility to go live wherever they want to, do whatever they want on a travel front. We want to be able to go have a flexible lifestyle personally as a family while still doing great work and helping others get into this asset class and eventually do that with our two young kids because they're so very young, younger, three and seven, probably not going to go and do anything too crazy. Right now. It's live in another country. But these are all reasons why people ultimately want to invest in the why. Behind the why? Because it opens up your options. And I think optionality, time, freedom, all these things that people out there are familiar with already in concept, it is achievable. It just takes commitment. And it is it does have to be aligned to your goals, though. I think a lot of folks will pull the trigger on an investment without truly thinking through, like, why am I doing this financially? Because the cash flow, the growth, all that stuff.
Abel: [00:23:20] But it OK, well, this is a great conversation so far. I think we're helping some people. Hopefully, if you haven't heard about the ability to invest passively into real estate so you can put your money in and you can invest in one hundred, two hundred, 400 unit apartment complex or some type of larger commercial real estate property without having to go manage any properties. So this is ultimately what me and Spencer are talking about in some of these reasons or motivations are. And why is what we hear a lot of as we're talking about our passive investors, we hear a lot of these reasons. We've experienced it ourselves. We've had those long careers in tech. And funnily enough, I saw a post that she had a while back, Spencer, and I remembered everything. I was like, this is like me. You ended up leaving your tech career at the same time. I think I did like right at covid anyways. How's the transition been, my friend? How's the transition been?
Spencer: [00:24:17] Yeah, and congratulations to you too, Abel. I mean, that's given it's quite a moment to do it, right? Yeah. Yeah. You know, a lot of folks when you first leave, I don't know if you've got these reactions, but they're very close folks. Your network that knew what you were working on, they're not that surprised. Most people are like when you leave and you have like enough people in your network and they're like, what the heck? Like, why are you leaving something where you're pretty comfortable? And it was predictable. So I didn't plan on that happening five months before a global pandemic. The cool way to say that would be like a black swan events and honestly, the footing that we were on going into it was stable enough because of those decisions that we had made. I think a lot of folks are pretty darn scared. And I was, too. I'm a human. Everybody was a little bit scared. You're talking about something that we've never all gone through before in the world. However, we had built ourselves a little bit of a safety net, right? I mean, a pretty meaningful one. And so going in at the time, Jennifer was still working. But I think going off and having income coming in from multiple streams and also just having confidence that this is something that I am committed to, that we are committed to, we're going to continue helping other people with. It wasn't as intimidating as a lot of people may have thought. Frankly, the bigger challenges didn't really have to do with the business or with the investments. The bigger challenges had to do with figuring out how to take care of two young kids in the middle of a global pandemic when schools stop functioning. That's the challenge, brother. And so anyone who says otherwise, I'd love to hear what they think. But the financial situation was not as dicey because of our choices over the course of a few years to start investing in these types of asset classes. So how was it for you
Abel: [00:26:02] While my kids weren't in school, so I don't think I had the same challenges. I have three year old and a one year old, so mine were not there. So I didn't have to worry about Zoom classes or any of that stuff. It was just my wife, but it was it was good. I had a lot of the same questions. You know, the people closest to me, like you said, they already knew what I was dealing more. So is their concern. Are you OK? Are you OK right now? With everything going on, I'm like, yeah, are you OK? Like, I'm at the house, I got toilet paper and the sorry were getting everybody that you remember the toilet paper shortage in the beginning. But I'm like, man, I was like, yeah, I'm good. I go out of your cash. I was like, oh, you're asking me if I'm OK from a real estate perspective. I go, Yeah, we're still looking for I can't find a deal. That was the hard part at the beginning. But other than that, it was good to focus on our little ones and our family. And my wife was blessed to be able to stay home for the last three years.
Abel: [00:27:00] So she made that. I guess when you were talking about a pivot, that was our first pivot was I kept working in W2, but I had enough to work. We could have my wife stay with our littlest one, our first girl. And so she was already at the house and our second jump was me staying home. So it was both of us full time in the real estate and just not going back to the deputy. So it was good. And then, yeah, we ended up wrangling in a couple of deals towards the end of the year and we closed on a as a small percentage co-sponsor or whatever on an industrial portfolio. We were able to to close on an eighty eight unit property and one hundred and twenty unit property. So we kind of wrangled in a few deals towards the end of the year and just kind of help prep. And we started our podcast. So that was good. Spencer, I like that we got a little extra time here and then we wrote a book, so that was good, all kinds of stuff. And we try to pump it out last year, even though it's slow at the beginning. So anyways,
Spencer: [00:27:58] Congratulations. That is awesome.
Abel: [00:28:00] Yeah, man. Trying to do all we can. So we have a few more minutes here and I know we have heart stops and we have to go back to our normal lives here. Let's talk for a moment for some passive investors that are trying to figure out how to get into the game. Like, you know, I want to jump in. I want to invest. I realize I should be putting my money to work. But, man, I'm not sure where to get started. Right. Let's give some nuggets to some past investors that are just trying to figure out where to get role and where to get started.
Spencer: [00:28:29] Yeah, absolutely. I think right off the bat, if I can go back in time and just simplify things by simply saying what is the thing I'm solving for financially first, as simple as that sounds like this would have been helpful to me, I think a lot of really intelligent people, IQ wise, could blow me out of the water. They may be all that complex spreadsheet to solve the thing I'm about to describe, which is way overkill. And that's why they missed the mark on the decisioning. I would go back and say, OK, I'm solving for a cash flow number, like a monthly income number, that's most people. Most people we talk a lot about cash flow on here and passive income and all those what are buzzwords ultimately, but it has meaning I would go back and do the exercise that Jennifer and I eventually found and it was really valuable for us, which is set your monthly household income, no target and blend it between active and passive. And if some people want to be full passive, most people I mean, I'm not going to get to hear about all the say. I don't know anyone who is truly fulfilled in their life by sitting on their butt on a beach all day. What does that mean? I mean, particularly if you're in working age and you're healthy, you don't want to assume you're doing zero work over a course of years.
Spencer: [00:29:44] So but come up with those long term goals, like we literally sat down as a couple and took two whole weekends. It was really challenging and there was a lot of debate. There was smiles and even some tears and reconciliation because we were really passionate about this early in the formation of our family goals and business. And we landed on like a specific number that we were targeting. And until you do that step, you can go out and shop deals all day. You can review hundreds of offering memorandums, investment summaries, multifamily and beyond, by asset class. But it's going to be a little tough to determine what you're solving for. So I don't want to be too soapbox on that, but I do want to bring it up on the reviewing deals and just understanding who to work with. You've covered this on your podcast before, I think it's just fundamentals, and so I think a lot of the focus on here is probably sophisticated enough to know this already. But I just want to hit on it because it's so critical. I didn't come up with this. Someone way smarter than me came up with this. There's three ways to look to evaluate the deal, right? The who, the where and then all the other components, which is like the why the what? The how.
Spencer: [00:30:46] So you're talking about the sponsor, the market in the deal. And so all of these things that we're talking about largely on here are big properties, multifamily family specifically. That is a commercial real estate type of property, and you're investing in private real estate deals as a limited partner, so you got to know who is the trustworthy person to work with. Do they have experience doing it? What does experience really mean? Do you have references that you can go and check for that person? But just it starts with talking to people. It starts with like going out. There's so many resources and podcast, just like this one where you can listen and just digest and even devour knowledge from, like, real people. I mean, both on the passive and the active side. And I think that that is just so key. Even if now that we're coming out, coming out of covid, depending on where you are, I would say you can go out and go back to conferences and meet ups now and you can go just start talking to people about this. I can't emphasize it enough how much of a difference it is to have to verbalize something to someone else that you just learned, because reading it in a book, I did not need to read twenty four books before I started do these things.
Abel: [00:32:00] That's a lot of education
Spencer: [00:32:01] And it's overkill and it's OK. It's OK to say it out loud, you know, I mean I think I probably could have read six and then start to go meaningfully engage. Yeah. Bump up against the limits of your knowledge and that's how you truly learn. You're not going to retain and truly learn twenty four bucks worth of knowledge. I mean, some people have photographic memory. I certainly don't. But the terminology like how to evaluate what matters in these things. It comes down to the WHO. If you're a fully passive investor, the number one risk on a deal is execution risk. And that is the thing that really is a fancy way of saying, can the person that you're working with and investing with, trusting your capital with take that business plan that's in that really beautiful looking marketing deck, that PowerPoint presentation, translate that into action using the capital that you have just invested in terms of if there's renovations involved, oftentimes there is to force the appreciation in these projects that are value add projects, if it's a value add project and then all those wonderful things that go into the types of deals that both you and I appreciate. So I think knowing also on some level, what are your preferences and styles? You know, some people just don't like certain asset classes. They don't have a really rational reason for that. I mean, I'm the same way like at the asset classes where I don't have a great reason why I don't like it. And that's just how I feel. And personally, that is absolutely OK. I mean, I think these are all fair game and you're every person should just sit down and set household income, no target. And their own investing criteria doesn't have to be perfect. But just take a crack at it.
Abel: [00:33:38] Yeah, well, I say all the time sponsored deal and the market. So you kind of breaker's up who, where and then everything else. Right. Those three things. But I love that have the sponsor of the deal and the market or the team the deal in the market. Absolutely. I love it. You've got to make sure the asset classes are up your alley. They're investing where you want them to invest the money and then you agree with their plays and feel confident in their ability to pull off the plan. So that's the one part I wanted to ask again before we go here was you mentioned setting a number and active and passive, a number I hear all the time. I mean, literally all the time. I just want to make ten thousand dollars of passive income a month. I don't know. I just it ends up being a nice round number, I guess. Well, what do you mean active versus passive and split those things up. Are you saying like, hey, you do want to make a one hundred and twenty K a year, ten times twelve. But some of it can come passive and some of it can come active. Is that what you mean?
Spencer: [00:34:36] Absolutely. Exactly right. And I think and I appreciate you digging on that. Where that comes from is that it speaks to an assumption that most of us make. And I don't think I fully fleshed this out until I got full time into investing in entrepreneurship, just fully out of the two world able. And I want to impart this on people who are sitting there with the ever present grass is greener. Affliction, because it's all of us, right, and the two world is not inherently evil. I mean, frankly, I enjoyed most of my career and I think that that said, the point I want to make here that could into into soapboxes is that people are scientifically proven to be more fulfilled when they're working on something of meaning. I don't mean working at a desk job inherently. I mean producing something of value, particularly that positively impacts other people in the world. That's backed by enough science at this point to say that out loud. And when people say, I want to be at ten thousand years, for example, ten thousand dollars a month, and I totally agree with that number. By the way, I think a lot of people hit that number because it's a nice round number and it sounds comfortable for most markets. They assume they will be happy with their lifestyle, doing nothing. I think that's a very bad assumption, and I think I'm applying that also in to myself, which is when you get there, like try to find someone who literally does nothing all day, makes a bunch of money and is truly fulfilled.
Spencer: [00:36:04] And I would like to meet them because they figured something else out that I can't. I think getting to the other side of the financial issue, you will hit the bump up against a really great problem, which is what do you want to do now? And so that's the big why. Long winded answer to your question about when you when you're sitting there saying, I want ten thousand dollars in passive income to be like, so you're saying you're not going to do anything that is good enough or someone else is willing to pay you money for you or a product that you have been involved in, whether it means consulting, whether it means working part time, whether developing a new product, whether it means like going and even hey, if you don't want to get paid for any of it, that's fine. Truly passive. You want to go work with charitable acts. Awesome. Like now that is awesome. If someone wants to go for that, you just don't hear that very often. So I just wanted to be very specific with people about what that diatribe here means.
Abel: [00:36:57] Ok, that makes perfect sense. Yeah. Because when people do tell me that I go, well, if you can find a 12 percent cash flowing deal and put a million bucks in, that's 12 grand a year or a hundred sorry. One hundred twenty grand a year. So do you have a million dollars to invest in cash? Because if so, you could probably start pushing it out. But even then, you're probably going to find a lot of six, seven or eight preferred returns that you're probably making more like 60, 70, 80 a year. So you've got to work the backwards math. And for most people, if you don't have a million dollars cash to invest today to bring you ten thousand dollars to pass a cash flow, I love the way you're saying it is. You're doing something extra in addition to that. And if you can figure out that lifestyle, then at some point, yes, our goal is to take a know. Maybe you're starting with the two hundred fifty K seed and in six years it becomes five hundred and then six more years it becomes a million. So no, it wasn't a quick get rich quick thing, but it was Haine 10 to 12 years. I've got to see that now produces 10 to 12 month and I'm rocking and rolling. Right. So anyway, it's good stuff. Well, Spencer, I know we're out of time. And where can investors that want to reach out to people that want to reach out to you and actually who do you want to reach out to you and where should they go to connect?
Spencer: [00:38:15] You're happy to connect, you know, so we have a website at Madison investing dot com folks and reach out and you can just find my calendar link as soon as you register on our website. It's really, really straightforward and happy to connect to helping to call, even if someone is like, I'm not really sure about this, about this whole investing thing, but I just like to be a sounding board. I'm happy to have that conversation. And folks can feel free to reach out there if they are more social media friendly. I, as you know, able I'm more of a LinkedIn person, so I'm available on there. I recently finally caught up on my inbox. I was so behind's, but I am definitely there and engaging daily now, so please reach out. Happy to connect with folks on there as well. But the website is the primary.
Abel: [00:38:57] All right. Sounds good. And then, you know, just last thing before you go. Is there anything we did not touch on today that you wanted something you were hoping I asked or didn't get to or anything to promote in general? Let us know.
Spencer: [00:39:11] No, I mean, I love the fact that we got a chance to go into the goal. Same stuff. Well, I think that is probably the most important under discussed thing. And so I just want to hit that one more time before we wrap up for people's benefit, which is before you pick an asset class, before you even before you get excited about a market. Do your absolute best if you can to slow down and just try to set some goals around what do you do and all the stuff for and then come back and then look at the asset class and then look at multifamily, then go start looking at all those offering memorandums because you'll find something that you're looking for. But you first got to know what are you solving for.
Abel: [00:39:44] Got it. All right. All right, brother. Well, let me know when the next time you're at some event in the future, love to shake hands in person. And we've been going through a number of events with Diamond this week with this multifamily investor nation. I guess I was virtual, but then we're doing multi-family investor networking in Miami in July. We'll go to deal maker live in June. So we're trying to get after and hopefully we'll see that some of these events.
Spencer: [00:40:13] Yeah, finally made it to Texas again for the first time in two years, like two weeks ago. So it's nice to be out.
Abel: [00:40:19] Ok, man, let me let you go. Thank you very much for your time. Appreciate it. And look forward to seeing you again.
Spencer: [00:40:25] Yeah, it was a blast. Thank you so much for having me on it. I really appreciate it.
Abel: [00:40:29] Thank you for listening to this episode of the Five Talents podcast with your host myself able to check out each week. We're going to bring you interviews from industry experts, the commercial real estate investors who follow their dreams and achieve massive success. Before you leave, let me ask you a few questions. Did you enjoy this episode? Did you learn something? Valuable, was your mind stretched to what's possible and what you can achieve? Do you want other experts, just like the one you heard today? If you answered yes to any or all of those questions, then please take a moment to subscribe to the five Tallinn's podcast. Give us a five star rating, and most importantly, leave us a written review. Tell us what you like. Tell us your favorite guests. Give us any feedback. I'm excited to learn and improve so you can get a more valuable show. So thank you again for subscribing to the Five Talents podcast.