• Spencer

Ice Cream with Investors Podcast

From Silicon Valley Technology Executive to 8,000+ Units with Spencer Hilligoss

Podcast Aired: August 16, 2021



I sit down with Matt Fore to talk about my investing ethos and why I invest in multifamily and storage. Have a listen to this podcast now.




Podcast Transcript:


Matt: [00:00:01] You're listening to Ice Cream with Investors a podcast that is dedicated to teaching you how to better invest your money so that you can live a more intentional life. I'm your host Matt Fore and it is my goal to teach and empower you to remove the roadblocks to your financial success. All right, welcome back to the show, everyone. Today we have on the show Spencer Hilligoss. Spencer, who has is an active real estate investor with his company, Madison Investing. But before that, he spent 13 years building teams in the technology space. And most recently, he led the originations team at an online lending broker, Lending Home, which is originated over four billion dollars in transactions or five hundred deals a month in hard money lending.


Matt: [00:00:43] Now, Spencer makes it easy for passive investors to get into large cash flowing real estate. Spencer has a lot to teach us about how to become a great passive investor. So I'll just stop there and welcome you to the show.


Spencer: [00:00:53] Yeah, well, thanks so much. I'm really excited to be here and definitely the coolest name of any show that I've ever listened to or been a part of. So I appreciate that a lot.


Matt: [00:01:01] Spencer, it's my dream that when we can get back together that we're sitting together having this interview eating a bowl of ice cream. So we start off with the difficult question of


Spencer: [00:01:09] What's your favorite ice cream? As a guy that has been cutting sugar for the first time in my life for the last 60 days. This is a very bittersweet question for me that probably going to have to be cookies and cream


Matt: [00:01:20] Toppings or no toppings.


Spencer: [00:01:22] I'll have to go no toppings on that one.


Matt: [00:01:24] Because the cookies are basically a topping.


Spencer: [00:01:26] Have you got the whole package? I mean, you got the crunch. You got some texture in there. If not, if it was something different, maybe strawberry is a close second ice cream. Probably going to put some sprinkles on that


Matt: [00:01:36] Are you a waffle cone guy or do you just straight up bowl?


Spencer: [00:01:39] I'd like to think that people, if offered the option for a waffle cone, most reasonable people would say yes to that.


Matt: [00:01:46] Absolutely. Especially if it's like a good one where you can smell it from the outside and you walk in. And I just think


Spencer: [00:01:53] It's crunchy sugar. Like, why would you not like it?


Matt: [00:01:57] I just have waffle cones on my mind here recently for the past two weeks, so I'm ready to get one.


Spencer: [00:02:03] The only time I get to have ice cream these days is if it's tied to some kind of reward for our kids and an accomplishment like a reading goal right now for not even making that up. So it's a rare moment. And now I'm going to have to go fantasize about this. Thank you.


Matt: [00:02:18] You're welcome. All right. Well, tell our listeners, what's the scoop? What do you do today?


Spencer: [00:02:21] Yeah, so I appreciate that. So I live out here in Silicon Valley, specifically in a place called Alameda. It's like a cool island city right between Oakland, California and San Francisco. So I am a full time Real estate investor. And now I get to wake up every day and just do something I'm very enthusiastic and passionate about, which is help folks in our passive investing group called Madison Investing be able to choose wisely and responsibly and risk passive investments in commercial real estate deals with people that we have already ourselves invested with before. Is that type of stuff that I focus on these days. But it was certainly not always that way. I came from a tech career prior to this, but you and I were talking about before this.


Matt: [00:03:00] Now you have actually got started in real estate really early. Where did your real estate journey began?


Spencer: [00:03:06] Yeah, very reluctantly. We'll say that my dad was a broker. He was a residential real estate broker in the Bay Area, California, for thirty years. And he was a top, I think, top five national broker out of all the brokers for a while there. So it was a really interesting exposure to that. You know, that was a very narrow exposure because real estate has so many flavors from my initial exposure was like, oh, this is what real estate means. People go out their list and they sell properties, specifically homes. And so that was my first exposure. He was taking me out as early as the age of six to just hang out on properties, even like there's like a picture that I'll reference sometimes for folks when they're like really, really exposed at six. And it's like a picture of me sitting in like a folding chair with him on a plot of land when he was selling just like a big piece of land.


Spencer: [00:03:51] And so, not much of that sink in at that point. But I stayed in that business while he grew it and he was making me do open houses and just do here and there go for stuff, occasional property management stuff for him. As gross as this sounds like helping clean out an old fridge that hadn't been touched in maybe a year with food and that really glamorous real estate asset stuff. So that was my first exposure. And ultimately, it didn't leave me excited to do more of that, which is why I didn't feel proud telling a lot of my friends when I was in high school or even closer to college. Like, yeah, I grew up in a real estate family. Probably one of the reasons I ended up in tech on a tech career for thirteen years.


Matt: [00:04:30] Yeah. You went to the least tech field possible, went from the least tech field possible to technology. So you're going into these startup companies and technology industries. When did you start to decide to grow your income streams outside of technology like into real estate and things like that?


Spencer: [00:04:50] That is a really interesting question when I reflect back on the journey because I am a slow learner, apparently. I despite the fact growing up in a real estate household, despite the fact that I had exposure to these types of deals on the residential side, I didn't really get into it until maybe nine years into my my thirteen year career. And so, I mean, if you don't count the purchase of our own home, which is like a whole separate podcast, debating people about whether. A home purchased as an investment or not, which gets people a little riled up right now, so I don't consider that an investment, by the way.


Spencer: [00:05:22] That said, I went through four software companies, starting with big company, went down progressively smaller, which, by the way, was a deliberate choice. I'm the kind of guy that was like seeking out OK with lower cash comp, even just to go take hardcore learning with earlier stage companies and maybe bank on getting some more meaningful equity along the way.


Spencer: [00:05:38] It's kind of like the unwritten Silicon Valley wealth plan, by the way, for a lot of folks like me that was dumping money into for when I was index fund investing, I was doing that stuff on the side, but really just looking more so like am I getting a higher salary? And so that was the playbook I was running Matt, ultimately it culminated in a moment that was very distinct for me, where I was working at a startup that is still considered pretty hot, I think, expected to have a good exit and knock on wood. And all that said, I was working at eighty two hundred hours a week and I had my first of our two boys as an infant son and seeing him, and there was a point where I hadn't seen him in person in like a week or something like that. And it was I kind of had it like a light bulb or a fuse lit, whatever analogy I want to use moment. And it was like, well, something's got to give. Like, I don't know what the exit strategy is or this. I could keep on building teams, leading teams, because I had done originally AE work and actual selling quota carrying work and then later got into operations management, sales, management and leadership and all this stuff. And that's where it got to the point where I was like, something's got to change here. I can't do this next 20, 30 years this way. And I don't see the net worth. I don't see our net worth going up. I see maybe some potential for equity exit on these companies and stuff. But that was the first moment I was realizing, like this family that we're building, I don't have enough time with them. And what happens if I get hit by a bus? Jennifer, who is also the co-founder and COO of our company, she has her own impressive career that she walked away from as well to go run our own company. But I did just want to mention, Matt, that this is brief, but I'll hearken back to that early days when I was in the real estate company with my dad, we had a really healthy run. My dad had a really thriving business. We got hit with a series of pretty tragic and devastating things over the course of a decade that like lost my brother to cancer. Parents got divorced and just a series of dominoes that fell is a long time ago.


Spencer: [00:07:33] We'd have to go into that for TMI. But I'll just say that all that said, it was very clear at that time that our family had one income stream. It was from broker, income. Broker income, using the Robert Kiyosaki's language from his dad bought out because it's referenced for some folks out there. You know, you've got pipelines of income. You can have like an income stream or the bucket. And the one time bucket is kind of the equivalent is like an analogy for the for the active income. If you work two job, you stop working in the W2 job. You don't have any more income coming in. Same thing as a broker. So our lifestyle downsized, significantly. When my dad's business imploded because of a lot of these domino effect events and I took away a lot of deep learnings from that. It wasn't necessarily conscious at the time, but it was like it stuck with me for years. And as a dad of two kids now and a guy who was a family of his own in a business of his own, it really sunk into me like, how do I go and de-risk this volatility for a household? Because who knows, none of us really know if that were to happen. But I want to make sure that we're ready and we have a moat like some kind of financial moat around the family. And that's kind of when we started to go and look at other ways to build cash flow. How do we generate these other income streams?


Matt: [00:08:53] Yeah, I want to talk about that for a little bit on the technology front, because I'm in technology as well. And I know a lot of folks that are banking on RSU's at companies that have high unicorn valuations that on paper look very, very good, but might not make revenue, might not make income at that the point, which is great if you can exit those. But nine times out of ten, they're not exiting. So we we get drawn in, I think in the technology space of seeing the people that were early in Facebook, the people that were early and Google, the laters and Apple and Amazon and all these different companies. And then you forget that there are hundreds and hundreds of companies where people started, took very little income took very little cash percentage monthly, but they just banked it all on RSU. And you can get extraordinarily wealthy that way. And you can also spend a decade working one hundred years not seeing your kids for a week or whatever and not make any money. It's interesting that you were able to kind of make that shift or see that before anything drastic happened there. So when you went out to go and start your investing journey into real estate, where where was that then?


Spencer: [00:10:00] Yeah, I think and by the way, I completely agree with your commentary. When we use the lottery analogy, just to briefly comment on this. Like the lottery analogy is absolutely the right one to use when it comes to assuming your equity will become what you think it will become if you accepted an offer. That early stage tech company and I had a dollar amount attached to your equity offer, it is currently worth zero. And so that is an important thing for some folks to swallow by trying to break hearts out there. That is something I wish I'd heard earlier for two summers of internships that I did back in high school. I got paid exclusively in stock that is now worth toilet paper. So that's the stuff people need to know.


Matt: [00:10:37] I want to touch on that real quick, because I've known hundreds of people that have gone to very small companies and have said the exact same thing, like, no, I'm getting all of these RSU's that are based off of this. I know one person who has cashed out very, very heavily, by the way, he's a CMO of a large company that just went public for a twenty five billion dollar valuation. He played the game, right? He won. But he's the one out of all the hundreds of people that I've known that have taken that risk. So.


Spencer: [00:11:03] Right. We could probably go further into it. It's just so tempting because it's such an exciting I think it's a helpful and relevant topic for so many people that I care about personally that are still banking on that now. So I apologize. What was the actual next question?


Matt: [00:11:15] I'm going to make this analogy. It's like a minor league baseball player that's still playing in the minor leagues at thirty nine. At a certain point, you've got to say, hey, I don't know if this is going to happen. Let me try to figure out my next move here. The question was really so you had this moment where you realized that you need to diversify your income streams. You decide that you want to get invested in your real estate. Like what does that first property or what did that look like?


Spencer: [00:11:35] Yeah, so I had the benefit, as you mentioned earlier in the intro, which I appreciated, I ended up stumbling into a company like the last two role that I had was going into Lending Home, where it's a real estate lending company. And so I previously worked in FinTech exclusively, meaning like worked at Intuit. Very thankful for these companies. Frankly, it was a wonderful experience into it. Then a bunch of Intuit competitors and so somehow got into a real estate lending company that does bridge loans, basically fix and flip loans and for for single family homes and small family and small properties.


Spencer: [00:12:08] That was eye opening.I had to go in and basically earn some respect from folks who had significant real estate experience. That meant becoming like a licensed loan originator from scratch and then just just to go then help grow and manage other people and build systems around that all that stuff. So what opened my eyes at that moment, Matt, was seeing the dollar amounts on the other sides of those transactions for the people that were actually the investors driving these things. And I looked at that and I was like, you know, I don't necessarily want to become a flipper. I think flipping is is a distinct strategy. And it's a great one if that fits your goals. Same thing with flipping, it could be wholesaling, be brokering. Those are all very active. Then you've got stuff that's a little bit more passive. And we'll probably talk about this in a moment. And then we talk offline about rentals. So where we landed was ultimately, hey, let's go. I had my own career. Jennifer had her own career, so we had financial footing. And to keep in mind for the audience out there, like I wasn't a new college grad like I already had at this point, basically a decade of experience that we've been working hard, getting good salaries for a while. So we had a footing. We wanted to go buy a rental in the Bay Area. That's a pretty tall order. We spent four hundred four hundred thirty thousand dollars duplex that we found after an entire summer of searching for it, looking around every possible market, not in the immediate Bay Area further out where we could actually. And that is that was more affordable. By the way. We got a loan on it. We didn't spend that much dollar amount wise, but we put a loan on it and cash flowed two hundred dollars a month, which is by far like not a home run. It basically has appreciated since then in this wild and hot market that we're looking at right now. So I'm thankful for that. But if I could go back and do it again, I probably would do that a little differently. But that was the first thing we found property up in Vallejo, California. Still got it now.


Spencer: [00:13:48] And eventually we started looking elsewhere when we realized, like, you know what, the money from appreciation, just because the property goes up in value, just like a stock, it goes up in value. It's not doing anything to benefit lifestyle now. And so that that was like the moment for us when it really changed, it was like, OK, retirement is pretty far off for us still. We'd like to think like to think again, knock on wood that our health is good and that we're able to make that nice, long stretch for four decades. But how do we change this game now? And how do we how do we give ourselves just more options, more flexibility in life and all those things? But that was the first move that we made.


Matt: [00:14:29] Yeah, I think I've heard you talk about in the past there like deal states and then there are not deals states. And I would definitely say that California is not a deal state from a cash flow perspective. And one of the things that I tell people that are looking to get into real estate, I mean, I grew my single family portfolio to ten before I recognized holy smokes, I'm going to have to do something different, because ultimately, if you want to replace your income or if you want to get to a point where you have a dollar figure in mind, take that dollar figure per month basis divided by about two hundred dollars, which is the average cash flow single family unit. That's how many units you're going to have. And for people that are accredited investors or have a lofty target goal that they want to get to, that is a lot of doors that you're going to have with a lot of management, with a lot of issues. So when you when you decided to make that shift, did you then get into passive investing and syndications or what was the next step?


Spencer: [00:15:22] Yeah, and I appreciate you sharing your journey on getting to ten properties, which in and of itself, I know it's easy for us to sit here and get jaded about it and say like and that wasn't exactly what we wanted. It's still amazing in its own right. If more people got to that point in this world, if they found the awareness they had the light bulb moment, they went out and started buying property like that. Real estate isn't the answer. By the way, guys, I'm not myopic in that sense. I believe people should have a portfolio completely. It's not for everybody. If you're not willing to educate yourself. That's who we got to. Six properties, small ones. And so we got to a the duplex. We also got to, I think, five turnkey properties that we acquired over time in the Midwest. I think those are in Kansas City. We did end up selling those earlier this year and they were cash flowing about two hundred bucks a month for property two. And those costs only fifty sixty thousand dollars. So I'm not here to plug a specific strategy, but I am here just to say that that strategy was appealing for us at the time because we were coming off the heels of the learning of buying the duplex. We went out and bought the turnkeys, had it for a few years and they cash flowed. But this is where I get into debates with folks that are the rental buy and hold single family or die crowd. I'm open to it still like they're in our future, we will buy more rentals like I like. This isn't some like us and them thing. It's not binary like everything else in life, like it's not a black and white thing. There will come a time when it matches our goals and time availability.


Spencer: [00:16:46] We didn't have a lot of time. We still don't know. We have young kids and we're where it is very busy life. And so rentals are semi passive. Full stop. And we had property managers on those things too. Well worth the ten percent. By the way, when we buy properties in the future, we will absolutely pay that 10 percent again. And so I can't swing a hammer. I don't want to do utilities. It is not my core skill set. And so I applaud and respect people that can do those things. I have not built anything of merit with out of wood, with my bare hands in my life, and so is just being a little self deprecating about it. But the rental journey was what was good until we realized we still had to deal with issues. We started to field the phone call from a manager every month about something coming up. So we did that and then ultimately realized the cash flow was good. But still not passive enough. We, I started devouring content around just investing in general. I read twenty four book. In the course of a 12 month period, which was too much in hindsight, but it was helpful, I listened over four hundred podcasts, I became kind of obsessed. I do think that that's what turned me on to bigger properties and to these other strategies that are what I consider fully passive after the point of investment. And that is like syndications and funds and the stuff that we invest in with our own money now and we help other people invest in as well.


Spencer: [00:18:07] And so it's not necessarily for something. I don't think people should jump into it. If they're brand new to the working world and they don't have any financial footing. That is not what this other vehicles or by the way, keep in mind, like we were a decade in, we had footing. So when every once in a while when a personal friend reaches out and there kind of early in their journey, many sales professionals as well, by the way, that I've ever previously managed to work with, and they're like, hey, we'd love to work with you guys in a deal. And I'm like, yeah, but let's talk about it. Know I'm not necessarily sure it's the right thing do at this time. So it just depends on what someone is looking for. But that was the journey for me, was like single property, Bay Area local, because we were scared to go in turnkey, far away, sight unseen, going to a deal state versus the money state of California. We then went out of state, acquired a series of turnkeys, realized it was too much time and better money with too much time, then went to bigger properties like apartment buildings and syndications and helping people invest in a piece of a larger facility and being a managing member in a lot of these deals that we're in right now and continue to define and curate, vet and help other people invest.


Matt: [00:19:07] Yeah, you said two things I want to pull out. One, you started with real estate is not the strategy. And I talk about that a lot. Real estate is a strategy and a part of the strategy, but it's not the strategy. It's not the only strategy that will get there. And I'm pretty open that 30 to 40 percent of my net worth is still tied in the equity markets. It's just that I believe in cash flow and real estate. Is the most important vehicle in your portfolio for generational wealth more than anything. In the second thing you mentioned was around property management. Like I go back and forth with some people all the time around. What's the value of a property manager? And look, if you're OK, taking that call at 10:00 or you know, how to coordinate resources or swing hammers and things like that, that's perfectly fine. Do it. But I will always build it into my numbers because, one, I don't want another job if I start scaling out my single family portfolio again, I don't want another job. And two, that's just not what gives me energy. It gives it gives me stress when one of my tenants text me and says they need something, even if it's something small, just because that's another thing on my plate. I think you and I are very similar.


Matt: [00:20:09] We started growing out our single family and then moved more into the passive space. It's more important when you get into this passive space now that you've got to vet the operator because you are a limited partner in those deals, meaning you have no active role, you are trusting the operators. Yeah, I think you have a good framework coming from a technology background on how you look at operators and deals and things like that. Can you talk to us a little bit about kind of your framework on how you how you vet those?


Spencer: [00:20:35] I think I cannot take credit for the genesis of this framework. I think we have tailored it to our own passive investing needs, like even before we built our passive investing group and a company that's made us investing, like we started investing in these things ourselves. So that that was the genesis of this. I still have this thing in a spreadsheet in Google Sheets, like three big tabs. You got to look at the sponsor, the market and the deal. One, two, three. And I think just to demystify some of the terminology for folks, if they're still getting used to that first one to sponsor because it is incredibly confusing, is such a typical real estate thing to throw jargon in it like this, to throw people off. The sponsors are very fancy way of simply saying it's not someone that paid to be advertised at an event. It means in this case, they are the general partner or the manager or the asset manager of that deal, the people who are calling the boots on the ground, the ones making the decisions and executing the business plan on this deal that you're going to go purchase. And so typically, the ones that we are focused on have been large apartment communities. So we're talking a hundred and fifty to four hundred units and sometimes more than that. So you better have competent, experienced people who are the sponsor. You can also call them the operator, boots on the ground, all those other terms I gave you. So that's number one.


Spencer: [00:21:48] You've got to look at them as a limited partner. That term that you used. That is really helpful, I think, educationally for folks to which is like an LP. Very fancy way of saying. You're basically saying you're bringing your capital to the deal. You have limited liability. So like unlike the duplex that I currently own, if we don't pave the driveway correctly and there's a huge crack and that breaks a leg of the trip on the crack, they could probably see us on a deal like this. You have limited liability as a passive investor. Of course, it depends on just making sure you read all the documentation on all these things. But like, that's the first thing.Sponsor number one.


Spencer: [00:22:21] And number two is the market. Just know where you're investing. Understand really, is there job growth? Is there going to be assumed prosperity and thriving in that area? And you can't just look at it on a general state level. I think a lot of times national news media can really confuse people. It certainly did confuse me before I got deeper into the business. Because they make it sound like there's the real estate market. There is no such thing as the real estate market. It Does not exist. There are hundreds of individual markets, arguably thousands, depending on if you want to talk about markets or submarkets, there's no such thing as the real estate market. In my opinion, for example, Texas, Texas is enormous and this is coming from in Californian. And so we have focused in Dallas Fort Worth. That in of itself is enormous. You got to click, click, click down, find the neighborhood you appreciate, understand if there's job supply there, because the people living in these comfortable places that we prefer to go focus on and invest in and acquire, they are employed somewhere. Their employment checks pay the rent. In these in these facilities, that rent becomes part of the net operating income that helps determine the price of the property, which ultimately can lead to a favorable sale at the end and also pays the cash flow for the investors that are in it. So sorry for the terminology overload for folks that are just hearing this for the first time that like, wow, that was a lot of turns in one breath.


Spencer: [00:23:42] Third comment would just be the deal. Know, we already talked about the sponsor and the market and then I talked about the deal said another way, that's really just the business plan. It really just means you're going to go buy this this property and then do stuff to it probably. And then doing that stuff. Usually renovations usually like putting in more effective property management, interior, exterior renovations of sorts, depending on the on the strategy. I just outlined one specific type of strategy that looked like that was a value add strategy. If you want to use the industry term, you run that play, you're on that business plan run by experts. And then at the end of it, you hopefully have an excellent outcome so that those are the three at a high level that I just wanted to run through briefly was for four votes. And I think just to give evidence to the fact of how important that is, I think there's at least 70 some questions underneath all those buckets combined that we go through when we're determining if a deal is going to be a good fit for our capital and certainly for the folks that are in our investing group, which allows us to also provide, you know, to put excellent deals that we believe so much that we've invested in in front of them so that the three part framework at a high level.


Matt: [00:24:52] Yeah, I like when you talk about just the real estate, the news says, oh, real estate is, but it's a multitrillion dollar industry. And the more and more I'm involved in real estate, the more I'm more I'm shocked at how big it is. I mean, you've got syndicators who develop the property, syndicators who value add the properties, syndicators run the property, syndicators who buy the debt on the back end. I mean, there's just so many and that's just in the multifamily space. Then you've got self-storage, you've got mobile home parks, you've got all these different things. And then the second I really want to highlight there is when you were talking about the business plan. So that is really, really critical. I think when you're looking at deals for first time, investors that are trying to get involved in massive deals, they they don't recognize that there are different skill sets on a business plan.


Matt: [00:25:38] Some folks are really, really good at leasing up just develop properties. And some teams are really, really good at doing the construction and the heavy lifting and the uplift of a business value add. It's not to say that one can't do the other. It is just a skill set and a muscle that you build over time and you want to make sure that that team has run that play multiple times. Another thing I've heard you talk about on the operator side, though, is values. I'm a core believer in that as well. Could you talk a little bit about how you that and operators value system to make sure that it aligns with yours?


Spencer: [00:26:13] Yeah, and I appreciate you clicking on that. This will be more familiar territory for you and I to talk about, probably because of the fact we both have been in some some form of leadership capacity in the corporate world. Values focus has been something that's been part of my my whole career. And I thank my mentors for that. I've always been integrity driven guy, but I do think that they helped emphasize and hone why that's so important. When applied in any type of partnership. A partnership can mean anything. It doesn't just mean like literal partners in agreement. It means partnership with your investors and it's a partnership with your boss and in partnership with anything. So to that end, the way that I think of values with a partner that we might work with, I want to understand at its most basic level, like one of the definitions of integrity, like do they do what they say they're going to do? You know, the alignment of the say in the do. Behavioral interviewing, not a new concept. If people are not familiar with that. If you've interviewed in a corporate context, you might have even gone through training or or feel like this. I've been through probably maybe too many. You know, you're basically asking someone to tell you about a time when as opposed to saying, hey, what do you think about if I'm interviewing or just getting to know a sponsor instead of saying, hey, do you think you should do the right thing for your tenants? It's kind of like, well, that's the easiest softball question of all time. They're going to say, yes, of course. More importantly, a question I would ask is like, can you walk me through your your philosophy on tenant relations? That question is. We throw people for a loop and there's no perfect answer to it, I would just like to understand, do they have one? Have they thought about their tenants and specifically within apartment buildings? Of course, another one would be really just a moment ago, you hit on just a critical piece, which is like as the sponsor done this before and if they've done it before, very similar to if a person who gets hired at any role, any elevation in a company, if they've actually done something, they not only know how to speak to the what was done, they can speak to how it was done. And that distinction is so important because you will fish out stuff that is remarkably inaccurate and a very big disconnect between, say, and the do the moment you go into. Well, that's cool. You can describe what the like how would you like how did that actually happen? You're not like sitting down like a hard core interrogation with these folks. You're building like years long relationships with them, close to, almost akin to like a marriage. So you have to be thoughtful in the way that you do it. Don't go up and just like grill them like like an interrogation. But that's a couple of the ways that I think about doing it, is just making sure to tease out do they do with this or they're going to do and then continually drilling down and getting to know their past work, a.k.a. in real estate. That is called your track record. And how have things gone? And if it hasn't gone well on something, that's OK. I mean, I want to understand, like everyone feels so like if someone has failed, like we have a separate question specifically around this failure response. And it's just like talks about walk me through, like the worst failure that you've ever had. And even if it's not real estate, why did it happen? What did you learn from it? You know, and so that's almost akin to the values question, in my opinion. Yeah.


Matt: [00:29:17] It's not that bad things happen. It's really how do you respond to bad things? And the values question for some folks out there might feel a little fluffy, but let me try to put my spin on it as well, because when when people want to scale into leadership in any kind of capacity, whether it's inside of their W2, outside of their W2, I always tell them it's very, very important that you have a leadership philosophy. And what that essentially means is when you're going to go into that role, you're going to get asked a bunch of question, what would you do if this happened? What would you do if that happened? And the answer is, Spencer, I would do it however you would do it, because clearly you're the boss interviewing me. So you know all the answers. And I'm just trying to answer your question the right way with the real answer is I have no idea. I've never been put in a situation where covid happens and I've got tenants who have lost their job. And if I don't allow them to stay an extra 15 days, they're going to be put on the street or have to move back into an abuser's house. Or like all the different situations, it's not so much that you have been put in this situation. It's that you have a framework for how you view those situations. And I can't tell you how I'm going to react in that situation, because, quite frankly, I've never been put in that situation, whatever that situation is. But here's how I make decisions. And so mine for my leadership philosophy is teach, empower and remove roadblocks. Is this a situation where I need to teach somebody? Is this a situation where I need to empower them? Is this a situation where I just straight up need to remove a roadblock so they can keep running as fast as they can? So I think when you're vetting these operators, it is good to ask, like, tell me about your bad situation and not only what happened, but how did you react to it and what did you learn from it and what's the framework for how you make decisions? Anything you would add to that or


Spencer: [00:31:05] Is so on point. Because I look at I are some real time, but anonymous examples from the past year, you know, going through covid some of the partnerships that we have with folks went, I would argue, extraordinarily well. And that doesn't necessarily mean it was easy. That means like this is a global pandemic black swan event. And just because everything is going really rosy right now for the economy last year was brutal, was brutal. I mean, like like for for so many people. And it still is right now. And so, like, looking at these apartment buildings, for example, sanitation in the first three months when no one really knew how much or how little was required, you had to go in and basically like do the human equivalent of a bug bomb on these buildings. And you had to go in and that was really hard to react that way and keep tenants calm. And to be clear, I wasn't the one who is doing that. I'm talking about our partners that we vetted upfront and invested in prior. And we thought, let's just see how this goes on, that one particular property sitting out in X state or Y city. And they rose to the occasion and made some pretty significant changes, like people in some cases, like relocating temporarily to the closer to their buildings to make sure that they can manage them more hands on. In another case, like partners, you experience a break in or even like more recently, I would say like the Texas freeze, like the big deep freeze that happened in Texas earlier in this year.


Spencer: [00:32:24] And I'm sure everyone's got as much fishbowl memory as I have because we're having so much every day. But that did happen pretty recently and that caused some mayhem for a lot of folks. But the reaction that one of our partners had, whether it was like fixing a two dozen broken pipes because the frozen pipes in the building, what? Burst and they have an answer, the question over and over for people like how the heck is this going to impact the deal, not knowing yet if insurance is going to cover it, which it did. But is if that type of stuff, which really teases out, how is this going to go moving forward? But there's no theoretical to do that. You know, that there was no scenario in an interview where you can say, hey, tell me about the time next year where we're actually going to go and experience an awful deep freeze where a bunch of these poor Texans are going to lose their their their heating and their their water and all that sort of stuff for a period of about a week, along with all the tenants. And so how are you going to react to that? You can't do that. It's all you can do is have frameworks like the ones you walk through. It's a really, really good way to do it.


Matt: [00:33:22] Yeah. And I think I'm just going to pull on this thread just a little bit like when I invest in in homes or my properties that I have today or when I invest with operators, my most important thing is are we providing a safe environment for tenants to live in where they can build a community amongst their residents and that might not align with some investors out. There are some operators that I don't care about all that. What I care about are the returns. Right. Those are two different value sets. And when an issue like Texas happens, we're a deep freeze happens and people without power, people are without heat in 20 degree weather and anybody living without heat in the extreme cold can know that that's not a good environment. What are you going to do as the operator. And so, like you said, no one could have predicted that. No one could have known that. But if your value system says no safe communities there, what I care about building, then that's going to lead to a different decision that as an operator, I'm going to try to extract as much money and return out of this property as possible.


Spencer: [00:34:23] Yeah, absolutely agree on that.


Matt: [00:34:25] I want to switch gears a little bit on you and talk about I've heard you talk a little bit about how you view the market and maybe also not investing so much in multifamily now and moving a little bit more toward storage and just the different industry niches that are out there. Can you talk to us about maybe what you see out there and some of the industry niches and what you're focused on right now at Madison Investing?


Spencer: [00:34:48] Yeah, happy to. And this is maybe the first comment on this question, Matt, because it's such a fun one. This is like one of the most fun topics to me is that as I have educated myself and gotten more experience in the space along, I mean, everyone, I'd like to think that the more you learn, the more you realize you don't know and. Being dogmatic about investing is a losing strategy, and I think that, for example, 2009, that was the year that was I mean, some people would say the best year to buy real estate in modern history. And I missed it. So at the time, I thought I was making the best possible decisions for my wealth building. And I was living in Denver, Colorado, and I invested in zero real estate, one of the highest appreciation locations in the entire country between 2009 and the decade later that decade following. So all that to say, we were focused initially very heavily on multifamily and frankly, we are right now as well. The market evolves and changes and ebbs and flows. And right now we are focused also on self-storage facilities. And I like those two asset classes in particular right now, because, man, that is the best kind of boring. And I know that won't get too many people invested exclusively in crypto very excited because this is not your play here, folks. But I'll just say business plans that it can actually be built around an investment is the difference between speculation and investing. I'm more interested in investing, and so I'm OK with with how those perform because you can actually do something called underwrite them like that. You can actually make decisions based upon how they have been performing, the investments you'll be making into the property and the decisions and levers you're going to pull to improve the performance. So right now, storage is even simpler in many ways than multifamily. And that is one of the reasons I find it appealing is because it's just like the best kind of boring and key advantage being you also don't have tenants in terms of living in the units, hopefully. And but there is a relationship there, too, though, like we live in a society where people more and more funding the need to be mobile and store their stuff.


Spencer: [00:36:53] So I don't go off on a tangent further from there, but I really like those two asset classes. I also think that just keeping an eye out for more niche types of investments in different types of private equity, for example, like we recently invested in, like a fund that was focused on ATMs. And I was as a guy, I used to work for companies that were in so many words, trying to effectively kill the use of cash. I would say that that was a few years ago. That would have been a stretch for me. But hey, we went and did it and I'm very happy with that. And so I think we are keeping an eye out for a couple other asset classes right now. But I firmly believe that regardless of where someone is right now on their education journey, I'm a subscriber to the belief that I only want to work and focus on stuff that I understand. And I really don't think can go wrong with that. I think I if I went out and suddenly focused on, gosh, I can't even think like I finally went out and bought some crypto again after I sold my stuff in twenty eighteen, which I get crap for from plenty of people. But yeah, we went back into that, but I feel like I understand the ones well enough that we went into. But that ethos is so key for so many people. Don't just jump into something as big as an asset class because you think it has a cool name.


Matt: [00:38:05] Yeah. I'm going to bring you back on at some point to talk about the ATM space, because that is so misunderstood for a lot of folks. And I get jazzed up thinking about that space because of all the economic factors around it, especially the super accelerated depreciation you'll get on the front end of that. So we'll have to bring you back on and talk about that. But I'm going to switch gears now and go back to go into our last segment of the show, which is our five topics round. Our first one is what is your favorite book or what book have you read recently that's given you a paradigm shift?


Spencer: [00:38:36] You know, this book continually stays at the top of my list for a few years and it stays there because I've read it three times now, I keep going back to it. That is "Essentialism" by Greg McEwan. Killer Book. I mean, I think particularly in terms of just getting people. Quick comment very briefly. Most of us struggle with prioritization. I think every person, if a human has the same twenty four hours in a day. The difference between top performers and those that are not is their ability to say no way more. This book actually gives you literal verbiage on how to say no. And so I like that book.


Matt: [00:39:09] Yeah. I mean, as you scale saying no to the wrong things is more important than saying yes to the right things, in my opinion, because saying no to the wrong things allows you to free up time to say yes to the right things. Our second one is I believe the person you become in ten years is directly correlated to the things that you do every single day. What is something that you do every day


Spencer: [00:39:30] Is a fun question for right now in particular. 2021, if I had to pick a really corny theme for this year and I haven't really I don't think I've shared this publicly and necessarily yet. But I to say it's been a big focus on not just wealth, but also health. And I think that, like, I have been a runner. I know we're going to nerd out on that a little bit. I think the contrarian comment to come right on the heels of that is that running has not been enough for me anymore. I'm not I'm not a spring chicken in the tech world at least. It sounds ridiculous as a guy at thirty eight years old. But I would just say that, yeah, we have a personal trainer now and like I've been doing that. And so every day of the week basically I'm doing some version of either running or that health matters a lot. It matters a lot more than I used to give it credit even while doing a lot of running. But running was not enough. So.


Matt: [00:40:12] Well, most of our listeners know that I am an Ironman triathlete, so we'll have to get you into triathlons after the show.


Spencer: [00:40:19] Oh, my goodness. Yeah, I have to get me in a pool first. That's going to be a battle.


Matt: [00:40:23] You've got the bay right there. Apparently, that's super easy water to swim in now.


Spencer: [00:40:28] God, we're talking about the Bay Water.


Matt: [00:40:32] Our third one is what's the best piece of advice you've ever received?


Spencer: [00:40:38] Man, this is a tricky one. I mean, I would have to say it's the most helpful for me because I keep having to tell myself I have to remind myself of it. But it matters so much, which is go slow to go fast. You know, it's often repeated in tech companies like a platitude. And I think advice can be useless or highly useful depending on how someone wants to apply it. For me personally, I think it's really helpful to hear that because we are surrounded by people who are hey man, no judgment of someone loves the hustle narrative. You know, no judgment if that's if that's their playbook. I think that so many people are in a rush to achieve super wealth, that they forget the fact that they're not trying to build like they haven't defined wealth yet anyway. It's like wealth to me is I get I get 30 minutes to play guitar and learn how to play guitar solo better and spend a couple hours hanging out with my children a day. You know that that is wealth to me. So I don't need to have one hundred million dollar net worth to do that. So everyone has a different goal. Going slow to go fast means I deliberately take the time to define my goals, pause on them, execute the plan against them, take pause again and then keep in running that playbook over time with the partnership of my, my, my life partner and business partner Jennifer. So that's working for us. And I think going slow is this is a hard thing to do in modern society.


Matt: [00:42:02] I journal every morning and sometimes if I get very adventurous, I write a question for me to think about as I journal the night before, like in the Journal. And the one I wrote down the other day is, am I going too fast? Because I think when you've worked at software companies, too, if you push out bad code like undoing that change is as hard as pushing it out the first time. So let's just wait. Let's make sure it's right, then get forward. So and that's where I think, like, your frameworks actually really help because you can really just start developing frameworks and saying, my operating within these frameworks, then I'm not going too fast. But when you start getting outside of those frameworks now, you know, wait a minute, I might be going too fast here. Well, our fourth one is what's the thing that you're most proud of in your life?


Spencer: [00:42:48] I know it sounds corny, but I just got to say, I think it's the the partnership with my my wife and business partner. I think that starting a business with your better half is something that a lot of people either are like they're very hot or cold on it and they're very, very polarized perspective on it. It's not necessarily jumping into it is not something that just comes easy. And that's why some people stay away from it. We have worked really hard to get to the stage that we're at partnership wise, and it's like a strategic advantage now. It's like to the point where, you know, there's people I know who are like, oh, my my wife or my girlfriend doesn't want to do anything related to what I do would be like ask me how that's going in 10 years. And so it just depends. You know, we're going all in on like a fully integrated business life, everything. And I'm very proud of that because it wasn't easy up front. Like we had to sit down to really take some tough weekends aligning. There was smiles and cries and tears and reconciliation all cycled into one weekend. But we came up with their side so incredibly strong. And so I think that that's a very proud of that.


Matt: [00:43:53] All right. I lied. Spencer, we're not going to have you talk about ATMs. That's what I want to talk about next, because I think so many people do think, oh, I'll jump into business with my life partner, my best friend or whatever. And sometimes that's not the right choice. But sometimes it can be a very huge, huge strategic advantage because chances are Jennifer knows you very, very well and knows what you're probably thinking or where your blind spots are and can add value to you before you even recognize it new to her as well. So that's what we're going to actually have you come back and talk about. But before I did before we did, the last one is if you could sit down and eat a bowl of ice cream with anyone who is dead or alive, who would it be and why?


Spencer: [00:44:33] You know, I don't know why, but I I keep coming back to the pretty cool to sit down with Winston Churchill, that I just think is is quite the character, but he's he's a real paradox of a human being at the same time inspiring so many people, but also being kind of a pain in the butt for so many people. At the same time. It would be it'd be a lively fun conversation. I'd like to hear his perspective on things.


Matt: [00:44:53] I love that answer. One of my best friend's dog's name is Churchill because they love Winston Churchill so much. And do you think he would have the boozy ice cream? So I got shipped ice cream the other day that has alcohol infused with it. Like, I feel like that would be the most appropriate thing is booze infused ice cream with Winston Churchill.


Spencer: [00:45:11] I think that is the only choice. If ice cream, he was going to tolerate it while a company with like a cigar or something, you know.


Matt: [00:45:17] Yeah, yeah. No cookies and cream in here. Just insert a bunch of gin in it and we'll call it.


Spencer: [00:45:21] Just dump it. Yeah, that's all.


Matt: [00:45:24] Well, Spencer, a fantastic conversation. Thank you for joining. If our listeners wanted to reach out to you, where could we send them?


Spencer: [00:45:31] Yeah, head over to madisoninvesting.com. That's our website. You can sign up for our newsletter. You can also if you want to sign up, you have an option to book time on my calendar. If you want to just talk about the market. Happy to do that with you is like basically think of it as like a free consult or even just networking, like they're really the most fun conversations I get to have. So, yeah, please, please reach out. And I also am pretty active on LinkedIn. You want to come and follow me there. I post a few times a week these days and was happy to engage. Awesome.


Matt: [00:45:57] Well thank you so much for coming on. We'll have to have you back on soon.


Spencer: [00:46:00] Yeah. Thank you so much man. This is a fun conversation.


Matt: [00:46:03] Thank you for listening to ice cream with investors. If you like what we serve you here, it would mean the world to me if you would like, subscribe and leave a review on your favorite podcast app.


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