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Podcast: The Real Estate Syndication Show with Whitney Sewell

Episode: Living Out the Joys of Multifamily

Transcription below

Intro: [00:00:01] Welcome to the real estate syndication show. Whether you are a seasoned investor or building a new real estate business, this is the show for you. Whitney Sewell talks to top experts in the business. Our goal is to help you master real estate syndication and now your host, Whitney Sewell.

Whitney: [00:00:24] This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, our guest is Spencer Hilligoss. Thanks for being on the show, Spencer. Hey, Whitney.

Spencer: [00:00:33] Thanks so much for having me. I'm really excited to be here.

Whitney: [00:00:35] Yeah, I'm excited for you to be on the show, Spencer And just after our conversation just a couple of weeks ago, I knew you'd be a great guest. And you can add lots of value to the listeners. I know. And before I tell you about Spencer, though, I want to remind the listeners to go to the Facebook group, The Real Estate Syndication Show, where you can communicate and ask questions of the experts, just like Spencer and other other guests that's been on the show. And you can leave questions that you want me to ask and communicate with other people who are syndicating deals and connect with other people in your market. That'd be great. So leave questions and feedback on there. I would appreciate that and go to Life Bridge Capital and connect with me as well. But a little about Spencer. He's an active syndicator, real estate investor and executive leader for two real estate businesses. His own company, Madison Investing, has co sponsored deals totaling more than 3000 units. More than $328 million. Also, a technology leader with a 13 year track record of building high performing teams across five companies, three of them software unicorns valued at more than $1 billion, built and led the origination teams for Lending Home and currently leads their professional development group. Lending Home is the largest residential flip lender in the country, responsible for more than $4 billion in transactions and is actively funding. This is impressive more than 500 deals per month. Wow. That's a lot. That's a lot of lending.

Spencer: [00:02:01] It is a little bit it's more straightforward for a single family home than a, you know, 200 unit apartment building, of course. But yeah, it's a lot of transactions.

Whitney: [00:02:10] It is a lot of transactions no matter who you are. So, Spencer, thank you again for your time being on the show. I look forward to getting into this. And but but tell us a little bit about how you got started investing in real estate.

Spencer: [00:02:21] Yeah, well, and thank you so much for that intro, Whitney I'm really excited to be here. So, you know, I found passive investing through syndications through a pretty unique journey. It was one would just say is wrought with hardship and a lot of hard work and a little bit of good timing. But my own investing strategy is primarily focused passively. And you did mention, of course, we do some active stuff as well, but we focus on multifamily, we focus on real estate syndications. And I assume your listeners, if they're tuned in to the syndication show, they're already familiar with what that means. That just means people investing together to buy something so big that they couldn't buy it alone. And so, you know, one of the things that I have found and I've come to believe is like a core belief of mine through this journey is that playing financial defense and offense is something that's a choice. I learned that kind of the hard way from some series of events throughout my family and my upbringing, but happy to share more about that if you'd like to hear about it. But that that's really what brought me to this, is realizing we all have a choice. We all have a choice to to really get proactive and also make sure we can protect our families from whatever kind of hardship that life throws at us.

Whitney: [00:03:24] Yeah, so you started as a passive investor, and that's what opened your eyes, I guess, to to the syndication business and and just the opportunity here.

Spencer: [00:03:32] That's right. Yeah. And you know, it actually I'll take it all the way back before we even go to the passive stuff, which is I mean my first real exposure to real estate came all the way when I was a kid. When I was six years old, my dad was actually one of the top performing real estate brokers in residential in the country. You know, I watched him grind like really tirelessly, frankly, in the 90 seconds. And so I was around that and just kind of soaked that up. And as a teenager, he was making me work open houses. I was in there touring $10 million mansions and kind of glad-handing these these affluent buyers; I didn't want to be there. Of course, it was not where I wanted to spend my time, but life was good. But I was exposed to that real estate culture early on. And then I went through and watched my family go through some pretty tough times. We entered this time in our lives called the Dark Decade. My younger brother, unfortunately, was diagnosed with pediatric cancer. He ultimately passed away and parents got divorced, as they typically do in those circumstances. So it led to this series of big financial fallouts. You know, we had to declare bankruptcy. We had to downsize the family a lot. We had to to really, really buckle down. And ultimately, watching all that happen after that exposure to real estate, it had a profound impact on me.

Spencer: [00:04:41] It had a profound impact on my worldview. And I became kind of obsessed with this idea that I mentioned earlier of playing financial defense. And I was asking myself questions. Now, as an adult and even all the way through college, if you believe that where I was sitting there going, like, what could I have done differently or what could I do now as a parent to avoid that bankruptcy? Like what? What lessons can I apply as a parent of two young kids now in a husband? You know, what can I do if in the event of job loss, you know, in the event of a terminal illness, if someone I care about or myself or something like debilitating injury, all these different things that that is thrown at us in this life. And so my dad was a broker. It's as active as it gets. You know, it's an active role if you stop doing that job, if he stops doing that job, if I stop doing my W-2 job, that income stops. And so I just thought there must be a better way, you know, So so flash forward all the way to to about 2016 a few years ago. And I've got this career that you mentioned in the tech industry. I'm out here in Silicon Valley, you know, my fifth software company, Whitney, and I stumbled my way into this amazing lender that's also a real estate tech company. And I was exposed to a bunch of flippers and, you know, entrepreneurs, and they were trying to get me into it.

Spencer: [00:05:57] And I researched everything about flipping and wholesaling and all these different strategies across the landscape. I looked at small multifamily, I looked at single families, looked at all these different options. And I also noticed that people in Silicon Valley, they have this wealth playbook that's really interesting. And it's the last thing I was going to mention because I think you'll find it fascinating, which is the strategy for wealth. And the tech culture goes like this. It's four steps. Step one, join an early stage startup and try to get some meaningful equity in that company. Not real estate equity, but company equity. Try to work your butt off. So you worked 24/7, in some cases nonstop. You grind. Step three, you're going to pray that you actually picked the next Facebook or Google so that your early stage startup equity ends up becoming something huge. And then step four, you're still going to do what the common playbook is there, which is upgrade your expenses and upgrade your lifestyle so you don't really end up saving much money. All that said, I was following that path for many years and despite the fact I started to have this inkling like I'm not doing, I'm not applying the learnings that I got early in my life. And here I sit after reading two dozen books and networking like crazy within the real estate community and deciding on multifamily as our chosen strategy, we've now passive invested in a handful of deals.

Spencer: [00:07:16] We also are now active on the syndication side as well and like kind of pinch myself sometimes because I couldn't be more happy with the direction that we're headed. And now I get to wake up every day and talk to other people about how great passive investing is because I don't know anything else where you can basically take your money, put it into something and have it double within a five year period and be low to no tax due on it. As I say, that kind of stuff to my tech colleagues and at first, if they haven't had exposure to that, they're like, What are you talking about man? I'd rather go invest in crypto. So anyways, talk to you, you're off. But it's been it's been an interesting and occasionally challenging journey to get to where we are now, where we look at passive investing as our ticket to a certain level of financial freedom, where I can be an active parent, a present parent, which is my my big goal, you know, a present husband, and also be able to feel like we've got great insulation from any of life's hardships that may come at us. And of course, to be able to give back charitably at some point felt like to be able to do that very meaningfully.

Whitney: [00:08:15] Wow. So, you know, and you're working for a tech company that funds the single family type deals. Why not start doing flips or single family homes? Why multifamily?

Spencer: [00:08:25] Yeah, that's a fair question. So we actually went out and we followed initially a path that you've probably heard about for others is a common narrative, right? Which is we look locally first we thought passive investing, that sounds great. We went out locally, we drove the neighborhoods for a year in the Bay Area. We went to the outer neighborhoods. We looked further and further. We we devoted whole weekends while we had an infant just driving around, doing open houses, trying to find a real estate agent that was also an investor. We did find one eventually. We did buy a local duplex and then realized I had just spent $430,000 to get $250 back monthly in cash flow. So that's not a home run. You call that one of those singles to get on on base, Right. We then went out of state, went the next step. We bought some turnkey properties. Those are actually we still own those. It's a modest portfolio. They're cash flowing great, but we still found out we have to pick up the phone. For a property managers that need management of their own, we found out that is not fully passive. That is semi-passive. And that's the thing about turnkey. Turnkey is a fine strategy. It absolutely is. And I'm very thankful for the for the vendor that we found and we work with now, but it's not as passive as a syndication. So we learned that just from experience. So we did all those things and then we ultimately realized with the syndication path was the only truly passive one that we had found with the level of returns that we could actually be comfortable with.

Spencer: [00:09:50] But to your question on the flipping, I can't help but bring up the Robert Kiyosaki example. You know, I'm sure it's been referenced many, many, many times, the bucket and the pipeline, you know, for everyone out there that adores rich dad, poor dad, I'm another devout follower of that of that ethos in that book. Robert talks about the example of saying, if you're trying to go and get a solid supply of water back to that village, do you want to use the bucket? Do you want to use that figurative bucket? Walk all the way down, fill it up again with that one cash flow moment, that one cash event? Dump that cash on the table and say, Cool, look at this. And that's what a flip will do. That's what a broker transaction will do. That's what a wholesaler will get, is a one time cash event. And I was more interested in how do I build pipeline? Like how do I build multiple pipelines, stuff that's going to flow? How do I build something that is like the best kind of boring, as funny as that might sound like something that is going to just continue flowing with wealth and it's something I can bet on and rely on. And so that's essentially what steered me more towards the passive investing front of rentals. And ultimately we went through that phase very quickly over the course of a couple of years and decided to go for multifamily because bigger, bigger is better, as it turns out.

Whitney: [00:11:04] So, you know, in this passive investing front, like do you have that that financial number, that freedom number that so many people try to talk about or try, you know, that they talk about that you're trying to reach? Yeah.

Spencer: [00:11:16] Well, yeah, I appreciate you asking that. You know, it's a common question. We actually get a lot from folks in our network these days, which is what are you doing this for? You know, what's your end game? I'm happy to share our number. I will say that this number hopefully is a reflection of two things. I think it's a reflection of our geography, but it's also a reflection of what we consider to be a good balance for us. Some people want to want to build wealth for very different reasons than us, my wife and I, who's my business partner, Jennifer Morimoto is my business partner and my wife has a separate conversation. We can always go there, but we don't necessarily want to buy a jet. We don't need to go have a lavish, you know, huge mansion. What we would like is geographical freedom to live wherever we like to live eventually with our children once they get a little older. And we'd like the ability to to not stress. We we want to take the money question off the table. And so our freedom number monthly is, I would call it around probably eight grand flowing in monthly would be great, full passive. And of course, you know, I'm never going to just sit around on a beach. That does sound super boring. I would like to take vacations like anybody else and go scuba diving and all that good stuff, but I would very much like to have a reliable 8K. That'd be great.

Whitney: [00:12:28] Awesome. No, I love that. I love that that you have that number in mind as well. And I'll reference another show of Tim Rhode. He's the founder of Gobundance, and he pretty much retired at the age of 40 because of some great investing that he started to do for, you know, he mentioned for like 10 to 15 years he was able to retire. And so, you know, he was 60 when when we did the interview for that whole 20 years, you know, he's able to do something like Gobundance. And he started a nonprofit. And through that, he's helped so many people also reach that same level. So yeah, that's awesome. I look forward to you getting to that level as well and frees up your time to help so many others as well, if you'll use that time for that, right? Very much so. Yeah. So, you know, how have you had time to research these deals? Have you found the deals to invest in? I mean, how do you know which deals you want to invest in? And kind of tell us a little bit about that on the passive side.

Spencer: [00:13:17] Yeah. So interesting learning and I take this actually very much away from my technology career. So a lot of the companies I've worked for, I've been in like early stage company leadership positions and it's been focused on operations and on building sales groups. And what you learn early is that if you want to move quickly and you want to move intelligently with some rigor, meaning how do you make complex decisions, really simple. If you have to make them over and over and over really quickly and you have to do that kind of stuff all the time and scaling technology company. Otherwise you have no shot at growing. So you build a framework and it seems so simple when you say it out loud, but it's, you know, the devil's in the details. So I really took my time. And, you know, early on, a few years ago, I used coaching programs and I learned how to underwrite from a commercial perspective, thankfully learned how to underwrite residentially because of my day job. But commercial is a different animal. And I learned that. I then built a framework and I just pressure tested that framework over a course of many different deals of dozens and dozens of deals. And so that framework is one that you are at a high level familiar with, which is the operator or the sponsor, the market and the deal, or you just talk about the property, the asset and the business plan for that. So operator, market, deal.

Spencer: [00:14:33] But within those, if you just take like the operator as an example, here's the buckets that that we look at and I'm not going to nerd out too hard unless we have more time. But I'll say we look at track record, approach, team, communications. Those are the buckets we look at and there's sub bullets beneath each of those in a big spreadsheet, which won't scare anyone with you today. But I will say, let's just look at track record. Here's an example of three different things within track record, which is an operator. How do we evaluate the operator? We look for a proven playbook. If I'm about to invest in a deal, I want to know. This sponsor has done at least three plus past deals of this same asset class with this same playbook. Failure response. And it sounds really nerdy, but but here's what that means. I want to know at least one of the partners, they must have worked through some kind of really painful, challenging entrepreneurship myths in their life. And sometimes it doesn't necessarily mean they have to have gone through a capital call, you know, like a painful, underperforming project that they were trying to run in real estate. But I have to know that they've been through something and they've built that muscle memory to be able to navigate that challenge and not freak out, because I don't want their judgment to be compromised when they're sitting there holding our capital and many others.

Whitney: [00:15:48] I bet when you ask that question, I bet I mean, you probably get the response. Well, it hadn't you know, I haven't had that happen and, you know, my real estate business yet. Or do you get that?

Spencer: [00:15:58] Sometimes. Yeah, it's actually very similar in a lot of ways to interviewing candidates for a job. Right. And I've hired hundreds of people in my corporate career. And one of the red flags for me is if someone is not willing to stop in that moment and at least think about a specific time, you know, like if I ask, can you think about a time when, like when you were challenged to your core and if they just say, I've never really had one, I'd be like, I don't really mind if you don't have one. I do mind. You didn't think about it, that I mind a lot because that means you're not listening to how much this matters to me. So I would say that it's, you know, judgment does come into play. You know, I have this fancy framework. In the end, the framework is it's a guide and it's not necessarily going to be the answer every single time. So it's a tricky one when you don't get a good answer on that one. It's not a good sign.

Whitney: [00:16:51] Yeah, well, in this business, for sure. I mean, you just run upon things all the time that you haven't seen before or you know, every deal. That's why we have, you know, that reserve account or different things in place for it's like there's probably going to be something that comes up that we didn't expect, you know, or just in case, you know, I mean, it's just like there's too many moving parts. So it's like we're going to count for those things. But anyway, or at least outside of real estate, you know, all of us have at some point you've had a difficult time that you could elaborate on. But no, that's a great question, though. I like that. And but tell us an example of a deal that was attractive to you and why.

Spencer: [00:17:23] Yeah. Oh, man. There's a lot I mean, frankly, you know, I'll be thoughtful about how I frame this because it's a pretty recent deal. But I was attracted to it because it's in a market like so much of what we do in terms of finding good deals comes down to not the market but the submarket. And I think that there's a few big markets out there right now. Take Texas and maybe call it DFW within Texas, which have been declared in some circles as past peak overhyped. You know, they're overheated. We use whatever buzzword you want to apply to it, and you can't necessarily stop there at the level of analysis. So when we look down at the submarket level and you look at some of the places that are tucked within there, there was one specific submarket within DFW that is not only looking good to me, I would say it is looking extremely promising for the next at least few years. And we're talking in terms of job supply. We're talking large employers just sidling up with significant investments into that submarket so that the tenant base is there ready to match, you know, the actual asset that, you know, that our our partners and we have gone in on there and it's just a slam dunk in terms of a fit. And so I looked at, you know, of course the asset class was still going to be like a B class, you know, like an 80s vintage.

Spencer: [00:18:46] And I think the playbook was proven. But what really got me on that one was just the fact that we've worked with the partners before multiple times. I was okay with that sponsor. I looked at the submarket and submarket was like, okay, everyone's saying DFW is done. It's just not that simple. And I think you have to go a layer deeper down on the submarket level and then really get specific about, well, where are these tenants going to come from and is that supply going to stop anytime soon? And if there is going to be some kind of major event, we all use the crystal ball analogy all the time about what may or may not happen in the economy. At some point that will happen. Maybe it's triggered by a trade wars, maybe it's triggered by something else, whatever. When that happens, is there a counterweight that is significant that will come from that employer base and are there enough jobs to sustain it? So I got real excited about that. You know, a lot of the same characteristics that that you would see out there commonly in a lot of other deals, you know, five year holds, attractive returns, single class structure and all that other stuff. So it's probably wouldn't want to go too much more detail because we run out of time. But it was all those things that made me feel great about it.

Whitney: [00:19:45] Yeah, yeah. Awesome. No, that and that. Yeah. The Dallas Fort Worth market is supposed to gain like 3 million more people in the next. What? I mean, not too many years anyway. Yeah, you know, they're growing like mad. So, Spencer, tell me where this kind of leaves you now, though, You know, you've been investing passively in numerous deals. You know what's happening now in your real estate business. And where are you headed?

Spencer: [00:20:05] Yeah. So this has been a fun time. You know, I think this year in particular, we realized, my wife and business partner that we have so many folks that have been asking us what we do and how we decided to get into it, that it became a much bigger, meaningful business that is growing rapidly for us now. And it started off as something where we were just kind of educating our friends and family and our network, and we realized that, you know, maybe there was something there. Now it's become a passion point. It's a blast. I wake up excited to talk about this stuff, to educate other people because I invested so much to learn, you know, just the fundamentals and now even more advanced stuff. I want to give it back. And I actually legitimately believe now that those many years I spent money dumping into a 401k account and I was so proud to check that damn account every month when I was working for these companies. And I look at that and I'm like, Yeah, that's great. I got like 9%, you know, 10%. And I look now at what would have happened if I had taken that same amount of capital that I was working hard to earn over a decade. And I'd put that into a series of savvy investments that I knew how to research into these types of projects.

Spencer: [00:21:16] I would be probably not needing to work anymore at this stage. And so I look at the people in my network and I think if that is a gift that I can give to them and at least educate them with that, then that's a wonderful thing to be able to focus on. So I get to do that. So we built a business called Madison Investing, and we're focused on educating other people, helping them get involved in these types of opportunities. And the next big step for us is going to be how do we scale some modern technology and bring that to bear with some of these education points? Because as much as I can get on a phone call, have coffees and lunches with people to educate them. And I love doing that. And don't don't plan to stop. What you can't find a lot of is modern, clean, professional educational resources that are out there for folks to access. You know, and if it's not necessarily free, then hopefully it's like a very reasonable price. But I'd like to think that we can get some good free resources out there for people as well. So for all those reasons, we got a lot to be excited about right now.

Whitney: [00:22:14] Yeah, well, what's been the hardest part of this syndication journey for you?

Spencer: [00:22:18] Oh man. I think focus. Focus is a challenge, you know, and what I mean by that very specifically is I am actually one of those call me a weirdo because I know this is kind of blasphemous to say in the real estate investing community, Whitney. I don't hate my day job. So I think the company I work for even currently, you know, eventually that will change in the relatively near future. But I think it's on a great trajectory and I enjoy the people I work with and I find it fascinating. So that said, balancing the many people that I owe it to, to take care of because I manage a team in my day job. And then, of course, I have two young kids, a busy family life and, you know, friends that I occasionally like to still be able to see. But then we also have this business where you always and I'm sure that you deal with this on a daily basis, Whitney, with your amazing trajectory and your amazing show, which is how do you spend the next hour? You know, how do you spend the next week? Am I really being thoughtful about making sure I'm aligned to clear goals? Am I being thoughtful and compassionate? If I have to go and say no, that I can't meet with someone because I have to say that a lot. Like I have to say every day now. Hey man, I'm sorry. I can't actually take the time to go and meet up with you for that lunch in person. It's just not in the cards for this week. And also have a really big priority that I'm trying to deliver on for this week. So it's that it's focus and it's just ruthless prioritization, is really a tricky thing.

Whitney: [00:23:41] Wow. And just a few more questions quickly before we run out of time. Give me a way that you've recently improved your business that we could apply to ours.

Spencer: [00:23:48] Yeah. Oh, man. I would say as a process nerd, one of the things that I really believe is try to start getting an awareness of the things that you do that are repetitious and that might be maybe you send the same kind of email many times a day. Maybe you are having to set up a certain kind of calendar event every single time or multiple times a day, maybe even multiple times an hour. Maybe you are taking on lower value tasks and they are things that you and now in this wonderful modern world that we live in, you can actually outsource. And figuring out how do you get the highest and best use of your time. And so what I mean by that is: first example, I'll give you email templates are a beautiful thing. I'm not saying to dehumanize and start treating everyone like a number, but start thinking about how you can template-ize emails you send all the time so that you can get back extra time and make those emails even better and more tailored for people. That's a really dry, nerdy example. The other one I'll give you though, we debated back and forth about whether we were going to hire a supplemental nanny in the Bay Area. It's hard to have two working parents, two young kids, tons of traffic, building a business, working multiple jobs.

Spencer: [00:25:01] But once we did it, we realized the investment of that hourly pay for this wonderful woman who comes and helps us three times a week is something where we get that time back and I can go finally get exercise again. And that just impacts everything else for the better. I can take that time and plan my following day, and so all of these different things are just decisions around how do you maximize the best use of your time and get the highest and best yield? How do you outsource smaller tasks and how do you use technology to help do some of that outsourcing too? All of those things are in your control and I'm always happy if someone wants to reach out and they ever have questions about ways that we've done that or vendors that we've used for certain parts of this, not necessarily the nanny, but of course, like there's even a service here in the Bay Area where you can have people come to your door and pick up your laundry. We haven't done that one yet. I was trying to convince my wife that we should do that, but she was like, well, let's think about that. And I'm like, We should do it. We should do it. So we're trying to figure that out.

Whitney: [00:25:56] Tell the listeners how they can get in touch with you, Spencer, and learn more about you.

Spencer: [00:25:59] Yeah, they can reach out at Spencer at Madison We also have a ton of information on our website, so please go check that out. That is at Madison Investing dot co.

Whitney: [00:26:11] And I meant to ask you how you like to give back. You know.

Spencer: [00:26:14] At this point, you know, we are so darn strapped for time What actually do quite a bit of every single week now is I just mentor people pro bono and coach people pro bono. We also of course, we donate a lot to many different charities. But actually I've been getting more pressure to start up a coaching program, but I'm not really keen to do it quite yet. If I do it. But I do like to coach people up every single week.

Whitney: [00:26:35] Awesome. Thank you for sharing that, Spencer.

Spencer: [00:26:37] Absolutely. It's been a blast. Thank you so much for having me, Whitney.

Whitney: [00:26:41] Don't go yet. Thank you for listening to today's episode. I would love it if you would go to iTunes right now and leave a rating and written review. I want to hear your feedback. It makes a big difference in getting the podcast out there. You can also go to the real estate syndication show on Facebook so you can connect with me and we can also receive feedback and your questions there that you want me to answer on the show subscribe to so you can get the latest episodes. Lastly, I want to keep you updated, so head over to Life Bridge and sign up for the newsletter. If you're interested in partnering with me, sign up on the Contact Us page so you can talk to me directly. Have a blessed day and I will talk to you tomorrow.

Conclusion: [00:27:21] Thank you for listening to the real estate syndication show brought to you by Life Bridge Capital. Life Bridge Capital works with investors nationwide to invest in real estate, while also donating 50% of its profits to assist parents who are committing to adoption. Life Bridge Capital Making a Difference. One investor and One Child at a time. Connect online at for free material and videos to further your success.

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