Podcast: Financial Freedom with Real Estate Investing

Episode: MB363 - Achieving Financial Freedom as a Passive Investor with Spencer Hilligoss

Transcription below

Intro: [00:00:00] Capitalize on the stock market downturn now and build your wealth through real estate investing. Join Michael Blank along with hundreds of other savvy investors at Deal Maker Live, the number one multifamily event in Dallas, Texas from June 1st through the third. Gain exclusive access to strategies used by over 10,000 successful students to acquire over $1.5 billion in real estate assets. Register now at deal maker live event.com for a huge discount and secure your seat. Tickets are going fast. Don't miss out on the opportunity to transform your financial future. Go to deal maker live event.com today. Hey deal makers and welcome to the show where it's all about financial. Freedom with real estate let's do this. You're listening to the Financial Freedom with Real Estate Investing podcast hosted by Garrett Lynch and Michael Blank, where we talk all about how you can achieve financial independence through apartment building investing, whether you're just starting out or you want to scale your syndication business. This is the show for you. For you.

Michael Blank: [00:01:08] Our guest today, Spencer Hilligoss, he's a former technology executive with a 13 year track record, building high performing teams across five companies. But what's most interesting about Spencer is that he's financially free through passive investing in multifamily, but also other asset classes. So we're going to talk about this particular journey to financial freedom, how he did it, why he did it, and what kind of asset classes he had invested in, and what he kind of sees as the outlook for the market moving forward in 2023. Before we get to that, though, I'm going to give it a shout out to Brent, who's left us a review on Amazon for the Yellow Book Financial Freedom with real estate. He said This is a great book for someone who's just starting out in real estate investing. Fantastic. What I'd love to do is anyone who reads Rich Dad, Poor Dad, I want them to read the yellow book right after it because Rich Dad, poor Dad puts this idea in your mind that you can become financially independent, but it doesn't really give you the playbook for how to do it. And of course, the reader is left to their own devices. And I like and goes, Well, I surely must invest in single family houses. And that is not true because you can't scale it. It's a very active form of business, but multifamily and apartments is, and you can do it without experience or a lot of money in the bank. And so that book that Brent talked about is financial freedom with real estate on Amazon. So if you have not checked it out, definitely do that as well. Want to give a student or success highlight someone who has done a deal. And it was Adam Nort. He closed 26 units in Cincinnati for $1.3 million. It was his first deal. He was working with a full time syndicator, his name is David Kamara. And David owns $105 million in real estate over 1000 units. And Adam has the ability to work with him through our mentoring program, where we attract high level syndicators, very successful, who want to help others not only do their first deal, but quit their job like they have. And David Kamara in turn was actually a mentoring student literally two and a half, three years ago. And he's done, did a deal did two quit his job and now has done a number number of deals. So if you're interested in our mentoring program, check it out. It's at the Michael blank.com/mentor And just schedule a call with us. It's a really no obligation call that creates clarity for for what you want in your life and how investing in multifamily could help you achieve that goal. So check it out themichaelblank.com/mentor. With that, let's bring on Garrett our co-host Garrett Lynch. What's going on?

Garrett Lynch: [00:03:29] What's going on, Michael?

Michael Blank: [00:03:30] You know, you know what's going on right now. You're constantly looking, looking at deals and and sourcing debt and things of that nature. What do we what are we seeing with regards to deal flow right now?

Garrett Lynch: [00:03:39] So we're seeing deals come up that I never thought I'd see, honestly, which is which is kind of cool. So we're we focus on, on certain markets and and one of the markets that we never really see deals in, they're starting to pop out and there's quite a few deals that we're seeing. We're seeing the volume hike up, but a lot of the deal volume that we're seeing are more distressed assets. So there's people that are definitely feeling the pressure, the market and they're starting to offload. So we're seeing we're seeing a lot of those challenged properties, a lot of them are overlooking, but there are some good ones in there, owners that have owned for decades even. We're seeing some of those guys look look to sell right now, which is is pretty interesting.

Michael Blank: [00:04:26] So deal flow is up, which is interesting because after the interest rate hikes and inflation this time last year, when the market collapsed after February, March of last year, I mean, it pretty much dried up because lending went away. And so and then there was this giant gap between sellers and buyers and very few actually traded hands because of that. So you're saying that deal flow is coming back and you're seeing some distressed operators. Explain why there might be distressed operators, what's going on right now that creates that situation?

Garrett Lynch: [00:04:55] Yeah. So a lot of it has to do with the pressure of interest rates rising. There's people that they saw it hit the top of the mountain and they don't maybe they bought early enough and they're like, there's still profit here to be made. I want to sell and let's take some of that profit now. They think things are going to get worse. Maybe there's a crash or something like that, so they're going to come to the table. There's others that maybe have loans that they need to get out of, and so they're looking to sell just to get out of those loans. Or they see that they're you know, they're struggling with operations and they've run out of cash to continue those operations. And so they're like, hey, let's just get what we can. Those are the main things that I'm seeing right now. And when we were at NMHC, we were hearing that there was going to be a lot of new deals hitting in Q1. And and that's that is the case right now. There's a lot of people that are just coming to terms with, hey, this is a good time for us to to unload and let's do it.

Michael Blank: [00:05:53] It's interesting because we kind of forecasted that late last year because of the rise in interest rates. And we're in an environment now where as operators, we're playing both defense and offense at the same time we're playing defense because we have to deal with rising interest rates like everybody else. The difference is between the good and the not so good operators. The good operators have the cash flow to sustain it. Now maybe their distributions are going to go down the returns and the cash flow and cash and returns going down, but they're not going to be in any kind of distress. But what's happening now, we're starting to see now is a lot of the operators that are not as good as operators where the cash flow was skinny before they're going into the red and they're running out of cash. And the problem with that is they can't refinance because they don't have the NOI, they don't have the occupancy. And so their only option really is to sell quickly and it's not happening publicly. They're not getting market for it. There's going to be off market and it's going to be very, very distressed. So it sounds like we're starting to see that. So I'm actually really excited about the rest of the year because it might present some opportunities for us as well. This is why. And we'll talk about what Spencer the opportunity this year is pretty staggering. So Spencer is a great interview guys with Spencer. He's been around for a little while. He's become financially free with with real estate by investing passively. He had a high earning job in a high tech company, he and his wife and his wife. And we talked about how he got into it and what some of the investments he made. Is it a mix of cash flow? Is it growth? What about the tax implications of that? What did he invest in? Why does he like certain investments? Does he like turnkeys? Does he not like turnkeys? What about other things and other investments as well? We get all that into this bantering session with Spencer. Let's get right into the interview. Spencer, welcome to the show today.

Spencer: [00:07:30] Michael, Garrett Really great to be back. Thanks for having me back on.

Michael Blank: [00:07:33] Yeah. Last time your show was in 2019, it was episode 186 and actually I think you still had a day job at the time and you talked about certain financial goals and you wanted to achieve them by investing passively. And you have now done that. You've achieved financial freedom by investing passively. So we want to understand that a little bit, kind of give us an overview of what kind of go deep in there, how did it get started with real estate and passive investing? How did you get started in that at all? Because most people invest in stock in the stock market.

Spencer: [00:08:04] Yeah. And this has been such an incredible journey. You know, even hearing you say that, Michael, from 2019 to now, that was a quick blur of a four years whiz bang version of my story. I was in technology companies, tech companies for 13 years, similar to you, Michael. And so I went through that journey, never expecting to go work in Silicon Valley. My dad was a real estate broker. I used to be embarrassed to say that. So I grew up in a real estate household. That's what scared me into tech, you know, I was cleaning out old fridges and rentals and working open houses for him. Growing up in that lifestyle, it did go through a really rough patch back then. I won't go way into it, but I'll just say that my whole family went through like what we call the dark decade when a bunch of tragedy hit the family. Lost my younger brother, parents got divorced. I won't go super deep on this to bum people out, but I'll just say that hardship of any type makes us all pay more attention and it sinks in. And what I learned from that journey and I hold on to these learnings now as a dad with two young kids and we were just chatting about this before we hit record today, Michael and sitting not at home, I'm sitting about to take my kids to Disneyland for the first time tomorrow, which is one of the benefits of investing passively as you have more mobility. But at the end of that tech journey, I realized after grinding it out 18 hour days, all those stories we've all heard about in Silicon Valley, I've been at five different companies making great W-2 income. Jennifer, my wife and and co-founder, she she had her own career, her own income. We were burnt out. I mean, we were trying to find that, you know, Silicon Valley lottery that everyone seems to cling on to when you work for that early stage company, get the big Google exit. And ultimately, that's just not how it panned out at that time. So when you and I first connected, I was going deep down this rabbit hole of Man, can I go maybe buy a rental? You know? So I knew enough to know I could go buy something that generated passive income. But as I shared in 2019 with you. And just give the CliffsNotes. I look at it in hindsight, it's clear, felt very unclear at the time when I first started doing this back in 2016, but bought a local rental. It was more work, low cash flow, 430 grand in Vallejo, California. Still have it now. Great appreciation. Still low cash flow, 200 bucks a month for 430 grand is not a home run by any means, you know.

Michael Blank: [00:10:19] So I did hit the software lotto. Right. And so because the company I joined a web methods actually went public. And it was and I realized, though that it was a lotto like it was a very unusual, rare occurrence. And I was going to do it again. And I was like, like you? I was like, Man, I don't know if I'm going to work another 12 hour days for next four years for the possibility of some kind of payday. But unlike yourself, I plowed all my money into restaurants, which seemed like a really good idea at the time. And at least you plowed into some rental property, which is, of course, you know, not that great of idea and either but vastly better than restaurants. But as you got into it, right, and you're like, Man, what should I do This thing isn't really producing a lot of cash flow. How did you educate yourself about what to put the money in?

Spencer: [00:11:00] I devoured content and I listened to, at the time upwards of 400 plus podcasts in an 18 month period. I got the bug so bad. Michael And your podcast was one of the top of the list. You know, I was I was really engaged with it. I was like, Wow, there's a different way to do this. I read too many books flat out. I'll just say too many books beyond the point of education into procrastination, right? It was like 24 books or something in a 18 month period, a little bit over the top. But then I was actually ushered into a this is my last W-2 gig and I left in 2019, ultimately very, very end of that year. I mean, at the same year you and I recorded that podcast, it was ahead of schedule. I was working at a at a fixed and flip tech company lender. It was all those things in one. So I saw all these different investments that people were making and we were helping them make them and fix and flips. And I was like, I can't swing a hammer, like I hurt myself. If I do that stuff, I'm not handy. Jennifer's more handy than I am not ashamed to say it. So all that to say I was like, where's more predictability? Where's more forecastable? Big, big, you know, business plan, business operations, style investing. And then I looked at, wow, let's look up market. And I found your education, frankly. I mean, I found your program. I remember purchasing the the first it was one of the first versions, if not the first version of the syndicated deal analyzer. And you know, Michael and I, by the way, didn't say didn't talk about any of this ahead of time. I didn't tell me to say that. And I'm just sharing it because that's what happened. Like I bought the damn thing and it was super helpful and educational. And I was just deep down that rabbit hole of saying, I want my money invested in something that produces cash flow better than 200 bucks a month for a $430,000 purchase price. And even after buying turnkey rentals, we got it to a portfolio of five turnkey rentals in the Mid West, which was fine. Better purchase price 60 k A pop is mind blowingly cheap for someone sitting in a coastal market of any type 250 bucks a month in cash flow. So flash forward, we started investing in these bigger deals and I was like, Wait, I don't have to do any work, don't have to even manage the property manager, which is semi-passive at best. Even I'm not I'm not against rentals overall, but I'll just say there's no such thing as a fully passive rental. You know, we've since sold our rentals except for that one, that one first non home run. It's appreciated. But beyond that, we came into a place, Jennifer and I, where we're like, This is a system, you know, if we really plan this out, we can invest over time. So we started carving out chunks of 25 K 50 K eventually bigger amounts. We'd saved up money from our tech careers and ultimately started to get some momentum. And one of the first deals that we exited full cycle was actually with a Nighthawk deal as well, and we were very pleased with that outcome. Mean it was like a three year old period, you know, and over like a 22. early. I can't remember the exact. It was like 2.2 or 2.3 equity multiple in that period of time, mind blown at that point. And we just kept on doing it while finding ways to also add value to others too, because I was sitting there going, I know so many people in my network and I'm sure you do too, Michael, where they're still in that machine. I don't want to be derogatory. I had a great W-2 career and I learned a lot, great relationships. But my goodness, people hustling hard for years without an exit strategy of any type, dropping money into investments. And so I thought cash flow was key so we could de-risk our own lives and build a moat around our life, you know, get more flexibility, you know.

Michael Blank: [00:14:26] In defense of so many other people. I had my money, my IPO, millions with Morgan Stanley at the time. Right. And I was like, man, I'm going to let my I let the professionals handle my money. Right. That's literally I could I got the statement. I didn't even look at the statement every single month. Right. And I think most people that have money to invest, that's exactly what they do. They hand it to a financial advisor and they think that they're actually looking out for them. And in hindsight, I'm like, Holy cow. All he wants to do is churn stuff. So he gets paid commissions. Like it's like it's incredible. So there's a lot of comfort and a lot of. Fear with alternative investments, which is syndication is an investment. How did you and Jennifer overcome that fear? Right. Like in your mind, you had a conversation, Hey, we got some money, invest and I don't know, maybe it's not the stock market. We should try some crazy stuff. Like, how did that go?

Spencer: [00:15:11] That is very much how we thought about it. Right. The crazy stuff comment is is making me chuckle because that's how we were sitting there trying to wrestle with it like a lot of us. Right? It sounds crazy. And you get the reactions from friends, get the reactions from family, and they say, are you out of your mind? And that's right. But it's just what we're all conditioned to do. I was so proud of my 401ks, right? I was so proud of dumping and maxing out money for years in 401k's. We'd sit there and celebrate those things. And I'm a big fan of frame-working, I think. I think in our conversation back in 2019, we might have talked about this a bit, Michael, but I love being able to make smart decisions even better. If you can make smart decisions with some speed if you need to and you have to sometimes, right? And in tech startups, that's what I learned from people way smarter than me, man. How do you framework it? So we put together like a framework for ourselves, for our own money, and we were like, if we find deals that meet this framework and some of some of which inspired from the frankly, from the FDA and the teachings that I got from you and from from your program. And we look at it like this, it's a five part framework. We still have these bullets now, but we've built out a lot more structure around them. Who's who's got the deal? You know, how do you de-risk? Who's managing the deal? If we're not managing it like a rental anymore, who's managing the deal? Where where's the market? And then, of course, the business plan. I didn't come up with those three buckets. The real meat is the five that we have beneath that, in my opinion. So we look at the track record, the approach, the team, the communications and the values. That's how we got more comfortable. And I have a very nerdy spreadsheet beneath that, of course, with, you know, baked out with 70 plus questions and criteria. And just to give you a sampling of like the ones I think are most important to me and Jennifer, before we can really get comfortable with this stuff was like same principles from entrepreneurship and tech. Failure response is kind of nerdy branding, but I like it a lot. It's like, has someone been through a really, really challenging time? If they're managing a deal, if they're going to be managing an apartment building and I'm holding shares in a piece of this big building, I couldn't buy by myself. Like, have they gone through a really, really challenging experience and come out the other side? Because none of this is easy for the manager, right? Even in a great rising tide market, I assume there's going to be hardship, there's going to be headwinds, it's going to be tough. And so that those are the kinds of questions we have to ask just to get ourselves comfortable with it. Of course, all the numbers, you got to understand how to read a spreadsheet. But like it really it comes down to that, that who and like are they able to go and operate? If I'm investing in a passive deal with a repeatable business process that if I had to boil it down to got the track record. Sure. Anyone who's done something, whether it's me playing my hobby guitar, used to play more metal and punk rock back in the day and I performed it for my kids. If I'm trying to learn a new technique or learn a song, if I've done it enough times 100 times, I've got a process to learn that thing now. Same thing goes, you know, with an apartment building. Way harder to do, you know, such as you guys in the Nighthawk. Like you get through enough cycles, you can build repeatable process. And so that was the great equalizer. I had to say is we sat there and made a framework and decided if we find deals that meet these criteria, we're ready to pull the trigger, assuming we have the capital ready to deploy, you know. And so I get excited to talk about it because I feel like it's been a labor of love getting it to the point where we can have confidence in it to that degree. But yeah.

Michael Blank: [00:18:38] If you want to work with a full time syndicator to help you get up to speed faster, get your first deal done this year and scale your portfolio so you can quit your job. Then check out our mentoring program that's at themichaelblank.com/mentor. It's the only program out there that actually guarantees results. That's right. We actually guarantee that you do your first deal in the first year. Otherwise we'll keep working with you and set up a strategy session call and explore whether it's right for you. It's themichaelblanc.com/mentor.

Garrett Lynch: [00:19:10] What created you to build this framework? And then how do you get the right answers out of some operators to actually get them to emit like some of the tough failures, tough losses when when you're interviewing them so that you feel comfortable moving forward?

Spencer: [00:19:25] Yeah, I appreciate you're asking that, Garret, because that's like where the rubber meets the road, right? When you're getting to know any other human being, whether it's in business life, whatever, I think it comes down to not hitting them with an interview. Like a job interview, right? Like, these are human beings working hard. I don't want to come in and say, Is everyone prepared to answer my 70 point. 70 point list of questions? Exactly. No one wants to get slapped with that verbally, right? I don't. And I've been on both sides of the interviewing table in my prior life so many times. I know how it can feel in the end, being respectful to the core in timetable. Like if you ask for something, be reasonable, but also if possible, try and get face to face with them if you can. Even on a Zoom call, I mean, just like this, you know, if we can connect face to face, even if it's virtually. Build some rapport, get to know them, and then also show them an indication of seriousness in any way, shape or form by like letting them know, you know, your own track record as a passive investor to. I'm so proud to say we've now deployed over seven figures of capital into deals, and that's across a lot of deals. So it's not like we're doing it in the abstract, purely just to kind of say, hey, you know, hey, operator, hey sponsor, tell us all these answers to these questions so we can never see you again. It's like, let's go build a relationship ever deepening. But at least starting on that first call, just saying, here's what I'm coming correct with. Like, here's how we view deals, sharing how we view deals, sharing why we're asking these questions. And one other example I'll give you as well, Garrett, is a question that has actually prompted us to not go forward with a particular sponsor and it might feel out of left field for some folks. Is that on values, it sounds all squishy, but it's not squishy to me in the sense that it's really just more behavioral interviewing. Like if I'm going to say, tell me about a time when those wonderful, terrifying questions that we've all gotten in job interviews at some point or another. You know, if I'm asking a sponsor to get to know each other and I'm like, Hey, like, what's your philosophy on tenant experience? You know, like, how do you know your tenants are taking care of in that building? And we walked away from one sponsor because ask the same question a few different ways and very nicely. And all that they would want to do is change the topic, you know? And it was like maybe for some people that and it's absolutely fine if they don't agree with that. But I think making sure you give people the chance to answer in their own way, but eventually they do have to answer the stuff that really matters to us. And, you know, whether it's failure, response, if they haven't been through anything really hard, it doesn't even have to be from real estate. Tell us about a time like tell me about a time when you've been through something where you were like you thought you were about to fail out in a different entrepreneurship venture. And Michael, I appreciate you earlier sharing your story from the food business restaurant business. I mean, you better believe I would count that as a valid story. Are you better? Yeah. I mean, come on. It's that's just crushingly challenging.

Michael Blank: [00:22:21] In my chest, let me tell you. Oh, my gosh.

Spencer: [00:22:24] In the food industry is no cakewalk.

Michael Blank: [00:22:27] It's funny. It's funny. It's funny that you mentioned that one question. I sometimes reference that one question. I don't really care. Not so much that if you're a new syndicator or not, but I do want to know the same thing. Have you been through really hard times? Because if you have not, you're not going to be able to deal with that level of stress and it's going to impact your ability to make decisions. So that's an interesting that you highlighted that. But I'd be curious, Spencer, what are some of the alternative investments you guys invested in or looked at and just kind of go through the list with maybe some pros and cons? Because I think a lot of people are going to be interested to see what what have you looked you talked about turnkeys. Let's start there. Right? A turnkey it's a great. So you get the rental property. Okay. Okay. We get the rental property. It's not so scalable and the cash flow kind of sucks. Okay, next. And you got, you know, it's very active. Okay. Next, of course, is turnkeys. What's the problem with turnkeys, if there is one?

Spencer: [00:23:15] Yeah. You know, and I'll try to do my best kind of version of a mental pros and cons little chart because I'm that kind of nerd turnkeys. Well, they are what they they should be what they claim to be. Easy to buy, easy to manage comes with a property manager built in, comes with the tenants leased. Well, what happens on the flip side of that chart when maybe that tenant is not so, so easy on that property? Do you want that tenant leased? And turnkey is oftentimes you will find are going to be based in C class and C class is a fine asset class, whether it's single families or otherwise. But, you know, folks just need to think about really looking at that neighborhood. Is it a D+ in reality? You know, is it not just the C because when the rubber meets the road, no matter how much I tried to de-risk remotely, I didn't fly to some of the turnkeys that we bought. I even paid for a company to go and visit remotely in person, take videos of the block, really get in there and thought, okay, there's a little bit of a a little a little bit of concern, you know, not a red flag, yellow flag, but turnover every year kills your financials, right? I mean, like one tenant, one property, they leave 0% occupancy. Then you've got the turnover cost because the property took a couple a couple dings and then for no reason, the tenant puts a couch out on the front yard, which causes the city to fine you and then you're getting mail out in a different state for no reason. And you have I could go on and on. You know.

Garrett Lynch: [00:24:39] This was like, this is pretty funny because not funny, but I this is how I learned the business was was this essentially I owned like turnkeys like but in declasse neighborhoods. So you had the element of crime on top of it. And it's like even if you rehab the entire site, let's say you do, you know, it's a three flat and you, you do all three units and you have to put Section eight in there. They don't care if they destroy your site. And then then you have all those costs when they leave. So it's like, why did you even rehab it in the first place? It's not really enough to call insurance over and you don't want to do that. So it's like it's never ending really, when you get to that and then having multiple sites everywhere, even if you bump it up in a C class, you're still you're still. Dealing with those types of issues.

Michael Blank: [00:25:27] So it's the turnkeys aren't really that profitable. They're not really that passive either. Now, obviously, you looked at multifamily syndications. We talked about what else have you invested in or looked at?

Spencer: [00:25:37] Yeah. And so to run down the list and then we can dive into whichever one. Yeah, it's interesting because I find them all pretty interesting in their own ways, right? But I would say beyond multifamily, very big focus on like self-storage over the years. We looked at a little bit of mobile home park. What else have we done? Medical office. You know, so I think beyond that, we've done even a little bit of crypto. Feeling that now we'll go further into that. Still have it. Still a long term believer but feeling it now and then niche like really other strange niche stuff that you guys are probably familiar with but maybe some folks are not because I wasn't a few years ago, like ATMs and I've looked at others, gotten very close to pulling the trigger on on industrial. Got very close to pulling the trigger on data centers but ultimately have kept the things that I really taken the time in my own mind to feel like I can say I know this well and every time I violate that principle, man, do I pay for it? You know, that's a.

Michael Blank: [00:26:37] Good point. It's a good point. I mean, it's like data centers. Perfect example, right? How do you break into a new asset class? I mean, let's talk about let's talk about that because data centers are wildly profitable from what I've heard. Okay. But you're right. Would I invest blindly in data centers? I'd be like, no, I don't really know anything about them. So what is your process now? I know you talked about interviewing the operator, so we covered that already. But when you were breaking into an asset class, what do you do? How do you go about investigating that asset class to the point where you either say, no, not for me or yes, let's go.

Spencer: [00:27:05] Yeah. Oh, that's a fun question. I think goal setting not to be abstract at a high level, but drill down quickly. What's the goal for the money right now?

Michael Blank: [00:27:14] That's really important.

Spencer: [00:27:16] Like. Like, what's the goal for the money? Man, I wish I had heard that earlier in my investing career. Right. Because some folks, particularly in 2023 right now, they are so laser focused on expectation means that they have built from the past 3 to 5, seven, eight years. You know, they want they still want that high growth with risk adjusted profile and they want big growth and big cash flow. And I'm sitting there going, hey, me too. I think I think everyone does. But if I'm looking at something, whether it's self storage or mobile home parks or whatever or data centers, I'm sitting there going, okay, what are the core fundamentals of cash flow versus growth? And some combination in between maybe with some other conversation on tax and don't like to overcomplicate it Beyond that until I've answered that question first is do I want our capital to help us produce any form of passive income? Or are we comfortable saying, you know, screw the sorry, the passive income, just the growth is fine, don't need any cash flow, okay. With some tax benefits on top of that. But we just want this money to grow and I struggle with that. Still, I don't think that ever is going to get easy. And maybe you guys have an answer on that that I don't have. But I think goal setting for life is the first order of business that Jennifer and I started with back. And this is back in 2016 before before I even started learning alongside the resources and education that you and your team provided. Michael was like sitting there and going, Do I want cash flow for cash flow sake? Everyone says I should care about cash flow. Why do I want growth for growth's sake? Why ask a new member of our investing club like, Hey, what are you trying to do? You know, like we did our own thing. We have our own goals. But what are you trying to do? And they may take months to answer that question. And sometimes they do. And so you have to start there. Yeah, it's.

Michael Blank: [00:29:02] A good point because high cash flow means that your money is coming back. You're not going to reinvest the cash flow, so it'd be better to use it to maybe, I don't know, buy something or offset your living expenses. Growth is basically compounded, right? So you got you have that and and finding the balance between between the two you have there's for example, debt funds out there. You can invest in debt funds. They just give you basically a straight 10% return, no upside at all. So that's really cool for cash flow. It doesn't give you any depreciation, right? So you want depreciation. That's not going to work. Multifamily is better. But even like, for example, oil and gas and if you looked at that, but that you can our understanding is that the tax benefits is that you can actually offset your active earned income with the losses of off the investment like stuff like that. Right. But of course that's super high cash flow and not really appreciation and growth. So I think it's a it's a really good question to ask. And you're right, there probably should be a mix, there must be a mix.

Spencer: [00:29:57] And there must be a mix. And also I want to give some real numbers to folks, if I can From our time we started in 2016 really educationally and this stuff getting deep, buying rentals, etcetera. We connected on your podcast 2019. At that time I was still working Jennifer, my wife and a co-founder of our investing club. Like she was still working. She ended up leaving in her job 2021 and then, you know, now we're fully, fully passive, able to do what we want and work actively if and when we want. But the journey that no one can tell you about, and I wish I could go back in time and just say this to myself is okay, you guys set out and at the time I shared it with you in that podcast. Michael We had like $8,000 a month goal for a full passive, right? For some people that's tiny, good on them. You know, I'm not looking for a jet over here. I'm just trying to figure out how we can be a great dad, be present with our kids and live life fully. For some people, that's massive. But that was our number at that time. So what did we do? Well, we wanted to find a balance of cash flow and growth At the time, we could find pretty darn good equity multiples, right? We could we could exit like on the Nighthawk deal that we exited along with you and your team over to Equity multiple and do that in just a few short years. Now that said, before we hit that cash flow number of 8KA month, which we've now hit and I'm so excited that we've hit it and I can't kind of pinching myself. We thought we were going to hit that number 15 years out and that was the goal that we had set in 2016. We gave ourselves a long runway, a no excuse runway, and we said, as long as we plan this and we stick to the slow wealth plan, we're going to get to that number. It was too slow. Within about a couple of months, we had another goal setting session. This was back in 2016 and we were like, Cut that number in half. How about seven years? We ended up hitting it in about five, and I wish I could go back and say to myself, set the goal and then just start taking action toward it. Because what's going to happen? And I promise anyone out there who is like sitting there going like, Oh, I don't know, it's like 20, 23. And it's I'm hearing these headlines. It's nerve wracking. I'm like, I promise anyone that is in that head space and they haven't done any of this passive investing stuff, you don't know what you don't know yet. And that's not a bad thing. What that means is that you're going to get into module two and you're going to realize with more clarity every single additional time you invest, just like we did, how to get better at goal setting on this stuff. But you won't benefit. Like we never would have gotten to this point where I can speak with clarity about this stuff unless we just gone through and done the damn thing. And so I know we're not talking chump change, you know, like, I don't want to make it sound like I think of 25 K as a small irrelevant number. It's not I know there's some big, big, very successful folks out there who think of that as as chump change for anyone. That's still a meaningful amount of money. Right? But we had to get started. And so I didn't want to give you too much of a soapbox on that. But I really, truly believe that, like if I could go back in time and just say, set your criteria, make a decision, vet the people, and then as you ladder up and the capital comes back to you from exits, whether it's multifamily storage or otherwise, I mean, I don't see a need to deviate from a target mix in our own personal portfolio of at least 50%. This is this is a fact. This is like our target portfolio for our own personal capital is at least 50% multifamily. And the reason that's not changing, regardless of the context of the market, is because the housing demand is there. It's not going anywhere, and it's got all those fundamentals of the entire asset class that I loved in the first place. This is a this is a long game and we're in a short moment relative to the big picture. So I didn't want to preach too hard on the multifamily thing.

Michael Blank: [00:33:32] We'll wrap things up there. But what is your outlook for for this year just in general, multifamily, right? I mean, obviously, like you said, hey, we're not getting the returns we got two years ago or even maybe even a year ago. You know, you're not got the high cash flow, high appreciation and zero risk anymore, you know. So what is your outlook this this year for multifamily, some of the investments that maybe that you're in as well as some of the. Opportunities that you might be looking at.

Spencer: [00:33:57] Yeah, there was a brilliant quote and I had, gosh, I wish I could give credit to the person that said this. It has served me so well since I heard it about 3 or 4 years ago in an investing meetup. There's no such thing as bad assets. There's only bad prices. And I think that that is a fundamental, helpful compass to think about where we are right now. For any investor who's really trying to wrestle with all these darn headlines that are frankly kind of confusing and overwhelming for everyone, right? We've all been getting access to interest rates and cheap money, basically, including businesses, tech companies. Et cetera, real estate investors. Beyond what I see is and I sent this in a letter actually out to all of our investors in our investor club. I said there's three things that I think this year will be a focus for for my money. And I would just encourage folks to go learn more about these things because this is what I see as opportunity. Number one, unsurprisingly discounted if not distressed commercial real estate. It's not deviating from our core thesis. It's buying great assets in places with job supply and population demographics that support people living and using these facilities. The difference is now, for a variety of reasons, but largely because of interest rate rise. Some of these properties are going to be going on a discount because the person owning it might have to sell for a variety of reasons, like maybe that they can't pay a balloon payment on their loan and it's coming due. Maybe the market is softened in their specific state and their submarket. That seller is like, Gosh, but I have to I just have to leave this property. That means anyone who's partnered up with a team such as yours, you know, in Nighthawk, they can actually benefit from that moment. And so it's a time to just pay attention and sharpen pencils on the commercial real estate side. It is not the time for people to go out, in my humble opinion, and I'm not going to sit there and say, we'd better wait for when it's good to invest again when everyone says things are great. No, that's kind of the opposite of what every wealthiest person on the planet insists on and has made their money from. I mean, what Sam Zell, you know, pick Warren Buffett, pick, pick, pick whichever example you want. I mean, read the platitudes. There's truth in those nuggets. They make money when things are not great because they buy the assets at the right price. And so that was the first thing I was just going to mention. Second was debt funds. I would actually just encourage that too. But the problem is I put it second, for all the reasons that you highlighted very well articulately, Michael is like, I don't see a K1 schedule, K-1 tax form showing wonderful passive losses to offset and defer my income tax on my distributions from my investments on a debt fund. But there's still a part of a whole portfolio. And then there's other niche niche weird stuff for number three, but that's kind of the overarching comment. I think it's.

Michael Blank: [00:36:46] Interesting that you say that. I think I think we're going to see lots of opportunity in the multifamily market, commercial real estate in general for the reasons you mentioned as well. So it's it's something we're definitely looking forward to and we want to buy as much as we can when that comes. In fact, the deal we have right now is is distressed somewhat because of that. And I think we're going to see a lot more in the in the summer and later this year. But this has been great. Spencer, really enjoyed jamming with you. How can people connect with you?

Spencer: [00:37:12] Yeah. And honored to be back, you know, and be able to share kind of a full circle experience. And thank you so much. Garrett And thank you so much, Michael, for it. Folks can find me at our website. It's our investing club. It's MadisonInvesting.com They can reach me there. I'm also on LinkedIn. Took a very healthy break, but I'm very active on that again now. The passive lifestyle of, you know, traveling and stuff with your family means you don't always get to post on social media as much. But I'm back on there now, so that's awesome.

Michael Blank: [00:37:38] Well, it's been great. Thanks for being on the show today.

Spencer: [00:37:40] Yeah, thank you for having me. Really a blast. Thank you, guys.

Michael Blank: [00:37:43] Yeah. So definitely check out Spencer and his company. He does. He's a great heart. He loves educating people about alternative investments. But if you are invested in interest in investing in passive investments such as multifamily syndications, we'd love to have a conversation with you at Nighthawk Equity, which is our investment firm. Just head on to Nighthawk equity.com, click the join button and schedule a call with us. Once we get to know each other, we can present you with some upcoming opportunities and we're always looking at opportunities. So definitely check us out at Nighthawk Equity if you're interested in passively investing. But the thing for me, Garrett, is that there's so many people that invest in the stock market, right? And like, like when I had money to invest, I just handed over to my financial advisor until one day I woke up and I was like, Man, something is not right. You know, I'm paying too many taxes. I'm getting my 7 or 8% appreciation. But there's a lot of volatility and it really ruins some of my financial plans. And I wasn't getting cash flow, but the day I fired my my financial advisor was scary. It really is scary because you just rely on a person and you put it on them to take care of you. And actually they don't really take care of you. And we saw with Spencer down in five short years that parlaying not only the money that he started with that he had in the stock market, but reinvesting the proceeds from that is a snowball effect that within five years literally is covering his living expenses and he doesn't have to swing a hammer. He doesn't have to find deals and and put deals together is simply taking the money you already has, putting it in investments wisely. And does it take a little extra time? Yes. But should the average stock market investor actually look at whatever they're investing in and ask some questions around what the money is going into? They should, but no one does. So it takes a little more time to educate yourself about alternative investments and maybe to find an operator or two. But it's not like you're it's not like you're looking at 12 investment classes. You're not you're looking at 12 operators in each class. So there's a little extra time to have. And he put the time in and now he can reap the benefits of that.

Garrett Lynch: [00:39:45] This is just society when you're when you're going through society and the education system and everything, you get out on the other side. I remember my first advisor was like a life insurance guy, right? And I always felt weird about it. I'm like, why am I why am I investing in this when I'm not going to have to break even at year seven and whatever? And I'm young and maybe it was a good thing at the time, but it was so slow. I'm looking at it and I'm like, This is so slow before this turns into anything. And that's just how society's kind of set up. And then you don't really even know the questions to ask these financial advisors to see if they're taking advantage of you or what the deal is like, like or even maybe how it all works. Like how much how many commissions are they cutting themselves in on that are inhibiting you from getting to where you need to go? And and so the whole thing is set up weird. And I think based on this interview, it's, you know, Spencer went through something very similar. He was just like disgusted with all that stuff. He's like, this isn't this isn't fast enough. We need something speedier and we want to be safe about it. You don't just want to wing and throw a bunch of money into some a bunch of tech investments and hope that, you know, you're going to strike it big on that side. You want to look at risk adjusted returns. And so I really liked how he came up with a framework to figure out what that looked like and that that was something that was unique. Or he's like, I'm a big fan of frame working. I'm going to back into to where we need to go based on what the goal is with the money.

Michael Blank: [00:41:24] Yeah, I like that. I like that as well. But you know, most people are their strategy is to try to accumulate and save their way to that. But, you know, when you live by the 4% rule, which says that you shouldn't sell more than 4% of your assets, and if you can do that, your assets will never get down. But if you may want to make 100 grand a year, okay, that's after tax. Okay. You got you got to invest $2.5 million. You have to have $2.5 million of savings in our investable assets. Now, who in America has that? I think I looked it up a little while ago. I think the average the average investment by the time people are 65 or like $80,000. Okay. That's the average. The median is right around the same thing. Okay. So the average American is not going to save themselves to financial freedom or even retirement. They're not going to it's not it's literally not possible. And so you need another solution. And the solution really is alternative investments. And what I love about Spencer is he had the courage to pull money out of the out of a stock market. And did he maybe spend too much time listening to podcasts or reading reading books? Yeah, because it's kind of scary. Okay. But once you invest and the advice I have is just, you know, stick your toe into an alternative investment, Typically they're, you know, $50,000 minimum, let's say, you know, find a good operator that you jive with like Spencer was talking about and make the investment. You're going to bite your nails all the way through, you know, and then you're going to see. Oh, gosh. You see how they communicate and see what happens.

Michael Blank: [00:42:45] You see the cash flow come through and then, you know, two, three years later, there's an exit and you're like, Man, this is unbelievable. And so now you're in. You just have to get into you have to just have to get started. So again, if you want to invest passively, we'd love to help you there. On your journey to financial freedom. Check us out at Nighthawk Equities.com And to me again, what Spencer said is we're going to have an amazing opportunity this year. So I think this is a really good year to get into it. And I say that all the time. You know, two years was a good time to get into it. A year ago was a great time to get into it. You know, as an operator, we talked about where some pressure on right now because of the rising interest rates. And we talked about that a little bit earlier in the podcast. And the good operators are going to be fine. If you look at the holding period of five years, what you're going to find is that the cash flow distributions might go down for a period of time. Okay, then they'll go back up the IRR, though the overall average return is still going to be there. So there's no need to panic. A lot of people panic in a stock market and they sell at the bottom and then they get back in at the top. Okay, we're not doing that here. We're looking for a compounded return. So I'm really looking forward to what this year has to has to offer us. And we'll keep you posted right here on this podcast. Catch you next time.

Outro: [00:43:53] Thanks for listening. Take the next step toward financial freedom by checking out our Freedom Vault, where you can find free resources to help you with apartment building investing. Whether you're an active investor, just starting out or looking to scale your syndication business or looking to invest passively, head over to the Michael blunk.com/vault to gain access to our freedom Vault.

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